Hello and welcome to the So What podcast, in
which political economic analyst J .P. c
discusses the issues uppermost in the minds of
South Africans. You can find a written version
of this content on J .P.'s website, jplandman
.co .za. I am Ruda Landman, and I am your host.
This podcast accompanies J .P.'s newsletter dated
the 21st of July, 2025. under the title Getting
a Grip on the Informal Sector. The outgoing Capitec
CEO, Harry Fourie, generated quite a debate recently
on South Africa's informal sector and the unemployment
rate. And this is in response to that, right
JP? Yes. Where did you go to find information?
Well, I paid a visit. I went to see Joe de Beer,
who's the Deputy Director General at Stats SA,
responsible for economic statistics. And he was
very helpful, very generous with his time and
experience. And he's clearly a guy who's got
his feet very, very firmly on the ground. He
knows what's going on. I also relied on reports
by the Bureau for Economic Research at Stellenbosch
and also on work that was done by Professor Johan
Verrie from the Stellenbosch Economics Faculty.
So those three sources helped me to try and come
to grips with this rather complex topic. Okay,
so let's start with the basics. How is GDP determined?
That is indeed the starting point. We follow
in South Africa the international standard of
SNA, and SNA is simply a system of national accounts.
It is run by the United Nations. It was started
in 1947. The first one was issued in 1953, and
there are regular updates, and the latest update
was in 2025. So what we can see is that there
are many, many people in many countries in the
world over many decades who are seized with this
matter. And South Africa obviously is one of
them. If you say it was published, what was published?
Is it a kind of template? It's a template. It's
a template with rules and standard formulations
that must be used. So it's really a globally
synchronized and globally standardized system.
And South Africa applies that. Now, what happens
is that the S &A, the System of National Accounts,
measures the transactions that take place in
the economy through three accounts, a production
account, an expenditure account, and an income
account. And basically what happens is you trace
the flow of money as money moves through the
economy, and you capture it in the different
accounts. And that gives you a bird's eye view
of what's going on in the economy. That bird's
eye view is what we call GDP or gross domestic
product, which all our listeners will be familiar
with. Now, it is very important to note that
gross domestic product is the value added by
all economic actors. So whether you're a household,
individual, a podcast studio, a bank, a mine.
They're all economic actors. And the issue is
how much value do they add onto the economy?
Why is this important? It is only about the value
added. You have to deduct from what an economic
player produces, a bank or a podcast studio.
Whatever they produce, you have to deduct the
input cost. What does it cost them to produce
that good or service? If you don't do that, you
do double counting. And you don't want to do
that. It'll give you a completely wrong reading.
And many of the Qazi economics people, if I can
call it that, make this basic mistake of not
deducting the input costs. And then you sit with
unreliable data. Unpack it in terms of, say,
someone who sells tomatoes on the street. OK,
let's take a street vending lady selling on the
street tomatoes and sweets. Let's say that she
makes 2000 rand a day. That is what she takes.
That's her total income. And now, of course,
she's registered nowhere. So she doesn't appear
in any system. And it's all cash. And it's all
cash. And now people say, well, we missed that
2000 rand in our economic statistics. That is
not quite true. First of all. Our street vending
lady is buying her product somewhere. She may
buy it from the fresh produce market. She may
buy it from a fruit wholesaler. She may buy it
from a next door neighbor who happens to grow
tomatoes. That's quite possible. The next door
neighbor is not giving it to her for free. So
let's assume of the 2 ,000 rand sales that she
had, that she had 1 ,000 rand in cost to procure
the goods that she's selling. Then she has got
some other costs. Let's assume that she's spending
50 Rand on getting to the place, the spot where
she's selling it. And let's assume that she's
paying another 50 Rand to a youngster who helps
her to carry the goods and look after the store
for the day. So she earns 2 ,000 Rand. The basic
input cost is 1 ,000. There's 50 Rand transport
cost. There's 50 Rand to an assistant. That's
100 Rand. She nets 900 Rand. And what you capture
in the production accounts is the R1100. How
do you mean what you capture in the production
accounts? Well, the sales that are made by the
fresh produce market or the sales that are made
by the shop that sells the tomatoes. Her purchase
is their sale. And so it will be recorded there.
So it's counted on their books? It's counted
on their books. Now, what we haven't explained
yet is the 900 Rand out of the 2 ,000. What happens
there? Well, that 900 Rand gets spent. Even if
she puts it under the mattress for a week or
two, at some point it gets spent, spent on her
personal... food and clothing and transport the
things that people spend money on that is after
all why she's doing the street vending is to
generate money for her own existence and the
900 rand goes into the economy and it's picked
up by the various people who sell her the services
so if you if you look at it from these two sides
you can see that most of the 2000 rand gets captured
wherever it is getting captured but of course
it's realistic to say that not every rand in
the economy gets recorded. It is only realistic
to say that some money will flow around that
we do not capture. Now, how much? How much? That's
the big question. I found it interesting that
StatCSA themselves acknowledges in the way they
present these figures that there will be some
money which is not counted anywhere. Absolutely.
And what's their thumbsuck? So their thumbsuck
is 8 % of the economy is informal. And there
are various ways, again, international benchmarks,
what other countries are doing. Now, Joe De Beere
made it quite clear to me that he thinks that
may be a little bit too low. That could go up
to 9 % or even 10 % of GDP. Now, when the next
rebalancing of the economy is done, which is
done every five years, they will probably up
that 8%. But let's just work with that 8 % that
we've got. Now, the interesting thing is if you
look at 2023 numbers in the economy, that 8 %
would amount to 562 billion rand. That is more
than the entire mining sector in 2023, which
only came to 444 billion. So just think about
that. The imputed informal sector, 562 billion.
The entire mining sector, that's platinum, gold,
diamonds, coal, even stone quarries, all of that.
only came to 444 billion. So the informal sector
measured by this standard is bigger than the
mining sector. And I think that should give comfort
to people that we actually capture most of the
data somewhere in the economy. You can fit a
hell of a lot of informal transactions into 562
billion rand. whether it's the tennis coach taking
cash only, whether it's your doctor or dentist
taking cash only, whether it's our street vending
lady, whether it's a spa or shop, whether it's
a brothel. The money goes out and somewhere it
gets captured. So I think we can rest assured
that by and large, we know we have a grip on
how big the sector is. What does this mean in
terms of unemployment? That's where things become
very interesting. The unemployment numbers that
got the Capitec boss animated is the fact that
StatsSA said in the first quarter of this year,
our unemployment rate is 33%, 32 .9%, make it
33%, or 8 .2 million people. And against that,
there were 16 .7 million people, more or less
double the number, who were actually working
and were employed. And he felt that these numbers
are not right. Now, on what basis did he say
that? He said that because Capitec has got 24
million individual clients. They have 8 .8 million
fully banked clients. I'm not sure precisely
what that means. And they've got 13 million active
users of the Capitec app. And he says those numbers
tell him that the unemployment rate must be much
lower. The problem with that approach is those
numbers from Capitec do not tell us who is employed,
who is unemployed, who is on a social grant,
who is receiving a COVID grant, who is a pensioner
that receives a pension but has got a Capitec
account. You cannot draw just from that data
conclusions about unemployment. I think that
would be very wrong. So how does Stats SA do
the unemployment measurement? They have 33 ,000
households. which they survey every quarter,
four times a year. And there you ask people questions
around, have they earned money in the past week
from working? Are they working somewhere? Is
it a fixed full -time job or a part -time job?
That sort of thing. And from these household
survey, they then calculate the unemployment
number. Now, the criticism is, first of all,
that the sample of 33 ,000 houses It's based
on the 2011 census, which is old, it's long ago.
That's not quite correct. That number gets updated
with regular other stats essay surveys. So it's
not a number just from 2011. But is 33 ,000 enough?
Yes, it is. You know, again, these things are
done in terms of international comparisons and
international benchmarks. And we're a country
of about 60 million people. We do 33 ,000 households.
It's comparable to a country like the UK with
also about, what, 60, 65 million people using
even fewer households. So, yes, it is enough.
And what about the question, Mark, about the
honesty of the respondents that people don't
want to say? that they have earned money. Well,
that's a good point. And that goes to the quality
of the interview between the respondent and the
stats essay official walking around asking the
questions. But I think, you know, you must give,
it's difficult to determine that, but I think
you must give some credit to people who's got
experience of this working around that problem.
But it is quite possible that there's room for
error. I think that is possible. So what do we
learn from this? I think what we learn is that
Capitec obviously sits on very valuable information
and so do all banks. It's not just Capitec. And
if one can combine the information that they
have with StatsSA data, we may get a much better
reading of the unemployment problem. StatsSA
uses a survey method. Maybe one can supplement
the survey method with data from the banks. Now,
of course, you'll have to get the banks to cooperate.
They'll have to make their data available on
an anonymous basis and so on. It's not an easy
thing to do, but there are people who feel that
you can do that. And if the Gadifuri debate,
if I can call it that, if it results in that
kind of cooperation between the banks and Stats
SA, I think it would have been worth all the
carbon dioxide that was ejected. So in summary,
so what? I think in summary, the first thing
to remember is that you will never have 100 %
accurate numbers. Forget that. The question is,
can you be 90 % or 85 % correct? That is, I think,
the benchmark to apply. The second thing is certainly
that anecdotal evidence is not good enough. When
you talk about something as complex as an economy
involving 62, 63 million people to say, but I
had this or that experience is not quite good
enough. You're one of 63 million. And I think
one should sort of display a bit of modesty,
shall I put it that way. Thirdly, the system
of national accounts which we run in South Africa
is a robust system. It is applied internationally.
It's applied in almost 200 countries. with similarities,
but also differences with South Africa. So I'd
be very careful to just chuck the baby out with
the barf water. I think we can rely on what comes
out. The current inclusion of the informal sector
in our national accounts is 8%, and that is much
bigger than the mining industry. And it's something
just to think about. South Africa is a mining
country, and there are a hell of a lot of mining
activity. If the informal sector is bigger than
that, then it tells you that we're probably not
missing too much. We will miss some, obviously,
but not too much. And lastly, I think there is
room for cooperation between the banks who have
the data of their clients available and stats
essay and putting it all in a pot and trying
to come to a better understanding. For example,
if you take the banking data and you clean it
up from people who receive grants, which you
can do from ID numbers, it'll give you already
a different picture. If you can clean it up further
from regular payments, which reflect something
like a pension, gives you a further cleanup,
then I think one can come at useful figures.
Thank you very much. That certainly taught me
some things. I'm glad. That's good. Thank you.
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