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(2006.4)
(MEASURING THE SIZE OF THE INFORMAL)
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MEDIA RELEASE
FEBRUARY 2006
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MEASURING THE SIZE OF THE INFORMAL ECONOMY IN
SOUTH AFRICA, 2004/05
The informal or unrecorded economy accommodated a substantial part of the South African
workforce in 2004/2005. In 1980, 92,3 % of all employment was offered by the formal economy
and 7,7 % by the informal sector. This changed in 2004 to a share of 79,4 % for the formal
economy and 20,6 % for the informal economy. The labour absorption rate (ie the percentage of
the population aged 15 to 64 years employed in the formal economy) dropped from 45,7 % in
1980 to just more than a quarter (27,7 %) in 2004.
The 2,1 million informal workers are accommodated in a dual informal system, namely the
second economy and the informal part of the modern (or first) economy. The second economy is
characterised by survivalist businesses established as, inter alia, kerbside traders, traders in
pedestrian malls and at transport interchanges, and small home-based businesses such as spaza
shops. The first economy is modern but also houses an informal component. Informality in this
sector originates primarily from the cumbersome procedures and regulations.
Prof André Ligthelm of the Bureau of Market Research (BMR) of the University of South Africa
(Unisa) estimated the magnitude of these two informal components of the South African
economy in a recent research report. The total GDP contribution of the unrecorded sector was
estimated at 4,6 % in 2004. Of this, the second economy contributed 2,1 % and the unrecorded
part of the first economy 2,5 %.
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(2006.4)
(MEASURING THE SIZE OF THE INFORMAL)
Figure 1 shows that total expenditure at the survivalist businesses of the second economy stood
at R51,7 billion in 2004. This compares well with the two largest chain store groups with
turnover figures of R32 billion and R27 billion. No less than R16,7 billion was spent on food
and R15,9 billion on transport (mainly taxis) in the second economy.
.
FIGURE 1
AMOUNT SPENT AT INFORMAL BUSINESSES IN THE
SECOND ECONOMY, 2004
16.7
Food
15.9
Transport
Alcoholic beverages
4.6
3.1
Savings & funds
Personal care
2.3
Cigarettes/tobacco
2.2
1.6
Clothing/footwear
1.3
Reading matter
0
5
10
15
20
R billion
The household expenditure items with the highest percentage expenditure devoted to small
survivalist businesses are alcoholic beverages (26,5 %), household fuel and light such as
paraffin, wood and coal (25,7 %), reading matter (23,8 %), cigarettes and tobacco (21,0 %) and
transport (19,1 %).
MORE …..
Prof Ligthelm further estimates that the average turnover of businesses in the second economy
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was R68 930 in 2004, with an average employment of 2,3 persons per business. The total
number of informal outlets was estimated at 749 500 and consists of the following:
•
Hawkers
261 000
•
Spaza shops
127 600
•
Shebeens
•
Other
40 100
320 800
BMR surveys among survivalist businesses in the second economy confirmed that almost nine in
every ten informal business owners are involved in their businesses on a full-time basis, implying
that limited income emanates from other income sources. At an average household size of 4,5, it
can be stated that close to 5 million people in South Africa sourced some or all of their income
from the marginalised second economy.
The informal part of the first economy come about when businesses start to operate partially or
wholly outside the law by non- or underreporting their employment size and income. As a result
direct measurement approaches such as surveys could not generate reliable information simply
because respondents would not confess fraudulent activity. Through indirect methods, Prof
André Ligthelm estimated the informal employment in the first economy at 521 100.
International studies show that high taxes, the burden of government regulations and tax morality
(citizens’ attitudes toward the state) create the basis for becoming informal.
MORE …..
A further factor that may also contribute to informality in the first economy is job shedding
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(MEASURING THE SIZE OF THE INFORMAL)
through retrenchments and early retirement packages in the civil service and parastatal
organisations after 1994.
MEASURING THE SIZE OF THE INFORMAL ECONOMY IN SOUTH AFRICA,
2004/05 (Research Report no 349) was compiled by Prof André Ligthelm of the Bureau of
Market Research. The report of 93 pages is obtainable from the BMR, P O Box 392, Unisa,
0003.
END
Date of release: 2006-02-05
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Professional enquiries:
Other enquiries
Prof AA Ligthelm
Bureau of Market Research
University of South Africa
PO Box 392
UNISA
0003
Mrs M Lamb
Bureau of Market Research
University of South Africa
P O Box 392
UNISA
0003
Tel (012) 429-3151
Fax (012) 429-3170
E-mail: ligthaa@unisa.ac.za
Tel (012) 429-3070
Fax (012) 429-3170
E-mail: lambm@unisa.ac.za