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If your response to vendors plying their trade on South African streets is one of pity and despair, you need a lesson on the power of Africa’s informal economy, according to author, entrepreneur and informal business guru GG Alcock.
Alcock says that the informal business sector is the next great frontier of Africa and it is undergoing an economic revolution. “This is a new world of small people doing big things and transforming the continent,” he asserts. “Not only are these outlets and traders paying VAT on their substantial purchases but they are employing people and bringing in household incomes on a massive scale.”
In a presentation at the inaugural Africa Supply Chain in Action Conference and Exhibition, Alcock shared his insights with hundreds of supply chain and procurement professionals from around Africa. This online event was hosted by SAPICS (The Professional Body for Supply Chain Management) and Smart Procurement.
Outlining the massive misconceptions around informal businesses, Alcock cited the example of an enterprising businesswoman and her husband who work on a street in downtown Johannesburg and sell around 3 000 vetkoeks every day at R1 each. They also sell polony, cheese slices, tea and coffee. Operating with a 50% margin, their business makes at least R1 000 a day, Alcock said, adding that the couple has been in business for 11 years.
Another example that he shared with ASCA delegates was that of a mother who has been selling snacks outside a school for 26 years. Working just three hours a day, five days a week, she has put two children through school. Alcock notes that there are around 60 000 “school mamas” like her selling snacks and meals at township schools.
“These are not subsistence or survivalist traders. This is a substantial sector. There are 500 000 hawkers or tabletop vendors each earning up to R3 000 each a month in profit. Informal food takeaways, called ‘kasi kos’ turn over more than R90 billion a year and employ around 200 00 people. The muti market is worth R18 billion in turnover, employs almost 150 000 people and serves 27 million customers. There are more than 70 000 ‘hole in the wall’ spaza shops, 30 000 spazarettes (informal supermarkets) and cash and carries turning over more than R150 billion rand a year. We have got 150 000 hair salons ranging from home backrooms to colourful corrugated iron structures that offer the latest hairstyles and sell hair pieces. They turn over R10 billion in stylings and cuts alone. There are around 80 000 informal auto businesses, where kasi mechanics offer vehicle services, panel beating, car washes, tyres and sound systems. The multitude of other businesses in the informal sector includes kasi building contractors and service providers like plumbers and electricians, as well as taverns, shebeens, funeral parlours, property and financial businesses. Consider backroom rentals and stokvels,” he said.
Alcock contends that the future of business in Africa will be fragmented markets, with thousands of small businesses, like the Uber or Airbnb model. “Already worldwide, malls are dying and neighbourhood markets and stores are growing. In Africa, it will take a long time before everyone can access online grocery shopping but the neighbourhood trader, like the spazarette, will grow in importance; the mobile or street-based vegetable seller will flourish over the vegetable supermarket.”
For manufacturers, the informal sector represents a vital route to market in Africa. For supply chain and procurement professionals, the challenge is servicing the informal sector, says SAPICS president Keabetswe Mpane. “How do you deliver not to a distribution centre or a small number of super stores, but rather to a multitude of small businesses? These customers want small deliveries regularly, so there is no need for big trucks. There are geographic and payment challenges. There are opportunities to develop and leverage technology to optimise their supply chains. SAPICS is committed to supporting this critical sector and to assisting the supply chain professionals servicing it by creating a membership category specifically for SMEs and planning education and events around this imperative sector of our economy,” she concludes.