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Healthy informal economy key to recovery

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Picture: Jennifer Bruce/ African News Agency (ANA) A hawker runs a stall in the Johannesburg CBD. The marginalisation and structural exclusion of many South Africans from meaningful economic participation and empowerment is the greatest threat to nation-building and social cohesion, the writer says.

By David Mabuza

As the global economy slowly recovers from an unprecedented Covid-19 pandemic, communities around the world are counting the extent of the social, economic, and infrastructural devastation that has been left behind.

Contrary to initial estimates, the pandemic has not been the great equaliser.

Although we are dealing with the same virus, its impact has been especially devastating to the livelihoods and well-being of those who have already been pushed to the margins of society, particularly low-income households on the periphery of our cities, small towns, and rural villages, where the poor and marginalised are concentrated.

We understand the eagerness to imagine a Post-Covid-19 Society, but the truth is that the pandemic only worsened what was already an untenable socio-economic reality for the majority of South Africans.

The decimation of the informal economy as a result of Covid-19 restrictions brought about misery for many of those who derive their incomes and sustainable livelihoods through active participation across key sectors of the informal economy.

The United Nations General Secretary best describes this reality: “The pandemic has demonstrated the fragility of our world…

“The economic fallout of the pandemic is affecting those who work in the informal economy, small and medium-sized businesses, and people with caring responsibilities, who are mainly women.”

Picture: Leon Lestrade/African News Agency (ANA files) – Informal traders operate under relaxed lockdown regulations at Nyanga Junction in Cape Town. The informal trading sector is a critical part of the South African economy.

Quite frankly, as we grapple with the social, economic, and political afterlives of the pandemic, our democratic dispensation is at a crossroads. When a stronger economy, improved well-being, and shared prosperity are held up as yardsticks to measure how far we have come, the results are clear to everyone: We are not yet near where we should be.

Our labour market and industrial policy choices have not lived up to the expectations of the majority and international partners who supported our struggle for freedom, leaving us with an unhealthy concentration of income, wealth, power, and opportunities in the hands of the already privileged.

On the other hand, this leads to a steady rise in basic social and economic insecurity for people who are already on the margins of our society. Most of these people live off the informal economy and are cut off from the global value chains of mainstream economic activities.

What this means is that no economic stimulus package or recovery plan will take off until it is rooted in elevating the informal sector, SMMEs, and solidarity economics.

The measure of progress in this initiative shall be the material change in people’s income-earning ability, jobs, and wealth-creating potential.

Nearly 30 years into our democratic dispensation, more than half of our population lives in poverty, and despite visible progress made, we remain one of the most dangerously unequal societies in the world.

Drawing on tax data, researchers Von Fintel and Orthofer (2020) revealed that “one percent of the South African population owns about 50 percent of all the country’s wealth, and the top 10 percent together own more than 90 percent of the wealth.  Beyond equal political rights, it can be said that our economy is fundamentally that “of the top 10 percent, by the top 10 percent, and for the top 10 percent”.

Whichever way you look at it, this is an unhealthy and unstable state of affairs, which undermines our collective efforts as a democratic government to build a socially cohesive society that is united in its pursuit of an inclusive, equitable, and better life for all.

Moreover, reconstruction and recovery require that we, as a nation, take off the mask and get to terms with the true state of our nation. We should not be afraid of a real conversation about rebuilding that will lead to economic participation and growth for everyone.

A genuine conversation about reconstruction should necessarily unsettle us. It cannot and should not be comfortable, in that it should discourage the ever-present temptation to retreat into the ideas and structures we know and in which we feel comfortable and secure. There is nothing good about glossing over what is essentially the tip of a very dangerous iceberg. Our recovery and reconstruction efforts must be evidence-based, data-driven, and nationally relevant.

The marginalisation and structural exclusion of many South Africans from meaningful economic participation and empowerment is the greatest threat to nation-building and social cohesion.

Our country has a long-standing commitment to the informal sector and the crucial role of SMMES in fighting poverty and reducing socio-economic disparities. The 1995 White Paper on National Strategy for the Development and Promotion of Small Business, asserts that “SMMEs are an important way for our country to deal with problems like creating jobs, growing the economy, and making sure everyone gets a fair shot”.

Despite our long-standing support of the informal economy, the high mortality rate of small and informal companies continues to hinder growth and job creation. We need more evidence-based research on SMME mortality to save jobs and create new ones. We must focus on how the government at all levels can create an enabling policy and regulatory environment to support the informal economy. Municipal informal economy regulations can be restrictive.

Even though municipalities are in charge of trading rules and by-laws, it is important to ensure that these rules are enforced with respect for everyone’s dignity and human rights, including hawkers. To cut down on paperwork and bureaucracy, we need to get rid of unnecessary forms and arbitrary barriers to participation.

Therefore, we must fundamentally respond to the seemingly unavoidable force of rural-to-urban migration and its implications for city-level and small-town economies.

Sustaining livelihoods across social strata in general, and low-income households in particular, has been and continues to be greatly influenced by the phenomenon of urbanisation, the mass movement of populations from rural to urban settings, and the consequent physical and societal changes to such urban settings.

Picture: Mike Hutchings/REUTERS Residents stand outside a spaza convenience store at the Imizamo Yethu township, Cape Town. Along with shebeens, or corner taverns, spazas are one of the most visible parts of township life, and a major component of South Africa’s vast informal economy.

The force of urbanisation and its key drivers continues to shape both human and non-human activity in ways that can neither be avoided nor slowed down. The odds of achieving the provision of liveable, safe, resource-efficient, just, equitable, and socially inclusive human settlements to low-income communities are thus inextricably linked to the ability of cities to anticipate, manage, and respond to urbanisation trends, challenges, and opportunities.

Since 63 percent of the population lives in cities, talking about poverty in South Africa usually means talking about urban poverty and how it affects the rural poor, who are already expected to move to the city in search of a better life, more opportunities, and more amenities.

From a scenario planning point of view, we must look into the kind of infrastructure planning and provision that anticipate the growth of the informal economy as a key area of economic participation, including financial support instruments to meaningfully support the informal economy.

In the final analysis, we should be able to imagine a more humane society in which the informal, social, and solidarity economies take centre stage in aiding our war on poverty, inequity, and unemployment.

Without resolving these issues, the cornerstone of nation-building will not be sustainable, and neither will social cohesion.

Mabuza is the Deputy President of the Republic of South Africa and this is an extract from his keynote address to the Informal Sector Symposium at Mpekweni Beach Resort, Port Alfred.