GG Alcock is uniquely tapped into the informal economy in the townships and has long been a firm believer that it needs to be acknowledged for the entrepreneurial spirit it brings to South Africa. He warned at the beginning of the lockdown that it would be dangerous to deprive the sector selling vetkoek and veggies on the street from their livelihood. His predictions are starting to ring true as communities all over the country are starting to protest against the lockdown and real hunger is starting to set in. In an interview with Biznews, Alcock told Alec Hogg that if the informal sector is not normalised; people will loot or go back to work. – Linda van Tilburg
GG Alcock, when we spoke two weeks ago was already starting to see signs of stress in the informal economy in South Africa. We’ve had two week longer lockdown with that being extended as well to be five weeks overall. We see some quite disturbing pictures on our television screens.
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Hi Alec. I think that there’s going to be quite a lot more of those disturbing images. A while ago I said quite controversially that if the employment generated by the informal sector was considered, the real rate of unemployment is closer to 12%. We are seeing that now because the reality is that there are large portions of our population who are being sustained on informal incomes are being impacted. In Alex last week there was a demonstration and one of the ladies interviewed on eNCA and she said I don’t want food parcels – “I want to be able to start my business again and feed myself” That’s quite widespread, and there’s kind of two components to that. One is that people are going to be looting and demonstrating and on the other hand a lot of those businesses are just going to go back to work. Last week in Tembisa we saw photos of salons that started opening up again behind closed doors. The reality is that people cannot know what is an essential service if you have no other form of income. If you are a small business that cannot access the UIF benefits or any of the other benefits and interventions which to a large extent the informal sector cannot access. The reality is that you facing starvation. So people will either loot or they will start going back to work, it’s quite dire out there. We make jokes about people desperately wanting alcohol and cigarettes but imagine that desire for a glass of wine but replace that with putting food on the table. One of our interventions has to be about what are we doing about those now, then what about the day after. Government’s been remiss on how are we going to address that issue because that’s really going to be the big thing on the agenda.
GG, let’s just assume that Dr. Bhattacharya is right that the mortality rate of Covid-19 is more akin to the normal flu season mortality rate i.e. 0.1% rather than the 1% or 10 times higher that’s has been propagated by certain people including Dr Fakie who’s been saying that’s the reason why we have to keep lockdowns. If from what you see within the townships, where presumably it’s not that easy for people to socially isolate etc. Also from what we see in the more formal sector that the hospitals in South Africa have certainly not been overrun by Covid-19 cases, not even close to it, then maybe there is an argument to be had for rethinking the whole approach that we’re taking economically wise.
Look I think the problem is that in Africa you cannot apply the same solutions that you’re applying in Europe or America in terms of locking down. One of the articles I wrote I said a large proportion of the township economy is basically in the residential areas, as they don’t have a business area. So should we not look at lockdown by doing it street by street rather than trying to get people to stay inside their shack or yard which is clearly not happening. I’ve got someone who went down into the rural area Msinga, where I grew up, and got some visuals with the drone. Most people are sitting in their yards and very little traffic out. People still walk to the river to fetch water but people are adhering to it to a large extent in the rural areas. People are kind of staying within their little community as opposed to just inside their houses. We need to look at it differently from an economic perspective because if we open that up, you can operate within your street or certain businesses with whatever distancing measures you need and sanitize it and so on. But at the end of the day surely it is a far better thing to make it a law that you have to wear a mask if you go out and that you can only operate in your street because it will allow first of all a practical way of ensuring people don’t mingle and secondly it will allow for some form of economic activity. The reality is that it’s happening at the moment. Someone shared a visual of of Diepsloot the other day. The police van drives down the road and everyone pops into their shack, and as soon as the police van disappears then everyone pops out and starts chatting again. People are not going to just close down. All that happens is that the police and the army get more tougher on people. Even during apartheid with all the military and emergency measures could not people from engaging and all these incidences we are hearing about. We have to look at this on a different level. We can’t ignore the danger but we have to balance that with reality.
But the point you were making about the ecosystem, and David referred to it as well. Just elaborate a bit because this is an incredibly complex world that we live in. You’ve got a unique insight for a business analyst into what’s going on in the informal sector. So take us through your argument of why unemployment’s not 29% it’s actually 12% and that those people, 17% of our population are actually employed in different ways and that we haven’t really taken that into account in this whole lockdown.
If you just look at the wholesale sector, as an example brands like Unilever, Tiger Brands or Pioneer, you’ll find anything from 60-80% of their turnover goes through the wholesale channels. So where’s that going? That’s going to spaza shops and other township businesses like hair salons. The Joburg market, something like 70% of their produce is going to informal traders and township outlets. The agent at the Joburg city market said just the potato suppliers have lost 30% of their turnover immediately since traders were not allowed to trade. There’s a whole bunch of different sectors like this. People say they don’t pay tax. They pay VAT, which they don’t claim back so there’s a huge benefit to the economy on that. Unilever are paying that tax on turnover that they have generated by selling to the informal sector. One could say the lady on the street corner is not paying her tax, firstly she’s below the tax bracket, but by creating this business she’s creating a turnover from the Tigers of the world. Further to this, they are not a drag on the economy because they are supporting themselves and not standing in an unemployment queue or stealing or begging or whatever it might be. So we need to consider that. There’s not enough data about but if you just take the drop in business across the formal retailers and wholesalers based on lockdown, it’ll suddenly give you a sense of what scale of turnover is being generated by this informal economy. There is massive networks and interconnectedness between these. So if you people of four or five people, in what do they make a living from. They will say from a social grant of R700. But dig deeper and you find that they’re also renting out a back room, there’s a R30 billion income from this. They may doing laundry who works or they are selling snacks at the local school. So you suddenly look at a household that theoretically is living off R700 a month is actually earning around R10,000 a month from multiple other sources. So suddenly we realise the kind of interconnectedness of the economy and the extent to which formal income supplements informal incomes and informal incomes that creates opportunities not created by formal incomes. The key part of this is that the formal economy is not capitalising on this. What is the benefit of bringing this into the formal economy? Well banks can lend their money, Governments can extract tax, municipalities can gain rent from these type of outlets. Because we are not bringing to the total ecosystem we are losing out to a large extent in terms of debt. The crazy thing is if you go to downtown Randburg you’ll see a posters on the wall for free abortions or penis enlargement or find lost lovers and then you’ll find one on the wall that says get a loan and it’ll say conditions of blacklist not important but bring three months pay slips and three months bank statements. And that’s the reality is that we only catering to the people who have a pay slip and we are ignoring the fact that there is this massive other part of our economy.
GG from your side the unlocking of the informal sector, well 10 or 11 days to go until that occurs.
So I quoted in one of the articles I wrote, a guy who created IDEA Lab and he said what was the most important thing for a startup business to be successful. It came down to one thing, it was about timing. Don’t waste a good crisis, there are huge opportunities. The reality is that we’re going to have for the next six to eight months we will have post lockdown restrictions And in my mind the opportunities from both the government’s perspective. They should be bringing us into the loop of how we should unlock the system for the economy at the same time not create any health risk or whatever it might be. The next step is we should be using these two weeks to start planning for a post lockdown. I don’t believe they’re going to extend the lockdown after the end of April I just think that the economy won’t be able to absorb it.
Certainly the informal economy will not be able to absorb it and we’ll just have large scale social unrest so let’s assume that they’re going to start opening up schools and smaller businesses, we should be preparing for that. And as a country number one. Number two I just think from a business perspective there are massive opportunities that we should be looking at to roll out in the next six months.
Let’s look at the economy differently and let’s look at solutions to that space differently because we have no choice right now. So it forces us in essence to sharpen our pencils.
