The debate about South Africa’s real unemployment rate has again shone a spotlight on the informal economy, and whether we are maximising its productive potential.
University of Cape Town economics professor Haroon Bhorat argues that our high unemployment rate is real, not because of poor employment elasticities and restrictive labour regulations, but because the informal economy is not allowed to flourish.
Many of these constraints relate to local government regulations, zoning and the provision of trading infrastructure. However, I would argue that South Africa’s compliance framework for socioeconomic development is also a major constraint, because it overemphasises infrastructure and skills development for the formal sector and misses opportunities for dynamic innovation in the informal sector.
While it is true that many companies are redesigning their businesses to reach consumers in informal spaces, often through digital platforms, this same dynamism is generally missing when it comes to corporate social investment and the fulfilment of statutory socioeconomic development obligations. In fact, such obligations seem to cause many companies to drag their feet on implementation at a time when South Africa needs to maximise its every resource.
One example is the social obligations imposed on mobile network operators (MNOs) to access additional radio spectrum, which could promote innovation in township and rural communities across the country. Typical obligations involve broadband connection of public infrastructure such as clinics, schools and police stations.
But motivated by the DG Murray Trust (DGMT), the Independent Communications Authority of South Africa (Icasa) included the zero-rating of websites of government and public benefit organisations as a condition of licence for new spectrum issued in January 2024. Zero-rating means that people do not have to pay data costs to use that digital content.
This breakthrough could hugely increase access to resources for learning, help young people find educational opportunities, and connect entrepreneurs to new markets. Its value was demonstrated during the Covid pandemic, when mobile network operators temporarily zero-rated the websites of hundreds of public benefit organisations.
Given the legwork involved in building out formal infrastructure, mobile network operators are typically given three years to implement their social obligations. Unfortunately this same timeframe was accorded to the operators to implement the new zero-rating obligations, even though their Covid response showed that it could be done at a large scale within a couple of months.
DGMT has assisted more than 30 public benefit organisations to comply with mobile network operator specifications and apply for zero-rating through Icasa. Their applications seem to have been processed, but there has been no apparent movement on the mobile network operators’ side. Icasa has informed DGMT that it cannot request them to act until the three-year window has elapsed, despite Telkom recently reporting that it has already zero-rated more than 100 government websites. So civil society partners might sit in limbo until 2027, while the country’s children miss opportunities to read and learn, and young people continue to scrounge for data that could connect them to the economy.
No doubt there are logistical and security challenges with zero-rating, but network operators already offer a reverse-billing service to companies, enabling them to pick up the data costs of client transactions so that their customers don’t have to pay.
The question must be asked whether more progress would be made if mobile network operators saw themselves as public innovators and not merely commercial operators with statutory obligations. Perhaps the place to start would be the government granting greater discretion to companies that demonstrate that they are at the cutting edge of innovation for the public good.
We can look to India for inspiration. According to India’s government, the informal sector employs 80%-90% of workers and contributes about 45% to the total GDP. There, a leading home-grown IT company, generating revenues of close to $20bn (about R355bn) a year, not only serves private commerce and industry, but its technologies also power innovation for the benefit of all of society. Its open-source identity platforms have enabled governments in five countries to connect millions of people to health care, education and banking; and the company is behind an initiative providing free access to quality online learning for students and educators in underserved communities across India.
This is the sort of creative collaboration across sectors — government, business and civil society — that South Africa urgently needs.
• Harrison is CEO of DGMT
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