Making money local: Changing the leakage narrative in the informal economy
Leakage intensifies the challenges of poverty and unemployment in the informal sector – one that employs millions but still battles with infrastructural inequalities that inhibit its growth.
The South African informal economy already has scale. Estimated at between R900 billion to R1 trillion in economic activity, the sector thrives and survives around the daily lives of those who live and work within it. And yet, much of the value and revenue created by this economy doesn’t circulate within its communities for long. Income often flows outwards from these local communities to external businesses, reducing the economic multiplier effect where sourcing from local traders could generate more jobs and growth locally.
A key finding from the 2025 Township Economy Report by 27four Investment Managers, is that a significant share of the informal economy value is still leaving township communities instead of circulating locally. This leakage is often as a result of limited access to localised wholesalers. In addition, planning and commercial property trends have historically favoured large centres over distributed, small-format township retail, which further entrenches capital outflows.
Wedded to these challenges is the reality that around 80% of informal businesses are unregistered, which limits their access to credit, supplier deals and digital tools that would allow them to become competitive with formal retail. Less than 9% of township companies access bank loans and rely on personal savings or family support, further limiting their ability to bulk buy or upgrade their premises to keep spending local.
This leakage limits the ability of local communities to compound wealth over time and reduces the much-needed knock-on impact across employment and the community.
Reducing this leakage is key, and there are several ways in which it is possible to strengthen local value chains and introduce multipliers that keep the economy circulating within the communities. The first, is to ensure products match needs. The 27Four survey found that 51% of township residents now shop every day at their local spaza shop, and 60% of pensioners spend more than half their income within the township. There is a growing potential for local circulation if products and services are relevant to demand.
Digital payment platforms are also vital, and are already addressing some of these structural constraints. The key is to ensure financial inclusion is fit for purpose, which means not replicating formal banking models but about ensuring traders can access payment services without the barriers of cost, delays or product design. These don’t reflect how they operate. For many informal traders, a traditional business bank account introduces more costs through monthly fees and transaction charges – and these don’t align with their daily cash cycles.
Payment platforms built specifically for township markets approach the digital dynamic differently. Shop2Shop, for example, operates more than 160,000 devices within the informal economy and has designed its system so traders receive digital proceeds instantly and transact without additional payment costs inside the system. The goal is to remove both the cost barrier and the time-value barrier that often erodes small margins.
Creating a closed-loop payment network gives retailers the ability to transact at zero cost on specific devices within their area. Funds then move between participants in the same trading network so payments for stock, supplier settlements and consumer purchases remain within the local value chain for longer. The immediacy of this transaction cycle supports local distributors and directly addresses the leakage problem.
When payments incur multiple layers of fees, clearing delays and intermediary deductions, value dissipates. Real time, low-cost networks keep more of the value in circulation among local traders and strengthen the internal economy, rather than exporting margin outwards at each transaction point.
Then, there’s the potential of online. While spaza shops and informal traders don’t require ecommerce shopfronts to remain competitive, they can act as access points for digital goods and voucher-based transactions. These smart changes to infrastructure and payments have the potential to move this vibrant economy into a new phase of growth, one that is built on a circular payment system that reduces leakage and keeps value within the community. In areas where economic resilience has long depended on trust, proximity and adaptability, the ability to move money efficiently may prove just as important as the goods on the shelf.