Author: Mike Schussler Source: Business Live
This story has a bit of a complicated statistical start as the way self-employed or own account workers are counted has changed over the past ten years. But if you dig around a bit, you find that a million self-employed people have disappeared.
The story starts in 2002 when Statistics South Africa published a survey analysing Non-VAT registered Businesses for 2001. This survey showed that there were 2.3 million unregistered businesses with an estimated turnover of less than R300 000.
Around 1.9 million of these businesses had no employees. The other 300 000 businesses were employing at least one individual, even if the person was not paid. (The two numbers do not add up to 2.3 million due to rounding.) The Labour Force Survey of 2001 estimated that another 260 000 self-employed individuals were registered for VAT. The survey showed there were close to 2.2 million people who were self-employed, either registered for VAT or not. Fast forward to 2010 to the recently released Labour Market Dynamics published by Statistics South Africa. While the jargon changed to “own account workers” to describe the self-employed, the statistics show that there are now only 1.2 million.
This means roughly one million self-employed entrepreneurs have disappeared between 2001 and 2010. This suggests a 45% reduction of self-employed entrepreneurs, a rather a large number which alone could reduce unemployment numbers by a quarter.
Remember that the self-employed are the basis from which the next set of new entrepreneurs should develop. These entrepreneurs will become employers and this is the key to address South Africa’s mammoth unemployment problem. The recession and tough economic climate of the past few years may have attributed to the apparent vanishing of the self-employed.
But the recession is not the big reason as by 2005 –well before the recession- the number of self-employed had reduced to approximately 1.6 million. This indicates that disappearance of the self-employed are not only a recent development but a longer term trend.
Perhaps the fact that in 2001 about 50% of our self-employed were African women who were dependent on their entrepreneurship to survive and now have access to Welfare cheques may be another contributing factor. But this alone cannot explain the disappearance of the self-employed. Today African women still represent around 40% of the self-employed today and many would have continued with their entrepreneurship as it would increase household income.
Perhaps it is the official red tape and attitudes of others such as local governments who chased the self-employed off the streets while creating “new markets” far away where there are no customers.
Perhaps it is that we as a country no longer want to run their own businesses, but rather wait for government. No simple reason can actually explain what happen to the missing million self-employed.
Internationally could it be an even bigger number?
Another factor that is puzzling is that a typical emerging market country has about 40% of workers who are seen as vulnerable, according to the ILO. Vulnerable workers would be so-called own-account workers and unregistered workers (informal employees and self-employed in plain South African English).
The self-employed make up only about 9% of South Africa’s employment and our total informal market makes up about 17%. Therefore about 40% of emerging market jobs are “informal” compared to about 17% of South African jobs.
The ILO reports that Self-employment in many emerging markets is usually over 20%. For example Thailand has 37,6% of its workforce as self-employed while Turkey is at 21,6%, Brazil 24,6% and Korea at 22%.
South Africa should in all likelihood have at least 3 million self-employed from which our next generation of employers can grow from. That is only 10% of our total adult population but around 20% of our labour force.
So the Mystery deepens as the “missing” self-employed. Using emerging markets as a base the missing could quite easily be 1,8 million self-employed people – assuming just 20% of our labour force in similar countries are self-employed.
South Africa currently have approximately 700 000 employers. We would need to see around 300 000 “self-employed” becoming employers to push this number to 1 million – the number of employers we would need to bring our employer numbers closer to the international average of 3.5% of adults.
In South Africa, the average employer employs just over 15.7 employees. If another 300 000 employers can migrate from the self-employed category, this could add 4.7 million jobs to the economy.
If the international norm is extrapolated to South Africa, we would see another 1.8 million self-employed individuals. This just shows how important the missing self-employed is.
These two numbers combined would add 6.5 million jobs or employed adults to our country’s statistics. It would add to everyone wealth and welfare and it would add huge numbers to our GDP say another 15-20%.
Interestingly, the number of unemployed and discouraged work seekers also number around 6.5 million.
The mystery of the missing million remains a reality, it will not be resolved by opinion pieces and fancy statistical manipulation. But it would suggest that it is a topic that should receive priority treatment and be investigated immediately. At least a part of the solution must be getting the missing million or perhaps even two back into the economy.
South Africa will not see the unemployment rate decrease if the unemployed merely wait for a decent job. We need people to try and start their own businesses – however small at first. Remember the typical net income for the self-employed is around R2000 per month. That missing million would add at least R24 billion to our GDP and reduce unemployment by a quarter to under 20%.
Solving the mystery of the disappearing self-employed may just solve our job crisis.
Mike Schussler economists and entrepreneur.