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GG Alcock’s assertion that our unemployment rate is closer to 12% than the official rate of 29% has clearly set the cat among the pigeons and opened up a debate on whether the informal economy should be included in employment figures. In the developed world, people employed in this sector, called the gig economy which includes share-ride drivers, e-commerce sellers and producers, home hosts and contractors for services, are included in official employment figures but it is easier to draw them into the tax net. In the UK, the gig economy is booming and has more than doubled in size in three years and now accounts for 4.7 million workers. With formal employment opportunities not increasing in South Africa perhaps the debate should centre on how we scale up the informal economy so that it can become more productive and contribute to GDP. The Centre for Global Development suggests in a report on the informal sector that digital platforms could possibly offer “a progressive onramp to formalisation.” – Linda van Tilburg
By Thulasizwe Sithole
Some business community members are particularly worried that GG Alcock’s figures are based on observations and not on data.
Thomas said he thought we should stick to the official employment figures and that Alcock’s assumptions and perceptions about the true nature and extent of unemployment could not be taken seriously.
“…instead of justifying his 12% with rigorous and credible research that can be independently reviewed, he persists in misdirecting to unsuccessfully hide the fact he can’t. He replies to Chance, whom he lengthily quotes verbatim, with a Churchillian bon mot (anyway, for all Churchill’s wit, he wasn’t an economist and statistician). That won’t cut it when data is called for…
Let’s keep to the unemployment figures. Arriving at the rate is not about ‘best practice case studies and township business data’ but how many people aged 15-64 are working at any job during the period the data collected at quarterly intervals, a ‘household-based sample survey’ of the total working age population.”
Curious agreed with Thomas’ point of view but said that Alcock should be encouraged and had provided economic insights into the informal economy. Many hundreds of millions of Asians and others have been uplifted from poverty in recent decades but he said SA’s townships follow different models and they achieved different outcomes.
“Poor communities can’t grow adequately without market access to more affluent consumers. This can be shown in spreadsheets. The entrepreneurs always think they need more capital but margins are usually too thin to reward external capital.”
Curious takes Alcock to task for rejecting statistics that did not fit his views and then concluded with:
“Ignorant and perception-based opinions are dangerous and limit our economic potential.” Yes, there are statistical issues but look at pictures of Shanghai in the 80’s or 90’s versus now. Their model was the opposite of what Alcock advocates.”
Nasdaq7 believed that estimates of the informal sector could not be trusted; he did however support a call for more accurate GDP statistics:
“…estimates are dangerous and can be manipulated by any ruling party to benefit itself. No investor will trust the GDP numbers or any statistics if they see they are manipulated every year and SA will lose investment.
You can include all those informal statistics in our economic statistics, but it won’t change the most important economic numbers: exports. Is it going to change exports? How about imports? Is it going to change imports? Construction industry statistics? Cars manufactured? What economic statistic will it change? The GDP. Possibly retail sales. Many informal jobs are not permanent jobs or sources of income.“
Alcock has been criticised by Toby Chance, an entrepreneur and former DA Shadow Minister for Small Business Development, who said that poor people selling to poor people cannot lead to meaningful upliftment. Chance said the national fiscus was not benefitting.
Andrew disagreed with Chance’s view that the informal sector made no contribution to the fiscus and had full confidence that the sector could over time evolve in a South Korea type system:
“They pay a flat 15% on all income through VAT and other licence and duty payments. The fact that these funds are not efficiently used to best effect, is something over which they have no control. Second, their market is the individual with a very small B2B component. In specialist areas this does not apply.
In my experience I came across some shining examples of people trying, in the face of massive odds, to improve their lives: a young woman some 50km from Ladysmith who made blankets and needed funding to mechanise and grow her business way out there in iNgonyama Trust land and the group of young men in the Vryheid area who were looking for R30,000 so they could expand their periodical distribution business from ‘Shanks pony’ to 2 wheels.
There are many other examples but, as far as I know, neither of the initiatives mentioned above were able to source the funds – not from the right club. The informal sector plays an important role in South Africa today and is attractive simply because of the anonymity it offers in times of State Capture and rampant corruption. Over time it will probably evolve into a South Korea type system but this depends entirely on the direction taken by formal business and Government.“
The claim about South Korea got Ursus Formidiniss hot under the collar calling it Pol Pot optimism. He did not believe the informal economy in South Africa would evolve into a Korean environment:
“…we are culturally massively dissimilar, apart from which, Korea’s educational system equips its citizens to compete in the 4th Industrial Revolution, which does not necessarily require heavy capital investment from the service or solution providers; ours simply does not, not even close, and agrarian or rustic solutions will never provide the substantial capacity you seek.
One might even argue that the best business to have right now would be one that relies mostly/entirely on robotics and/or IT and which caters almost exclusively for a foreign essential niche market paying in hard currency; that is not going to produce the social upliftment you seek in the SA context – except if it is widely done; India provides some good examples, yet even they have not managed to pull themselves up by their bootstraps yet, perhaps it is because the population is simply too large for everyone to be competing in the same market segment. “
V_3 is worried about the fact that workers in the informal sector enjoy no protection.
“the informal economy is unregulated and unreliable in terms of quality, health, quality and so on, with the customer has little recourse against such suppliers. Thus the poor get shafted again.
This is ironic because while the ANC is piling on layer upon layer of over regulation on the formal economy, pushing up prices and unemployment, the people who need protection don’t have it.“
He/She agrees with Chance that well-sourced agile SMEs could be the antidote.
Simon the Sowetan did not agree with the proposal of introducing the formal economy to debt.
“If you have never had debt you do not know how to manage it. Just look at South Africa, a total mismanagement of everything, but primarily debt. Further, of course they pay tax, who in this country can get away without paying tax, everything they buy to resell is taxed, they are paying upfront tax, maybe not charging VAT, but paying it. Try driving a car, riding in a taxi, buying a beer, a cigarette etc, believe me they are paying tax. Why do you want politicians, banks and then obviously lawyers and other so called professionals to get involved and EFF it up?? Let well enough alone, people are generally a lot smarter than you give them credit for.”
And Beachcomber believed that most people see the gig economy as a stop-gap before they get more security.
“The so-called “techno-gig” economy is not an economy that works in the greater scheme of things (nor for everyone) because it is a fractured system which is fluid and so has difficulty in being a way of work which can get listed on a major stock exchange. It exists because they are opportunists who want to live out of the main stream economy but are actually part of bigger entities which eventually get bought up by corporates: Deliveroo etc including start-ups like Slack. Those gig-workers are simply another form of cheap labour.
They are mostly looking for other opportunities and “gig-work” is a stop-gap until they can actually get settled with more security. It’s hard to pay your rent/mortgage/car/child schooling on a “gig-economy” income. The lucky ones are those who have found a niche application which then gets supported by fund managers or major corporates.”
Basil lamented the fact that there was such a huge gap between the formal and informal economy.
“Could a mutually beneficial “bridge” be erected or interface exist which would/could enhance and preserve the positive dynamics of each? Given the size/value of this sector, the State and banks would love to get their hands on the tax and interest charges that would accrue through its formalisation… if only they could. The free-market principles, as practiced in our informal economic sector, have enabled millions to become more self-reliant and less dependent upon State aid, right here in our own back yard.”
Roger Sheppard was not in favour of changes to the informal sector:
“An upheaval in this economy will lead to great numbers of folk who will lose, and lose massively, with only a few survivors, and especially so under an ANC govt, driven by its NDR slogan. Attempting a development of this informal economy will take a brave, wealthy, powerful organisation to ensure the change is a success. Until that possibility arises, thoroughly thought through, negotiated and agreed, perhaps it is best to let this alone for now. “
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