As we all know, South Africa’s unemployment crisis is stubborn. Government promises jobs and reform, but the numbers keep moving in the wrong direction. Against this backdrop, the so called” “informal sector”has become a survival engine, employing millions, feeding households, and circulating money in townships and rural areas.
This is well documented in books such as Kasinomics written by long time informal economy expert, @GGAlcock.
And yet, this massive part of the economy remains underdeveloped, disconnected, and too often treated as invisible by “formal” businesses. At best, large FMCG and supply companies see the informal sector as a “sales channel.” At worst, they see it as a nuisance, without even knowing what it looks like.
If government cannot practically solve unemployment, then the responsibility—and the opportunity—falls to the private sector. Medium, large, and even smaller “formal” businesses must challenge themselves to build bridges with the informal economy.
These bridges will not only protect livelihoods but also create the conditions for new SMEs, future suppliers, and millions of new jobs.
South Africa’s informal economy covers a wide range of businesses:
• Spaza shops and street vendors: the cornerstones of township retail.
• Minibus taxis and informal transport: moving millions daily.
• Personal services: barbers, salons, mechanics, tailors, repair shops.
• Construction trades: small contractors, plumbers, electricians.
• Agriculture: small farmers and roadside produce sellers.
• Taverns and shebeens: powerful economic drivers but socially damaging.
This is not a small niche, estimates (and there are many) indicate:
• It employs 5–6 million people, about 30% of the labour force.
• It contributes around 6–10% of GDP.
• Most businesses have fewer than 5 employees and earn under R3,000–R5,000 per month.
But scale does not equal sustainability. Many are trapped in survival mode, unable to grow, often caused by lack of skills, as I detailed in an earlier blog.
Taverns and Shebeens: A Double-Edged Sword
Taverns and shebeens illustrate the paradox of the informal sector. They are major cash drivers, often linked to large breweries and alcohol distributors, which means much of the profit flows back to multinational corporations, with limited flow into local households.
Telecoms is another example of this; there is substantial sale of pre-paid airtime and Internet access in the informal sectors, vital in today’s economy, but with vendors making tiny margins and substantial revenues flowing out if these areas.
This raises an important truth: if big business services and benefits from trading in the informal sector, they should be investing in these local economies at the ratio of their benefit, at very least .
A smarter engagement with the formal sector means focusing investment where it uplifts, rather than extracts.
Medium and large businesses often overlook the informal sector because they don’t know how to engage with this market. Many businesses owners, have in fact never explored this market place, never mind visited the locations where informal trade or business operate, so have very little reality on what that market looks like, or how it trades..
But here’s why they should:
• Future markets: Township households represent billions in consumer spending.
• Resilient supply chains: Informal retailers and service providers already form part of logistics and last-mile distribution.
• Shared value: Businesses that invest in communities build stronger brands and licences to operate.
• Entrepreneurship pipeline: Many informal traders, if given training and contracts, can grow into formal SMEs.
The challenge now is practical: how do we connect the two worlds?
Here are some concrete ways I believe that businesses can build these bridges, with some tested models that go beyond theory.
1. Conferences & Networking Forums
The Idea: Create spaces—physical or digital—where informal and formal entrepreneurs meet, share knowledge, and build trust.
Example: In East Africa, informal farmers’ cooperatives meet buyers, banks, and exporters at regional trade fairs. These forums demystify requirements like quality standards or delivery schedules.
Impact: Formal businesses gain reliable suppliers; informal entrepreneurs see what it takes to scale.
Your Challenge: Could your business sponsor or co-host such a forum in the community you operate in?
2. Digital Content Hubs & Toolkits
The Idea: Build a mobile-friendly hub with guides for both sides.
• For informal traders: record keeping, accessing finance, steps to register.
• For formal businesses: safe contracting methods, success stories.
Example: GoodApp in South Africa is formalising informal service providers with visibility and business tools.
Impact: Breaks down mistrust and gives formal businesses a clearer view of potential partners.
Your Challenge: Could your marketing or training team create simple, local-language content for informal businesses in your industry?
3. Supplier Aggregation & Group Certification
The Idea: Aggregate informal suppliers into cooperatives or networks, then certify them collectively.
Example: Kenyan cooperatives help smallholder farmers supply supermarkets.
Impact: Spaza networks could negotiate better wholesale rates and ensure supply for FMCGs.
Your Challenge: How could your procurement team pilot a supplier network in a township where you already sell?
4. Micro-Franchising Models
The Idea: Low-cost, branded franchise kits for township entrepreneurs.
Example: Hindustan Unilever’s “Shakti Ammas” in India turned rural women into micro-distributors.
Impact: Creates jobs, ensures quality, and builds brand loyalty.
Your Challenge: Could your company design a simplified franchise model in food, retail, or services?
5. Inclusive Finance & Payments
The Idea: Partner with fintechs to ease the transition from cash to hybrid systems.
Example: Mukuru is bridging the gap with digital wallets and remittance tools.
Impact: Informal traders gain credit histories; formal firms gain sales visibility.
Your Challenge: What role could your company play in co-designing or adopting low-cost digital payment tools?
6. Shared Infrastructure
The Idea: Provide cold storage, logistics depots, or shared kitchens in townships.
Example:
Impact: Cuts costs for traders and anchors new supply chains.
Your Challenge: Could your business invest in a shared facility, perhaps co-owned with township entrepreneurs?
7. Incubation & Graduation Pathways
The Idea: Mentor high-potential informal businesses into formal SMEs.
Example: In Brazil, garment worker organisations and clothing clusters like those in Fortaleza are helping informal producers improve quality and meet labour standards so they can supply formal markets. While challenges remain, these efforts show the potential of mentorship and supply-chain inclusion.
Impact: Builds tomorrow’s SME employers.
Your Challenge: Could your HR or procurement team identify 5 promising informal businesses to mentor this year?
8. Competitions & Showcases
The Idea: Run township pitch days or competitions.
Example: The Tony Elumelu Foundation has supported thousands of African entrepreneurs.
Impact: Surfaces talent and creates pipelines for formal partnerships.
Your Challenge: Could your business run—or co-sponsor—a local entrepreneur showcase?
9. Visit the Sites
The Idea: Arrange regular, organised visits by formal business leaders, procurement managers, and even staff teams to informal trading areas around South Africa’s cities and townships. The goal is exposure: to see how these businesses actually operate, understand their realities, and build empathy and trust.
Example: In Lagos, Nigeria, banks and telcos have organised “market storms” direct visits into open-air markets to engage with traders, showcase products, and gather insights. Similarly, in South Africa, one could emulate The Global Exec program specifically for “township immersions” for executives to better understand township consumer behaviour.
Impact:
• Breaks down stereotypes that informal traders are “too risky” or “too small.”
• Helps formal businesses design products, payment systems, and supply contracts that actually fit the context.
• Creates goodwill with communities who see business leaders showing up on the ground.
• Sparks innovation — insights gained from real environments often inspire new services, packaging, or business models.
Your Challenge: Could your business commit to quarterly site visits—bringing decision-makers directly into township markets, spaza clusters, or transport hubs—to meet entrepreneurs, listen to their challenges, and identify partnership opportunities?
As banks push South Africa toward digital payments, cash-reliant businesses risk exclusion, but also protects informal businesses as they are too easily targeted by criminals. Without bridging solutions, millions could be locked out of growth.
The answer lies in hybrid cash-digital systems, co-designed by FinTech’s and corporates, that don’t impose high fees or complex compliance immediately. This is a clear opportunity for formal businesses to innovate—and profit—while helping informal businesses stay afloat.
The informal sector is not going away. Nor should it. For millions, it is survival. But survival alone cannot solve unemployment.
The real opportunity is to build bridges:
• Spaces where informal and formal entrepreneurs meet and learn.
• Digital tools that reduce mistrust and unlock finance.
• Supplier networks and micro-franchises that spread opportunity.
• Incubators and competitions that identify tomorrow’s SME employers.
This is the challenge to South African businesses, large and small:
Don’t just read about these ideas—adapt them to your industry, create your own bridge, and prove that private enterprise can be the engine of inclusive growth.
Or join me in my “Catalyse” program, mentoring small emerging businesses, email me catalyze@fiverc.com if you are interested.
#InformalEconomy #SMEs #TownshipEconomy #InclusiveGrowth #BusinessTransformation #SharedValue #EconomicDevelopment #Entrepreneurship #SouthAfrica #FutureOfWork
