SA’S HIDDEN POWERHOUSE: CHANGING OUR MINDSET ABOUT INVESTMENTS AND THE INFORMAL ECONOMY

Dismiss the informal economy at your own peril – the sector is proving to be a trillion-rand micro-economy that challenges official unemployment figures in SA.

A much-needed uplifting message…

I consider myself an optimist, and I try to focus on the good story rather than delve into the negative aspects of life. At the same time, I try to maintain a realistic outlook because life, unfortunately, is not always a bed of roses. Sometimes, however, one needs an outside perspective and a reality check to understand a subject that you thought you knew better.

Over the years, I have fallen into the trap of undervaluing the importance of the informal sector in the South African context. I also formed my own mistaken perception of South Africa’s devastating unemployment.

My perceptions have shifted. At a recent conference, GG Alcock enlightened me and fellow attendees with some astonishing facts.

But before I start my story, we must not be ignorant or believe even for a moment that South Africa is not in trouble. Quite the opposite. With a GDP just barely turning positive, debt to GDP soaring to dangerous levels, productivity and education in decline, widespread corruption, and a negligent government, there’s a lot of work ahead. Still, South Africans are resilient and know how to endure. Nothing shows this better than what is happening in our informal economy, which includes black townships, rural areas, and squatter camps.

Kasinomic Revolution: Taking informal economies seriously

GG Alcock is the author of Kasinomics and Kasinomic Revolution, among other publications. He describes himself as an activist (advocating for the rights of underprivileged black people), a community worker, an African adventurer, and an entrepreneur. GG has also owned a shebeen and speaks Zulu fluently. He has firsthand experience working at the grassroots level within the informal sector, where he interacts regularly, and he is involved with different organisations where statistics and economic information from within the informal community are shared.

How accurate is the official published unemployment figure of 33.2% (published for the second quarter of 2025)? Furthermore, how accurate is the expanded unemployment rate, which includes discouraged work-seekers, quoted as 43.1% as of the second quarter of 2025? This is a figure I regularly referred to in the past when discussing unemployment in SA.

Gerrie Fourie, the CEO of Capitec, recently commented that the unemployment rate in SA is much closer to 10% than the quoted 33.2%. He was criticised for this comment, but GG seems to agree with Gerrie. Why do they believe this?

As we know, Capitec built its business model largely on servicing the unbanked community. This includes the informal sector. We know how successful Capitec is, so I think we can listen to Gerrie, their CEO. Interestingly, Gerrie and GG share a very similar opinion. An opinion based on facts suggests that the informal economy and the buying power of the informal community are grossly underestimated.

The official unemployment figures quoted by Statistics SA attempt to include the broader community by sampling 30 000 households by way of the QLFS (Quarterly Labour Force Survey). Their definition of unemployment is measuring the percentage of the “economically active population that is unemployed and has actively sought work or self-employment in the four weeks prior to the survey interview”. After considering all the facts that GG provided, I question how accurate the survey and Stats SA figures are. More importantly, how many people who are not formally employed are excluded from the statistics?

Question: “Is a hawker and the lady who bakes vetkoek on the corner in the township employed or unemployed?” By Statistics SA’s definition, they are unemployed. In reality, they are entrepreneurs who earn money and contribute to the larger economy. They are not beggars.

Conversations on the fringes

GG commented that during his “wanderings” and discussions with many vendors, hawkers and quick-food providers, it became clear that most of them do not want formal employment because they earn more doing what they are doing than what they earned in formal employment. GG made a specific reference to the “Vetkoek mamma” who earns R 2 000 per day by selling breakfast vetkoek and lunchtime eats at a taxi rank. She is a qualified teacher and has no intention of going back to teaching. Her story is more the norm than the exception.

Consider the following facts and figures. Don’t let “squatter camps” and media blur your vision of the informal sector. Most people do not live in shacks as is commonly perceived.

• The common perception is that the majority of informal residents live in “squatter camps”. The fact is that within the informal sector, 13% or 2.3 million people live in informal households (shacks), while 84% or 16.4 million live in formal households (normal households) and 3% or 766 000 live in traditional households (rural areas).

• Properties are bought and houses built with cash.

• Rural towns are booming with house values exceeding R 1.5 million. PPC have found pockets of resilience in the informal sector, with demand rising.

• Households are growing by 3% while the population is growing by 1%.

• There is a distinct move to formal housing.

• It is estimated that the “Amaroomi” rental sector generates more than R 30 billion per year. There is a massive growth in micro rental units. Cape Town Municipality have approved 12 micro units per erf.

• More financial institutions are starting to play an active role by financing properties and building in this space.

• Quality properties are replacing shacks and older, deteriorated houses.

• “Poor people” (perception) don’t want cheap stuff. They want quality and pay the price, i.e., curtains and home interiors. Forty-two percent of PG Bison sales come from the “informal” sector.

• There is massive growth in the beauty sector (the items most stolen from containers in the harbours are wigs, not a great statistic but quite funny). This fast-expanding sector is exceeding R 10 billion turnover per year in the informal sector.

• It is a unique cultural demographic, not an income segment.

• Densification and suburbanisation are accelerating.

• But two million people still live in shacks, and many are poor, which is unacceptable, but the story is much less gloomy than it is portrayed.

There is more

• Licensed liquor sales in the informal sector exceed R 110 billion per year.

• The spaza sector generates more than R 190 billion per year, mainly run by foreigners who pay more than R 25 billion in rentals per year (formal and informal).

• Bigger brands (Shoprite and Cash & Carry) are getting involved in spaza shops and offering online shopping and bulk deliveries.

• There are 12 million vehicles on SA roads, of which 9.5 million are unfinanced and 9 million uninsured. This offers the opportunity for:

  • Informal mechanics

  • Car washes

  • Panelbeaters

  • Scrapyards

  • Car dealers

Treat the informal with respect

The informal sector is a R 1 trillion micro-economy that contributes to the economy and provides income to more people than we realise. Capitec recognised this and treats the inhabitants of the informal sector (their customers) with respect. Today, Capitec is the most valuable South African bank.

Which other companies are capitalising on this vast untapped micro-economy and poised for remarkable growth?

An independent bi-annual survey is even more bullish on the monetary value of the informal sector. Their survey shows:

• There are 3 027 298 MSME owners in the informal sector who own 2 179 000 businesses

• They employ 13 430 000 workers (many who fall outside the realm of Stats SA)

• That generates a combined turnover of R 2.5 trillion

Financial institutions have now started introducing card and mobile payments. Between 42% and 60% of transactions are made today via mobile or card transactions. Transactions exceeding R 2 billion per month take place. Providers who operate in this space include:

• Katang

• Shop2Shop

• Flash

• Yoco

• Capitec

• Hello Pay

• PayShap

Capitec today facilitates 13% of their business via cash transactions and 87% card transactions with 13 million active apps.

The informal economy is powering a sluggish formal economy. Township shopping is experiencing a 13.2% increase in trading densities. Paxi Delivery (PEP) has 2 800 points of delivery mainly on township corners. Pep Stores sells 1.2 million cell phone handsets per year. There is an explosion of tech and fintech providers in the informal sector.

Eleven million people move through the Baragwanath taxi rank monthly, many of whom support the vendors. Seventy-seven percent of social grant recipients receive other forms of income.

The statement by GG and Gerrie that effectively, unemployment is between 10% and 12% seems more realistic than the 43% I previously referred to. What do you think?

As I mentioned earlier, this story is not to shy away from the problems we face as a country. My purpose is to shine a light on a completely misunderstood sector of our community. A sector that is flourishing in its own South African way and that will just keep on expanding. A sector that supports South African companies. A sector that reduces our official unemployment rate substantially.

Ignore this sector and the companies that operate within this sector at your own peril.

We are a third-world country with the most diverse community on the planet. Perhaps we should make an effort to understand our local economy (and community) and stop comparing ourselves to the US and other developed markets. We will never be them.

Now, what we need is for the SA government to make doing business in SA easier and less regulated. If more foreigners invest in SA and more SA companies utilise the massive cash holdings they hold and expand their existing businesses, the informal sector will thrive even more. Hopefully, companies will realise what impact the informal sector can have on their bottom line, just like Capitec, Shoprite, and others did.

Stay safe and live well.

Ubuntu!