COMMENT
AFRICA’S GROWING
INFORMAL ECONOMY
H
ow reliable are South Africa’s GDP growth
statistics? Certainly, those that relate to
employment levels should be taken with a
pinch of salt. One statistic we frequently hear
is Zimbabwe’s 95% unemployment rate. This unscientific
statistic gets regularly trotted out whenever someone with
an agenda wants to plunge us into depression by saying
that Zimbabwe is the future of South Africa. If anyone truly
believes 95% of Zimbabweans are sitting around in long-
term unemployment, they are deluded.
In South Africa, there is plenty evidence that the
informal economy is much bigger than we believe, and that
unemployment is probably lower than is reported. Speaking
at the launch of a new product range by PPC in late July,
economist and sector specialist Dr Roelof Botha commented
on how many official statistics of the engineering and
construction (E&C) sector are at odds with turnover by
the building material sector. Afrimat, the opencast mining
company producing industrial minerals, commodities, and
construction materials, this year announced a more than
10% increase in revenue. It had a combined annual growth
rate of 12.3% from 2014 to 2018. Today, its listed market
share exceeds the joint market share of ArcelorMittal,
Aveng, Group Five, and Basil Read — companies which a
decade ago were in some cases multiples of that of Afrimat.
Listed Cashbuild similarly increased turnover 5% in 2018
and 15% in 2017. These increases do not reflect a sector
struggling to survive.
The anomaly between official statistics of the sectors
points to a growing and massive informal market in South
Africa. Adcorp economist Loane Sharp estimates South
Africa’s informal economy at 18% of GDP. It is comfortably
outpacing the growth in the formal economy. Nielsen pegs
the annual spend through spaza outlets at one in every
R5 spent and one-third of all consumer-packaged goods
sold in the country. We’re on a par with Spain, Italy, and
Greece in terms of the informal economy’s contribution to
total GDP. The African Development Bank estimates that
the informal sector contributes about 55% of sub-Saharan
Africa’s GDP and 80% of the labour force. Lief Petersen,
CEO of the Sustainable Livelihoods Foundation (SLF), puts
the contribution to GDP at closer to 90% and claims South
Africa will in time likely mirror the rest of Africa.
Even the E&C sector is moving sideways rather than
down. According to Stats SA, the construction sector’s
contribution to GDP growth in Q1 2018 was a decline of
-1.4%. Dr Botha says it was in reality an increase of 1.5%
— because Stats SA’s methodology is incorrect (it looks
at quarter on quarter growth rather than growth over
the comparable quarter the previous year). The cause of
apprehension is that the distribution of work is shifting
down the value chain. The value of contracts undertaken
by large listed firms has declined while that of medium
and small-sized firms has increased. Contractors are also
subcontracting a greater proportion of their work than was
previously the case. It is likely that this push-down of work
is not stopping at the level of formal companies, but more
work is being performed by the informal sector.
The same is evident in retail. An on-the-ground research
project conducted by SLF found 1 600 business activities in
one 2.5km 2 area of Midrand’s Ivory Park alone. That ‘1 600’
is no typo. None of these businesses are counted by Stats SA,
nor do they pay income tax or corporate tax to Sars. In fact,
their very existence is a crime, according to municipalities.
A key feature of the informal market is that it is dictated by
price alone, and provides a ready market for cheap cement
imports, which are also steadily increasing. SLF also found
that among some basic products, more than 85% of their
trade was in counterfeit products (especially cigarettes).
Nico Pienaar, director of Aspasa, describes the hundreds
of illegal quarries in South Africa as one of the biggest
challenges to the industry. Yes, it is, but it is also a reflection
that a substantial component of every market is keen to
evade the over-regulation and over-taxation that occurs
in South Africa. What we call the informal sector here
is virtually the entire economy of almost all African
countries — including Zimbabwe. We need to realise that
95% of Zimbabweans are not unemployed, but are rather
participants in the
informal economy.
South Africa needs
to make an important
decision: decide
whether it is a part of
Africa and stop viewing
the informal market as
a crime. By harassing
the informal economy
rather than embracing
it (and introducing
more limited regulation
of it) we virtually
guarantee low GDP
Editor
growth rates. ■
[email protected]
Eamonn Ryan
QUARRY SA | SEPTEMBER/OCTOBER 2018 _ 1