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South Africa’s Informal Sector: Why People Get Stuck In Precarious Jobs

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South Africa has a jobs crisis. In the fourth quarter of 2018, 6.14 million people were out of work, an unemployment rate of 27.1%, which is one of the highest rates in the world, along with sub-Saharan African countries like Lesotho, Mozambique and Namibia.

South Africa’s labour market has another important distinction. Only about three million people who are working – about 18% of all employed (16.53 million) – are in the informal sector. That’s much lower than other developing countries. For example in India and Ethiopia, up to 50% of those with jobs are employed in the informal sector. The figure is as high as 90% in Ghana and Mali.

There are two schools of thought around the role and value of a country’s informal sector. Some argue that it’s an important alternative to the limited opportunities available in the formal sector; a survivalist strategy that allows those without much formal education to work and earn money. In addition, others argue, the informal sector is also an important space for entrepreneurs.

But there are some who disagree, arguing that employment in the informal sector tends to be poorly paid and precarious. A mere 20% of informal sector employees are hired permanently, compared to 70% of those in the formal sector.

Little is known about how many people transition between the two sectors, a phenomenon called “churning”. Addressing this knowledge gap is important for a number of reasons. These include the fact that informal workers may be spending some time in the formal sector, getting valuable skills and work experience to boost their chances at formal employment, with the hope that they eventually settle permanently in the formal sector, which would be good news.

Conversely, knowing whether there’s a high rate of transition from the formal to the informal sector would be cause for concern because it would suggest high rates of retrenchment and fewer formal job opportunities.

The data

We set out to understand “churning” between South Africa’s formal and informal sectors. To do this we analysed data from the country’s National Income Dynamics Study – a study that was conducted four times between 2008 and 2015 by the Southern Africa Labour and Development Research Unit based at the University of Cape Town’s School of Economics.

We found there was a lot of movement between the informal and formal sectors during these years. But there were very few instances of people making successful, lasting transitions from informal to formal sector employment.

This emphasises South Africa’s skills mismatch. The formal sector requires skills that those in the informal sector simply don’t have. More education and support is necessary to bridge this gap.

Our data were drawn from the National Income Dynamics Survey, which is the first national household panel study in South Africa. It examines the living standards of individuals and households over time.

By analysing data from the four waves of the study we were able to make some key findings about churning, and about the informal sector more broadly. These included:

  • Only 8% of those surveyed were inactive (7%) or unemployed (1%) in all four waves – that is, throughout the seven-year period. About 54% were employed in one to three waves, meaning they worked transitorily but not continuously;
  • only 3% worked in the informal sector in all four waves;
  • only 12% always worked in the formal sector during the seven years under review; and,
  • 8% of individuals worked throughout the seven years under review but transitioned between the two sectors.

These results clearly indicate that a high proportion of the labour force participants have been in and out of employment (which is not surprising, given the country’s high unemployment rate), some workers enjoy the privilege of always working in the formal sector, and most importantly, churning between the informal and formal sectors definitely takes place to some extent.

The findings also emphasised how precarious the informal sector is. For instance, 67% of those who started off working in the formal sector in 2008 remained there seven years later. This suggests that for those who initially secured work in the formal sector, retrenchment likelihood is not as high as perhaps anticipated. The retention figure in the informal sector was just 39%. Only 27% of those in the informal sector successfully transitioned to the formal sector.

The country’s many social inequalities were evident in the data. Black women without school leaving certificates aged between 25 and 44 years were most likely to remain in the informal sector. Highly educated white men living in the urban areas of Gauteng and KwaZulu-Natal provinces were most likely to successfully transition from the informal to the formal sector.

Filling the gaps

Given what we’ve learned from this research, how might the government and policy makers deal with those who “churn”?

First, the country’s education system must do more to produce skilled labour in the areas the economy requires. Formal firms could help here, by providing assistance and information on what skills are needed and how to develop these. This implies that strengthening the partnership between industry and universities is important, as this would help those who are able to access higher education.

Those who don’t go on to higher education, or don’t complete their secondary schooling, also need to be helped. The government should more actively provide workshops and specialised assistance to enhance entrepreneurship skills and advise small informal firms on growth strategies. These incentives will assist in their growth, long-term sustainability and successful transition to the formal sector.

In addition, larger, more established formal firms can also play a role by helping to develop and train informal sector workers and providing expert guidance to informal firms. This assistance can be incentivised through tax reductions and the prospects of a larger collective market via the informal sector.

Lastly, the government should continuously alleviate the numerous barriers to the informal economy. These include limited credit and training opportunities, poor infrastructure and the red tape that makes it difficult to start a business.

Moegammad Faeez Nackerdien Lecturer, University of the Western Cape

Derek Yu Associate Professor, Economics, University of the Western Cape

-The Conversation

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Economy

Towards One Africa

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In the alphabet soup of regional African trade blocs, will the AfCFTA ease the cost of doing business on the continent?


Ghana has been named the host of the African Continental Free Trade Area (AfCFTA) following four years of talks to form a 55-nation trade bloc. It will be the base for the AfCTA secretariat.

The opportunities for Africa with this new trade bloc are immense. The Economist Intelligence Unit estimates that the AfCFTA will create the world’s largest continental free-trade area, provided all 55 African Union (AU) members join, and has the potential to create an African single market of 1.2 billion consumers whilst eliminating about 90% of tariffs on goods over the next five years.

So far, 44 African countries have signed up for the historic agreement, the world’s largest free trade area since the formation of the World Trade Organization.

READ MORE | Amid Trade Wars, What Africa Must Do

The AfCFTA is expected to boost the economies of African countries through employment creation and the promotion of made-in-Africa goods. But Kayode Akindele, a partner at TIA Capital, a pan-African investment partnership focussed on credit-based investing across sub-Saharan Africa, is not opening up the bubbly just yet.

“We already have ECOWAS [Economic Community of West African States] which doesn’t seem to be working and so why don’t we sort that out first before we enter a continental trade agreement for Africa?”

And he is not alone in his concerns.

“There are other factors we need to also consider. Firstly, with the implementation of the AfCFTA, goods made in other continents could be disguised as made-in-Africa to qualify for duty free treatment. There could also be a reduction in government revenue and also this trade bloc also threatens the profitability and survival of infant industries,” says Vincent Acheampong, an economist based in the United Kingdom.

READ MORE | Ghana Hopes To Benefit From Hosting Africa’s Free Trade Area Secretariat

Of the regional blocs in Africa, including EAC (East African Community) and SADC (Southern African Development Community), the ECOWAS has some way to go in terms of performance, according to Muda Yusuf, the Director General of the Lagos Chamber of Commerce and Industry, in an interview with CNBC Africa. But he believes there is still reason to be optimistic.

“A continental trading bloc is going to build on the success of the regional blocs like ECOWAS and other blocs across Africa. So, this integration is going to build on those blocs. In terms of performance, of course ECOWAS is the least performing because East Africa is doing very well and South Africa is doing far better also. But there is no perfect time for things like this, what is important is for us to get a conviction that economic integration will work for us and also if we can get our institutions to make it work,” says Yusuf.

Amongst the many challenges of the ECOWAS is its failure to implement its vision of a single currency, the ECO, which is part of its plans to make Africa a more integrated continent. That vision has been postponed several times by the 15-member group with the newest target date set for 2020 although most experts believe the date to be unrealistic.

The success of the AfCFTA requires not only a trade policy but also a manufacturing agenda, competition, industrial policies and property rights to work well according to Vera Songwe, the Executive Secretary of the UN Economic Commission for Africa, in a statement at the launch event that took place in Niamey, Niger.

READ MORE | Trade Wars: We’re Next, European Investors Fear

The ninth edition of the flagship Assessing Regional Integration in Africa report (ARIA IX) stipulates that AfCFTA’s success will be due to its ability to actually change lives, reduce poverty and contribute to economic development in Africa.

In support of the new trade bloc, Ghanaian President Nana Akufo-Addo pledged to donate $10 million to the AU to support the operationalization of the secretariat of the AfCFTA.

Although the AfCFTA will be economically transformative for Africa in the long-term, the immediate benefits will be restricted due to the macro-economic uncertainties of regional trade.

“Most African countries are currently not producing the goods and services that their neighbors import, as a result we do not trade a lot with each other. It is easier for an African country to trade with a country in Europe than a country that lies right next to it and these low levels of intra-African trade need to be addressed before we can reap the full benefits of the AfCFTA,” says Acheampong.

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Economy

The Blue Economy: ‘Billions Of Dollars In The Ocean’

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From the Caribbean to the South African coast, marine  archaeologist Matthew Arnett’s work involves recovering treasures from the deep – and preserving them for posterity.


I have a pet peeve with people like Elon Musk who want to jet off to space,” remarks Matthew Arnett, who has made it his business to explore the depths of the world’s oceans.

“I would think 99% of the sea is left unexplored. I believe there are answers there that come from energy and renewable resources. There is a twilight zone that we don’t even know is there, and they want to go to Mars!” 

 It is the planet we are in that Arnett, the co-founder and CEO of PO8, has made his priority, uncovering treasures that date as far back as the 1400s.

READ MORE | How Investment in Irrigation Is Paying Off for Ethiopia’s Economy

“Millions should be spent under the ocean instead of jetting off to space so quick. There are many aspects of the blue economy that have not been explored and there are so many opportunities that come out of it,” says the explorer who is based in the Caribbean and visiting South Africa.

PO8 is a marine archaeology startup that uses blockchain technology to recover sunken artifacts from the ocean floor.

Using the blockchain model, through PO8, ownership of the recovered treasures and artifacts is with non-fungible tokens, which are asset-backed tokens.

Arnett says the sensitive, more lucrative approach is preserving these artifacts in museums and not giving them away to private collectors.

“They [the artifacts] have to stay in the public domain and that is why there are the museums.”

With innovative ways of looking at the blue economy, the PO8 project, based in the Caribbean, also aims to connect lost histories across the globe.

The growing historical tourism market in the Caribbean generates revenue without selling any of the recovered artifacts, leading to social and economic impact that he says can be duplicated in Africa.

“Because of the success in the Caribbean, it only makes sense to come back to Africa to put the same model in place.

“There are millions and billions of dollars in the ocean,” Arnett says.

“We are going to find other things that relate back to Africa, so we might also be able to find some missing links from an anthropology stand point.” 

He believes his work contributes to transforming the narrative of the Caribbean that’s often only known for tourism. “When you look at the Caribbean, it is no longer just sun, sand and sea; there is a tech tsunami that is coming,” he says.

READ MORE | Jeff Bezos And Elon Musk Want To Get To The Moon—They Just Disagree On How To Get There

“I am from an island known for pirates. There is a pirate who was able to withstand the British government for 31 years while the British government controlled other parts of the Bahamas. He used the Bahamas as his treasure chest… and that blood is soaked in the soil; that is out of which I am born. I was raised with these stories of piracy.”

 As Arnett taps into new knowledge systems, he believes that there is value in ensuring that all have access to his findings.

“These artifacts are open to anthropologists, archaeologists, or to university programs all over the world to come to the Bahamas and study these objects to draw parallels between other pieces and artifacts that might be similar to them. Essentially, we are telling the story of our past in a way that it can be globally accepted and people can own a part of history.”

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Agriculture

Cyclone Idai Aftermath: No Maize, No Money, No Future

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The deadliest African cyclone, to date, tore through Zimbabwe, Malawi and Mozambique in March, leaving a trail of death and destruction. The worst is yet to come for survivors.


The deadliest cyclone to ever hit Africa, Idai, overnight, ripped through Mozambique and then tore into Zimbabwe and Malawi, leaving a long trail of destruction in its wake.

Trees were uprooted, so were people, in the millions.

Roads were washed away, houses destroyed and bridges torn from their edifices. Worst of all, the raging muddy waters killed at least 847 people, affected about two million and destroyed several hundreds of thousands of crops. The devastation caused by the cyclone is almost unimaginable as, in these three countries, bodies could be seen floating in water where there used to be villages.

“This was unimaginable. I am in the military but I have never seen such. People are desperate for help and have lost everything,” says Brigadier General Joe Muzvidziwa, who is helping survivors in Zimbabwe.

For those who did survive, the worst is yet to come. Many of them will mourn the deaths of their loved ones on empty pockets and growling stomachs.

The drive to Zimbabwe’s hardest hit district, Chimanimani, is long and painful. A mere six days after the furious waters swept away most parts of the villages in the area, the ground is dry but the pain and destruction still palpable.

We struggle to drive into the villages as trees and debris still block the roads and bridges have been decimated.

We continue our journey on foot and meet many with no place to call home. One of them is Tsitsi Mungana.

Tsitsi Mungana in the aftermath of Cyclone Idai. Picture:

As we meet, she is trying to climb over a tree blocking the road, to make her way to aid agencies for her first decent meal since Cyclone Idai. She is walking barefoot and is wearing the only dress and doek (headwrap) she now owns. She mutters a few words to herself as tears stream down her cheeks.

“It’s been the worst time of my life. I don’t know how I am going to move on from this. I don’t have anything else left. My husband was swept away by the floods and was found about 10km away… We spent hours looking for my grandson. The rocks which fell off the mountain due to the heavy rains and wind covered his body and it took many people to find him. All our belongings and livestock are also gone,” says Mungana as she begins to weep uncontrollably.

She is one of hundreds of families who have lost loved ones, and thousands who are most likely going to starve this year.

According to Wandile Sihlobo, Chief Economist of the Agricultural Business Chamber of South Africa (Agbiz), Mozambique, Zimbabwe and Malawi will collectively have to import over a million tons of maize this year to feed its people.

He says Zimbabwe’s maize imports could reach 900,000 tons in order to meet the annual needs of roughly two million tons a year.

“Meanwhile, Mozambique will most likely double the typical maize import volume of about 100,000 tons a year,” he says.

It’s going to be hard to find suppliers of maize because the key suppliers, South Africa and Zambia, are expecting low harvests this year.

“If we assume that South Africa’s expected production of 10.6 million tons materializes, then the country could have about 1.1 million tons of maize for export markets. A large share of this will, most likely, be destined to the BNLS countries (Botswana, Namibia, Lesotho, and Eswatini), thus leaving a small volume for Zimbabwe and Mozambique,” Sihlobo says.

There is also very little to be expected from Zambia as the International Grains Council forecasts the country’s 2018/19 maize harvest at 2.4 million tons, down by 33% year-on-year. This will be enough only for domestic consumption.

Cyclone Idai also affected trade.

In its wake, according to the UN Economic Commission for Africa Executive Secretary, Vera Songwe, the cyclone cost Africa infrastructure worth more than a billion dollars.

Port of Beira, the main corridor for Zimbabwe, Zambia, Malawi and Eastern DRC, closed its doors.

“We closed the port two days before the cyclone hit to allow us time to prepare for it by reorganizing and removing all potential hazards. There was a lot of damage to the port. It took another two days to clean up and, at least, make the port accessible. The damage was several millions of dollars. We are currently in talks with insurance to know how much exactly. It will take time and money to fix everything up. We are currently improvising just to make sure business goes on,” says Jan de Vries, Managing Director of Port of Beira.

Jan de Vries, Managing Director of Port of Beira.

Before this disaster, Beira port controlled 60% of the country’s imports and 40% of its exports.

“We handle about 300,000 containers per year and about three million tons of general cargo per year and a lot of fuel but we had to put services on hold… On the first day, it was tough to go around. Nearly all the roads were blocked, to some extent, with trees, electricity cables and many things. There was a lot of destruction. A lot of roofs damaged, buildings completely collapsed. This place looked like a warzone,” de Vries says.

He says at the port, roofs, doors and warehouses were destroyed but they are lucky because it is currently low season.

“Electricity supply had been cut off but we are very impressed by the government because power is being restored. Technicians from all over the country are working hard. Major industries have been reconnected and a few residential areas are now being connected. Rail and road infrastructure is also being fixed. Although we have to struggle a bit, we have opened the port and business continues,” he says.

The president of the Confederation of Zimbabwe Industries (CZI) Sifelani Jabangwe says Beira is one of the major ports for the SADC (Southern African Development Community) region and its closure, no matter how short-lived, affected trade.

“Zimbabwe imports fuel and wheat through the Port of Beira. The closure caused a strain on the supply of these two commodities. We had trucks that were stuck in Beira for a number of days. The bigger impact is also on businesses located on the eastern sides of the country, like timber estates, fruit and tea producers, and even the diamond company, in that area, is now revising its targeted output because of the flooding,” Jabangwe says.

Henry Nemaire, the Chairman of the CZI Trade Development and Investments Promotion Committee based in Mutare, says most businesses have been severely affected and are looking for funding to rebuild.

“Some businesses are in areas that can’t be accessed with 30-ton trucks which they used to move their goods like timber… Power lines are cut off and there are issues around water supply systems which have been damaged. Smaller businesses were the most affected. Most of them are now trying to apply for loans to get new trucks and rebuild so they can get back on track,” Nemaire says.

Jabangwe agrees with Nemaire. He says it will be a long and harsh road to recovery.

“We are still waiting for reports from various companies affected by the cyclone which should start coming in soon so we can understand the actual loss that has occurred… there are already teams working with government to import the required maize to feed the country. We need additional support to make sure that people are catered for. We would need to feed people in that area for at least 12 months, which means a full-fledged program has to be put in place,” he says.

Cherukai Mukamba, a local smallholder farmer, says he relied on farming to make money. “I would sell maize and chicken, and sometimes cows, to make money to be able to take care of my children. A week before the cyclone, I had hired people who were going to help me with harvesting when the time came,” he says.

Cherukai Mukamba, a local smallholder farmer.

Like many in this area, Mukamba spent the night fearing for his life and that of his family.

“I was asleep and was woken up by very loud winds that I have never heard before. I went outside to look and right in front of me, was a bus rolling down the mountain. I could hear people scream and it crushed them before my eyes. I tried to go help but it pouring and I could see rocks fall off the mountain right into the fields and I had to go back in the house and say a prayer.”

The next day, Mukamba says he woke up to the biggest horror.

“Everything was destroyed; all my crops, livestock and part of my house. I went to check on the bus but didn’t find anyone inside. I heard that there had been three people in the bus and their bodies were found over 100km away. I couldn’t believe it. It is the worst thing to ever happen to us,” he says.

Mukamba’s story is one of thousands of stories in Zimbabwe, Malawi and Mozambique.

These countries have weathered many storms over the years like Cyclone Leon–Eline and poverty, but this massive natural disaster will go down in history books as the worst and southern Africa will bear its scars for generations to come.

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