South Africa: Developing the Informal Sector Is Not a Nice-to-Have but a Must-Have


The performance of our informal sector is intimately linked to the rest of the economy. This fact has profound implications for public policy.

There exists in South Africa a comforting myth that the informal sector serves as a "fallback" for those who have lost employment in the formal sector. The National Development Plan states that the informal sector "provides a cushion for those who lose formal sector jobs or need to supplement their formal incomes during crises".

This has led some to argue that, given the devastating consequences on the formal economy of the Covid-19 pandemic, the accompanying lockdown and the myriad restrictions on economic activity, people can create or find jobs in the informal sector.

The Black Business Council, for example, thinks that "parts of the informal sector have proved resilient" and that "those businesses that have been worst hit are the formal sector SMMEs". Similarly, the International Labour Organisation suggests that "informal employment tends to increase during crises".

These views are misguided and contrary to the available evidence in South Africa. The reality is just the opposite: the performance of our informal sector is intimately linked to the rest of the economy. This fact has profound...

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