Formalising the Informal: Although South Africa's Formal Economy Has Enjoyed a Growth Boom since the Ending of Apartheid, Paradoxically, Poverty Levels Have Also Been Rising. This, Says Tom Nevin, Is the Result of the Marginalisation of the Informal Sector. He Reports on Fresh Efforts to Steer This Vast Second Economy into the Mainstream

By Nevin, Tom | African Business, November 2005 | Go to article overview
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Formalising the Informal: Although South Africa's Formal Economy Has Enjoyed a Growth Boom since the Ending of Apartheid, Paradoxically, Poverty Levels Have Also Been Rising. This, Says Tom Nevin, Is the Result of the Marginalisation of the Informal Sector. He Reports on Fresh Efforts to Steer This Vast Second Economy into the Mainstream


Nevin, Tom, African Business


For a while now, a new catchphrase has been doing the rounds in politico-socio-economic circles. Apparently it was conceived in South Africa, has since been adopted into the lingua franca of other southern African countries, and it probably won't be long before it is a continent-wide and then globally applied axiom.

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Although the label is new, the phenomenon has been around ever since the realisation dawned that there is a clear and growing distinction between rich and poor. More than anything, the 'second economy' is a description that defines and categorises that section of the economy that makes its living outside formal income means.

It is also becoming clear in South Africa that this alternative economy is not something to be ignored because, on the one hand, it is where South Africa's jobless (some 30% of the national workforce) try to make ends meet through an assortment of economic endeavour and, on the other, it is now being realised how much the first economy depends on the second one for its sustainability.

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Addressing parliament in May last year, President Thabo Mbeki remarked that the second economy constituted the structural manifestation of poverty, under-development and marginalisation in South Africa.

"The structure of our present political economy is, rooted in the cheap migrant labour system resulting from the development of mining and industry. The apartheid state institutionalised the system by laws and practices, thereby entrenching its manifestation as a dualistic economy and society marked by disenfranchisement, massive inequalities and impoverishment," he said. "In 1994, the first democratic government abolished all discriminatory laws and dismantled the associated practices, but dualisms remained in both the economy and society. A decade later, the polarisation has worsened and the challenge of overcoming underdevelopment looms large with no simple answers in sight."

Africa's split-personality economies

In South Africa, the second economy has become an important element in the government's development of policy and plans to combat poverty. This is true not only for South Africa but also those rapidly developing countries whose wealth is unequally divided amongst the very rich and extremely poor.

For the purposes of trying to understand the way the economy is split into two, the Southern African Regional Poverty Network (SARPN) attached specific identities to each and arrived at the following:

* The first economy is modern, integrated with the global economy and produces the bulk of the country's wealth.

* The second economy is under-developed, isolated from the first and global economies, contains a large percentage of people including the urban and rural poor and contributes little to the country's wealth.

* The two economies require different strategies but transforming the second economy requires transfers from the first economy.

* The first economy is unsustainable without the integration of the second economy.

* The growth and development strategies for the second economy include rural development and urban renewal, development of small and medium enterprises and cooperatives, black economic empowerment, expansion of micro-credit, an expanded public works programme, learnerships and internships for the unemployed, improvement of the education system to provide useful skills and the training and deployment of community development workers.

The International Monetary Fund (IMF), in its 2005 annual country assessment, commends South Africa's authorities for the remarkable economic progress achieved since democracy in 1994 but, at the same time, notes that serious economic challenges remain: persistent high unemployment, poverty, large wealth disparities and a high incidence of HIV/Aids.

It identifies a marked economic duality, with a sophisticated financial and industrial sector having developed alongside one that is informal and underdeveloped.

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Formalising the Informal: Although South Africa's Formal Economy Has Enjoyed a Growth Boom since the Ending of Apartheid, Paradoxically, Poverty Levels Have Also Been Rising. This, Says Tom Nevin, Is the Result of the Marginalisation of the Informal Sector. He Reports on Fresh Efforts to Steer This Vast Second Economy into the Mainstream
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