A study by Standard Bank into the informal economy finds eight out of 10 businesses in the sector are unregistered, making access to finance to grow their enterprises impossible.
The survey zooms in on businesses raking in R100,000-R50m annually across the economic hubs of Gauteng, the Western Cape, KwaZulu-Natal and the mineral-rich North West.
Gauteng, which produces R35 of every R100 produced in SA’s economy, is home to the largest number of township businesses in SA, according to the study.
The study finds that 80% of businesses surveyed were unregistered — a striking number that might force the government to move with speed to implement its plans to overhaul the country’s business licensing regime.
The report notes that businesses in the informal sector operate from residential residences or streets to minimise costs, dominated by males in the age group 35-54, noting that township businesses have a complex relationship with banks.
To this end, the businesses often use personal accounts for business due to “perceived high fees, inaccessibility of credit” and past negative experiences.
“Cash remains the primary transaction method, driven by customer preference and limited digital literacy, though there is a preference for bank transfers among higher-income businesses,” the Standard Bank study says.
“For these businesses to thrive, critical needs include marketing support, operational funding, skills training and improved infrastructure.
“To unlock their full potential, a roadmap is essential: encouraging gradual formalisation, promoting the separation of personal and business finances, investing in foundational skills training, embracing affordable digital tools, and fostering strategic partnerships and local networks.”
The results of the study come as the government moves to cut red tape and make it easier and cost-efficient for entrepreneurs to register and license their outfits.
Business Day reported last week that the government is proposing preferential business licensing for small businesses in a move that might see municipalities lower application fees and reduce municipal rates for small enterprises — in the biggest push yet to unleash the potential of small outfits since the early 1990s.
The draft Business Licensing Bill of 2025 says local councils may make bylaws to provide for preferential business licensing for small businesses, and these may include a shortened, simplified application and renewal process, lower application fees and the waiver or suspension of fees.
The bill, which is meant to repeal the Businesses Act of 1991, also makes provision for the designation of trading areas for citizens and small businesses.
To this end, the municipalities, acting as licensing authorities, may, after consultation with the MEC of the relevant province, make bylaws to designate any specified area within their jurisdiction to be a trading area for the exclusive participation of small enterprises.
Authorities will have to define the boundaries of the exclusive trading area and determine how the designated trade and commercial areas and zones may be supported through various interventions.
The bill follows the publication earlier this year of the country’s first national policy-level guidance on general business licensing in SA, geared to cut costs and red tape associated with business licensing.
The endgame is to harmonise national, provincial and municipal business licensing to ensure synergy and alignment with regulations and business licensing bylaws.
“Standard Bank commissioned this report to ensure its SME offerings continue to respond directly to the realities of township entrepreneurs. Insights will also inform the bank’s collaborations with partners in government, corporates and development agencies — strengthening collective efforts to unlock growth in the township economy,” the lender said.
“The report underscores the need for affordable digital and merchant solutions, alongside step-by-step support to help township businesses formalise and expand.”
Former Capitec CEO Gerrie Fourie sparked a national conversation in June when he suggested that the actual unemployment rate, which Stats SA reports at 32.9%, may be closer to 10%, based on observations of informal economic activity.
Stats SA dismissed his views as unscientific. However, the comments forced a meeting between Fourie, Stats SA, the presidency and the Treasury, with the parties agreeing on a need to establish a register for informal enterprises.
If implemented, the register will complement the Quarterly Labour Force Survey and serve as a valuable sampling frame for improved labour market analysis.
The study says small businesses have found a gap in almost every economic sector and supply the niche market that big businesses cannot reach.
“However, township informal businesses often target and operate in saturated markets, driven by low barriers to entry, leading to intense price competition. This results in thin profit margins, especially in sectors like fast food and groceries. Without scale or differentiation, many businesses struggle to grow beyond subsistence levels,” the report reads.
“Township entrepreneurs often rely on multiple income streams to sustain their livelihoods. In addition to their main businesses, many engage in side hustles such as car washes, gardening services or informal lending (mashonisa).
“These supplementary activities are essential for meeting daily financial obligations, especially given the unpredictability of income from their primary ventures.”
The study finds that about 57% of the businesses lack formal accounting systems, with 77% managing finances manually.
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