The state of the informal economy in Gauteng By Thulani Guliwe Presentation to SALGA Informal sector Summit, 20 September 2012

Background The informal economy has been in a state of decline since the 80’s; The informal economy has been an alternative to the shortage of permanent jobs in South Africa; In other African countries such as Ghana, Tanzania and Zimbabwe informal economy is the biggest employer (employs over 70%) of the workforce; Self employment represents 70% of informal employment in Sub- Saharan Africa; For women in Sub-Saharan Africa, informal economy represents 92% of the total job opportunities outside of agriculture; Street vending predominates in much of the informal economy; In South Africa, informal economy contributes very little to the GDP and there is lesser attention on it despite the economy being highly informalized.

Background o The decline of the informal economy has been linked to the growth or decrease of the formal economy; o A critical number of the labour absorbing sectors are experiencing decent work deficit in South Africa o Labour absorbing sectors of the economy such as clothing and textiles, hospitality, farm sector are becoming highly informalized; o Both formal and informal sectors continue to shed jobs as a result of the global economic crisis and other factors.

ESTIMATED RESULTS: SIZE OF THE SA INFORMAL ECONOMY The formal and second economy in South Africa (% trends) the size second economy averages 8.2% of GDP (2nd GDP/FGDP) over the whole period, there is a clear decline in the size of the second economy relative to formal GDP for the 1980 to 2011, The share of second economy declining sharply from a relatively high value of 21.6% in 1981 to the trough value of 3.1% both in 2008 and 2009 before relatively rising to 3.5% by end of 2011.

ESTIMATED RESULTS: SIZE OF THE GAUTENG INFORMAL ECONOMY The formal and second economy in Gauteng Province (R millions) the size informal activities have been hovering between R29 billion and R20 billion during the period reported, though the second economy has been on a declining trend. the percentage share of informal activities versus formal GDP has been averaging around 5.6% per annum, with the highest share of 8.6% recorded in 1995 and the minimum percentage share of 3.5% recorded in both 2008 and 2009.

ESTIMATED RESULTS: SIZE OF THE GAUTENG INFORMAL ECONOMY Trends in informal activities in Gauteng Province (Rm) Millions) the size of informal activities have been hovering between R29 billion and R20 billion during the period reported, though the second economy has been on a declining trend.

Growth trends in informal activities in Gauteng Province (%) the growth trends has been oscillating around zero, that is, they have been growing positively in some years and then negative in some years. There is no clear pattern as far as growth trajectory of Gauteng province’s informal activities is concerned.

Interventions on the informal economy Through the Gauteng Employment Growth and Development Strategy (GEGDS) and Gauteng Industrial Policy Framework (GIPF), the focus is on SMME’s and Cooperatives; This intervention is aligned with the following initiatives: o Investment in skills for the economy; o Transformation of the economy (labour absorbing sectors) o such as Clothing and Textiles, Green Economy, Agro- o processing etc o Re-industrialization (includes the resuscitation of the o Townships economies e.g. Skills transfer to backyard o mechanics linked with the auto sector, manufacturing o of school uniforms, shoes etc

Key challenges Deconstruction of the formal economy through outsourcing, subcontracting and casualization and labour brokering; The deconstruction of the formal economy is now prevalent in the labour absorbing sectors such as hospitality sector, security guards, clothing and textiles, farm worker sector etc; Government legislations such as bye-laws prevent informal businesses from growing; Lack of credible data on the informal economy; Competition between the locals and foreign nationals; Inability to move from being suppliers of goods to manufacturing (producers); Move from survivalist to sustainable businesses; Capacity to manage business and the skills required to take the business further; Lack of financial management skills etc;

Years of operation for SMME’s and Cooperatives

Key findings of the study on state of the informal economy in Gauteng

Purpose and objectives of the study To develop a profile of cooperatives and a comprehensive understanding of the informal economy; Identify key challenges facing cooperatives in the province; Develop a holistic approach to assist cooperatives in becoming the engines of growth in Gauteng 12

Methodology Focus on the 5 regions in Gauteng; Targeted 1000 respondents but managed to obtain 760 sampling units; Of these 300 were supposed to be cooperatives; We managed to get 170 cooperatives (very difficult to get hold of cooperatives) Initially all the 5 regions in GP were visited for SMME’s and Cooperatives and informal sector; Tshwane was emphasized because they were more organized. 13

Age

Approximate net profit of the Informal economy

Registered Companies (n=246) 16

How many businesses do you own? 17

What business are you in? 18

Where does the business operate from? 19

Which of the following do you use in your business?

What made you start your business? 21

Who are your clients? 22

How did you start your business? 23

How would you best describe performance of your business

How would you describe the success of your business? 25

Has your company submitted a Government tender in the last 12 months? 26

Were the submissions successful? 27

Do you save or invest any money you make as profit? 28

Recommendations Need to develop a uniform approach in regulating the informal economy and relaxation of bye-laws to ensure that hawkers and street vendors benefit; Need for government and business to provide support to ensure that cooperatives and SMME’s create jobs and become sustainable; Link cooperatives and SMME’s with big industries to ensure that they are well capacitated, competent and linked to both the local and global markets; Ensure that cooperatives and SMME’s move from being survivalist to become sustainable businesses that manufactures (produce).