Second best?: trends and linkages in the informal economy in South Africa

The concept of the "second economy" (the informal sector) is increasingly part of policy rhetoric at all levels of the South African state. Arguments about the relationship between the mainstream of the economy and the periphery have characterised much of South Africa's economic history. This paper analyses the nature and extent of the informal economy in South Africa. It examines the efficacy of current government support measures to the informal economy, concluding that these are few and far between, patchy and incoherent, and largely ineffective.

The authors discuss conceptual issues and definitions of the informal economy, then examine global, regional and domestic trends. The paper outlines South African government policy on the informal sector, and highlights some linkages between the formal and informal sector.

The paper concludes that:

• national government lacks a clear and coherent policy toward the informal economy - something it urgently needs to do in order to provide programmatic support for informal economy activities
• the informal economy is not, as suggested by the ANC, structurally disconnected from the formal economy - large numbers of workers may be moving regularly between the formal and informal economy, and much of what is considered to be the "formal economy" is acutally being informalised
• understanding formal/informal linkages, and the fact that the informal economy is made up of a heterogeneous set of economic activities would point to policy which has to be sectorally-based
• the "second economy" arguments of the government are based on the premise that the mainstream of the economy is working rather well, and government action is now needed to enhance the linkages between the first and second economy, and to provide opportunities for those trapped in the informal sector - this dualist conception of the economy is misguided because it hides some of the "losers" of government policy and because it continues to keep elements of the economy invisible and therefore outside of the mainstream of economic and social debate.

[adapted from author]