South Africa’s 33.2% unemployment rate recorded in the second quarter of 2025 is a statistically sound reflection of a deep economic crisis. It far exceeds what's typical for countries with similar economies. Yet in townships and informal settlements where these statistics hit hardest, life goes on. Streets are busy, markets are trading, children are at school – somehow, communities survive. How?
The answer lies in a misunderstood engine of resilience: a complex ecosystem of social grants, informal work and household income pooling. Millions rely on this system, yet it remains structurally constrained and largely unsupported by policy.
If we want to move beyond the debate over whether the unemployment rate is ‘real’, we need to understand what economic survival in South Africa actually looks like.
The Social Grant-Informal Mix: South Africa’s Survival Strategy
In 2003, only 12.8% of individuals received social grants. Today, it is over 40%. For nearly one in four households, grants are the primary income source. But the full picture includes remittances, irregular earnings and pooled resources – a grandmother’s pension, an adult child’s informal side-hustle, money sent by a cousin in Gauteng.
In isolation, the headline employment and unemployment numbers may understate this complexity. The Labour Force Survey (LFS) counts as ‘unemployed’ anyone without work who has actively sought it in the past four weeks, even if they occasionally earn informal income. And because the LFS assigns only one primary economic activity, it misses formally employed individuals who also have informal earnings.
From Q3 2025, this gap should begin to narrow. Stats SA’s revised QLFS will, for the first time, include labour underutilisation indicators that capture irregular work and occasional income. This directly addresses an aspect that has driven the ‘unemployment vs informality’ debate and will help policymakers see the economic mixing that currently happens out of sight.
A Global Outlier in More Ways Than One
Compared to Latin America, another region of high inequality and informality, South Africa is unique. Countries like Brazil and El Salvador rely far less on government transfers. El Salvador’s economy benefits from being a net recipient of remittances, while South Africa is a net sender of remittances to SADC neighbours – stimulating economies elsewhere rather than at home.
Brazil’s Bolsa Família (the government’s social programme) is conditional, tying cash transfers to health and education outcomes. South Africa’s unconditional grants, while a triumph in poverty reduction, may reduce the need for more frequent informal work compared to countries that do not have such a wide social safety net.
Evidence from the Generating Better Livelihoods for Grant Recipients pilot, led by the Department of Social Development and implemented by FinMark Trust, though based on a small sample, shows that child support grant recipients are also involved in side hustles. Because the grants to economically active populations are relatively low, people are finding ways to supplement these to help their households survive. However, if much of this spending flows into the formal retail sector, it limits the potential multiplier effect for informal businesses.
Most of sub-Saharan Africa sees over 85% of employment in the informal sector. In South Africa, it is just 18.5%. Survival here is achieved more through state transfers than through a large-scale, employment-generating informal economy – both a success story in social protection and a symptom of structural exclusion.
Why South Africa’s Informal Sector Cannot Absorb the Unemployed
There is a tendency to romanticise the informal economy as a space of endless entrepreneurship. In reality, it is deeply segmented: a small upper tier of growth-oriented businesses that create jobs, and a much larger ‘survivalist’ tier marked by low incomes and precarity. However, this is also the case in many countries where the informal sector plays a much greater role. The relatively small size of the informal sector makes South Africa an outlier, which is a strong argument for the informal sector to be more prominent.
Before COVID-19, median informal earnings were about R2,000 a month – barely enough to live on. The sector contracts faster than formal work during recessions. Structural barriers, such as apartheid-era spatial divides, poor infrastructure, restrictive bylaws and limited finance, keep most informal businesses small and vulnerable.
Yet, given the mounting challenges in the formal sector – with the US-imposed tariffs being the latest headwind – the informal sector carries the most hope for livelihood creation. It is not an ideal solution, but in the absence of rapid formal job growth, it remains the most accessible entry point for millions of South Africans seeking to generate income. The challenge is to ensure that policy and financial support can help shift more of the informal economy from ‘survivalist’ to ‘growth-oriented’, so that it can play a stronger role in absorbing unemployment.
Emerging Clarity from Changes to Labour Force Measurement
From Q3 2025, Stats SA will introduce significant changes to the QLFS that align with three International Labour Organization (ILO) standards:
- Labour underutilisation measures will capture occasional and irregular work that keeps many households afloat but is currently invisible in unemployment figures.
- The ISCE-18 classification will identify hybrid livelihoods – for example, those with formal jobs who also run informal side businesses – providing a clearer picture of how South Africans combine income sources.
- A refined definition of informal employment that focuses on business registration and access to social protections, such as paid leave and social insurance, will clarify who is truly ‘informal’ and how they operate.
These shifts strengthen the argument that South Africa’s economic life is far more blended and adaptive than current statistics suggest. They offer the statistical recognition needed to design policy that reflects reality, rather than one that assumes formality is the only valid measure of participation.
From Crisis to Opportunity: A Framework for Change
Reports by the World Bank and FinMark Trust outline a pragmatic path forward:
- A clear national mandate recognising the informal sector as vital, not marginal.
- Segmented support based on turnover, with tailored compliance pathways.
- Pre-registration systems enabling informal firms to access finance without premature taxation.
- Alternative finance channels such as microfinance, fintech and credit guarantees.
- Bundled support that combines skills, mentorship and grants for high-potential enterprises.
Coordinated leadership at the highest political level is essential – fragmented mandates and repressive local policies have kept progress piecemeal.
What Still Needs Work
A real solution must also confront three difficult truths:
- Migrant entrepreneurs play a key role in informal trade but face xenophobia and legal exclusion.
- Consumer preferences in townships often favour formal supermarkets over local traders, despite higher prices.
- The social role of the informal economy in building trust and community cohesion is under-recognised but vital.
The Real Work: Enabling Economic Dignity
South Africa’s unemployment crisis is real – but so is the ingenuity of those navigating it. The task is not just to create jobs, but to strengthen the survival strategies already in play. That requires a shift: from seeing informality as a problem to be eliminated, to recognising it as a dynamic sector to be enabled.
The QLFS changes arriving in late 2025 offer an opportunity to do just that – to measure what has long been visible on our streets but invisible in our data. The informal economy is not a sign of failure. It is a mirror of history, a symptom of exclusion and a source of hope. Tackling unemployment means putting the informal sector at the centre of economic thinking, not at the margins.