South Africa continues to grapple with a crippling unemployment crisis resulting in the highest income inequality in the world, evidenced by a 2023 Gini coefficient of 0.63. Unlike comparable emerging economies like Brazil, South Africa’s high barriers to entry into the informal sector and the difficulties informal businesses face to transition to formal business create a significant economic bottleneck.
While the formal economy struggles to absorb the nation’s workforce, the informal sector, estimated at 7.5 million participants, represents untapped potential.
According to a working paper from the Center for International Development at Harvard University, South Africa’s informal economy has the potential to provide an entry point into the labour market for many unemployed South Africans.
The paper argues that the country has traditionally placed too little emphasis on policy intervention and policy change to give “more oxygen” to the informal economy. It cites research providing evidence that grants, for example, increase business assets by 57%, work hours by 17% and earnings by 38%. Informal businesses that were able to formalise provide even more advantages, typically ending up hiring more staff and paying taxes which add to the country’s fiscus.
Despite its potential, the informal sector, predominantly located in townships, faces persistent challenges: an ability to access finance, an entrepreneurial skills gaps, market access barriers and inadequate infrastructure.
The Institute of Business Advisors Southern Africa (IBASA) says that the two types of businesses that can benefit most from formalising are those that are operating as informal, non-registered businesses and those that are registered businesses, but which lack well-structured processes. Once a business has been formalised, it is able to build up a track record, secure funding and scale operations.
The Harvard paper advocates for deregulating the management and oversight of the informal sector in the longer term with immediate policy interventions including lowering, removing or changing the conditions of licensing and registration costs of – and stipulations to – informal trading as a starting point to realising the potential of the informal sector. This, says the paper, would unleash the informal sector’s power to generate meaningful income opportunities.
The recently launched GoodApp is a pioneering online platform designed to bridge the gap between consumers and a diverse network of home service providers in the informal sector including electricians, plumbers, hairdressers, beauticians, make-up artists, nail technicians, massage therapists, handymen, painters, carpet cleaners, window cleaning services, swimming pool maintenance providers, movers and packers, and cleaners, amongst others. By prioritising professionalism, trust and reliability, the platform aims to bring informal economy service providers into the formal economy.
What sets GoodApp apart is a rigorous verification process which ensures that every service provider undergoes comprehensive background checks, security clearances and certification verification while continuous performance monitoring ensures consistent professionalism and reliability. In addition, customers can access detailed reviews and ratings prior to booking a service provider.
GoodApp offers enormous potential for township service providers in terms of servicing consumers living in suburbia as well as in townships. There is a growing awareness that township communities are not peripheral players in the economy but are instead essential engines of South African consumer power with an estimated spending capacity of R900 billion, according to the latest Township Customer Experience Report.
Nearly half of survey respondents said they were directing more than a quarter of their income towards purchases within their township, highlighting an increasing shift towards hyper-local economic activity.
Amongst the most significant findings of the latest report is the need for transparency and reliable verification. Not only do consumers want to support brands that resonate and understand them, but they also want customer service that is responsive, empathetic and attentive – all traits that help build trust and brand loyalty in a community-driven market.
GoodApp addresses this demand by providing a platform for verified, trustworthy and professional service providers, accessible at the customer’s convenience. By formalising and legitimising informal service providers, GoodApp empowers them to thrive while providing consumers with confidence and peace of mind, ultimately contributing to a more inclusive and equitable South African economy.
Shaheen Price is the Co-Founder of The Good App