BRICS+ Series: How South Africa's Informal Sector is Reshaping the Economy

The informal business sector of South Africa is greatly underappreciated and has not reached its full potential in any respect, as of May 2024 the South African informal economy was valued at an estimated R750 billion.

At the cornerstone of the informal business sector is small, medium and micro-enterprises (SMMEs) , that contribute significantly to the daily lives of millions of South Africans. Spaza shops, the taxi industry, taverns, and beauty and repair businesses (from cell phone repairs to auto workshops) are highly profitable and play a crucial role in both the SMME sector and the national economy. However, despite their significant revenue generation, this sector remains largely untaxed and unregulated. 

Across different BRICS countries and emerging economies, there are substantial SMME markets for a variety of reasons. A common characteristic of these countries is a struggling employment rate and through small enterprises citizens are able to fulfil their needs and contribute to society. 

This sector is a vital force in South Africa’s economy, creating opportunities for people of all backgrounds, from the uneducated to business graduates. It plays a key role in reducing unemployment and poverty while uplifting local economies. Townships, often portrayed as impoverished, are undergoing a real estate transformation, with back rooms, repair shops, and spaza shops thriving. Homes once undervalued—like a four-room house in Soweto that was worth R150,000 in 2014, is now valued at R400,000 illustrating the sector’s growing impact and housing transformation. 

The informal business sector growth rate surpasses the formal sector for different reasons,  some being government regulations, lengthy red tape, quotas and  budgetary cuts which lead to wide-scale retrenchments or a popular issue with the formal sector,  strict employee eligibility requirements that graduates are unable to meet, particularly  relating to work experience. The sector’s growth rate sits at 24% per annum (p.a), compared to the formal sector which has a growth rate of 15% p.a 

The reasons for this is that South Africans cumulatively earn between R20 to R40 billion p.a in backroom rentals, the taxi industry earns R50 billion p.a and from 45 000 licensed taverns and shebeens a whopping R110 billion is generated p.a. One can only imagine the impact these funds would have if the sector was only partially taxed. 

The informal business sector and SMMEs are vital to the South African economy, providing income and essential services, and serving as a safety net during economic downturns. The government acknowledges this and has implemented initiatives to support these businesses, recognising their role in job creation, poverty alleviation, and economic growth. These initiatives include funding, mentorship, training, and networking opportunities, as well as efforts to reduce regulatory burdens and improve access to markets.

On the 24th February 2025, the African Development Bank Group (AfDB) and Standard Bank Group signed a monumental agreement directed towards SMMEs for trade expansion throughout Africa. The agreement includes a R3.6 billion investment into a social bond and $200 million Risk Participation Agreement for Standard Bank South Africa. The initiative is founded in strengthening the Bank’s lending capacity as a driver for economic growth and job creation in the country. The social bond prioritises SMMEs to promote inclusive economic development- a characteristic aligned to BRICS’ mandate- with a turn over below R300 million and loan sizes under R40 million. According to the AfDB, “this financing will support up to 4 000 businesses, helping them scale operations, create jobs and contribute to economic resilience” . The inclusion of these actions is expected to benefit about 3.2 million SMMEs across the country, accounting for 60% of jobs. Additionally, the Risk Participation Agreement (RPA) will bridge the trade finance gap for and positively contribute to intra-African trade , widening the opportunities for long-term sustainable economic transformation for emerging African countries.

The outcome of the AfDB and Standard Bank agreement is aligned to the wider goals of the NDB and BRICS in navigating financial accessibility and provision for economic growth that is sustainable. Providing support for SMMEs closes the financing gap that has been previously ignored as well as decentralises the financial regulations which are simply unattainable for communities in developing countries.

The South African government continues to roll out different initiatives and programs aimed to empower this sector of the economy, the opportunity to formalise and strengthen it is growing in importance. For this sector to maximise its potential, policies should be simplified. Accessing  verified information and having adequate support to manoeuvre through the business space is imperative for SMME entrepreneurs to make a name for themselves and for the country. 

Leveraging BRICS and its fundamental principles, conversations on policy reform and initiatives from South Africa may be a great benefit to communities and entrepreneurs from the various BRICS+ nations. Other points that BRICS+ countries must consider for SMMEs is the role of digital systems for trade such as e-commerce, its benefits for transparency of online transactions/payments and cyber security protections. BRICS bodies such as the BRICS Business Council have an opportunity to ensure seamless integration of protocols for SMME investment and promotion across the bloc.

Written By 

*Dr Iqbal Survé 

Past chairman of the BRICS Business Council and co-chairman of the BRICS Media Forum and the BRNN

*Banthati Sekwala: Associate at BRICS+ Consulting Group Egyptian and South African Specialist

**The Views expressed do not necessarily reflect the views of Independent Media or IOL.