What Leaders Can Learn from South Africa’s Informal Economy - Business School Netherlands
South Africa’s informal economy is often described in terms of what it lacks: formal registration, employment contracts, financial records, access to credit and predictable infrastructure. This can create the. . .
South Africa’s informal economy is often described in terms of what it lacks: formal registration, employment contracts, financial records, access to credit and predictable infrastructure. This can create the impression of an economy that is small, marginal or waiting to become formal. In KasiNomics Unleashed, author GG Alcock presents a very different picture. He describes a large and active business environment built around township and rural communities, in which entrepreneurs generate income, create employment and respond to customer needs in ways that are not always visible in conventional economic measures. During aBSN Read∞ sessionon the book, Prof Bernie van Zijl reflected on the scale, diversity and resourcefulness of this economy. His discussion raised a wider question for leaders:What becomes visible when we stop looking at businesses only through the structures and indicators we already recognise?South Africa’s informal economy exists within a particular social and economic context. Its practices cannot simply be transferred to every organisation or country. However, it offers valuable lessons about customer understanding, adaptability, trust, resourcefulness and the meaning of growth. South Africa’s informal economy shows the importance of staying close to customers, adapting quickly and building businesses around trust. It also demonstrates how people can create value under significant constraints and challenges the assumption that successful growth must always mean becoming bigger. These lessons are relevant to leaders anywhere who are operating in uncertain, changing or resource-constrained environments. An economy hidden in plain sightThe businesses described in KasiNomics Unleashed are found across a wide range of sectors. They include spaza shops, food businesses, hair salons, construction services, transport operators, property entrepreneurs, digital traders and locally developed payment and delivery solutions. Many of these businesses do not resemble the organisations that conventional systems are designed to measure. They may operate from homes, temporary structures or shared spaces. Transactions may take place in cash or through messaging platforms. Income may come from several activities rather than one salary. Is it that the informal economy is invisible? Or is it that the tools used aren’t measuring informality?This distinction is important because it shapes how we understand the issue and the conclusions we draw from it. When economic participation is viewed mainly through registered companies, tax records, formal employment contracts and regular salaries, substantial activity may fall outside the picture. A person can run a food business, provide building services or operate a transport business while still being classified as unemployed. Alcock therefore challenges the idea that the absence of a payslip necessarily means the absence of productive work. The figures presented during the session suggest that this activity is substantial. Prof Bernie referred to Alcock’s estimate of a R750 billion informal economy, millions of people earning outside formal salaries and significant economic activity within township retail, property, services and transport. These figures should be understood as part of the argument presented in the book. The larger point is that informal economic activity may be far more extensive than it appears when measured only through formal systems. Informal does not mean unsophisticatedInformality is sometimes treated as an early stage in the development of a “proper” business. Yet many informal entrepreneurs have created sophisticated ways of serving customers, managing risk and operating within difficult conditions. They understand buying patterns at a highly practical level. They know when customers are paid, how far they can travel, what quantities they can afford and which forms of convenience carry real value. During the discussion following Prof Bernie’s presentation, one participant gave the example of a customer who buys 100 grams of sugar rather than a full package. The price per kilogram may be higher than it would be in a large retailer, but the local business allows the customer to purchase only what is needed that day. The customer is not simply paying for sugar. The customer is paying for proximity, convenience, flexibility and the ability to avoid spending limited cash on a larger quantity. This challenges a common assumption that customers in lower-income markets always choose the lowest price. Money does not follow glamour; it follows value. For leaders and marketers, this is an important reminder. Value is not determined inside the organisation. It is determined by the customer and shaped by the realities of that customer’s life. Futureproof leadership does not depend on predicting every change. It depends on developing the awareness and adaptability to respond when conditions shift. As Somaya Moll observed during a recent BSN Focus Session,leaders can gain valuable insight from environments where uncertainty has long been part of doing business. South Africa’s informal economy is one such environment. Leadership lesson 1: Stay close to the customer’s realityInformal entrepreneurs frequently live and work among the people they serve. They see how customers use products, where inconvenience occurs and how financial or social circumstances affect purchasing decisions. Larger organisations often rely on customer data, research reports and market segmentation. These are valuable tools, but they can create distance between decision-makers and the people affected by their decisions. Leaders may know what customers purchased without fully understanding why they purchased it, what alternatives they considered or what difficulty the product helped them overcome. The lesson from informal business is not to abandon data. It is to combine data with direct observation and conversation. Leaders can apply this by:spending time with frontline employeesobserving how customers use products and servicesasking customers about practical barriers, not only satisfactiontesting assumptions in real settings before making large investmentsThe closer leaders remain to customers, the less likely they are to design solutions around internal assumptions. Leadership lesson 2: Treat constraints as a design challengeMany of the entrepreneurs discussed in the session have built businesses without easy access to formal finance, extensive infrastructure or large marketing budgets. They are described as entrepreneurs who are:Building business with no resources. Surviving the shocks of macroeconomics and pandemics. A lack of resources should not be romanticised. Limited access to finance, infrastructure and support can restrict businesses and make owners more vulnerable. However, the response of many informal entrepreneurs provides a useful leadership lesson. Constraints force them to decide what is essential, use existing resources differently and test solutions without waiting for ideal conditions. In larger organisations, the first proposed answer to a problem may be more budget, more people or a new system. Sometimes those resources are necessary. At other times, adding resources allows complexity to continue without addressing its cause. Leaders can apply the principle by asking:What can be simplified?What could be tested on a smaller scale?Which existing resources are underused?What is the minimum workable solution?Are we solving the problem or adding another layer around it?Resourcefulness does not mean accepting poor conditions. It means refusing to allow imperfect conditions to prevent learning and action. Leadership lesson 3: Give people room to adaptInformal businesses operate in conditions that can change quickly. Customer income fluctuates. Supply may be unreliable. Infrastructure can fail. Regulations, competition and local circumstances can shift with little notice. Survival often depends on being able to respond without waiting for a long chain of approval. Informal entrepreneurs value the freedom to run their business as they wish, to be flexible and resilient, to be able to pivot when needed. Large organisations usually have more resources, but they may be slower to act. Decisions move upwards, processes become more complex and employees closest to a problem may lack the authority to respond. The lesson is not that organisations should operate without controls. It is that control should not remove the ability to adapt. Leaders can consider which decisions genuinely require senior approval and which can be made by teams closer to the customer or operational problem. Clear boundaries can provide both accountability and freedom. People should understand the outcome required, the limits within which they can act and when a decision must be escalated. Leadership lesson 4: Recognise trust as business infrastructureOne of the strongest ideas in the session is that informal entrepreneurs are not simply individual operators. Their businesses are often supported by community relationships, reputation and local knowledge. A line highlighted by Prof Bernie captures this clearly:I am not self-made. I am community-made and people-made. In many informal markets, trust performs functions that formal systems perform elsewhere. It influences who receives credit, whose products are recommended, who is protected by the community and which businesses are allowed to grow. This also helps explain why expanding into another community is not always easy. An entrepreneur moving into a new area may lose the familiarity, relationships and reputation that supported the original business. Formal organisations can treat relationships as something that surrounds the business. In community-based businesses, relationships are part of the way the business operates. Leaders can apply this lesson by treating trust as an asset that requires deliberate attention. It is built through consistency, fairness, reliability and an understanding of local circumstances. A recognised brand or senior title may create awareness, but it does not automatically create trust. Leadership lesson 5: Question whether growth must always mean expansionBusiness success is commonly associated with becoming larger: more customers, more employees, more locations and more revenue. The discussion of KasiNomics Unleashed complicates this assumption. Some informal entrepreneurs do want to scale. Others prefer to remain within a community they understand. They value independence, flexibility and strong local relationships. Moving into another area may increase revenue, but it may also introduce greater risk, higher costs and weaker community support. Some entrepreneurs ask:When is enough enough?This is not necessarily a lack of ambition. It may reflect a different definition of success. Growth can mean:creating a more stable incomeimproving the quality of a productemploying additional community membersstrengthening the resilience of the businessimproving the owner’s home and family circumstancesdeveloping new capabilities without expanding geographically. Leaders should define growth before pursuing it. Expansion is valuable when it supports the purpose and sustainability of the organisation. It becomes dangerous when becoming bigger is treated as an objective in itself. Leadership lesson 6: Look beyond formal indicators of capabilityInformal businesses can be easy to underestimate because they do not always have the signals that formal organisations associate with credibility. They may lack polished branding, formal premises, audited accounts or conventional qualifications. Yet their owners may have built loyal customer bases, managed complex supply arrangements and sustained businesses through difficult economic conditions. This raises an important question for leaders: what kinds of capability are overlooked because they do not appear in familiar forms?The same bias can affect recruitment, partnerships and supplier development. Qualifications, job titles and formal records provide useful information, but they do not capture every form of knowledge, experience or problem-solving ability. Leaders should also consider what a person or business has built, solved and sustained. This does not remove the need for proper due diligence. It broadens the evidence considered when assessing potential. Building bridges between formal and informal businessA central question raised during the session was how formal and informal businesses could create more reciprocal relationships. The answer is not simply to force informal businesses into existing formal structures. Alcock proposes the idea of a form of hybrid formality: enough structure to improve access to finance, support and opportunity, without destroying the flexibility that allows many businesses to survive. The relationship can be summarised this way:Formal and informal businesses exist side by side in this matrix. They should enable rather than disable each other. Formal businesses can provide access to supply chains, finance, technology, skills and wider markets. Informal businesses can provide deep customer knowledge, flexible distribution, local trust and new ways of reaching communities. The relationship should therefore not be framed only as formal business helping informal business. It should also ask:What can established organisations learn?Which assumptions about customers need to change?How can products and payment systems reflect local realities?How can informal businesses participate without being overwhelmed by unnecessary administration?What forms of partnership allow value to move in both directions?These are particularly important questions for organisations entering unfamiliar markets. A strategy developed from a distance may miss the relationships and operating practices on which the local economy depends. Seeing what established systems overlookKasiNomics Unleashed presents what the author calls “small people doing big things”. The description is not about the size of their contribution. It reflects how easily entrepreneurs can be overlooked when they operate beyond formal structures. The book and discussion invite leaders to reconsider what they recognise as employment, innovation, capability and growth. They also challenge organisations to see informal businesses not only as a market to sell to, but as a source of knowledge. Leaders cannot respond to realities they are unwilling or unable to see. Formal data, structures and systems remain necessary. But when those systems provide an incomplete picture, leaders must be willing to look beyond them. South Africa’s informal economy offers a powerful example of people creating value under constraint, building around community relationships and adapting closely to customer needs. Its most important lesson may therefore be a simple one: before leaders decide how a market, organisation or community should change, they first need to understand how it already works. This article draws on Prof Bernie van Zijl’s BSN Read∞ discussion of KasiNomics Unleashed by GG Alcock and contributions made by participants during the session. Sources and further readingGG Alcock, KasiNomics UnleashedProf Bernie van Zijl’s BSN Read∞ discussion of KasiNomics UnleashedBusiness School Netherlands