GG Alcock: Time to recognise millions in SA’s flourishing informal economy

GG Alcock’s unique background – raised by anti-apartheid activists who lived their values by relocating to SA’s poorest area to live like locals – provided him with a very different thought process to his fellows. And he has put it to good use by researching and writing about the country’s informal economy, where millions of people earn and spend a huge slice of SA’s unrecorded GDP. GG reckons when you add those busy in the informal economy to the official numbers, the country’s real unemployment is closer to 12% than the stated 29%. His thesis received support but also considerable criticism from members of the Biznews community. He picked up on the debate in this week’s edition of Rational Radio. – Alec Hogg

The man I was telling you about a moment ago is GG Alcock. Featured quite prominently in one of the greatest books to come out of South Africa in the modern era, My traitor’s heart by Rian Malan. I was looking at it again the other day – not just in anticipation of this interview, but it’s really worth another read. I see it’s dedicated to your mom – Creina, is she still alive?

Yes she is. She’s 87 and she still lives in a mud hut on the banks of the Tugela river with no running water or electricity – the way she has always lived.

And that’s how you grew up.

Exactly, in the same mud hut with very little. Very happy to get away from it and become a capitalist.

But it did give you a unique insight into a part of the country that many people ignore.

Yeah. The big thing was understanding the culture and lifestyle and speaking the language. That’s one of the things that are enriching my books, understanding people’s lifestyles in a completely different world.

We saw from your article – which I thought was absolutely brilliant, refreshing, innovative – looking at the economy in a different way. But we saw it evoking very strong responses from the Biznews community. On the one hand there are the traditionalists saying “who is this guy saying the unemployment rate is only 12% ” when Stats SA says it’s 29%? Why is it that that those doing the formal recording of the economy are actually getting it so wrong?

There’s an entire economy out there that is invisible to formal economies and the formal sector. The general assumption is that this informal sector is about subsistence and survivalist businesses which is absolute rubbish. Just the food business is worth R87bn a year, fifty thousand outlets can earn from R50,000 a day upwards. These hawkers in downtown Joburg who are selling 3,000 to 6,000 “vetkoek” for R1 each every single day – six days a week. That’s the food sector and so there is a huge number of very successful businesses – many of them have been there for 10, 15, 20 years. There’s no way they’re subsistence or survivalists, they’re actually strong and successful businesses in their own right. There’s billions of rand in turnover. The school mamas who’re selling snacks to schoolchildren in townships, earn between R3,500 and R6,500 a month profit which is more than the minimum wage for domestic servants. I’ve profiled these guys in my book “Kasinomic Revolution” as Kasinomic revolutionaries and so we have this multitude of small businesses – not recognised, they’re misunderstood and misrepresented in terms of their assumption. If you don’t have a pay slip, people in South Africa will say they’re unemployed – whether they’re earning an income from something like rental or an informal job, they will say “I don’t work, I’m not employed”. I was quoting in my article where people say “I don’t have a job but I work”.

Why is it that the bulk of people who live in the first world just don’t get this? If you look at the comments under the article and the comments that were on Facebook pages etc, does it come from – dare I say, arrogance of ignorance?

If you were in Lagos – there’s 20 million people and only 3-4% of the economy is formal, you would talk about the main economy being the informal economy. In South Africa, we play around with the formal economy as the only economy, we have no concept of the rest of the economy and very few businesses have actually got it right in terms of getting involved in that economy. One of the things I believe will transform our economy – in terms of of the issues which we currently have, is allowing credit to venture lenders. To lend to small businesses so these businesses can grow and employ more staff etc. All the things that small businesses do. But there’s not a single bank in the country that will lend money to a small business. There’s not a single bank that will lend money to a township household to build back rooms. Now the backroom rental industry is worth about – just on the residential side, about R30bn a year in rental income. Many of those people would be claimed as unemployed. If this was true that they were unemployed and had no form of income as per the numbers, then actually there’d be a hell of a lot more people with serious malnutrition in the country. That’s not the reality of these environments. I wouldn’t call it arrogance, I would call it a misperception, not even ignorance. It’s a misperception about incomes and businesses as well as the value of that sector.

It’s a very interesting point that you’ve made that the banks won’t lend to these people who do have viable businesses perhaps on a micro level. But we’ve just seen – written into law in the New Credit Act, a write off which the banks are going to take, about R20bn to people earning less than R7,500 per month. Probably formerly employed people who’ve got R50,000 with debt – forcing the banks to write off those R20bn. It sounds to me like you’re going to give them a great disincentive to even look at this market as an opportunity.

My big drive and particularly the ending of my book Kasinomics Revolution, talks about what and where to now. We have to change regulations on a number of levels to adapt to this economy. Many of the micro lenders cannot use someone who has three back rooms who’s renting them out for R5,000 to R10,000 a month, they can’t use that rental agreement to say that that person has an income. Regulations have been built around formal stuff. Even if you had an Airbnb and you were earning R100,000 a month, banks don’t really look at you. First, regulations have to adapt to an informal economy – both municipal bylaws, government laws, financial institutions, just from a security of tenure perspective. We need to give small businesses some sort of security. The only way you grow a business or invest in a business is when you have some sort of security over your trading place. You don’t have to own it but you have the rights to trade from that place. If you had that security then a bank would – based on the fact that you have the rights to this space, be able to lend to you. I mentioned in my article, a group in association with the municipality and other bodies have completely transformed downtown Durban – the Warwick Triangle where you now have a crime free place and hundreds of thousands of people benefit from the livelihoods created there. It’s become a tourist hotspot. The hawkers pay about R75/sqm and many of them have been there for 10, 15, 20 years. Apart from anything else those municipalities could earn money, government could tax the sector, but all of it needs – first of all, recognition that these are businesses. Recognition that there is this business sector. The previous minister of business said we need more entrepreneurs in the townships, but there are hundreds and thousands of entrepreneurs in the townships. We just have to recognsze them as such and we have to support these local entrepreneurs.

It seems pretty obvious everything you’re saying. Clearly when you drive around the townships you see activity happening not just there but downtown Johannesburg – the old CBD. Is the message getting through?

That drives me mad. In some cases it does. The Gauteng premier quoted my book extensively in the state of the nation address. I’ve had various provincial governments speaking to me about this, but no one was ever fired for designing the Toyota Corolla. At the end of the day, very few people are willing to risk anything in terms of doing things differently. And we’ve got a government and municipalities that are still stuck. Look at Airbnb they’re trying to regulate this, trying to limit the sector. They don’t even recognise a gig economy so imagine the informal economy. It’s incredibly frustrating and particularly because this is the solution. The ANC said they’re going to create one and a half million jobs in the next five years… Please. How are they going to do that in the formal economy? You’re never going to do it. So we have to start doing things differently, looking at this sector differently. But I must say at the same time, the sector just potters on and ignores the rest of the world and creates livelihoods and incomes on a massive scale. We could be elevating that, we could be growing that and we could be stabilising that sector, but if it doesn’t happen that sector will continue to exist. In my book Kasinomic Revolution I’m saying that this revolution is happening and it’s a growing sector and ignore it at your peril.

If you buy shares on the JSE, who do you invest in and secondly if you don’t, what are the companies that are actually getting this right? Get that story you’re telling us?

I profiled a few businesses that I call revolutionary, one of them is a fascinating business called “Hello Paisa” which is a South African business that is in the telecoms and money transfer, financial sector. When someone gets its payments right at that lower level – in the township and informal sector, that’s a huge opportunity. I profiled the “Toleram Group” in Nigeria. They turn over a billion US dollars a year just on instant noodles. They launched in South Africa under the Kellogg’s brand using the same model they used in Nigeria. It’s incredibly successfully with a product you’d never expect – instant noodles. So sadly they are very few and far between. I think there’s quite a number of smaller businesses getting more involved in the sector and doing extraordinary things. The Hello Paisa group is a crazy example and well worth looking at.

GG Alcock is from Msinga in deepest darkest rural KZN. In fact I think it came very last of all the municipalities in South Africa in its governance in the latest survey. But my goodness, it’s opening eyes to things that are happening around us which just don’t seem to be appreciated. More strength to his elbow.