The sixth Survey of Employers and the Self-employed shows some interesting trends in the informal business sector in South Africa.
Most of the 1.9 million informal businesses in South Africa are run without the owners having a permit or license, while just more than half of them are run by people who did not complete matric.
According to Statistics SA’s Survey of Employers and the Self-employed 2023, the total number of people who ran informal businesses declined from 2.3 million in 2001 to 1.1 million in 2009, before increasing to 1.8 million in 2017 and to 1.9 million in 2023.
Statistics SA compares the data for the informal business surveys for 2001, 2005, 2009, 2013, 2017 and 2023 to provide information about the characteristics of businesses in the informal sector in South Africa and provide an understanding of their operation and access to information and services.
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Survey supplements Quarterly Employment Statistics Survey
The information in the latest report supplements the Quarterly Employment Statistics Survey that collects information from formal sector businesses that are registered for value-added tax (VAT) to:
- determine the contribution made by businesses not registered for VAT towards economic growth
- collect reliable data about people running businesses not registered for VAT
- identify the non-income tax paying and income tax paying businesses among the non-VAT paying businesses and
- produce comprehensive statistical information about informal sector businesses at national and provincial levels.
There is currently no sampling frame to base weights and raising factors on for unregistered businesses in South Africa. Therefore, Statistics SA says, the survey is a household-based survey, consisting of two phases.
The first phase involves identifying individuals who run businesses based on the Quarterly Labour Force Survey (QLFS) conducted in the third quarter of each year, while the second phase involves a follow-up interview with the owners of these businesses to determine the nature of their businesses.
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Survey shows most people had only one business
Findings from 2023 show that roughly 98,4% of informal business owners had only one business and the majority of them have been operating the business for more than a year but not more than three years (22,5%).
The second-largest percentage was recorded among people who have been running their businesses for more than 10 years (22,4%). Gauteng (28,9%), followed by KwaZulu-Natal (16,8%) and Limpopo (15,8%) had the highest share of informal businesses in 2023.
The survey shows that women were more likely to run informal businesses compared to men between 2001 and 2005, while men became more likely to run informal businesses than women between 2009 and 2023.
The majority of informal businesses were in the trade industry (48.2% in 2023), with most of them operated by women (51.0% in 2023). The manufacturing industry (69,1% in 2023) had a higher proportion of businesses that used raw materials compared to any other industry, while the trade industry (53,1% in 2023) had the highest proportion of businesses that used supplies compared to other industries.
The highest proportion of the working-age population running informal businesses between 2001 and 2023 were black Africans, but their proportion declined by 4.7% from 9.7% in 2001 to 5.0% in 2023.
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Survey shows most informal businesses run by older people
Another interesting fact the survey highlighted was that the proportion of the working-age population running informal businesses increased with age and peaked at 45 to 54 years between 2001 and 2023.
The big change was in keeping business records, with roughly 72% of non-VAT registered businesses not keeping financial records in 2023, a decrease from 80.5% recorded in 2001. In 2023, 56.8% of people running these businesses had less than a matric qualification.
In addition, about 89.3% of persons who ran informal businesses in 2023 did not have a licence or permit, while the majority who had licences or permits (44,1%) obtained them from a municipality or provincial authority.
It is a well-known fact that informal businesses do not have easy access to funding and the survey showed that more than 80% of people running non-VAT registered businesses used their own money to start their businesses in 2023.
It is, therefore, no surprise that more than nine in every ten informal businesses had no business debt, credit facility, mortgage loan or asset finance between 2013 and 2023. In 2023, 74.4% of informal businesses did not have bank accounts and the majority of those who had bank accounts mainly used them to make business payments.
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Survey shows unemployment biggest reason for starting informal business
The main reason people started informal businesses was unemployment or lack of alternative income sources, accounting for 57.1% of the business owners in 2023. In 2023, 88.7% of employees in informal businesses were paid employees compared to 65.3% in 2001, with the majority of employees in informal businesses working in the trade industry (33.9%).
The majority of the employers running non-VAT registered businesses accumulated total labour costs below R1 500 between 2001 and 2017, while in 2023 the majority incurred labour costs above R1 500. The proportion of those who accumulated total labour costs of more than R6 001 increased from 2.8% in 2001 to 18.8% in 2023.
The survey also showed that the proportion of people running informal businesses with a turnover between R3 001 and R6 000 in the last month was higher among men compared to women, while there was a huge gender gap of about 10.3% for people who had a turnover of above R6 001, where men recorded 24.8% and women 14.5% in 2023.
More women than men recorded net profits below R1 500 between 2001 and 2023.
According to the survey the highest proportions for people who had a turnover above R6 000 in the last month of 2023 were in the secondary sector (26,8%), while the highest proportions for those who earned net profits above R6 000 in the last month were also in the secondary sector (15,5%) in 2023.
