The informal economy is responsible for a large share of economic output across the continent. Yet economic policy is almost always designed for the formal economy and overlooks the informal economy.
We are labour-market economists interested in the informal economy and informal work. We have spent the last two years investigating the concept of an economic policy for informal workers. We spent several months interviewing informal traders, traders’ associations and key stakeholders. Our aim was to better understand their challenges, and to inform the development of an economic policy for informal trading.
Drawing on our research partnership with Women in Informal Employment Globalising and Organising, we argue that rethinking economic policy from the perspective of the informal economy is essential.
We begin from the premise that economic policy must actively support the everyday economy. Recognising informal traders as economic agents, and investing in systems that support them, allows local economies to become more resilient, inclusive and sustainable. Traders need a supportive ecosystem so they can move beyond survival, and contribute to local growth and development.
Our findings highlight five areas that should support a policy ecosystem: macroeconomic stability; efficient administration; regulation of competition; participation in policy and governance; and inclusive infrastructure.
On the ground
Our research focused on informal traders in Gauteng, South Africa’s economic hub. The sector provides vital income for marginalised communities and brings essential goods and services closer to where people live. Yet traders remain on the periphery of policy attention. Urban management often treats them as a problem to control rather than as economic actors to engage.
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Most informal traders are own-account workers, operating on survivalist incomes that often fall below the poverty line. They face unpredictable markets, limited access to infrastructure, and constant regulatory uncertainty. This makes it difficult to grow their businesses or improve earnings.
These difficulties reflect the fact that informal traders operate in environments that have multiple layers. These include:
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local factors: municipal regulations, permits, policing, infrastructure, competition, community networks
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broader national forces: macroeconomic trends, regulatory frameworks, structural inequalities, formal-sector dominance.
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Understanding these interlocking layers is essential when creating policies that support sustainable livelihoods and growth.
Five policy pillars
(1) Macroeconomic stability
This needs to be the first pillar of the economic policy. The informal sector is highly sensitive to macroeconomic conditions for a number of reasons.
Firstly, informal traders earn low and unstable incomes. This means that rising living costs quickly erode their ability to sustain livelihoods. This is particularly true when it comes to food, transport and energy prices.
Secondly, the sector is vulnerable to poor growth and unemployment. The informal economy functions as a safety net during economic downturns by absorbing workers displaced from the formal sector. This was well illustrated during the COVID pandemic. But there’s a downside. A flood of new entrants into a constrained sector leads to overcrowding. In turn this:
Macroeconomic instability, therefore, expands informality. It also threatens informal livelihoods.
Revisiting macroeconomic policy should also include a tax policy that doesn’t prejudice informal workers.
(2) Efficient administration
Administrative inefficiencies and exclusionary practices create barriers for informal traders. For example, delays in issuing permits and other documentation leave traders vulnerable to harassment, bribery and eviction.
Inconsistent enforcement of bylaws creates an uneven playing field. Compliant traders are disadvantaged while irregular practices persist.
These burdens are not solely the result of local government shortcomings. They also reflect national-level failures such as delays in processing asylum-seeker applications. This disadvantages traders who rely on formal documentation to operate legally.
Together, these administrative challenges have a number of knock-on effects. They:
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intensify competition over limited spaces
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erode trust in authorities
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constrain the stability and growth of the informal sector.
(3) Regulation of competition
The South African informal sector faces competition on multiple fronts.
Traders compete among themselves for a limited number of customers and trading spaces. They also face intense competition from the formal sector. Examples include supermarkets, retail chains and shopping malls. Informal traders are pushed into less profitable or precarious locations.
It’s often assumed that there’s perfect competition in the sector – that market players can trade freely.
But they do face structural disadvantages such as regulatory barriers, formal-sector dominance and uneven access to prime trading spaces.
Formal-sector expansion is framed as economic “development”. But it frequently displaces long-standing informal systems.
Intense and unfair competition in the informal sector has another consequence: it forces traders to compete primarily on price rather than quality or service. This is because they can’t match the economies of scale, marketing power, or infrastructure advantages of formal retailers and better-resourced informal traders.
(4) Participation in policy and governance
An economic policy for informal traders needs to emerge from their involvement in policy and governance discussions.
Informal traders are often excluded from the planning and decision-making processes around things that affect them. This includes bylaw enforcement, market design and permit systems.
The result is policies that fail to reflect the realities of informal trade. In turn this:
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creates unnecessary obstacles
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increases uncertainty
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limits traders’ ability to plan, invest and grow.
(5) Inclusive infrastructure
Many traders operate in spaces without electricity, water, sanitation or safe storage facilities. Poor infrastructure limits the types of goods traders can sell and increases operational. It also exposes both traders and customers to health and safety risks.
Too often, cities treat infrastructure provision for informal traders as optional. Or it’s not designed with the needs of informal traders in mind.
This neglect produces unsafe and precarious work environments, undermining both livelihoods and local economic activity.
Infrastructure that is designed to meet traders’ needs will translate investment into higher productivity, improved earnings, safer working conditions and more vibrant local markets. This will benefit both traders and the communities they serve.
