In sub-Saharan Africa, an estimated 80% of jobs are found outside the formal sector, a figure driven by sluggish economic growth and barriers to starting formal businesses.

In South Africa (SA), where the jobless rate remains among the highest globally, a recent survey by Statistics SA revealed that one in five new jobs created were in the informal sector. The country saw a rise in informal businesses from 1.5 million in 2013 to 1.9 million in 2023.

Political economist Kevin Tutani, based in Zimbabwe, said the growth of the informal sector is more a symptom of economic weakness than resilience. "This isn’t something to celebrate,  it signals that the formal economy isn’t absorbing people," he said. He added that black communities are disproportionately involved in informal work, further highlighting economic disparities.

Tutani pointed to global comparisons: in the United States, the informal economy contributes just 7% to gross domestic product (GDP); in China, about 12.7%. In SA, it’s estimated at 25%, while countries like Zambia and Zimbabwe rely even more heavily, with informal activities making up around 40% and 65% of GDP respectively. “The higher the informality, the weaker the economy tends to be,” he explained.

Economist Takudzwa Mutize noted the state misses out on major revenue streams due to informality, estimating up to R300 billion ($16.5 billion) in lost tax revenue annually. However, he acknowledged the sector’s economic weight, contributing around R750 billion ($41.25 billion) in value. Informal traders still pay indirect taxes like value added tax and import duties, despite being outside formal tax systems.

SA has introduced policies to support informal enterprises, including the 2014 National Informal Business Upliftment Strategy and the Economic Reconstruction and Recovery Plan. Yet many business owners say they still face steep barriers, especially when it comes to licensing and finance. Only around 10.7% of informal businesses are licensed, locking many out of growth opportunities.

Attempts to formalise township businesses such as spaza shops are ongoing, but tight regulations continue to make compliance difficult, leaving many to operate in legal grey zones.

--ChannelAfrica--