Informal sector key to Jozi’s economic growth – report

03 November 2016

 

The informal sector holds the key to City of Johannesburg's drive to achieve sustained economic growth, according to a recent Department of Economic Department research report.

 

At the start of the current political term following the 3 August 2016 local government elections, Executive Mayor Cllr Herman Mashaba committed his administration to achieving 5% economic growth, well above the 0.4% national growth forecast by the Reserve Bank.  The report has revealed that owners of informal businesses in Johannesburg provide much-needed jobs for lowly-skilled people, sell affordable food to the food-insecure residents and keep the wheels of the city’s economy turning by sourcing goods from formal businesses, while also contributing to Value Added Tax (VAT).

 

“Informal businesses showed strong connections to the formal sector as 77% of informal sector entrepreneurs sourced their supplies from wholesalers, retailers and factories. Most of these are likely to be in the formal sector and VAT should be paid on goods bought from these sources, blurring the definition of what constitutes the (in)formal sector,” the report says.

 

“The informal sector is an important site of consumption for residents – 64% of respondents had bought goods or services from the informal sector in the previous 12 months. The main reasons given by the respondents for using the informal sector were good prices, affordability and convenience.  “The main category of product bought was food (by 93% of respondents), raising important questions about the role of the informal sector in providing affordable food to residents of the city.”

 

In its strategy document, the department undertakes to support these businesses so they can graduate into formal businesses that can continue to spark growth.  “At the heart of meeting Johannesburg’s social and economic challenges is the facilitation of more rapid and sustainable economic growth. The development of more medium-sized enterprises and the incubation of durable local businesses will be crucial. Micro enterprise and informal trading activities will also need to continue to provide livelihoods and economic resilience at the lower end of the socioeconomic spectrum. These will also need to be supported and assisted towards development into formal sector small businesses,” the department notes in the document.

 

The sector’s ability to continue to provide affordable, quality and nutritious food will go a long way in enabling the city’s poorer residents to stave off hunger.  “Food insecurity is also worrisome as 10% of respondents said a child or children in their household had skipped a meal in the past year due to a lack of finance and 13% said an adult had done the same,” says a section of the report dealing with poverty and inequality found.

 

“Respondents had mixed feelings about street trading, with 52% agreeing with the statement that street trading makes an area safer, while 44% agreed that street trading damages the image of an area. These responses suggest the need for a clear strategy on street trading and the informal sector, which is a major livelihood source as well as a source of affordable goods ... but also promotes entrepreneurship.”