South Africa has one of the strongest and largest formal economies in sub-Saharan Africa. They joined Brazil, Russia, India and China as the “BRICS” countries in 2010, becoming part of Jim O’Neill’s conjecture of global economies that will predominate in 2050. However, even with a large formal economy, it is estimated that 30% of workers in South Africa work in what is known as the informal economy.[1] The informal economy includes all businesses and employees that work without registering with the government or paying taxes. Spaza shops are a well-known informal enterprise in South Africa. These small corner shops may look like a simple convenient store to a Westerner’s eye, but their even distribution throughout densely populated townships and receptivity to their neighborhood’s needs make these businesses essential. (You can find a more detailed comparison of Spaza Shops and formal Supermarkets here.) It is worth noting that this statistic does not include the formal businesses that have informal components, such as companies that use informal suppliers or hire occasional contracted employees.
Because the informal economy is not registered and thus hard to accurately track, economists do not count any of its economic activity in the state’s Gross Domestic Product or rates of unemployment. This omission gives a false sense that the informal economy does not contribute to the state’s economic prosperity, even going so far as to say that it hinders economic progress since those in the informal economy do not pay taxes[2].
Since the end of apartheid, SA government officials have talked a lot about finding ways to integrate informal businesses and employees into the formal sector, but it is difficult to measure the progress of programs with this goal. There seems to be a disconnect between what informal players need for that transition and what the government thinks needs to be done.
My research over the summer focused on the informal economy in South Africa with the hypothesis that the informal economy is a positive and necessary contributor to their economic prosperity. The COVID-19 pandemic created an interesting environment in which to study the informal economy. I focused this summer on trying to see if COVID-19 created an environment where we can finally measure the value of South Africa’s informal economy by the impact of its absence.
Many lockdown regulations are impractical for informal businesses to follow and, at the beginning of the pandemic, the government did not deem this second economy as essential. (Read this blog for more about the SA government response to COVID-19.) Normally, in a crisis that causes unemployment and hard financial times, the informal economy expands almost like an economic airbag. But during the first week of the mandated lockdown in South Africa, the streets were void of vendors and the police force was quick to deter anyone who tried to open. As with many things, it takes the absence of something to notice its true value.
It is only fair that the COVID-19 played an important role in my summer research, since this is how I ended up working at VMASC instead of working abroad as planned. I was lucky enough to have the Storymodelers research team at VMASC include me in their project on a short notice.
I started the internship with very few expectations of what was to come or how I would be contributing. However, from the first meeting, Dr. Frydenlund and Dr. Padilla set the standard of excellence high. This standard would have been more intimidating if it weren’t for their attentiveness and willingness to help. Whenever I had a question or needed feedback, they were quick to give me a detailed response. I was pushed to believe in myself and the work I was doing even though I was only a remote, unpaid intern. Not only was Dr. Frydenlund’s work ethic and passion inspiring, but also the dedication of the whole team. Each week, people presented on their week’s progress which was informative and a good way to reflect on the project as a whole. It was refreshing and motivating to be with a team that clearly cared about the work they were doing. Moving forward, I am taking with me a deeper passion for my research, presenting skills that allow me to communicate my progress with depth and concision and an excitement to continue learning about economic development in sub-Saharan Africa.
[1]https://www.wiego.org/sites/default/files/publications/files/Informal%20Workers%20in%20Urban%20South%20Africa%20SB%2019.pdf [2] https://www.mckinsey.com/featured-insights/employment-and-growth/the-hidden-dangers-of-the-informal-economy#:~:text=Competition%20is%20therefore%20distorted%20because,economic%20growth%20and%20job%20creation.