Commentary: Understanding South Africa’s Informal Business Sector

South Africa’s informal business sector has shown notable shifts over the past two decades, with the number of informal business owners fluctuating from 2.3 million in 2001 to 1.1 million in 2009, before rebounding to 1.9 million in 2023, according to recent findings from Statistics South Africa (Stats SA).

In 2023, approximately 98.4% of informal business owners operated a single business, with most businesses running for one to three years (22.5%). Gauteng remained the leading province for informal businesses, accounting for 28.9% of the total, followed by KwaZulu-Natal (16.8%) and Limpopo (15.8%).

A key demographic shift has been the gender composition of informal business owners. Between 2001 and 2005, women were more likely to run informal businesses, but from 2009 onwards, men dominated the sector. Meanwhile, Black Africans consistently had the highest proportion of working-age individuals engaged in informal businesses, though this percentage declined from 9.7% in 2001 to 5.0% in 2023.

Education and financial management remain major challenges. In 2023, 56.8% of informal business owners had less than a matric qualification, and 72.0% of non-VAT registered businesses did not keep financial records. Additionally, 74.4% of informal businesses lacked bank accounts, limiting their access to financial services.

The majority of informal businesses were concentrated in the trade sector (48.2%), with women making up 51.0% of business operators in this industry. Self-funding was the primary means of business startup, with over 80.0% of business owners using personal savings. Lack of alternative income sources remained the main driver for entering the informal economy, cited by 57.1% of business owners.

Despite their financial limitations, over 90% of informal businesses operated without business debt or credit facilities. Most businesses also lacked formal registration, with 89.3% operating without a licence or permit.

These findings highlight the resilience of South Africa’s informal sector while underscoring the need for greater financial inclusion, business support, and regulatory accessibility to help these enterprises grow and thrive.

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