By Stephan Malherbe, CEO of Genesis Analytics and co-director of South Africa in the Digital Age or SADA
Technology and digital access are the kingmakers in a post-COVID-19 world. The pandemic has accelerated digital transformation on an unprecedented scale. As British-American entrepreneur and author Andrew Keen was quoted as saying: “We are surviving through this pandemic because of technology. Everyone is sitting at home, and their window to the world is through their smartphone.”
New challenges require new ways of doing business
While for a long time it was regarded as an elusive pipedream, with statistics showing that 70% of corporate digital transformations failed, the reality has been that white-collar workers have smoothly transitioned to a new work from home paradigm.[1] With no end in sight for the pandemic, this shift may persist for some time.
On the other hand, workers in industries or sectors that are cash-based or cash-dependent, and who require contact, transport systems or manual labour were not as lucky – either continuing to work at risk to their health or losing their jobs altogether. Encapsulating all these characteristics, businesses in the township and informal economy in South Africa, facing lockdown restrictions and new challenges, had to find new ways to do business and protect their livelihoods.
It is easy to underestimate the importance of the informal sector in South Africa, given its invisibility to many in the formal sector. However, the township and informal economy in South Africa makes up, depending on the source, between 5-20% of GDP.[2] That potentially works out to $18-72 billion in GDP that is not taxed nor included in formal statistics.[3] Based on 2015 data, the sector employs as much as 20% of the labourforce or 1 out of 5 South Africans.[4]
Despite its importance to the economy as a generator of livelihoods and its role as a service provider to millions of South Africans, the informal sector is often neglected.
“We are surviving through this pandemic because of technology. Everyone is sitting at home, and their window to the world is through their smartphone.”
Andrew Keen
Township economies responding to the pandemic
Despite the digital divide, the dynamic township economy has kept pace with many digital innovations and has developed responses to COVID-19.
While there are many barriers to accessing the digital economy in South Africa, not least the high price of data, the components for success are already largely in place. 94% of South Africans have access to at least a feature mobile phone, while 58% have access to smartphones.[5] South Africa also has near universal 2G, 3G and 4G coverage, yet broadband internet penetration is still only at 55%.[6]
However, the universality of mobile internet means that there are immediate opportunities for cost-effective tech applications. Already, these enablers have resulted in a proliferation of businesses developed in and aimed at the informal sector in particular.
The heterogeneity of the sector has allowed for different types of business models to emerge. Examples range from new innovative uses of social media platforms, platform matching for blue collar workers, e-hailing in the transport sector, food delivery platforms, new financial services and e-commerce.
- Informal businesses have adapted by using Whatsapp and Facebook as mediums for interacting with customers, advertising and taking orders. Borotho Bakery, the award-winning enterprise and supplier of bread in Soweto, uses its social media platforms to take orders from customers.
- Workers in domestic services, gardening, painting, electrical and plumbing often find work through informal networks. On-demand platforms like SweepSouth, Kandua and Clockwork have created new income opportunities by making it easier for workers to find jobs without necessarily having to leave their homes, invest in adverts or build client relationships. The platform adds value by verifying the credibility of both work-seekers and employers.
- In the transport sector, SADA estimates that 20 000 South Africans earn a living through e-hailing services like Uber and Taxify. While this sector has suffered immensely during lockdown, they are starting to see recovery by implementing stringent safety measures and health protocols.
- Food delivery platforms like Order Kasi, Yebo Fresh and Malaicha are delivering food to and from townships. Order Kasi only allows township-based stores on its platform, while Yebo Fresh specialises in providing healthy food at affordable prices. Malaicha is targeted at migrants who can use mobile money to buy groceries in South Africa to be delivered to their loved ones in Zimbabwe or Malawi.
- The availability of affordable payment devices provided by Yoco, SureSwipe and Dashpay has allowed increasing numbers of traders to migrate from cash-only businesses. Yoco alone now services over 50 000 merchants, many of whom were accepting card payments for the first time. Financial services applications offered to informal businesses are also expanding, such as A2Pay, a fintech app targeted at offering loans, management training and stock control to informal businesses. A2Pay and the Flash platform both integrate with spaza shops to allow traders to provide digital products such as airtime and data.
Prioritising digital inclusion and sector development
While it is clear that the enterprising informal sector is also adapting and adopting 4IR technologies, inequalities in access, connectivity and affordability still exclude potential customers and businesses. And, even though many of South Africa’s young entrepreneurs have already embraced the opportunities of self-expression, betterment and cosmopolitanism offered by that talisman of the Digital Age, the smartphone, the opportunities are far greater.
This is the focus of an initiative called South Africa in the Digital Age, or SADA a partnership between Genesis Analytics and the Gordon Institute of Business Science (GIBS) in Johannesburg.
The SADA work follows global thinking by the Pathways for Prosperity Commission on Technology and Inclusive Development (based at Oxford University’s Blavatnik School of Government) focuses on five areas of change.
One area of change is ensuring that township entrepreneurs have access to affordable, high-quality broadband in both cities and rural villages.
As laid out in the SADA strategy, responsive and appropriate regulation must support digital inclusion and sector development. A focus on creating value for customers, businesses and workers is key through nuanced platform design. Digital literacy remains a challenge, and widely available and effective upskilling and education programmes are required.
While there are already players in this space like Harambee, Quirky30 and Coder Dojo who upskill vulnerable youth and the unemployed, more needs to be done.
Finally, barriers to access like high data costs and broadband access must be prioritised to ensure that all South Africans can take advantage of the digital economy, especially as COVID-19 persists.
The SADA initiative was made possible with financial contributions by Absa, Standard Bank, and the Pathways for Prosperity Commission on Technology and Inclusive Development Development (based at Oxford University’s Blavatnik School of Government).
[1] Morgan, Blake, 2019. ‘Companies That Failed at Digital Transformation and What We Can Learn From Them.’ Available: https://www.forbes.com/sites/blakemorgan/2019/09/30/companies-that-failed-at-digital-transformation-and-what-we-can-learn-from-them/?sh=64c5effe603c
[2] Saunders, S. & Loots, Elsabe. (2005). Measuring the informal economy in South Africa. S. Afr. J. Econ. Manage. Sci. 8. 92-101. 10.4102/sajems. v8i1.1286; Statistics South Africa, 2015.
[3] Based on calculations of current GDP, 2019, and estimated % of GDP that the informal economy comprises.
[4] Statistics South Africa, Quarterly Labour Force Surveys (QLFS), Q2: 2019.
[5] Data from Stats SA, 2019; World Bank Data, Hootsuite Digital 2020, Genesis Analytics Team Analysis, 2020.
[6] Data from Internet World Statistics. ‘South Africa Internet Penetration, 2020.’ Available: https://www.internetworldstats.com/; Data from GSMA. South Africa 2G, 3G, 4G statistics, 2019. Available: https://www.mobileconnectivityindex.com/#year=2019&dataSet=indicator
