Why South Africa’s Informal Economy Is Smaller Than We Think

South Africa’s Informal Retail Paradox: Why Its Size Is So Often Overestimated

I usually avoid writing about the size of South Africa’s informal retail sector because it generates more myth than measurement. Depending on who you ask, informal retailers account for anything from a modest third of FMCG volume to more than 50% of all consumer goods.

The range itself is the warning.

In South Africa, a country struggling to create formal employment and to grow its economy beyond the stubborn 1% mark, it is increasingly framed as a vast, untapped engine of opportunity — a hidden economy that might yet absorb the millions excluded from formal work. In policy circles, boardrooms and development debates, the informal sector is increasingly seen as both a solution and a safety valve for structural failure elsewhere.

The data inaccuracy shapes strategy, misdirects funding, and distorts public perception. South Africa is not Nigeria or Kenya. It has one of the most consolidated, most formalised, most supermarket-dense retail markets in the developing world. Yet it is still routinely analysed through the lens of countries where informal retail genuinely dominates.

Why the Debate Again About the Size of Informal Retail?

In mid-2025, Gerrie Fourie, former Chief Executive of Capitec Bank, argued that South Africa’s unemployment crisis may be significantly overstated.

In interviews with Business Day, Fourie suggested that if informal businesses — township traders, spaza shops, micro-retailers, hustlers, and other survivalist entrepreneurs — were properly counted, the country’s real jobless rate could fall “to perhaps 10%”, rather than the headline 32.9%.

Using Capitec’s customer data, which captures millions of lower-income clients and township households, he described the informal economy as a vast, undervalued “emerging market” in which many South Africans already earn livelihoods through small shops, back-room rentals, and side-businesses that traditional surveys tend to miss.

Fourie argued that recognising and supporting this activity — through access to banking, credit, and basic infrastructure — could unlock genuine economic participation rather than treating informal work as marginal. His remarks found immediate support from informal-economy specialists and investors, who have long argued that the size and contribution of township retail are underestimated.

But the claim also triggered sharp pushback.

Stats SA noted that its labour-force surveys already include informal and self-employed workers, challenging the idea that millions of micro-entrepreneurs are statistically invisible. Critics warned that survivalist income streams — small trade, pavement snacks, room rentals — are too fragile and irregular to be considered “employment”. For them, redefining these activities risks masking deep structural unemployment and inequality.

I do not share this view.

Income earned informally is still income. The insistence that only formal wage jobs count as “real employment” reflects a narrow reading of economic participation. South Africa places disproportionate weight on formal-sector work, often overlooking the entrepreneurial behaviour that underpins township economies.

Where I do agree with Fourie’s critics is on a different point: recognising informal work is not the same as inflating its scale.

The informal market is important, but its true size and potential should not be misinterpreted — especially by executives who, after a few trips to other African cities, assume that South Africa’s informal economic geography mirrors Lagos or Nairobi.

Fourie’s argument is valuable because it forces a rethink of what counts as work, but it also underscores the need to distinguish between activity that sustains households and activity that merely helps them endure.

The Analytical Lens: Why South Africa Gets Misread

Three forces distort the national picture.

The first is model transfer: analysts simply copy-and-paste assumptions from East and West Africa, where modern retail penetration is low and informal networks carry most volume. South Africa, with supermarket penetration above 65% in many FMCG categories, does not fit that template.

The second is visibility bias: informal retailers — spazas, house shops, taverns, pavement hawkers, taxi-rank traders — are everywhere in townships, and hawkers play an important role in central business districts. Their physical density creates the illusion of market dominance.

The third is measurement gaps: informal retail is difficult to survey accurately. This is not unique to South Africa — even more developed markets such as China and Mexico struggle with this. Small samples, urban skew, inconsistent category definitions, and inflated extrapolations combine into numbers that circulate long after their flaws are forgotten.

But two deeper structural forces are almost always ignored, and they explain more of the misperception than anything else:

South Africa’s unique spatial legacy, which suppresses informal retail density.
South Africans’ comparatively low entrepreneurial participation, which limits the growth of micro-retail relative to the rest of the continent.

These two factors alone would make South Africa’s informal retail smaller than the popular narrative suggests — even without supermarket dominance.

South Africa’s Retail Structure: A Formalised Outlier

South Africa’s modern retail sector is dominated by a handful of powerful chains:

Shoprite/Checkers
Pick n Pay
Spar
Woolworths
Massmart

These groups operate vast distribution centres, integrated cold chains, category management systems, and national price coordination. Their reach extends deep into peri-urban and semi-rural areas.

This concentration is rare in Africa and other emerging markets.

While modern retail might account for below 10% of FMCG in many African cities, in South Africa it accounts for roughly:

65–75% of grocery spend
80–90% of packaged goods
Almost all cold-chain categories
Most household baskets of meaningful size

This is not an informal-dominant market. It is a supermarket-dominant market with an informal supplement.

Why Informal Retail Is So Often Overestimated

1. Counting outlets instead of counting volume

There may be 150,000–200,000 spaza or house shops (depending on definitions), plus tens of thousands of informal food vendors and pavement sellers.

The number is enormous.
The turnover is not.

A busy spaza might turn R3,000–R8,000 per day. A single Checkers aisle can move this amount in an hour. The scale mismatch is structural, not ideological.

2. The “cash visibility bias”

Informal traders are physically omnipresent. They are part of daily movement: taxis, pavements, school routes, commuter hubs.

Supermarkets, by contrast, are spatially concentrated.

A high-frequency presence is mistaken for high-volume throughput.

3. Household reach ≠ household spend

It is true that most lower-income households shop at spazas.

But the largest shopping event of the month — the bulk buy — overwhelmingly happens at supermarkets. This event drives total monthly spend far more than small daily purchases.

Reach without spend is not dominance.

4. Category mixing

Analysts frequently conflate street-cooked food, fresh produce, airtime and electricity, household services, taxi-rank meals, and FMCG top-ups, forcing them into a single, misleading “informal retail” bucket. But supermarkets do not compete in many of these categories.

The Missing Piece: South Africa’s Spatial Legacy Suppresses Informal Retail Density

This is the factor most analysts ignore.

South Africa’s retail geography is not an accident. It is the aftertaste of apartheid.

Where other African cities grew through dense, mixed-use neighbourhoods, South African cities were engineered to separate people from economic centres. Townships were pushed to the periphery. Suburbs were zoned to keep commerce out. Wholesale markets, industrial zones, and transport corridors were laid out for long-distance commuting, not local trade.

The result is a retail landscape where supermarkets thrive in planned commercial nodes, while informal retailers operate in pockets shaped more by history than by demand. It suppresses retail density. It raises the cost of stocking a micro-shop. It forces traders into supply trips that would be unthinkable in Lagos or Nairobi.

South Africa’s retail geography has created:

Long commuting distances
Highly segregated neighbourhoods
Townships are far from economic centres
Low-density formal suburbs without walkable retail infrastructure
Retail nodes concentrated in suburban malls and strip centres

Unlike Lagos or Nairobi, where retail density follows organic, mixed-use patterns, South African cities are spatially fragmented.

This affects informal retail in three ways.

1. Townships are dense, but access to suppliers is limited

Townships often sit far from wholesale depots, major suppliers, and distribution hubs. A trader in Diepsloot may travel 25+ km to the nearest wholesale outlet. This introduces:

Higher transport costs
Higher inventory risk
Lower frequency of restocking

In other African cities, micro-retailers sit minutes from wholesale markets. In South Africa, the spatial drag is enormous.

2. Suburbs suppress informal retail penetration

South African suburbs — especially middle- and upper-income areas — are zoned almost entirely for residential use. Informal retail is actively discouraged, policed, or regulated out of these spaces.

Contrast this with Nairobi’s or Accra’s neighbourhoods, where informal and formal coexist.

South Africa’s informal retail footprint is therefore geographically constrained.

3. Malls centralise volume

South Africa has one of the world’s highest numbers of malls per capita, with more shopping centres per capita than the UK, Germany, India, China, and all African peers. Retail gravity pulls towards:

Malls
Formalised shopping nodes

Informal retail thrives on foot traffic and density, both of which are suppressed by South African urban design.

In short: South Africa’s cities are built to favour formal retail.

The Second Missing Piece: South Africa Has Lower Entrepreneurial Participation

Across Africa, necessity entrepreneurship is a dominant labour-market response: when formal jobs are scarce, people turn to retail trading, informal services, food vending, and micro-enterprises as a survival strategy.

South Africa breaks this pattern.

Decades of research — from the Global Entrepreneurship Monitor (GEM), FinMark Trust, and various South African labour economists — show that South Africans start businesses at far lower rates than their continental peers.

1. The data: South Africa sits at the bottom of African entrepreneurial rankings

South Africa’s Total Early-Stage Entrepreneurial Activity (TEA) rate was around 11% in 2023, and as low as 8.5% in 2022.

Comparable African countries score dramatically higher:

Angola: ~41%
Ghana: ~37%
Botswana: ~27%
Ethiopia, Kenya, Nigeria: often 25–35%

South Africa consistently ranks in the bottom third globally on entrepreneurial participation. This is also structural.

2. Social protection reduces necessity entrepreneurship

South Africa has one of the largest social grant systems in the developing world, covering over 18 million people.

Grants materially reduce the need to start micro-businesses for survival. In countries like Nigeria or Kenya, the absence of social protection increases necessity entrepreneurship.

Economic research consistently shows that social assistance lowers informal labour-market participation, especially in small-scale retail.

3. High formal-sector aspirations

Multiple labour surveys show that South Africans overwhelmingly prefer salaried work, professional jobs, and government employment over self-employment.

This is partly because South Africa historically had:

Stronger labour protections
Unionised workplaces
Formal upward mobility in sectors like mining, manufacturing, and the public service

This is not the norm in countries where formal employment is scarce and entrepreneurship is the default.

4. High barriers to entrepreneurship: crime, licensing, competition, wholesale access

FinMark Trust, the Competition Commission, and multiple township-economy studies highlight that South African micro-entrepreneurs face intense structural barriers:

Crime and extortion targeting traders
Zoning restrictions limiting business operation in suburbs
Wholesale market distance, a result of apartheid spatial planning
High start-up costs relative to income
Strong competition from foreign-owned micro-retailers, who often operate with lower margins and longer working hours
Stricter municipal enforcement than in other African economies

These constraints suppress entrepreneurial entry, especially in retail.

5. A saturated retail market — unlike much of Africa

South Africa has:

Over 2,000 malls and shopping centres
One of the highest mall densities per capita worldwide
Highly efficient formal supply chains (Shoprite, Pick n Pay, Boxer, Spar)

This drastically reduces the space for informal retail to operate profitably.

In contrast, markets like Lagos, Nairobi, and Accra have:

Fewer malls
Less formalised supply chains
Fragmented wholesale nodes

This creates natural openings for informal retailers to thrive.

6. Education and job expectations are different

South Africa has one of Africa’s highest secondary education completion rates. With it comes:

Higher expectations of formal employment
Lower acceptance of informal micro-trading as an aspiration
Greater stigma around “small hustle” entrepreneurship

GEM interviews repeatedly highlight that South Africans associate business failure with social stigma, while Nigerians, Ghanaians, and Kenyans consider failure a normal step in entrepreneurship.

7. Township retail is dominated by immigrant entrepreneurs

Studies across Gauteng, the Western Cape, and KZN show that a large share of successful spaza shops are operated by Somali, Ethiopian, Pakistani, Bangladeshi, and Zimbabwean entrepreneurs.

These groups tend to:

Work longer hours
Share logistics cooperatively
Run lower operating costs
Reinvest more aggressively
Operate collectively rather than as isolated shops

South African entrepreneurs often cannot compete with these operational models.

The result: fewer South Africans start retail micro-businesses because the competitive environment is structurally unforgiving.

8. Entrepreneurship in South Africa is a choice, not a lifeline

In many African countries, entrepreneurship is the default labour-market response.

In South Africa, it is a last resort.

South Africans start fewer businesses, stay longer in job searches, and exit entrepreneurship faster than peers elsewhere.

In many African cities, retail is the default survival strategy. In South Africa, the default strategy is formal employment, not micro-entrepreneurship.

Supply-Chain Differences Explain Even More

South Africa’s supply chains are:

Highly consolidated
Efficient
Cold-chain intensive
Geography-dependent
Wholesale-supported

Informal retailers rely heavily on formal wholesalers (Boxer, Masscash, Cambridge, Tradeport). Their costs are closer to formal retailers than analysts assume.

Informal retail in South Africa is therefore not competing with endless layering of middlemen, as in Nigeria or Kenya. It is competing with formal wholesale, which keeps margins thin and growth constrained.

So What Is the Real Size of South Africa’s Informal Retail?

If categories are separated properly and spatial constraints are acknowledged:

FMCG informal retail: roughly 25–35% of national value
Fresh produce: higher (40–60%), but low-margin
Top-up categories (airtime, electricity, single-use goods): strong informal presence
Household baskets: overwhelmingly formal
Regional differences: township shares higher; suburbs near zero

In value terms, informal retail sits closer to R100–R150 billion, not the R250–R400 billion often repeated.

Even generous interpretations do not support the inflated narrative.

Implications of the Overestimation

1. Start-ups misbuild their models

South Africa’s informal retail is not a Nigeria-scale market.

Many start-ups overinvested in:

Last-mile B2C logistics
Township delivery networks
Subsidised unit economics

…and failed when reality intervened.

2. FMCGs misallocate resources

Believing informal retail is half the market leads to:

Over-targeting spazas
Over-indexing promotions
Under-investing in formal wholesale
Misreading shopper missions

3. Policymakers overestimate the township economy’s absorptive capacity

Employment, entrepreneurship, and small business growth are often overstated because informal retail is assumed to be the economic engine it is not.

4. Urban planning ignores spatial barriers

The assumption that “township economies will rise through retail entrepreneurship” ignores:

Township geography
Transport barriers
Limited market size
Low household purchasing power
Lower entrepreneurship rates

The Long Arc: Understanding What South Africa Really Is

South Africa is a retail hybrid. Informal retail is socially central, locally powerful, and vital for community resilience, while formal retail remains economically dominant, nationally integrated, and structurally advantaged. Spatial legacies and low levels of entrepreneurial participation continue to limit the growth of the informal sector, even as immigrant traders inject much of the dynamism that would otherwise be absent. Supermarkets absorb the heavy categories that shape national consumer spend, while spaza shops thrive in convenience rather than volume.

What South Africa Can Do to Grow the Informal Market

If South Africa’s informal retail is smaller than the myth suggests, the solution is not to romanticise it into a Nigerian-scale bazaar. The question is sharper: how do you grow the parts of the informal market that actually improve livelihoods, without pretending it will replace formal jobs or supermarket supply chains?

Growth here should mean better margins, higher survival rates, stronger linkages to formal systems — not just more people selling sweets at traffic lights.

South Africa has more levers than it thinks.

1. Fix the basics: crime, licensing, and predictability

The first constraint is not a business model. It is safety.

Many township traders operate under constant threat of crime, extortion, or confiscation of stock. Others face arbitrary enforcement from local authorities over zoning and permits. You can train entrepreneurs all you like; if their stock is stolen or their stall is demolished, the training becomes irrelevant.

Three low-glamour interventions matter more than a dozen incubators:

Consistent, predictable licensing for spazas and micro-retailers, with simple, low-cost processes and reasonable enforcement.
Local-level policing focused on protection, not harassment, particularly around taxi ranks, markets, and high-footfall nodes.
Clear, affordable compliance pathways for small food outlets on basic hygiene and safety, so the hurdle to “being legal” is not impossibly high.

You do not get a thriving informal ecosystem if the cost of visibility is violence or eviction.

2. Treat spatial planning as economic policy

If the geography is the constraint, then any strategy that ignores space is cosmetic.

Municipalities can do three very concrete things:

Integrate trading into transport hubs: design taxi ranks, train stations, and BRT corridors with formalised micro-stalls, storage, and services rather than pushing traders away.
Allow controlled mixed-use in suburbs: limited, regulated corner shops and home-based enterprises in residential zones can spread opportunity and reduce dependence on malls.
Create proper township market nodes: serviced sites with water, storage, waste management, lighting, and security. Not just “open space where traders may stand”, but actual economic infrastructure.

Growing the informal market is not only about “helping entrepreneurs”, but about where we allow them to trade and how much friction we build into that choice

3. Build better wholesale and logistics access

Informal retailers in South Africa are not excluded from supply chains; they are simply plugged into them at the wrong point.

They buy at retail-facing wholesalers located far away, travel long distances, pay full cash, and carry their own stock. Almost every element in that sentence depresses margins.

A more serious approach would:

Encourage township-based or peri-urban micro-distribution hubs that shorten the distance between trader and stock.
Support group buying and cooperative logistics, especially for South African-owned spazas that struggle to match immigrant-run networks.
Use data from FMCG companies and wholesalers to target credit and stock programmes at traders who show consistent turnover, rather than blanket discounting or once-off promotions.

You cannot “empower” informal retail if its unit costs remain structurally higher than formal retail’s.

4. Finance that actually fits the business

Formal banking is still largely built for salaried workers and larger SMEs. Most informal traders need:

Small, short-term working capital
Flexible repayment structures
Products tailored to stock cycles, not to corporate balance sheets

Some fintechs and FMCG-linked credit schemes are already experimenting with this. The question is whether policy and big capital are prepared to back lending against real trading data — till slips, mobile money flows, airtime sales — instead of collateral that most traders do not have.

If you want the informal market to grow, you have to fund inventory and cash flow, not just training workshops and pitch competitions.

5. Raise productivity, not just headcount

South Africa does not need more ultra-fragile stalls competing over the same thin demand. It needs fewer, stronger traders with better throughput and margins.

That means focusing on:

Basic business numeracy (pricing, margin, stock turn) delivered in the languages and formats traders actually use.
Category management for spazas: helping them understand what moves, what sits, and how to use scarce shelf space.
Simple digital tools — USSD or WhatsApp-based, not shiny apps — to track sales and stock-outs.

The goal is not to produce a new class of township “start-up founders”. It is to make sure the existing traders waste less cash, lose less stock, and understand their own numbers.

6. The economy cannot create formal jobs at the required scale

South Africa needs 500,000+ new jobs every year just to stabilise unemployment.
No model — not industrial, not digital, not green — suggests the formal sector can generate this volume in the next decade.

Entrepreneurship is not a romantic idea. It is a mathematical necessity.

Across much of Africa, entrepreneurship is learned through exposure: family businesses, informal trading, street commerce, market systems. South African youth grow up in spatially segregated cities where they are often far from where commerce actually happens.

Formal schooling reinforces the problem:

Entrepreneurship is treated as a marginal subject
Risk-taking is discouraged
Failure is stigmatised
Practical trading skills are absent

If the ecosystem produces fewer entrepreneurs, the response should be to fix the ecosystem, not to conclude entrepreneurship is culturally irrelevant.

7. Focus on linkages, not isolation

The most productive version of informal retail is not the lone trader fighting the supermarket. It is the trader plugged into larger systems:

Linked to formal wholesalers and FMCG programmes for pricing, training, and promotions.
Providing pick-up, last-mile, and community-facing services for e-commerce and delivery platforms.
Acting as agents for financial services, utilities, and digital products.

In other words, informal retailers become the local interface for bigger value chains, not a parallel, disconnected economy.

South Africa does not need to inflate the size of its informal retail sector to justify helping it grow.

It needs to accept what the sector really is — spatially constrained, structurally disadvantaged, but socially central — and then use the tools it already has: planning, policing, infrastructure, finance, and data.

The aim should not be to turn townships into Lagos. It should be to make sure that the people who already trade there can do so with less friction, more security, and a better chance of building something that lasts.

Bottom Line

South Africa’s informal retail sector is important — but not dominant, not expanding at continental scale, and not a hidden trillion-rand opportunity.

It is overestimated because:

Visibility is mistaken for volume
Household reach is mistaken for household spend
Footprint is mistaken for contribution
African comparators are misapplied
Survey methods are weak
Policy narratives prefer optimism
Spatial realities are ignored
Entrepreneurial participation is lower than elsewhere on the continent

It does not need exaggeration to matter. It needs to be understood on its own terms.

Sources

Statistics South Africa (Stats SA). Quarterly Labour Force Survey (QLFS), 2024–2025.
Global Entrepreneurship Monitor (GEM). South Africa National Reports, 2022–2024.
Primary source for Total Early-Stage Entrepreneurial Activity (TEA) rates and cross-country entrepreneurial comparisons across Africa.
FinMark Trust. The Informal Economy in South Africa: Size, Characteristics and Constraints.
Competition Commission of South Africa. Grocery Retail Market Inquiry Final Report, 2020.
South African Council of Shopping Centres (SACSC). Shopping Centre Directory & Market Statistics, 2024.
World Bank. South Africa Urbanisation Review & Spatial Inequality Studies.
National Treasury & Department of Social Development. Social Grants Statistical Reports, 2023–2024.
African Development Bank (AfDB). Informal Economy and Employment in African Cities.
BCG & McKinsey Africa Retail Surveys (2018–2023).
University of the Western Cape – PLAAS (Institute for Poverty, Land and Agrarian Studies).
Research into township food systems, street trade, informal fresh produce markets, and household purchasing behaviour.