INFORMAL IMPACT

The informal economy is more than just trading, says City of Cape Town Mayoral Committee Member for Tourism, Events and Economic Development, Councillor Garreth Bloor

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The benefit of the informal sector to the most vulnerable households in the city and its impact in terms of poverty reduction is huge. According to the EPIC report for the second quarter of 2015, 161 000 individuals (11,3% of the total workforce in Cape Town) were employed in the informal sector. If the informal sector was viewed as a conventional economic sector, and based on a conservative estimate of about 10% of the workforce, it would be the fifth largest employing sector in the city, just below manufacturing (11,96%) and above the construction sector (9,52%).

When we look at the bigger picture and at the economy in its entirety, the above numbers are testimony to the importance of the informal sector as a source of employment in Cape Town. While the City of Cape Town is working towards creating a more conducive environment for informal trading, there are many more opportunities for us to make this an even more lucrative sector.

While the term ‘informal’ may conjure up images of survivalist traders operating on the sides of roads, it refers more to the conditions of work and should not be taken to imply that the sector is disconnected from the rest of the economy.

The Economic Performance Indicators for Cape Town (EPIC) report underscores the contribution of the informal sector to the economy. It is estimated that without informal sector income, the poverty rate in the city would be 25,1%. Once its income contribution is taken into account, the poverty rate is reduced to 20,6% (a reduction of 4,5%).

"One cannot underestimate the impact of informal sector income on otherwise impoverished households. The 4,5 percentage-point reduction in Cape Town’s poverty rate is equivalent to pulling 186 000 individuals out of poverty. Although the aggregate contribution from this sector to the GDP may be small, the aggregate improvement in well-being is large. It is heartening to see so many locals and visitors to the city supporting our informal traders, especially over the past festive period, and we urge everyone to make this a year-round trend," says the City’s Mayoral Committee Member for Tourism, Events and Economic Development, Councillor Garreth Bloor.

The different sectors

While almost 40% of informal sector workers are employed in the wholesale and retail business sector, a significant proportion of workers are also engaged in manufacturing (10,2%), construction (13,1%), financial services (10,9%) and community services (16,9%).

The informal sector is diverse and spatially specialised. Products changing hands are often specific to the geographical area where a trader is located. To mention a few examples, at the Strand Jetty the focus of trade is on clothing and accessories, which differs from the focus at the Khayelitsha taxi rank, where locally manufactured clothes are sold. In comparison, the primary product traded at the Wynberg Station is food.

"We have taken cognizance of concerns raised by traders and are already working on solutions to facilitate a smooth entry into the informal economy. The City’s Economic Development Department is currently conducting round-table discussions with informal traders to work with them in finding solutions to their areas of concern.

"Through our Small Business Support Office, established to promote entrepreneurship and business-driven job placements, the City helps business people to find the most appropriate support service from a network of over 90 business development organisations (including financiers) that are located in the city. The value of this service offering is that it prevents entrepreneurs from having to waste energy, money and time approaching the wrong support organisations and service providers or paying for services that are sometimes freely available or partly subsidised," says Bloor.

The informal economy is represented by a diverse array of economic activities—including financial services, healthcare, retail in food and beverages, recycling, maintenance and repair of motor vehicles, and the repair of personal and household goods, to mention just a few.

Over the years

Census 2011 estimated that 122 013 people (or 9,44% of the total city workforce) were employed in the informal sector in Cape Town. This was substantially higher than the 2001 Census figure of 47 020 (5,01% of the workforce), although there may have been an element of measurement error in the 2001 figure.

"While Census figures provide an 80%+ sample of the population, they are not specifically geared toward measuring the labour market, and are outdated. Instead, Stats SA recommends that the QLFS, which is representative at the metro level, be used to estimate employment figures. According to the QLFS, the average number of people employed in the informal sector between the first quarter of 2011 and the second quarter of 2014 was 145 315, which is equivalent to 10,09% of the city’s workforce. A more recent yet volatile estimate is the QLFS estimate for the second quarter of 2015, which finds 161 000 (11,3% of the workforce) employed in the sector. If the informal sector were to be viewed as a conventional economic sector, based on the more conservative estimate of 10,09% of the workforce, it would be the fifth-largest employing sector in the city, just below manufacturing (11,96%) and just above construction (9,52%). This attests to the sector’s importance as an employer in the Cape Town economy," according to the report.

Impact on poverty

The socio-economic impact of the informal sector is even larger than what its contribution to employment would imply, as the income received from informal work accrues disproportionately to households that are close to the poverty line. According to the report, mean wages in the 2013 General Household Survey (GHS) are estimated at R3 432 per month, while the 2013 Survey of Employers and the Self-Employed (SESE) estimated a combined mean value of informal-sector wages and profits of about R3 300 per month.

"The impact of informal-sector income on otherwise impoverished households is measured using the GHS wage and household income figures. The relatively low wages of informal-sector workers, who tend to reside predominantly in poor households with a larger-than-average household size, result in a substantial decrease in the city’s poverty rate. Without informal-sector income, the poverty rate in the city would be 25,1%, but once informal sector income is taken into account, the poverty rate is reduced to 20,6%. This 4,5 percentage point reduction in Cape Town’s poverty rate is equivalent to pulling 186 000 people out of poverty. This would suggest that although the aggregate contribution from this sector to GDP may be small, the aggregate improvement in well-being is large."

The complete EPIC Report can be downloaded from www.capetown.gov.za/en/visitcapetown/Documents/CCT_EPIC_15_2_web.pdf

Source: The City of Cape Town

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