THE benefit of the informal sector in the lives of the most vulnerable households in Cape Town and its impact in terms of poverty reduction is huge, according to the mayoral committee member for tourism, events, and economic development Garreth Bloor.
The latest Economic Performance Indicators for Cape Town (EPIC) report for the second quarter, April to June, shows that 161,000 individuals – 11.3 percent of the city’s total workforce – were employed in the informal sector, he said on Sunday.
“It is estimated that without informal sector income, the poverty rate in the city would be 25.1 percent. Once its income contribution is taken into account, the poverty rate is reduced to 20.6 percent – a reduction of 4.5 percent.
“One cannot underestimate the impact of informal sector income on otherwise impoverished households. The 4.5 percentage-point reduction in Cape Town’s poverty rate is equivalent to pulling 186,000 individuals out of poverty. Although the aggregate contribution from this sector to GDP may be small, the aggregate improvement in well-being is large,” Bloor said.
While almost 40 percent of informal sector workers are employed in the wholesale and retail business sector, a significant proportion of workers are also engaged in manufacturing (10.2 percent), construction (13.1 percent), financial services (10.9 percent), and community services (16.9 percent).
“The informal sector is diverse and spatially specialised. Products changing hands are often specific to the geographical area where a trader is located. To mention a few examples, at the Strand Jetty the focus of trade is on clothing and accessories, which differs from the focus at the Khayelitsha taxi rank where locally manufactured clothes are sold. In comparison, the primary product traded at the Wynberg Station is food.”
If the informal sector was viewed as a conventional economic sector, and based on a conservative estimate of about 10 percent of the workforce, it would be the fifth largest employing sector in the city, just below manufacturing (11.96 percent) and above the construction sector (9.52 percent), he said.
“When we look at the bigger picture and at the economy in its entirety, the above numbers are testimony to the importance of the informal sector as a source of employment in Cape Town. While we are working towards creating a more conducive environment for informal trading, there are many more opportunities for us to make this an even more lucrative sector.
“We have taken cognisance of concerns raised by traders and are already working on solutions to facilitate a smooth entry into the informal economy. The city’s economic development department is currently conducting round-table discussions with informal traders to work with them in finding solutions to their areas of concern.
“Through our small business support office, established to promote entrepreneurship and business-driven job placements, the city helps business people to find the most appropriate support service from a network of over 90 business development organisations, including financiers, that are located in the city. The value of this service offering is that it prevents entrepreneurs from having to waste energy, money, and time approaching the wrong support organisations and service providers or paying for services that are sometimes freely available or partly subsidised,” Bloor said.
When classifying economic activities in Cape Town using the standard industrial classification (SIC) codes, 41 of the 44 national SIC categories are represented in the formal economy, while 37 are represented in the informal sector.
The informal economy is represented by a diverse array of economic activities – including financial services, health care, retail in food and beverages, recycling, maintenance and repair of motor vehicles, and the repair of personal and household goods, among others.