Informal businesses on the rise

Thursday, August 14, 2014

Pretoria - Statistics South Africa has released the findings of a survey, which revealed that the number of people running informal businesses has increased from 1.1 million in 2009 to 1.5 million in 2013.

According to the Survey of Employers and the Self-Employed (SESE) 2013 conducted by Stats SA, this was still lower than what was recorded in 2001, which was 2.3 million.

The survey also found that people who started informal business did so because they had no other alternative.

The survey, which was conducted in the third quarter of 2013, aims to estimate the contribution of businesses that are not registered for VAT towards economic growth.

Presenting the results of the survey on Thursday, Statistician General Pali Lehohla said the report had revealed that the majority of people running informal businesses were men.

Initially, the informal businesses were predominantly run by women. The businesses were predominantly run by black Africans aged between 33 and 44 years old, who were less-well educated.

According to the report -- which is conducted every four years -- the main reason people started informal businesses was due to unemployment. This was the reason stated by 60.6% of people in 2001 and by 69.2% in 2013.

In every province, except for Gauteng and the Northern Cape -- over the period of 2001 – 2013, reflecting the effects of the global recession -- there was an increase in the proportion of people who stated unemployment as the main reason for starting informal businesses.

The informal sector is defined in terms of registration and the size of the business in terms of the number of employees.

Most businesses operated in the trade industry, while the proportion of the working age population running informal businesses was at 6.3% in Limpopo; 6.1% in Mpumalanga; 5% in Gauteng and 4.7% in KwaZulu-Natal.

The majority who started businesses used their own money to do so. Those who did not use their own money mostly borrowed from friends and relatives.

Marketing was the most common type of assistance needed by businesses.

According to Lehohla, the survey revealed a few key things.

“The informal sector contribution to GDP [gross domestic product] has stayed at about 5% throughout from 2001 up to 2013.

“Informal sector composition has changed across time, both in terms of sex and in terms of composition of industry in which it functions. In terms of sex, it is now dominated by men, who constitute 55% currently, compared to about 35% in 2001,” Lehohla said.

The survey found that turnover levels and profit margins are relatively small for most informal businesses.

In 2013, as many as 52.3% of these businesses had a turnover of R1 500 or below in the month prior to the survey, while only 14.6% had sales above R6 000. Net profits for 64.9% of businesses were also low (at R1 500 or lower in the month prior to the survey) and only 9.2% of businesses made net profits above R6 000.

Non-VAT registered businesses in South Africa play an important role in job creation and income generation. In 2013, most people running informal businesses did not keep financial records for their business. –