Siyabonga Hadebe | 16.11.2018
It is quite a travesty when a mayor of South Africa’s biggest city shows glaring signs and deficiencies in his understanding of not only economics but social issues in an area where he is supposed to be in charge.
This week Mr Herman Mashaba boasted on Twitter that “I have just personally stopped this illegally act in our city. How do we allow meat trading like this? I am waiting for [Johannesburg Metro Police] to come and attend before we experience a breakdown of unknown diseases in [Johannesburg].”
And the poor police officers rushed to the scene to assist the mayor to arrest an informal trader.
The police joyously explained also on Twitter that Mr Mashaba had “just effected a citizens arrest.” The man’s problem was that he pushed a trolley down Harrison an Smit streets in the city center. His consignment were cow heads that were “not covered which is a health hazard.”
Mr Mashaba behaved like an alien from space. It is unclear if he had never seen that much of the city’s economy is informal, and that very few black businesses for that matter are listed in the JSE, or proudly occupy any of the glass buildings in Sandton.
Streets of Johannesburg have been buzzing with economic activity since days immemorial – men and women operate street stalls, taxis and other forms of businesses to make a living for themselves and their families. In fact, many people are important personalities and members of society today, thanks to informal trading.
At some point I once wrote that attitudes perpetuate what former President Thabo Mbeki called ‘two economies’ by pretending that economic activity only happens in the formal side of the economy. This sheepish approach leads to the belief that the majority of the black population sits and waits for hand-outs, and that they cannot do anything for themselves.
It is quite common to hear lamentations that blacks are good for nothing as they wait to cash-in on social grants and other freebies. The truth is that it is people like the trader whom Mr Mashaba ‘arrested’ who make even the clean economy -without diseases – to run.
The taxi industry moves millions of people not just in Johannesburg but countrywide to work in banks, retail shops, households, etc. Also, large businesses like MTN, South African Breweries, Standard Bank and Shoprite wouldn’t be as successful without the informal sector.
Spaza shops and shebeens are an extension of these companies’ distribution channels. Actually most liquor trade and airtime sales do not take place in Sandton, but in Thembisa, Snake Park and Mshenguville.
Hundreds visit Maye-Maye and nearby hostels to buy ‘inhloko’ and ‘mogodu’ as well as traditional beer and herbs each day. The hostel and street economies make more money than most business.
Maybe ‘izinduna’ need to extend an invite to His Worship to witness the music and dance on a Saturday morning. The booming market will captivate the city’s No. 1 citizen, that is guaranteed.
Of course, Mr Mashaba and those who think like him will be quick to point that these businesses don’t comply with municipal by-laws and that they don’t contribute to the fiscus.
That may be partly true but a cost-benefit analysis will assist to determine what could be desirable, that is, to see people doing nothing or it is better when they help themselves.
Money made in the informal economy re-enters the formal economy via value added tax and other ways. For example, this year the receiver of revenue collected around ZAR1.216 trillion, or U$D101.3 billion. The VAT contributed 25 percent to the this amount. It is fair to suggest that the informal sector accounts for a large portion of this figure, directly or indirectly.
Unfortunately, this calculation has not yet been done because the contribution of informal sector in the economy is largely neglected. For example, the unemployment rate is said to be in the region of 27 percent. One wonders if this is accurate if those employed in the informal sector are taken for ‘ghost’ workers.
Another point is that the country’s economic growth is often said to be hovering close to zero. Just a few months ago, there was an announcement that the economy was in a technical recession. But here again, the economic activity in the informal sector isn’t part of the national statistical calculations.
Louis van der Merwe says that the ‘invisible economy’ keeps “a large part of South Africa afloat.” A conservative estimation is that approximately 20 percent of all money spent within the country’s borders is spent in informal outlets, that is about ZAR46 billion per year. The taxi industry possibly worths more or less the same.
South Africa could be falling behind compared to the rest of the world. It is almost unfathomable that we speak about the ‘future economy’ when we fail to see the obvious.
The informal sector drives the South African economy, literally and otherwise. It should therefore be accorded the respect it deserves – economists of the future will hopefully help to achieve this.
Perhaps even our erudite mayor isn’t even aware that organisations like the Organisation for Economic Co-operation and Development (OECD) and the International Labour Organisation (ILO) recognise the importance of the informal sector across the world, and particularly in developing economies such as South Africa.
The OECD estimates that about 1.2 billion (40 percent) of the world’s population is employed in this sector, compared to 1.8 billion (60 percent) in the formal economy.
On the other hand, the ILO in June 2015 adopted the ’Recommendation concerning the transition from the informal to the formal economy’ strategy, or simply R204. Basically, R204 provides a roadmap for policies to facilitate move by businesses from the informal to the formal economy, but from a labour market regulation perspective.
What goes beyond the public’s awareness is that economies in Africa, Latin America and Asia are largely informal.
Closer to home, the figure for the informal sector is quite high in countries such as Zimbabwe, Democratic Republic of Congo, Malawi and Mozambique compared to South Africa, eSwatini and Mauritius.
But South Africa is going through economic difficulties, with most companies planning to retrench thousands of workers. For example, Standard Bank will cut 800 IT jobs, BCX 800, SABC up to around 2,000, Goldfields 1,500 and Lonmin about 12,000 employees.
Where will all these people go? In all likelihood they will become part of the informal sector, the self-employed.
After pulling Trump-sque moves, Mr Mashaba apologised not only for the ‘citizen arrest’ but also for anti-foreign tweet about Ebola.
Whether His Worship was playing political gimmicks or not, he certainly over-stepped the line. He cannot treat informal sector as invisible because it isn’t.