The SA informal sector is booming, rich in opportunity

MEDIA RELEASE

28 OCTOBER 2022

RMB explores opportunities in the informal economy

The South African informal sector (part of the economy that is neither taxed or monitored by the government) – or, in the words of RMB, ‘the main market’ – is a booming market, rich in opportunity. This was the resounding message to emerge from RMB Retail’s recent ‘Kasinomics Revolution’ client event.

RMB’s Sector Head: Consumer and Multinational Corporations, Brendan Grundlingh facilitated a conversation with author, serial entrepreneur and founder of Minanwe Marketing, a leading marketing agency in the mass market, GG Alcock and Jason McCormick, CEO of Exemplar REITail, a market leading developer, owner and manager of township and rural space in South Africa.

Grundlingh says, “At RMB we pride ourselves on approaching the market with a spirit of innovation. The informal sector is a space that embodies our desire to connect with the needs of our clients, and their customers, and respond to the call to do business differently.”

The power of the informal economy is underestimated

GG Alcock’s research into ‘kasinomics’ presents a compelling picture of the informal sector. While the market may be informal, there is significant structure and complexity to it. This is a thriving economy of a size and significance that has been underestimated.

‘Kasinomics’ sectors from food, beverage, beauty, and hospitality, boast compelling figures. Alcock shared that backroom rental earnings are currently valued at R20 billion, haircare alone is valued at R10 billion and fast food a notable R90 billion a year. The size of economic activity here is compelling for the formal sector. The spaza sector, for example, has completely and radically transformed grocery retail – from where people shop, to what customers expect from their shopping experience.

A key lesson is that the informal sector mirrors the formal economy. Any sector in the formal economy can also be found in the informal economy, mirrored in way that has been modified based on the bespoke market needs. Business owners operating in this economy have their finger on the pulse and understand the needs of their consumers in real time – and that insight is paying off.

The informal economy holds opportunities

In the future, the informal and formal economies in South Africa could benefit from each other’s strengths and operate symbiotically. With Africa holding the title of the fastest-urbanising continent on the globe, there is no doubt that this rapidly growing market holds opportunities for those that will cater to its needs.

McCormick called on financial institutions to challenge what they define as economic activity. There is incredible opportunity to capitalise on the growth and spending power of rural areas, but to do this, banks must tap into the wealth of data at their disposal and use this to challenge existing perceptions of the market.

The key lies in understanding the consumer

Informal markets and rural areas boast strong economic activity and are formalizing rapidly. This growth is fueled by discerning, tech-savvy consumers. With consumers gravitating to goods such as high fashion and athleisure, this is not a time to trade down or underestimate their purchasing power. The entrepreneurs in this segment can educate the formal sector as well – many informal businesses are led by strong, female entrepreneurs and it is a disservice to them not to recognise how powerful they are.

What can corporates do to tap into this market? Research and on-the-ground experience is important. As this economy is informal, the data does not yet provide a thorough holistic picture, so corporates need to immerse themselves enough to anticipate market trends and make a call on the future potential.

Pursuing a wide, strategic footprint in the market is important. Informal economies can be complex ecosystems, and their proximity to commuter routes is essential. With public transport now constituting 10% of consumer budget owing to fuel price hikes, there is a growing trend towards localisation of spend. If big business wants to attract consumers, they need to pursue a smaller store footprint at a wide range of high-traffic locations and focus on creating memorable brand experiences that go beyond functionality alone. 

There is also space to cultivate more understanding in the financial services offered in this sector. Trust needs to be established to get more businesses banked, and government needs to foster an enabling environment that supports small businesses. As financiers and governments, we need to consider – how do we enable the informal sector instead of restricting it?

Grundlingh concludes, “At RMB we understand the opportunities within the informal segment and the consumer profile. We are excited about the growth potential of this market and continue to work alongside our clients to grow and make a positive impact in this space.”

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Contact:

Kate Kelly l RMB l kate.kelly@rmb.co.za