CAN INFORMAL BUSINESSES SOLVE SOUTH AFRICA'S UNEMPLOYMENT CRISIS?

January 12, 2022

According to the 2019 Survey of Employers and the Self Employed (SESE), unemployment was the main reason for individuals starting informal business for over 60% of all informal business owners (non-VAT paying). In 2017, the informal sector in South Africa was an avenue to employment and capital generation for over 1.8 million people, according to Statistics South Africa. This number is most likely higher now given the increase in the unemployment rate since then.

This honest commercial activity is termed ‘informal’ because these entrepreneurs do not comply with the state’s determination of how they should serve their markets. This usually manifests in the absence of a government licence or permit, the lot of over 90% of informal businesses. They do not pay the ironically named "value-added tax" which adds no value, but rather confiscates it by imposing an extra cost on the price of goods in an already poor country. Informal businesses they are a source of livelihood to a country ravaged by unemployment.

These informal entrepreneurs are the servants of the lower income brackets, providing them with the goods in the case of hawkers and the services in the case of tradespeople, that they desire. Yet, as anyone who has ever been to Johannesburg CBD will testify, they live under constant harassment by the authorities. One would expect that a government besieged by a population with no means of sustaining itself would not frustrate the efforts of those who have devised such means. Ill-considered by-laws and their ill-considered enforcement are prime examples.