Quarterly Labour Force Survey - informal sector: briefing by Statistics South Africa

Economic Development

07 September 2015
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

Statistics South Africa in a continuation of their briefing from the previous week, spoke about the Survey of Employers and the Self-Employed (SESE), and explained the implications of non-VAT registered businesses (with a gross turnover of less that R1m per annum), which most commonly exist in the informal sector. This type of business plays an important role in job creation and usually operates on a small scale. The socio-demographic profiles of the owners of small businesses in the informal sector were explained. The most common reason for starting a business venture in the informal sector is unemployment.

Members noticed from the graphs that there is a growth trend in the informal sectors when there is a lack of jobs in the formal sector. They agreed that Parliament can, in fact, play a large role in the growth of the informal sector, and that it is important for them to understand the role this sector plays. Some members worried that formalising the informal sector would have negative consequences on job growth by creating similar governmental 'red tape' barriers that are found in the formal sector. Members noted the participation of women in the informal sector and wondered what role government could play in empowering them. The Chairperson said that she would like to explore this matter further with the Portfolio Committee on Small Business Development.

The Statistician General was hesitant to make policy recommendations. However, he thought that it was important that small business owners feel comfortable taking advantage of loans as well as having qualified persons too seek advice from. He emphasised that the informal sector is very important to many social economies so this sector should be taken very seriously.

The second presentation showed the Committee where South Africa stood compared to other African nations in different economic sectors. In many cases South Africa was unable to compete with the cheap prices of countries like Ethiopia or Egypt, because the cost of labour in South Africa is much higher.
 

Meeting report

Survey of Employers & the Self-Employed (SESE): Statistics SA presentation
Mr Pali Lehohla, Stats SA Statistician General, explained the basic formula for the Survey of Employers and the Self-Employed (SESE) and explained the stages in which they conducted it and how they defined the informal sector. He explained the importance of non-VAT registered businesses (with a gross turnover of less that R1m per annum), which most commonly exist in the informal sector. This type of business plays an important role in job creation and usually operates on a small scale. It is very rare that non-VAT businesses in the informal sector are connected to companies in the formal sector. Therefore, they operate in different markets with different customers. GDP usually relies on employment in the formal sector, however in many communities it is also reliant on employment opportunities in the informal sector. Mr Lehohla proceeded to break down output and employment in different ways to help Members understand this better.

Next, he highlighted socio-demographic profiles of persons running non-VAT registered businesses. Compared to statistics from 2001, there is a slightly older demographic currently running these businesses. In addition, more than half of non-VAT businesses in 2013 were run by men, which is up significantly from 2001. Africans, as opposed to white, Coloured, Asian, and Indian people, run roughly 90% of non-VAT businesses. Finally, when the educational levels of non-VAT registered business owners are broken down, the great majority has a “less than matric” education level.

Statistics also show that the majority of non-VAT registered businesses are located in the owner’s home, the next most common location was a mobile business. Coincidentally, the Eastern Cape and Mpumalanga have the most mobile businesses. Mr Lehohla said that it is important to note that the most common reason for starting a business in the informal sector is unemployment, and that many of them do not have a licence or permit to operate. Many owners, without the help of borrowed money, fund their own businesses; however, many of them would have benefitted from additional money. Consequently, nearly 79% of people running non-VAT businesses do not have a bank account. Finally, most of the businesses are within the trade industry. In conclusion, Mr Lehohla reiterated these points to the Committee in an effort to highlight the implications of the SESE’s findings.

Discussion
The Chairperson noted that the statistics presented by Mr Lehohla are very relevant to their Committee and the Portfolio Committee on Small Business and Development, because this sector helps to create jobs, and if they support these businesses there will be increased job creation in South Africa.

Mr P Atkinson (DA) noticed a potential correlation on the graph that showed output of jobs between formal and informal sectors - when jobs grow in the formal sector, there tends to be a decrease in jobs in the informal sector. He asked whether or not this was directly related.

Mr Lehohla agreed with Mr Atkinson’s observation. He explained that people tend to rush into the informal sector if there are not enough formal sector jobs. He did, however, say that it was important to take into account the state of the economy at the time of these changes. He emphasised the GDP is also a big influence, because it depends on how much labour is needed.

Mr M Mbatha (EFF) was concerned that the data did not explain itself in terms of gender or in terms of rural areas. He wanted to know how these numbers seem to balance themselves out. These statistics do not explain the greater numbers of men, and he wondered what would happen if more research was done on this matter.

Mr Lehohla agreed that there was a lot more analysis that could have been done for this presentation. He commended Mr Mbatha on his profound questions, and said it is important to know where the changes are taking place and from where the changes are coming. He pointed out that the types of jobs that they were discussing are historically male-dominated professions such as construction.

Mr L Nkwankwa (UDM) said that Parliament has a huge responsibility to come into the informal sector with assistance so that they can formalise it. If they are able to provide skills, it would impact the quality of work that is provided in the informal sector, which could grow these businesses and jobs. The issue that the South African government faces is that they want to grow but they need to use fewer resources and have a bigger impact. He said that it is important to go deeper into this matter.

Mr Lehohla agreed that it was important to link businesses with their relevant parliamentary committee.

Mr S Tleane (ANC) was worried that women are being crowded out of this sector, and with time they would be crowded out of their own initiatives completely. He wondered what could be done to stop this. He wanted to know how to better empower women to enter this sector.

The Chairperson responded that there are already mechanisms in place but it would be important to hear additional insight from Mr Lehohla.

Mr Lehohla said that he is simply a person who collects numbers, he is not a policy maker. He did, however, point out that there is still information that needs to be gathered, because once the Members have the right information, they can ask the right questions. He urged Members to use the information they did have to ask the right questions. He noted the importance of continued research that could aid in future policy making.

Mr M Cele (ANC) asked if these problems arose because of the institutions or is it because of the laws of government. He acknowledged that Mr Lehohla is not a policy maker, but said that he was interested in hearing his opinions nonetheless.

Mr Lehohla said that he really wasn’t qualified to say, but he thinks that institutions, at times, do not act appropriately bringing up these issues. He argued that it is important for the appropriate people to aid small business owners. He said that since he has not owned a business or gone bankrupt he would not be able to appropriately assist these people. His point was that someone who has experience starting and running a small business must be available to assist these business owners. In addition, it is important that there needs to be safe places for people to borrow money. If someone is afraid to ask for a loan, then they will not ask and their business will not grow.

Mr Mbatha followed up by criticising the rise of the mall and corporate ventures in rural South Africa. He mentioned that between 1994 and 2000 the government was very supportive of small businesses, especially in rural towns, but after the rise of the shopping mall and chain stores, it became much more difficult for small business owners to compete. Some things, like formal sector jobs that the government supports, sometimes have unintended consequences that negatively affect people in other service sectors.

The Chairperson said that this issue should be debated and discussed further at a later date with the Portfolio Committee on Small Business Development. She argued that if they just discuss one or two of the main issues, then they would not be completely dealing with the matter because it is so complicated. She would like to invite relevant experts and other Members of Parliament to study this matter in depth and do a greater analysis of the informal sector of the economy.

Mr Atkinson inquired about the exact number of South Africans employed in the informal sector, excluding agriculture. The informal economy plays a large role in job creation and acts as a social safety net. He wondered if there was any danger in government attempts to formalise the informal economy. He asked if Mr Lehohla had any policy suggestions.

Mr Lehohla informed him that nearly 15% of working people were engaged in the informal sector. He has not come across any specific government interventions, but there is still research to be completed on this. He also reluctantly said that a large role in the way the informal sector was in this country was due to the consequences of xenophobic attitudes.  He mentioned that many people were pushed out of their jobs and forced to find employment or become self-employed in the informal sector. This is apparent in the way the social economy is expressed in the context of a lot of communities that rely on the informal sector. If it is impossible to find or maintain work in the formal sector, they will be forced to seek work in the informal sector. This needs to be considered in order to address these problems.

Finally, the Chairperson said that it is would not be okay for the Committee to leave this matter as it is because they serve as representatives for the people. She argued that they have to ensure that the lower levels of government also play their part is correcting the issues, because most businesses will work closer with the local levels of government. She said that she believed that they spent sufficient time on this matter and moved the meeting forward to the next presentation.

UN Intergovernmental Negotiations post 2015
Mr Lehohla explained that the purpose of this presentation was to show the Committee how South Africa compared to the rest of the African continent. Members could gain insight into the current situation from thematic mapping, cluster analysis, and principal component analysis. The data that was explored included total country GDP, household consumption, gross fixed capital information, food and non-alcoholic beverages, and infrastructure. He showed a series of side-by-side maps breaking down the continent by groupings and by separate countries in various categories. He concluded that there is evidence of regional clustering in Africa; existing trade blocs do not display homogeneity in prices, relative expenditure shares and capital expenditure. More research is required to gain additional insight of South Africa’s standing compared to other African nations.

Discussion
The Chairperson was surprised that Egypt did so well in every category despite all of its political problems. The information was quite valuable for this Committee and requested an electronic copy so that members could better study the maps and graphs.

Mr M Mabika (NFP) asked why other countries, such as Egypt, are able to remain so cheap while others are so expensive. He believed that the manufacturing of goods should be standard. He asked if their governments were involved in this.

Mr Lehohla said that it is due to an interplay between labour, capital, and the size of the market, all of which play a very important role in public policy. Countries like Egypt are required to keep the cost of food very low, and they have intensive farming along the Nile. The cost of labour in South Africa is much higher so they are not able to compete on that level.

In response to Mr Mabika asking if these countries exported their goods cheaply to other countries, Mr Lehohla said that they have not officially looked into this matter, but in these terms it would be difficult to compare Egypt to South Africa.

The Chairperson asked which countries are the real competitors to South Africa, and wondered how the Committee could advise and encourage on matters of foreign policy. She appreciated Statistics South Africa for providing this information so readily available to the Committee, however she worried that the committee members not able to utilise this information. She worried about the silence of the members.

Mr Atkinson pointed out that on the maps, Western Sahara was showed as a different country, even though it is part of Morocco.

Mr Lehohla pointed out that this is a difficult question because it is a contested region. In terms of this presentation, however, it is taken as a different country because it has a separate economy.

The Chairperson asked again if anyone else had any questions, but none of the Members did. She thanked Mr Lehohla and the representatives from Statistics South Africa once again. She said that their dedication to this matter shows that they are soldiers ready to be called anywhere, and for that she was very grateful, because they were always ready when information is requested. She told Mr Lehohla to thank his staff, because they are doing a great job.

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