{"id":773674,"date":"2024-05-28T12:01:09","date_gmt":"2024-05-28T10:01:09","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=773674"},"modified":"2024-05-28T12:03:15","modified_gmt":"2024-05-28T10:03:15","slug":"south-africas-hidden-economy-of-r750-billion-with-no-taxes","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/773674\/south-africas-hidden-economy-of-r750-billion-with-no-taxes\/","title":{"rendered":"South Africa’s hidden economy of R750 billion with no taxes"},"content":{"rendered":"\n

South Africa\u2019s informal economy is estimated to be worth around R750 billion, hidden from many economic indicators and even the taxman.<\/p>\n\n\n\n

Informal economy expert GG Alcock told delegates at the recent Biznews Conference in London that South Africa\u2019s economy is much healthier than indicators suggest.<\/p>\n\n\n\n

He highlighted a widely held misconception that South Africa suffers from pervasive poverty and inequality. This view is reinforced with photos of large townships with shacks.<\/p>\n\n\n\n

The reality is that there has been a housing transformation in townships across South Africa, with impressive formal houses being built.<\/p>\n\n\n\n

He added that there are more houses worth over R1.5 million in former rural homelands than in Cape Town and surrounding areas.<\/p>\n\n\n\n

Alcock\u2019s views are backed up by data from property educator Khali Masooane, who said the Soweto market has doubled in price in the past decade.<\/p>\n\n\n\n

A four-room house in Soweto was valued at around R150,000 ten years ago. Today, a similar house would be valued at R400,000 to R500,000.<\/p>\n\n\n\n

She said this growth is not confined to Soweto but is a phenomenon that can be observed in townships across the country.<\/p>\n\n\n\n

South African townships have booming construction, back-room rentals, and spaza shop rentals sectors.<\/p>\n\n\n\n

A prominent trend is that people move from their communal households into their own homes, creating a large sector of backroom rentals.<\/p>\n\n\n\n

The backroom rental economy in South African townships is worth an estimated R20 billion to R40 billion annually.<\/p>\n\n\n\n

The township housing market has not been the only one to experience strong growth. Numerous vibrant business sectors exist in the informal economy.<\/p>\n\n\n\n

Spaza shops, taverns, fast food outlets, salons, and auto repairs are among the rapidly growing business sectors.<\/p>\n\n\n\n

Alcock said there are around 50,000 out-of-home fast food outlets in townships, which generate around R90 billion in revenue.<\/p>\n\n\n\n

There is a misconception that people support these outlets because they are cheaper than well-known fast-food brands like KFC, Nando\u2019s, or Steers.<\/p>\n\n\n\n

\u201cPeople don\u2019t buy this food because it is cheaper. It is generally more expensive, but people prefer that food,\u201d he said.<\/p>\n\n\n\n

The spazarette market, which offers clients products through an informal superette, is another booming sector.<\/p>\n\n\n\n

A recent Nielsen survey estimated that the spazarette sector achieved an annual spend of R189 billion across 100,000 outlets.<\/p>\n\n\n\n

\u201cThe growth in the informal spaza sector has been around 24% per year compared to 15% in the formal sector,\u201d he said.<\/p>\n\n\n\n

These spaza shop owners, often foreigners, pay around R25 billion in rent to South Africans who own the properties they operate from.<\/p>\n\n\n\n

South Africa\u2019s R750 billion informal economy<\/strong><\/h2>\n\n\n\n
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Informal economy expert GG Alcock<\/figcaption><\/figure>\n\n\n\n

Alcock said South Africa\u2019s informal economy is worth R750 billion annually and is one of the country’s fastest-growing sectors.<\/p>\n\n\n\n

He dismissed the narrative that South Africa needs to start more businesses and create more entrepreneurs.<\/p>\n\n\n\n

\u201cThe businesses and entrepreneurs exist already. We have hundreds of thousands of them but don\u2019t recognise them,\u201d he said.<\/p>\n\n\n\n

\u201cWe do not need to start new businesses. We need to help them scale up. We need to give them the resources and support they need.\u201d<\/p>\n\n\n\n

He urged formal businesses to partner with the informal sector to help them grow and benefit the South African economy.<\/p>\n\n\n\n

One of the reasons why the sector does not receive much recognition is that it is seldom counted in official economic indicators, and there is not much tax collected.<\/p>\n\n\n\n

The South African Revenue Service (SARS) has virtually no presence in the informal economy.<\/p>\n\n\n\n

Investec said informal businesses and entrepreneurs typically do not contribute directly to the fiscus through taxes.<\/p>\n\n\n\n

Many informal businesses pay value-added tax (VAT) on purchases, but that is where the taxman\u2019s reach stops.<\/p>\n\n\n\n

UCT researcher Luvuyo Mncanca added that businesses operating in the informal economy do not want to be regulated or registered for tax.<\/p>\n\n\n\n

Despite not paying much tax, it remains a valuable economic sector that creates jobs and provides food for millions of South Africans.<\/p>\n\n\n\n

Alcock provided an overview of the size of different parts of the informal economy to illustrate its importance.<\/p>\n\n\n\n