Can Informal Businesses solve South Africa’s Unemployment Crisis?

Over 13 million individuals are jobless according to the Quarterly Labour Force Survey of 2021. Unemployment means the inability to satisfy one’s preferences, chief among them generating capital to sustain oneself and accumulating it to improve material conditions. That is the reality for millions upon millions of South Africans.

According to the survey for the third quarter of 2021, official unemployment sat at 34.9%. As per the expanded definition, it sits at 46.6%. This rate includes those people who are unemployed and have given up on seeking employment.

The job of the government in general is to ensure an environment wherein citizens can sustain themselves through productive activity – those actions that serve others in the market. The South African government has failed in this duty.

In this high unemployment environment, is it a wonder that there are such high numbers of ‘informal businesses’ throughout the country? The ability to create and accumulate capital is not limited to being employed. It is also exemplified by the hawkers and tradespeople found throughout South Africa.

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.

[perfectpullquote align=”right” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]The selling and buying of goods or services harms no one, and as such, authorities must not react to informal commerce as they would to actions that do real harm to identifiable people.[/perfectpullquote]

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.

As millions of people find themselves in a position of not knowing where their next meal will come from, the authorities in the various municipal councils should make it a priority to not frustrate the endeavours of those individuals who decide to be productive by providing the market with what it demands. It would beseech authorities to realise that hawkers, as an example of informal businesspeople, are not their enemies.

The general attitude of city councils ought to be one of seeking understanding and consensus with the informal businesspeople. Scenes of by-law enforcers like the Johannesburg Metropolitan Police Department or their Tshwane and Ekurhuleni counterparts in Gauteng confiscating the wares of entrepreneurs in the streets of these cities must come to an end.

Informal business owners must also be willing to come to the party and hear out what the reasoning behind these oft-socially disconnected by-laws is. The concerns of the residents of the areas where these businesses operate, whom the councils and metro police officers work on behalf of, should also be considered.

The selling and buying of goods or services harms no one, and as such, authorities must not react to informal commerce as they would to actions that do real harm to identifiable people. Nearly half of the working-age population is unable to find formal employment and has given up on looking. The COVID-19 government lockdowns have made things worse. South Africa needs every entrepreneur, formal or informal, that it can find, identifying and fulfilling the preferences of the people.

South Africa’s unemployment crisis is multifaceted. A proper breakdown of all the actions necessary to relieve it would be complex. One of the necessary actions to ensure the situation gets better, however, is for the government not to frustrate entrepreneurs of any kind, in any manner without sound or rational reason.

This means the millions of informal businesspeople across the country must start being considered heroes by our authorities instead of being treated like villains as is currently the case. If this is not done, we will find ourselves heading further down the road to serfdom that we are already on.

Zakhele Mthembu is a legal researcher for the Free Market Foundation.

Photo by Alex Hudson on Unsplash.