COVID-19 Relief Schemes: Addressing Challenges Faced by the Informal Sector

Overview drafted by Thuli Moyo, June 2020

Government has initiated various plans and relief funds to assist SMEs impacted by COVID-19. South African economic and social responses to the pandemic include tax relief, disaster funds, emergency procurement and wage support through UIF (TERS). These relief mechanisms are primarily aimed at the formal sector and its employees. The first presidential speech alluded to a “safety net” scheme to address and look into the needs of the informal sector. Nothing has materialised months into lockdown. Intervention strategies, policies, rules and legislation adopted to instruct and mitigate the challenges incurred by informal workers have shown that:
1. Formalisation of the informal sector is an ineffective intervention strategy if not contextualised within the immediate needs and realities of informal workers
2. The norm by governing states of adopting formalised approach when dealing with informal sector is ineffective. For example, COVID-19 relief schemes articulate an attempt to formalise access to funds thereby excluding the most vulnerable and marginalised recipients.

Tourism Relief Fund
This relief scheme is a once-off grant assistance initiative capped at R50,000 per entity directed to small-, micro- and medium-sized enterprises in the tourism value chain to ensure their sustainability during and post pandemic period. This is all envisioned within the codes of economic transformation. Eligible categories in terms of applicants included travel and related services example; tour operators, tour agents and tour guiding. However, the following challenges are

  • The requirement of online application submissions which is costly and inaccessible for most informal traders
  • The requirement of certificates of incorporation
  • Disregard of the existence of informal tour guides and non-profit entities in that sector

SMMEs in the Clothing and Textile Industry
According to statistics, a total number of 217 micro manufacturing enterprises have filed for accreditation as personal protection equipment (PPE) and other essential product manufacturers. The registration is done through clothing industry bargaining council to comply with stipulated sectoral requirements. Further face mask manufacturing government guidelines as issued by Department of Trade, Industry and competition requires strict adherence to stipulated health and safety obligations. However, again informal workers face certain issues.

  • The requirement to be incorporated as cooperatives in order to meet threshold criteria stipulated i.e. a call to SMMEs in the tailor industry to furnish and provide cloth masks in this COVID-19 crisis. This excluded the majority of informally working tailors who are self-employed. The same applies for tourism relief funds that did not consider informal tour guides and the pandemic impact on their businesses. The application form only allowed for public, private and sole proprietors as well as required company registration.

Spaza and General Dealers Scheme
The funds are granted by the department of small business development. The application process requires applicants to furnish proof of identification and a valid trading permit issued by the relevant municipality. The registration database platform is administered via Nedbank or Boxer Superstores. A successful application grants trader working capital amounting to R7000 in total. They can then buy stock from pre-selected wholesalers. However, a shortfall of this
funding scheme relates to the stringent formalisation requirements. To qualify for the fund, informal businesses must be registered with CIPC, SARS, UIF and be willing to buy products produced by South African small manufacturers and submit monthly financial records over a 12-month period. Notwithstanding the intentions insisting on formalisation of the informal business, this clearly shows limited understanding of how the sector operates and specific support it needs. First, the average income earned in the sector are far below tax payment income thresholds and compliance costs. Furthermore, informal traders optimize profits by buying from different suppliers depending on prices and not all informal businesses and workers want to formalise. Inevitably there can be no quick solutions to problems that have
accumulated over years. Thus, its critical that authorities use this opportunity to acknowledge and understand the needs and dynamics of informal sector as a whole. The uniform approach and its terminology “informal businesses” fails to duly encompass the diversity of informal work, for instance, Spaza shop owners face different challenges compared to street traders vis a vis informal recyclers. In that accord, it becomes difficult to design viable intervention strategies for the sector.

COVID-19 Regulations for Informal Traders as Enacted and Amended by COGTA
1. Informal Food Traders
Regulation 11A states “Grocery stores and wholesale produce markets, spaza shops, informal fruit and vegetable sellers, with written permission from a municipal authority to operate being required in respect of spaza shops and informal fruit and vegetable traders.

Restaurants have been granted permission to operate online for food deliveries commencing level 4 of the lockdown , What about the informal workers who operate food markets & sell sandwiches on the streets? The additional requirement that only cooked food ordered online/by phone is permissible during level 4 lockdown. The question of implications of such for informal food traders operating on the streets. The definition of cooked hot food as adopted in the regulations is quite ambiguous.

2. Informal Recyclers
In terms of the enacted regulations, informal recyclers are included as part of the essential service providers subject to outlined compliance provisions

  • Strict adherence to health and safety regulations.
  • A need to get permission to operate issued by the respective municipality.

The above reflects a system that prioritises the interests of the formalised sector in lieu of vulnerable informal workers.

As we approach level 3 of lockdown, we are still waiting on the details of the safety net to be accorded to informal workers. The administrative setbacks related to grant allowance payments and food parcels which subsequently cover the immediate needs of the majority of informal workers.

We further acknowledge the legislative milestone of recognising informal food traders as essential services and recently including informal recyclers. However,granting them permission to return to their trade remains futile if we don’t address the economic vulnerability of their businesses at this moment. We, therefore, call upon the government to realise the adverse impact of COVID-19 on the informal workers and their businesses. We reiterate the economic need of injecting funds into informal businesses for sustainability post-COVID-19.

We need a clear indication of when, how and who will distribute those business related funds to informal workers similar to strategies adopted for the corporate sector. There is a necessity to implement effective strategies even at a local municipal level that consider the economic and health risks for informal workers, for example, interim suspension of vending fees, social distancing policies in allocation of trading stalls, provision of safer working spaces by municipalities etc.

Further the state has implemented various interim measures to curb the immediate and longer term effects of the COVID-19 on businesses and individuals eg spaza support scheme effected for aiding businesses in this sector. However we call upon the state to urgently address the needs informal traders operating in public spaces, and elaborate on safety net details and how it will aid in sustainability of informal businesses post COVID-19.

It is thus, indisputable that there is a need to strike a balance between the economic interests and re-strategising in the context of funding schemes directed towards marginalised informal workers. The requirements and criteria applicable is a formalised approach, thus excluding a significant number of the targeted sector.