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In one of the most powerful interactions of the BizNews@10 conference, ‘Kasinomics expert GG Alcock unpacks South Africa’s informal economy, booming entrepreneurship and out-of-touch government policies. He says this illustrates the massive disconnect between the ANC’s socialist beliefs and the capitalist evident everywhere in the country’s townships. It’s a wake-up call for the ANC leadership, its Blue Light Brigade whose distance from daily reality has caused them to act and legislate as though the country were still in the pre-1994 era. – Alec Hogg
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An edited transcription of the interview of GG Alcock by Alec Hogg after his keynote at the celebration of the 10th anniversary of BizNews
Alec Hogg: You can’t help but be inspired by this. I want to ask you a little political question, but we don’t have to go into the politics of it specifically. The ANC believes in an economic blueprint created in the Soviet Union in 1950 for African countries getting liberated from colonialism. That seems a million miles away from what you were telling us now, i.e. the National Health, Centralised control – the blueprint called the National Democratic Revolution. So, are the people you’re engaging with showing their disapproval of the way the country is run by simply not voting?
GG Alcock: I started off as one of those socialist revolutionaries, and I believed in that cause. But I think there’s a significant difference between what the political elites spout and what’s real for the people on the ground. South Africans aren’t just workers; they love entrepreneurship and hustling. They’ve been forced into an informal economy, and as they’ve been pushed into it, they’ve thrived. I don’t believe the ANC reflects their aspirations towards socialism. People are at heart strongly capitalist, and the ANC is out of touch. People have turned their back on government assistance and are doing things for themselves.
Alec Hogg: I was involved in horse racing, and I know you’re close to horses too. There’s a saying in the industry that a good trainer makes sure the horse wins as many races as it should while a bad trainer is a guarantee that it won’t win any. If we had a good trainer on the economy, what kind of human ingenuity could we unlock in this country?
GG Alcock: I think the opportunity lies in hybrid formalisation. The government needs to step out of that space and enable people. If we can find ways for the private sector to finance and engage these sectors, it would liberate the informal sector’s potential.
Alec Hogg: Could the government’s inefficiency be a positive factor for the sector? They’re not being taxed, and they can get on with life. Is that at risk if we have a more efficient government?
GG Alcock: There are still restrictions. It takes 40 days to register a business in South Africa and four in Rwanda. We need to balance the drag factors with what stimulates the economy. People are paying taxes, and we should consider the whole picture.
Alec Hogg: And then you could get the next Elon Musk coming from that sector. Where do you see South Africa relative to some successful economies?
GG Alcock: I think we need to change how we measure unemployment and what real employment is. We should ask about other forms of income. If an unemployed person is renting out three back rooms and earning money, they’ll still say they’re unemployed, but they have an income.
Alec Hogg: Just to explain, could you describe a “back room”? What is that business?
GG Alcock: Yes, if you look at most of the back rooms in a township today, the vast majority are really nice. I have pictures of these extraordinary back rooms, which are typically three by three-metre or six by three-metre rooms called iflats. These are essentially little flats with a kitchenette area and often Wi-Fi connected. The penetration of Wi-Fi and connectivity in the townships is extraordinary.
I was in Gugulethu, where there’s a Gogo (elderly woman) with six of these units, all with showers and kitchenettes. Three are on top of the other three, built on the back of township properties, and there’s generally enough space in these old forum premises to build these back rooms. The gogo showed us around and said, “Oh, I’m so sorry, I never gave you my Wi-Fi password.” I wasn’t sure if she was bragging or she meant that.
The interesting part is that the fast food sector in the townships, offering everything from chicken dust to a plate of various meals, is generally more expensive than McDonald’s. People buy them because they prefer that food. The fast food sector, 100% South African, is a 90 billion rand a year industry and growing rapidly, thanks to Eskom and the fact that these backrooms don’t want to cook in their space. This growth of casual dining, what Nando’s developed, has accelerated this sector.
Going back to the economy, Nigeria changed how they measured their economy, and suddenly it was 20% bigger. How should we measure ourselves? Should we only measure ourselves on the formal economy and ignore this massive sector? The gig economy and others like Airbnb are massive in places like America. If you take them into account, it’s like 10-20% of the economy. Why aren’t we measuring this in South Africa? When we do, we’ll pop up somewhere quite impressive in terms of comparative economies.
Alec Hogg: And we wouldn’t get so depressed. If you look at the latest SA Reserve Bank figures, you see 0.6% GDP growth this year, 1% next year, and think, “What’s the point?” But you’re measuring the wrong thing. South African shares are apparently cheap, but how can they be cheap if you’re growing at less than your population growth rate? But actually, we’re measuring the wrong thing. If you look at the broader economy…
GG Alcock: Just the numbers I mentioned are around R500 billion conservatively, and I’m not even measuring many other sectors like the building sector. The muti sector – herbal and traditional medicine – is around 3 billion rand a year, but a bunch of universities said it was 18 billion rand, a lot more than I had said.
These aren’t just people buying something for five rand and selling it for ten; there’s real value creation. But I think we should look differently at many of the successful businesses in this sector. Why aren’t we getting more involved in that sector?
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