1. STATS SA THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Survey of Employers & the Self- Employed (SESE) Presentation to the Portfolio Committee 3 September 2014 Pali Lehohla Statistician-General

2. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Presentation outline Defining the informal sector and non-VAT registered businesses within the sector. Comparing outcomes in the informal sector with the formal sector. How the Survey of Employers and the Self-Employed (SESE) was undertaken. Access to services/amenities and socio-demographic profile of non-VAT business operators. Location and reasons for start-up. Industries in which non-VAT businesses operate. Employees and labour costs. Turnover, Net profits and Debts. Financial inclusion and assistance needed. Highlights

3. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND The Survey of Employers & the Self-Employed (SESE) is mainly about the informal sector SESE is based on a household survey consisting of two stages. First stage identified persons who were running businesses in 2001 and 2005 using the LFS and in 2009 and 2013 using the QLFS. Second stage was a follow up - persons identified in the first stage were interviewed. Only those who ran non-VAT registered businesses were asked detailed questions about their business operations. Most non-VAT registered businesses from (SESE) are in the informal sector

4. Total employed Employed excluding Agriculture & Private households Employers, Own-account workers, Persons unpaid in household businesses Not registered for VAT or Income tax Fewer than 5 employees in the business Income tax not deducted by employer Employees Informal sector Defining the informal sector Definition of the informal sector is based on registration and the number of employees in the business.

5. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Most non-VAT businesses are in the informal sector (1,4 mil of 1,5mil in 2013) but a small number (143 thousand) pay income tax and are in the formal sector. Registration details2013 No VAT but Income tax1 517 No VAT no Income tax1 374 Income tax only143 % Income tax only9,4 Non-VAT Informal Formal sector Non-VAT formal (paying income tax) SESE coverage

6. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Non-VAT registered businesses in South Africa play an important role in job creation and income generation among various groups. These units typically operate at a low level of organisation and on a small scale. Non-VAT businesses in the informal sector are often not connected to companies in the formal sector, operating in different markets with different customers. The importance of non-VAT registered businesses

7. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND 7 Comparing the formal and informal sectors : Based on the QLFS results

8. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Year-on-year changes in formal sector employment has been the main driver of real GDP in the post-recession period. But the informal sector is an important source of jobs for many groups Output and jobs STATS SA

9. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND 9 While the informal sector accounts for between 5-6% of GDP, it contributes 15,8% to total employment (including agriculture) in 2014. Contribution of the informal sector to output and jobs in South Africa STATS SA

10. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Province: Formal and informal sector share of total employment Formal sectorInformal sector The informal sector provides jobs for one in every four employed persons in LP and one in every five persons in MP, EC & KZN STATS SA

11. Results of the SESE

12. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Persons running non-VAT registered businesses: Socio-demographic profile; Access to services and amenities

13. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Compared with 2001, in 2013 larger proportions of people aged 35-44yrs and 45-54yrs were running non-VAT registered businesses Age profile Non-VAT registered businesses STATS SA

14. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Gender Non-VAT registered businesses STATS SA In 2013, more than half (55,4%) of those who had non-VAT businesses were men - up from 39,3% in 2001

15. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Almost nine out of every ten people running non-VAT registered businesses are African Population group, 2013 Non-VAT registered businesses STATS SA

16. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND In every province more than 50% of persons running non- VAT businesses had less than matric. Highest proportions with less than matric were in: MP (82,7%) EC (79,7%) KZN (78,1%) In every province more than 50% of persons running non- VAT businesses had less than matric. Highest proportions with less than matric were in: MP (82,7%) EC (79,7%) KZN (78,1%) Education profile, 2013 Non-VAT registered businesses STATS SA Note: The sample size in Western Cape, Northern Cape, Free State and North West is too small for reliable estimates.

17. Selected features in 2013 69,9% do not have piped water 28,3% have no electricity 33,2% only have a pit latrine 69,9% do not have piped water 28,3% have no electricity 33,2% only have a pit latrine Source of water (%) Electricity (%) Toilet facilities (%) Non-VAT registered businesses STATS SA

18. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND 75,7% of persons running non-VAT businesses do not keep accounts Selected features in 2013 Non-VAT registered businesses Financial records (%) Reasons for not keeping records

19. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Duration of the business operation Non-VAT registered businesses STATS SA In 2013, a larger percentage of businesses were in operation for 10 years or longer (19,6%) compared with in 2001 (11,0%)

20. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Persons running non-VAT registered businesses: Percent of the working-age population

21. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND 20012013 Thousand2 2581 517 % WAP8,34,3 In 2013, % of WAP running non-VAT registered businesses highest among: Men (4,9%) Black Africans (4,9%) 45-54 yrs olds (8,0%) In 2013, % of WAP running non-VAT registered businesses highest among: Men (4,9%) Black Africans (4,9%) 45-54 yrs olds (8,0%) Percent of the working-age population (WAP) running such businesses Non-VAT registered businesses STATS SA

22. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Among the working age population in every province the proportion who ran non-VAT registered businesses declined over the period 2001-2013. The % of the WAP running non-VAT businesses is highest in LP; MP; GP: KZN & EC Among the working age population in every province the proportion who ran non-VAT registered businesses declined over the period 2001-2013. The % of the WAP running non-VAT businesses is highest in LP; MP; GP: KZN & EC Percent of the working-age population (WAP) running such businesses Non-VAT registered businesses

23. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Persons running non-VAT registered businesses: Location and main reason for start-up of business

24. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND In 2013, most non-VAT businesses were located in the owner’s dwelling : 25,3% in a separate space 21,3% in the family space In 2013, most non-VAT businesses were located in the owner’s dwelling : 25,3% in a separate space 21,3% in the family space Location Non-VAT registered businesses STATS SA

25. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Except in GP, the percentage of non-VAT businesses with no fixed location increased over the period 2001-2013. The largest increases were in: EC by 17,0 percentage points MP by 13,6 percentage points Except in GP, the percentage of non-VAT businesses with no fixed location increased over the period 2001-2013. The largest increases were in: EC by 17,0 percentage points MP by 13,6 percentage points Businesses with no fixed location by province Non-VAT registered businesses STATS SA Note: The sample size in Western Cape, Northern Cape, Free State and North West is too small for reliable estimates.

26. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND The main reason given for starting a non-VAT business was unemployment (69,2%) Reasons for starting the business, 2013 Non-VAT registered businesses STATS SA

27. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Reflecting the impact of the global crisis, a larger proportion of people started non-VAT registered businesses because of unemployment. Largest increases in FS, KZN, LP, MP Reflecting the impact of the global crisis, a larger proportion of people started non-VAT registered businesses because of unemployment. Largest increases in FS, KZN, LP, MP Provincial distribution of those who started businesses because of unemployment Non-VAT registered businesses STATS SA Note: The sample size in Western Cape, Northern Cape, Free State and North West is too small for reliable estimates.

28. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Licencing arrangements Non-VAT registered businesses Most non-VAT businesses did not have licences/permits to operate. Among those who did (64 000 or 12,5% in 2013) one in three had a licence/permit from the Municipal/Provincial authority. STATS SA

29. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Persons running non-VAT registered businesses: Industry

30. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Industry Non-VAT registered businesses The vast majority of non-VAT businesses are in the Trade industry. But the proportion in this industry declined by 15,2 percentage points 2001 to 2013 The second largest industry for non-VAT businesses in 2013 was Services (13,1%) The vast majority of non-VAT businesses are in the Trade industry. But the proportion in this industry declined by 15,2 percentage points 2001 to 2013 The second largest industry for non-VAT businesses in 2013 was Services (13,1%) STATS SA

31. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND In 2013, more than half of the 1,5 mill persons running non- VAT registered businesses were men (55,4%). Businesses in the construction (98,8%) and transport (88,2%) industries were mostly run by men. Women featured more prominently in Agriculture (63,6%) and Services (58,1%). In 2013, more than half of the 1,5 mill persons running non- VAT registered businesses were men (55,4%). Businesses in the construction (98,8%) and transport (88,2%) industries were mostly run by men. Women featured more prominently in Agriculture (63,6%) and Services (58,1%). Industry by gender, 2013 Non-VAT registered businesses STATS SA

32. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Persons running non-VAT registered businesses: Source of finance; Use of raw materials and supplies

33. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Most people running non-VAT businesses needed money to start their business Finance needed Non-VAT registered businesses STATS SA

34. Most people running non-VAT businesses used their own money to start their business. Among those who used their own money wage employment was the main source of finance. Among those who borrowed money - the vast majority got loans from friends or relatives. Commercial banks are playing an increasing role in financing the operations of small businesses. Most people running non-VAT businesses used their own money to start their business. Among those who used their own money wage employment was the main source of finance. Among those who borrowed money - the vast majority got loans from friends or relatives. Commercial banks are playing an increasing role in financing the operations of small businesses. Source of finance Non-VAT registered businesses STATS SA Source of own money 20012013 Previous / present wage employment44,053,8 Other business3,22,8 Sale of livestock/crops2,92 Sale of other assets5,12,6 Inheritance5,23,1 Pension from work3,54,1 Retirement/severance pay5,24,4 A policy that matured0,60,1 Money paid out from a stokvel6,15,8 Other24,121,3 Total100,0 Source of borrowed money Source of own money

35. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND In 2013, the Manufacturing industry used the most raw materials. The Trade industry used the most supplies. Use of raw materials and supplies by industry Non-VAT registered businesses Use of raw materialsUse of supplies STATS SA

36. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Persons running non-VAT registered businesses: Employees and labour costs Note: Labour costs are not adjusted for inflation over the period 2001 to 2013

37. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Own-account workers accounted for the vast majority of people who ran non-VAT registered businesses in both 2001 and 2013. In 2013, the 370 thousand employers employed 1,0 mil employees which is equivalent to an average of 2,7 employees per employer – up from 2,1 employees in 2001. Own-account workers accounted for the vast majority of people who ran non-VAT registered businesses in both 2001 and 2013. In 2013, the 370 thousand employers employed 1,0 mil employees which is equivalent to an average of 2,7 employees per employer – up from 2,1 employees in 2001. 20012013 Thousand Employers309370 Own-account1 9481 147 Total2 2581 517 Employees6611 007 Ave number of employees per employer2,12,7 Employers, own-account workers and employees Non-VAT registered businesses

38. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND In 2013, there were 1,0 mill employees in non-VAT businesses : 800 thousand (79,4%) were paid 207 thousand (20,6%) were unpaid. In 2013, there were 1,0 mill employees in non-VAT businesses : 800 thousand (79,4%) were paid 207 thousand (20,6%) were unpaid. Proportion of paid and unpaid employees Non-VAT registered businesses 2013Thousand Employers & own-account1 517 Paid employees800 Unpaid employees207 STATS SA

39. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Larger proportions of people running non-VAT businesses had higher labour costs in 2013 – ranging from 15,8% with costs of R1 501-R3 000 to 10,4% with costs of more than R6 000 in the month prior to the survey. Larger proportions of people running non-VAT businesses had higher labour costs in 2013 – ranging from 15,8% with costs of R1 501-R3 000 to 10,4% with costs of more than R6 000 in the month prior to the survey. Monthly labour costs Non-VAT registered businesses STATS SA

40. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Persons running non-VAT registered businesses: Turnover and net profits; Business debt Note: Turnover; Net profits & Business debt are not adjusted for inflation over the period 2001 to 2013

41. Turnover levels of non-VAT businesses are low - 52,2% had sales below R1 501 per month Profit margins are also low – 64,9% made net profits below R1 501 per month Turnover levels of non-VAT businesses are low - 52,2% had sales below R1 501 per month Profit margins are also low – 64,9% made net profits below R1 501 per month Turnover & Net profit Non-VAT registered businesses STATS SA Turnover Net profit

42. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Almost half (46,6%) of people with non-VAT businesses in Agriculture had turnover of R750 or less in the month prior to the survey. In contrast, one in every three (35,2%) of those in Transport had turnover of more than R6 000. And larger proportions of men compared with women had turnover above R1 500 in the month prior to the survey. Almost half (46,6%) of people with non-VAT businesses in Agriculture had turnover of R750 or less in the month prior to the survey. In contrast, one in every three (35,2%) of those in Transport had turnover of more than R6 000. And larger proportions of men compared with women had turnover above R1 500 in the month prior to the survey. Turnover in the past month, 2013Non-VAT registered businesses STATS SA

43. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND In 2013, in MP, LP, EC & KZN more than one in every two non-VAT businesses had a turnover of R1 500 or lower in the month prior to the survey. Turnover in the past month of R0-R1 500 by province Non-VAT registered businesses STATS SA Note: The sample size in Western Cape, Northern Cape, Free State and North West is too small for reliable estimates.

44. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND STATS SA 64,9% of non-VAT businesses made net profits below R1 501 in the month prior to the survey. In Finance, 18,2% of people with businesses had net profits above R6 000. In Transport 17,4% had net profits at that level 64,9% of non-VAT businesses made net profits below R1 501 in the month prior to the survey. In Finance, 18,2% of people with businesses had net profits above R6 000. In Transport 17,4% had net profits at that level Larger proportions of men compared to women made net profits above R1 500 Net profit in the past month, 2013Non-VAT registered businesses

45. Less than 5,0% of non-VAT businesses had debts. The Trade industry accounted for the largest share of business debts each year. This share has declined from 61,9% in 2001 to 36,2% in 2013. In 2013, Transport (26,7%) had the second largest share of debts by a large margin. Less than 5,0% of non-VAT businesses had debts. The Trade industry accounted for the largest share of business debts each year. This share has declined from 61,9% in 2001 to 36,2% in 2013. In 2013, Transport (26,7%) had the second largest share of debts by a large margin. Business debts by industry Non-VAT registered businesses STATS SA 20012013 Had debts10971 Total2 2581 517 % with debts4,84,7

46. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Persons running non-VAT registered businesses: Financial inclusion; Type of assistance needed

47. Financial inclusion, 2013 Non-VAT registered businesses Banking institution (%) Source of loans for operations (%) Access to finance (%)Mechanism for payments (%) 79,0% do not have a bank account 96,8% had loans from friends/family for day-to-day operations More than 95,0% had no credit facility, or asset finance or a mortgage loan for their business Among the few who had bank accounts only 33,6% used the internet to make payments 79,0% do not have a bank account 96,8% had loans from friends/family for day-to-day operations More than 95,0% had no credit facility, or asset finance or a mortgage loan for their business Among the few who had bank accounts only 33,6% used the internet to make payments STATS SA

48. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND Type of assistance needed Non-VAT registered businesses The largest changes in the proportions 2001-2013 occurred among those who needed assistance with: Marketing (13,1 percentage points) Easing of Govt regulations (11,8 percentage points) Better access to loans (11,2 percentage points) The largest changes in the proportions 2001-2013 occurred among those who needed assistance with: Marketing (13,1 percentage points) Easing of Govt regulations (11,8 percentage points) Better access to loans (11,2 percentage points)

49. THE SOUTH AFRICA I KNOW, THE HOME I UNDERSTAND In every province except LP, there was an increase in the proportion of persons who wanted assistance with marketing their business. Marketing assistance needed by province Non-VAT registered businesses STATS SA Note: The sample size in Western Cape, Northern Cape, Free State and North West is too small for reliable estimates.

50. The number of persons running non-VAT registered businesses declined from 2,3 million in 2001 to 1,1 million in 2009 and increased to 1,5 million in 2013. Over 95% of owners had only one business. Non-VAT businesses are predominantly run by black Africans, men, and the less well educated. In 2013, the proportions of the working-age population involved in small businesses were highest in Limpopo (6,3%), Mpumalanga (6,1%), Gauteng (5,0%) and KwaZulu-Natal (4,7%). 28,3% of non-VAT businesses had no electricity; 10,1% had a flush toilet off site, 33,2% only had a pit latrine while as many as 8,0% had no toilet facilities available. This suggests that many are survivalist in nature. Most businesses were in the Trade industry – ranging from 1,6 million in 2001 (69,6%) to 821 000 (54,4%) in 2013. The main reason why people started businesses was due to unemployment. This was reported by 60,6% of persons who ran non-VAT registered businesses in 2001 and by 69,2% of persons in 2013. Highlights

51. In every province, except Gauteng and Northern Cape, and reflecting the effects of the global recession – over the period 2001 to 2013, there was an increase in the proportion of people who stated unemployment as the main reason for being involved in non-VAT registered businesses. The vast majority of people who started businesses used their own money to do so (over 70,0%). However, in 2013 there was an increase in the proportion who were able to get loans from commercial banks. Assistance with marketing was the type of assistance most needed by business operators - the proportion needing this type of assistance rose from 27,4% in 2001 to 40,5% in 2013. In addition, as many as 21,5% wanted an easing of Government regulations – up from 9,6% in 2001. Turnover levels and profit margins are relatively small for most non-VAT business operators. As many as 79,1% of persons running non-VAT businesses did not have a bank account. And over 90% had no credit facilities, no asset finance or mortgage loans for their business operations. Highlights contd.,