Only 29% of the South African workforce is formally employed compared to 69% a decade ago, while the informal sector has grown from 14% to 21%, a Human Sciences Research Council study has found.
The research by Miriam Altman, executive director of the council’s Employment and Economic Policy Research Programme, was recently published under the title Jobless or Job-Creating Growth? It also shows that unemployment has grown from 17% to 30% since 1994 in the narrow definition (excluding those who have given up looking for work).
Other commentators emphasise that it is no longer correct to view the informal sector as a temporary or transitional stage between joblessness and formal work. The trend during the 1990s was towards growing informal employment in a context of an expanding labour force.
“The informal economy is more than just a slice of the [national] economy. It has an increasingly permanent feel to it, particularly as globalisation takes its toll,” said Jane Barret of the South African Transport and Allied Workers Union.
Chris Gilmore, adviser on local economic development in the Department of Provincial and Local Government, added: “In most countries it is the second economy that is the backbone of social and economic well-being, and which has the flexibility to provide jobs and services over whole national territories. That has never really managed to take off in South Africa.”
Municipalities are constitutionally responsible for local economic development, but appear to be doing little. “No local economy is without its own endogenous resources,” said Gilmore. “But they lie fallow most of the time. They have not been kick-started, and the mechanism for setting the motor going has not been found.”
The government has now formally accepted the dual economy model. In his mini-budget speech two weeks ago, Minister of Finance Trevor Manuel announced a policy to weld the informal and formal sectors together.
Analysts say the key choice confronting the authorities is whether to integrate informal businesses in a coherent, regulated framework or allow them to continue operating outside of the law.
Informal sector firms are generally not regulated or registered, except in terms of by-laws under the Business Act which, for example, require them to keep their sites clean.
“The government has been driven by a ‘first-things-first’ mindset — to stabilise and register success in the macroeconomy — and then focus on second-generation type of areas,” said Iraj Abedian, Standard Bank group economist. “The question of the informal economy and how it should be regulated to enhance profitability and sustainability for small businesses is a major issue that needs to be addressed.”
Altman observes that South Africa’s labour market policy is undeveloped “from the perspective of information provision, skills response, occupational and geographic mobility”. As a result the economy suffers from a mismatch between skills and demand, driving many workers into the informal sector.
Also fuelling its expansion is the growing capital intensity of the formal economy. Labour blames excessively stringent government fiscal policy, privatisation and deregulation for the contraction of the formal job market.
This month the International Labour Organisation (ILO) also signalled a shift in approach, in a report on “decent work and the informal economy”. While the informal sector had been regarded as “marginal”, like black markets in advanced economies, the report said, the international trend now was to “eliminate the negative aspects of informality, while ensuring that opportunities for livelihood and entrepreneurship are not destroyed”.
Another ILO report this year, Global Employment Trends 2003, showed that since 2000 the number of unemployed people worldwide has grown by 20-million, bringing the total figure to 180-million. Most jobless people have been pushed into the informal sector, where social benefits and asset base areas such as land, education and tenure of housing are scant.
Because of the Department of Labour’s ubiquitous National Skills Development Strategy, South Africa’s informal economy has been blurred by small, medium and micro-enterprises that have come to dominate the government’s development discourse.
These do not include the people who survive by selling fruit and the 185 000 workers in the minibus taxi industry — one of the largest segments of the informal economy. Outsourced and casual labour are another key —and growing — segment.
“There are differences in this wide spectrum and we [the government] needs to become much more targeted in our approach and support instruments for different kinds of informal businesses,” said Yusuf Patel, senior official in the Department of Provincial and Local Government.
Neren Rau, a senior manager in the financial stability department of the South African Reserve Bank, said the bank was working on legislation to formalise informal financial institutions, in particular.
One initiative was to introduce a savings and savings loan institution to “broaden access to finance”, he said, another to bring cooperative banks into the formal economy.
“All we can do is reform the regulatory structure. Whether the informal financial institutions take that opportunity is their choice.”