The inconvenience of being informal under a formal government

The informal sector has not been able to apply for funding made available for small businesses and experts advise that they create an organisation so that the administrative based government might formally recognise them

After president Cyril Ramaphosa declared the Coronavirus a national state of disaster, schools were shut down and the only businesses that remained open were those regarded as offering essential services. However, the government put financial measures in place to soften the blow for employers and employees. Provisions were made for businesses to continue paying affected employees, banks have joined the fray by implementing debt relief measures, there are tax subsidies for employees, financial assistance for small to medium enterprises and a Solidarity Fund that will, in part, aid vulnerable households and communities. Very little provision has been made for informal trading, a sector that plays an important role in the country’s economy by alleviating poverty and unemployment.

The informal sector is characterised by a lack of written employment contracts and no basic benefits, such as pensions and employer contributions for medical aid, according to LEAP, an organisation that provides business support for entrepreneurs. Additionally, it is generally small scale with low productivity, usually run from home or street pavements, consists of mostly unskilled and those with little education, and the operations are not registered. Even though the informal sector assists in creating employment, there is no financial security because most traders live from hand to mouth.

In light of the effect that government’s restrictions had on informal traders, the Inter-Ministerial Committee, tasked with coming up with solutions around the Coronavirus, renounced the restrictions against the traders. The committee said that spaza shops and informal traders could continue trading only if they had a special permit. This, again, excludes some traders and begs the question, why is it that government can’t provide the same financial relief for the informal sector?

Economist, Xhanti Payi, explains, “the government is a formal entity so if you are in the informal sector, then it’s very difficult to make provisions because you are not recorded – you are not registered. You, unfortunately, fall outside any kind of support because you are almost unrecognised.” Payi further states that it is important for the informal sector to have a collective voice because in a society like ours, you need a voice that can participate in government related matters. Payi says it’s also important for the informal sector to comprehensively breakdown and differentiate the idea of contributing to the economy and how it works.
Although the sector’s economic contribution may be in the form of employing people, there must also be much consideration of how to get government support. “So, for example, an employee may say they contribute to the economy by their daily efforts, but they also happen to pay taxes. Therefore, government is in a position to respond to them in one way or another,” Payi explains. He adds that the government by definition is about administration, so it makes it challenging to implement certain benefits for the sector without risking other people taking advantage of the system.

At the same time, Payi acknowledges that the pandemic has forced the government to think beyond the reality we once knew. This is especially because the government tried moving informal traders from the streets and they pushed back saying the businesses they run don’t pose any harm. However, since the Coronavirus pandemic, “there is actual harm on them being out there. And this speaks to how we must think differently about how we do this because before they were allowed to trade freely, not pay taxes and make their own money. Now they need protection,” Payi says. He adds that this is an opportunity to rethink how we’ve always thought of the economy in a big way.

This means that solutions around what the sector can do to ensure that they are registered and recognised despite the survivalist reality that many operate under, will come up. “But the most important thing is that people in the informal sector need to organise and come together as a group or an organisation that will represent them. It makes it easier [for the government] to create a package for them,” Payi says. He adds that, “the scope of the informal sector is very broad but, for example, because taxis have associations, they were represented during engagements with the Transport Minister [Fikile Mbalula]. So, they were able to have a voice and still run their businesses. But on the streets? It makes it challenging.”

Head of Sales and Operations in the Financial Industry, Victoria Setlhabetsi, echoes Payi’s sentiments saying, “without a registered company that is compliant you are unable to apply for funding that has been made available for small businesses by the government”. While there may not be any current solutions for informal traders, some have resorted to trading despite not having received their permits yet. According to reports, they cite hunger as the main reason for flouting rules. Considering available financial security options for them to survive any economic shutdown, Setlhabetsi says “survival depends on funds saved for emergency purposes or insurance in place for any business interruptions. But, this is unfortunately a luxury for our informal businesses as they are unable to afford such.”