Issued by Ismail Joosub on behalf of the FW de Klerk Foundation on 03/07/2025

South Africa’s youth unemployment crisis is not new. What is new, at least in public conversation, is the recognition that our official labour statistics may be missing a large part of the picture. While Statistics South Africa reports in 2025 that 46,1% of young people aged 15-34 are unemployed, with more than 62% of those aged 15-24 out of work, growing evidence suggests that millions are in fact earning income in the informal economy. These activities may not fit cleanly into surveys or spreadsheets, but they are real, significant and rapidly expanding.

The scale of this “shadow economy” is now impossible to ignore. Studies indicate that nearly 9 million (8,2 million via Finscope) South Africans derive an income from informal sector activities – more than double the number officially recorded (3,3 million via Stats SA) as working in the informal sector. These include survivalist micro-entrepreneurs selling goods on pavements, informal construction workers offering their services at roadside pickup points, ride-hailing and food delivery drivers navigating the digital gig economy and a sprawling network of small-scale retailers, hairdressers, artisans and backroom landlords. Some operate entirely alone, while others are the economic anchors of extended households and community networks. In many cases, their businesses are unregistered, cash-based and outside the reach of SARS, but they are legitimate and essential sources of income.

Despite the visibility of these activities in every township, rural town and informal settlement across the country, South Africa’s informal economy still remains disproportionately small by international standards. The informal sector accounts for just under 20% of total employment and roughly 6% of GDP by conservative estimates, compared to around 25% or more in peer countries. Across sub-Saharan Africa, over 90% of youth work informally. Here, many remain entirely outside the labour market. This is not because the South African youth are less willing to work, but because the environment is often too hostile for small enterprises to thrive. Permits are difficult to obtain. Infrastructure is poor or absent. Informal traders operate in fear of law enforcement. And financial institutions, with few exceptions, have little appetite for unregistered risk.

We must be clear-eyed about both the promise and limitations of this sector. On one hand, the informal economy offers a real alternative to destitution for many unemployed young people. Entry requires little formal education or capital. The returns are uneven, but in some cases significant. Informal rental markets (such as backyard rooms) generate billions in annual income. Gig work, including e-hailing and courier services, has opened up flexible income streams to young people armed with only a cellphone, often with higher earnings than other available options. On the other hand, most young people in the shadow economy are earning far below the minimum wage. A township “hustler” might make R700 to R900 per month – barely enough to survive, let alone save, scale or formalise. And without contracts, benefits, insurance or regulatory cover, they remain vulnerable to exploitation and loss.

It is also important to acknowledge that informal work does not always lead to formal opportunity. Many remain locked in marginal activity for years, unable to transition to stable employment or access credit. A university graduate working in the informal sector may not be idle, but the mismatch between her education and the available opportunities reveals the deep structural limitations of our labour market. This is the silent weight dragging our economy down: A young population, ready to work, systematically excluded not only from the formal labour market, but from the support structures that could help them succeed informally.

If we want to change this picture, we must stop treating the informal economy as a problem and start treating it as a platform. We should not romanticise the hustle, but we should legitimise it. That means creating the right conditions for informal businesses to grow, formalise when they are ready and contribute meaningfully to the national economy. This requires a shift in municipal policy, financial innovation and a deliberate investment in youth enterprise development.

WHAT CAN BE DONE?

Create an Enabling Municipal Environment
Local government must streamline the process of operating a micro-enterprise. Permits should be simplified, quotas lifted and informal traders allowed to operate without harassment or confiscation of goods. Municipalities should not just tolerate street vendors, but should support them. This includes investing in clean, safe and serviced trading spaces: basic infrastructure with water, storage, lighting and security. A trading stall should not be a political favour – it should be a right.

Innovate Youth Financial Inclusion
We need targeted financial products for youth operating at the base of the economy. Micro-loans of even R500 to R5 000 can be catalytic if disbursed with appropriate support. Grant funding for young entrepreneurs (modelled on the NYDA’s youth grant programme) should be scaled and protected from bureaucratic gatekeeping. Financial institutions should pilot alternative credit scoring models, using mobile transaction histories or consistent stock purchases as indicators of creditworthiness. If mobile data can help someone get airtime, it should help them get a loan.

Leverage Digital Platforms and Skills
Government and the private sector must make it easier for young people to plug into digital platforms. E-commerce marketplaces tailored for township and rural sellers are already demonstrating that informal entrepreneurs can reach national and even international buyers if supported correctly. Training in digital marketing, pricing, inventory management and fulfillment must become part of the basic skills package offered at TVET colleges and public incubators. Platform economy workers (including Uber drivers and delivery riders) must be recognised as economic actors and afforded minimum standards of fairness and safety, without strangling innovation.

Reinvest in Practical, Underserved Trades
We must invest in practical skills. Not just coding and robotics, but carpentry, plumbing, baking, repair services and informal manufacturing. These trades are underserved and not obsolete! In a country with housing shortages, power failures and poor sanitation, the demand for artisanal work is clear. What is missing is support: tools, training and mentorship. Programmes that provide basic equipment on a rent-to-own basis, alongside skills development, are already showing results. A delivery rider who starts on R700 a month can earn R7 000 within a year if given the right structure.

Build Voluntary Pathways to Formalisation
We must create low-risk pathways to formalisation. Not every informal business wants or needs to register immediately. But for those that do, there should be transitional incentives: tax holidays, free registration assistance and access to compliance tools. This will not only grow the tax base, but create jobs that are better protected and easier to finance. Policymakers should avoid punitive approaches, because, after all, the objective is not to shut informal businesses down – it is to help them scale up.

Let Policy Follow the Data
Data must drive policy. Stats SA has made progress with its SESE surveys, but we need more granular, real-time data on how young people are earning, spending and growing income informally. Policymakers cannot support what they cannot measure. Surveys should include questions about side hustles, gig work and unregistered transactions. This will not only improve policy, but reduce the risk of repeating the same mistakes.

Rethink Grants as a Springboard, Not a Ceiling
We need to rethink the link between grants and enterprise. South Africa’s social grant system has prevented mass hunger and it must be protected. However, grants should not be seen as the ceiling of what young people can achieve. Where possible, recipients should be given options to convert passive support into enterprise capital – whether through matched savings, business starter kits, or work stipends tied to service delivery and local development. This is not about conditionality. It is about enabling choice.

Support the Consumer, Too
As we strengthen informal work, we must not overlook the importance of protecting customers and consumers. Health and safety standards, product reliability and basic accountability mechanisms must be scaled proportionately to avoid exploitation or harm, especially in food services, childcare and home repairs. Empowering informal workers and protecting the public must go hand in hand.

There is no single intervention that will fix youth unemployment. But ignoring the informal sector would be a profound mistake. Millions of young South Africans are already working. They are trading, repairing, delivering, building and selling. They are doing it without subsidies, without protection and often without recognition. The least we can do is meet them halfway.

The FW de Klerk Foundation believes that economic dignity begins with the freedom to work, to trade and to build a life from one’s own effort. Section 22 of the Constitution already recognises this right. We must begin to view the informal economy not as a temporary detour from formal employment, but as a structural reality of our society. With the right reforms, it can be transformed from a last resort into a launchpad.

If we want to reduce unemployment, grow the tax base and restore dignity to young people across the country, we must start where they already are: in the streets, the markets, the backyards and the apps. The shadow economy is not a threat. It is an untapped opportunity. And it’s time we treated it as such.

Work – whether formal or informal – is not only about income. It is about dignity, purpose and belonging. It gives individuals a sense of worth, contribution and direction. It connects people to their communities and affirms their role in society. And when we unlock that potential, we do more than grow the economy – we restore the soul of the nation and honour the foundational constitutional promise of a life lived in freedom and dignity.