November 2018 – July 2019

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High-level statistical analysis of the plumbing and electrical trades

SKILLS DEVELOPMENT FOR

GREEN ECONOMY

Report1

EditorSkills Development for a Green Economy (SD4GE) ProgrammeDeutsche Gesellschaft für InternationaleZusammenarbeit (GIZ) GmbHRegistered offi ces: Bonn and EschbornGIZ Offi ce PretoriaP.O. Box 13732, Hatfi eld 0028, Hatfi eld Gardens, Block C, 2nd Floor,333 Grosvenor StreetPretoria, South AfricaTel.: +27 (0) 12 423 5900www.giz.de

Responsible: Heike BuerskensPhotos: Ralf BäckerDesign/Layout: WARENFORM

Pretoria, September 2019

ABOUT THIS PUBLICATIONAbout this publication

GIZ / SD4GE commissioned two studies aimed at deepening an understanding of the trends and dynamics of plumbers and electrical contractors in South Africa. The objectives of this study included the imperative to strengthen the range of institutions (public, private and not-for-profit) that impact these trades. An additional aim of the research was to provide an overview of current development in these trades, both at industry level and firm level. The findings are useful for better planning informed by greater awareness of the transformations and changes emerging in the specific contexts of industry.

The study produced three publicly available reports. This first report provides a high-level over-view of the available statistics. The research aimed to scan the publicly available statistics to understand better what is available, what is being tracked, and what is changing. This high-level overview also revealed how the two industries are structured, which organisations support these industries and what the dynamics are.

GIZ/SD4GE commissioned PEM Consulting and Mesopartner Africa to conduct the industry diagno-sis. Dr Shawn Cunningham and Annelien Cunningham from Mesopartner led and coordinated the industry diagnosis. A team of researchers from TIPS (Trade & Industrial Policy Strategies) conduct-ed research and statistical analysis. The TIPS team included Asanda Fotoyi, Sajid Sherif, Mbof-holowo Tsedu while Saul Levin provided policy insight and guidance.

The research would not have been possible without the help and support of the industry bodies and their members. The Institute of Plumbing (SA) (IOPSA) and Plumbing Industry Registration Board (PIRB) contributed and supported the plumbing analysis. Electrical Contractors Association of South Africa (ECASA) and the National Bargaining Council for the Electrical Industry (NBCEI) supported and contributed to the electrical analysis.

GIZ / SD4GE would like to thank all the stakeholders and industry members for their valuable contribution.

ECAELECTRICAL CONTRA CTORS’ ASSOCIA TION (SA )

HOME OF

YOUR TRUSTED ELECTRICAL CONTRACTORS

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Contents

1 Introduction.....................................................................................................................3

2 High-levelstatisticalanalysisoftheplumbingandelectricaltrades................................4

2.1 Methodologicalapproach..........................................................................................4

3 Insightsfromthehigh-levelliteraturestudy....................................................................4

3.1 Reliabledataontheperformanceoftheeducationsystemispubliclyavailable.....4

3.2 Therearehugeinvestmentsaimedattheeducationsupplyside.............................6

3.3 InformalityispervasiveintheSouthAfricaneconomy.............................................8

3.4 SmallbusinessinSouthAfrica.................................................................................11

3.5 The effect of the construction sector on plumbing and electrical contractingindustries............................................................................................................................13

4 SummaryoftheTIPSstudy............................................................................................14

5 Unintendedresultsoftheresearch................................................................................16

6 Conclusion......................................................................................................................16

7 Bibliography...................................................................................................................17FiguresFigure1:Youthtransitionpathways........................................................................................5Figure2:Youthlabourmarketinterventionaddressingdemand,supplyandmisalignment..8Figure3:InformalandformalenterprisesinSouthAfrica.......................................................9Figure4:Educationlevelsinformalandinformalbusinessforemployers,self-employedandwageworkers.........................................................................................................................12Figure5:Growthindexbysector:manufacturing,constructionandothers.........................13Figure6:Constructionandmanufacturingshareintherealeconomy..................................14

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1 IntroductionThisprojectconcernstheunderstandingofthetrendsanddynamicsoftwotrades:plumbersandelectricalcontractors.Inthepast,muchofthefocusoftheGIZ/SD4GEwasonimprovingthe supply-side issues of (green) skills delivery in South Africa. Despite the attention onimprovingthequalityofeducation,theGIZ/SD4GEhasalwayshadastrongfocusoninvolvingthe private sector in itswork, especiallywhen it comes to theworkplace learning that iscentraltothedualsystemsapproach.This report provides a high-level statistical industry perspective of the two trades. Ourinterpretationoftheindustryanalysisisthatitismuchmorethanjustunderstandingdemandand shifting patterns of uptake of skills. We understand that an industry diagnosis is toprovidetheGIZ/SD4GEanditsstakeholderswithinsightinto,andseveralperspectivesof,thepressures faced within the industries, the firms that comprise the industries and theinstitutionsthatpromotethem.Thisanalysiswillmakeitpossibletostrengthentherangeofinstitutions (public, private and not-for-profit). It will also inform the GIZ/SD4GE and itsstakeholderstobetterplanforthechangesthatareemerging.Itmayevenmakeitpossibletodetectshiftsthathavenotyetbeenarticulated.Thisreportprovidesahigh-leveloverviewoftheavailablestatistics.Ouraimwastoscanthepubliclyavailablestatisticstobetterunderstandwhat isknown,what isbeingtrackedandwhatischanging.Thishigh-leveloverviewalsorevealedhowthetwotradesarestructured,whichorganisationsareidentifiedwiththesectorsandwhatthehigh-leveldynamicsare.Thesecondworkpackagehomedinontheindustry-leveldynamics.Ittooktheinsightsfromthehigh-levelstudyfurtherandlookedatthekeyinstitutionsrepresentingtheprivatesector.Then a firm-level survey was designed to better understand the decisions confrontingcompany owners, and what pressures they were facing in terms of productivity, marketchanges and staff. The results of the business owner survey for plumbing and electricalcontractorsarediscussedintwoseparatereports.The thirdwork packagewas originally geographically focused on townships and informalenterprises.However,astheprojectunfolded,PEM/MesopartnerandtheGIZ/SD4GErealisedthatasthemainchallengewasabouttransformationandchangewithintheindustries,anexplicitfocusontransformationwouldbemoreappropriate.Theresultsofthisdesktopstudywasincorporatedintotheplumbingindustryanalysis.The fourthwork packagebrings together the insights, conversations, trends, analysis andrecommendationsintoasetofrecommendationsfortheGIZ/SD4GE.Thisreport ispartofthisfourthworkpackage.

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2 High-levelstatisticalanalysisoftheplumbingandelectricaltradesThetermsofreferenceforworkpackageonesawthisworkpackageasmainlyadesktopstudybasedonsecondaryresearch.Inpractice, itturnedouttobeafirstbroadscanofthetwoindustriestargetedtoidentifydirectandindirectstakeholders,potentialdatasourcesandtobetterunderstandwhoelseisworkinginthisarea.2.1 MethodologicalapproachThefollowingapproachwastakentoconductthehigh-levelindustryresearch.

• Qualitativeinterviewstoidentifykeyissues,datasourcesandstakeholders.Severalmeetings were held with the GIZ/SD4GE, IOPSA and the PIRB to understand thelandscape, past research that had been done, and current development projectsunderway.WealsoattendedresearchbriefingsbyTIPS,theWorldBankandtheNBIonvarioustopicsrelatedtothecontract.

• Identificationofdatasourcesandresearch.Theidentificationofdatasourcesbeganwithdesktopresearchintopubliclyavailablereportsfocusingoneducationandalsotheplumbingandelectricalindustries.

• TIPSwas subcontracted to identify statistical resources that canbeused tobetterunderstandhigh-leveltrends.TIPSwasalsoinstructedtoidentifyhowrelevantdatasourcescanbeusedinthefuture.ThediscussionofthestatisticalresultsisattachedasAnnexure1.1tothisreport(TIPS,2019a).

• AseriesofreviewmeetingswhereheldbetweenPEMMesopartner,TIPS,IOPSA,thePIRBandtheGIZ/SD4GEtorefinetheresultsandtodrilldeeperwhereitwasdeemedappropriate.DuringAprilapresentationeventwasheldwheretheNBIandtheotherGIZ/SD4GEcomponentscouldparticipateindiscussingthedata.

3 Insightsfromthehigh-levelliteraturestudyThissectionhighlightssomeofthemostsignificantfindingsofthedesktopsurvey.Thehigh-levelstatisticalanalysisbyTIPS(2019a)isattachedasAnnexure1.1.3.1 ReliabledataontheperformanceoftheeducationsystemispubliclyavailableEarlyoninourassignmentwewerestruckbythevarietyandqualityofdatathatisavailableregardingeducationpathways,unemployment,employmentandpubliceducation.Dataoneducation, employment and economic performance is collected by Statistics South Africa(StatsSA),theDHETandseveralotherresearchinstruments.TheDHETpublishesdataontheperformanceofthehighereducationsystemonanannualbasis,whichallowscomparisonandmeasurement.SeeforinstanceDHET(2019).TheskillssupplyanddemandinSouthAfricareport(Reddy,Bhorat,Powell,VisserandArends,2016)examinestheskillssupplyanddemandandanalyseshowthetwointeracttoinformskillspolicytosupportaninclusivegrowthpathinthecountry.Thedatausedwaslargelyfrom

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the Statistics South Africa Labour Force Surveys and the Higher Education ManagementInformationSystemforthe2010to2014period.The availability of this data raised the question in ourminds as towhether public sectorstakeholderswereusingthedatatomakebetterdecisions.Whilewecannotsayhowthedataisusedfordecisionmaking,weareawarethatitiswidelydiscussedatseminars,conferences,policyeventsandinthemedia.Forinstance,enrolmentinTVETcollegesreached705397in2016,andofthe700000studentswhoenrolledforTVETeducationin2016,only4%enrolledinvocationalstudies.AccordingtotheDepartmentofPlanning,MonitoringandEvaluation(DPME, 2018), those who attended TVET displayed low employment rates post-TVET;however,nationalcertificatesandtrainingwithpathwaystovocationalcertificatesmadeanimpact on employment prospects, with between 50–60% of those studying findingemploymentaftertheskillsintervention.Figure1belowillustratesthepercentageofyouthenteringthelabourmarketfromvariouseducationalandtrainingchannels(RebelGroupAdvisory,2017).Itelaboratesonthevariousentry mechanisms employed by the youth, including large government employmentprogrammes,non-government,publicandprivateplacementagencies,socialnetworksanddoorknocking.Finally, the figuregivesan indicationof theextent towhichyoungpeopletransition into various states of economic activity/inactivity during their first year in thelabourmarket.Figure1:Youthtransitionpathways

Source:RebelGroupAdvisory(2017)

The authors of the report fromwhich this diagram originates from comment that a keycharacteristic of the diagram is the non-linearity of youth labour market transitions. Inparticular, the diagram illustrates that youth often transition from the education/training

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systemintoeitherformalorinformalemploymentandthenbackintounemployment.Theauthors go on to state that it illustrates how youth often transition from theeducation/training system into various labour market states and then back into theeducation/trainingsystem.Of particular significance is the low level of successful youth transitions into formalemployment.Theauthorsfoundthatthatafter6months,only3%oflabourmarketentrantsareinformalemployment.Thisfigureincreasesonlyslightlyto6%afterafurther6monthsinthelabourmarket.Atthesametime,thehighratesofyouthbecomingdiscouragedandstop looking forwork isofparticular concern. Significantly,43%of youth find themselvesunemployedanddiscouragedonly6monthsafterexitingtheeducation/trainingsystemandentering the labour market. This figure captures the large percentage of youth who get“stuck”alongthelabourmarketpathwaysandareinneedoftransitionalsupport.TIPSwasbriefedtoidentifydatasourcesthatcouldbeusedinfuturebytheGIZ/SD4GEandits industry stakeholders (TIPS, 2019a). The Labour Market Dynamics (LMD) survey data(2008–2017) conducted by Stats SA is a nationally representative survey which is anaggregationofthefourQuarterlyLabourForceSurveys(QLFS)foraparticularyear(StatisticsSouthAfrica,2019).Allnon-institutionalisedSouthAfricansareeligiblefor inclusion inthesample.TheQLFStracksdwellingunitsbuttakestheformofarotatingpanelwherebyeveryquarter25%ofdwellingsarerotatedoutofthesampleandreplacedwithdifferentdwellings.Any one particular dwelling remains in the sample for up to four consecutive quarters.Stats SA provides sampling weights for each dwelling such that when it is applied to anestimation, the results are representative of the entire South African civilian population.Estimatesareweighted,exceptwhenstatedotherwise.Plumbersandelectriciansarederivedfrom theoccupationquestionasked in the surveywhichuses the SouthAfrican StandardClassificationofOccupations(SASCO)2003codes.AbriefdescriptionisprovidedinTextbox1.Textbox1:PlumbersandelectriciansintheSAStandardClassificationofOccupations

Classification713represents“Buildingfinishersandrelatedtradeworkers”.Plumbersarederived fromunit code7136, and typeA electricians arederived fromunit code7137.Classification724represents“Electricalandelectronicequipment,mechanicsandfitters”.Unit codes 7241/7242/7243/7245 represent type B electricians. SASCO classifies theseelectriciansdifferentlyfromthosewhoworkasbuildingfinishers.ItisimportanttonotethattheseSASCOclassificationsarebasedonself-reports–thismeansthat, for example, someone not formally recognised as a plumber in terms of theirqualificationsmaystillbereferredtoasaplumberintheSouthAfricanstatisticsiftheydoplumbing-relatedwork. 3.2 TherearehugeinvestmentsaimedattheeducationsupplysideKeyrecommendationsfromtheNationalDevelopmentPlan(NDP)weretoexpandthecollegesystemand furthereducationand training (FET),witha focuson improvingquality (NPC,2012). The NDP recommended a participation rate of 25% that would potentiallyaccommodate about 1.25million enrolments (NPC, 2012:43). It also aims to improve the

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throughput rate to80%by2030and toproduce30000artisansperyear–however, thecountryiscurrentlyonlyproducing12000qualifiedartisansperyear,significantlybelowthetarget.The TVET sub-programme within the DHET has experienced sustained growth in budgetallocationsovertheyears.AscanbeseeninTable2(TIPS,2019a),theTVETbudgetgrewbyanaverageof5.8%between2014and2017(fromR6.3billiontoR7.5billion.Thisissettoincreaseto25%averageannualgrowthbetween2017and2020(fromR10.7billiontoR14.5billion).The bulk of the TVET budget (95%) is spent on “Technical and Vocational Education andTrainingSystemPlanningandInstitutionalSupport”,whichcoverstransferstoTVETcollegesandtherequisitestaffing.Morethan17000peoplearecurrentlyemployedinthepublicTVETsectorinvaryingcapacities.The fastest-growing budget items between 2014 and 2017 were in Examinations andAssessments, along with the Financial Planning function, which grew by 26% and 52%respectively. Going forward, the fastest growing TVET budget items will be transfers tocolleges(growinganaverageof25%ayear),andExaminationsandAssessments(growingat22%ayear)between2018and2021. Interestingly, theTVETManagementbudget item iscontinuing on a downward trend, presumably because the TVET colleges are increasinglymoreindependentandself-managed.TheSectorEducationandTrainingAuthoritiesarethemostvisibleorganisations,withtwo(MERSETAandServicesSETA)receivingmorethanR1billionayearfortraining.Furthermore,it is estimated that between 2012 and 2015, nearly 70 000 artisans qualified throughworkplacetrainingopportunitiesfacilitatedbytheSETAs.TheSETAsclaimedtohavefoundwork-basedlearningopportunitiesforover186000learners.InareportpreparedfortheDepartmentofPlanning,MonitoringandEvaluation,itwasfoundthatmostgovernment,non-governmentalandinternationalsupportwasaimedatthesupplyside,withamuchsmallergroupfocusedonclosingthegapsbetweensupplyanddemand,and an even smaller percentage going towards addressing demand failures (RebelGroupAdvisory,2017).TheresultsinFigure2showthattheonlybalancebetweenthethreetypesofprogrammewerefoundinthepublicsector.

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Figure2:Youthlabourmarketinterventionaddressingdemand,supplyandmisalignment

Source:RebelGroupAdvisory(2017)

Acrossallfourareas,68%ofprogrammesarefocusedonaddressingsupply-sideproblems,21%onmisalignmentand11%ondemandissues.3.3 InformalityispervasiveintheSouthAfricaneconomyInformalityisbroadlyseenasbeingundesirablebyindustryassociations,businesspeopleandevenpublicofficials.However, themost recentWorldDevelopmentReportby theWorldBankstatesthatinformalityisrisingglobally(WorldBank,2019).WhileSouthAfricaistryingto “fix” problems with youth unemployment and the broader failures of the educationsystem,globallythereisachangeinthewaypeoplework.Notonlyistechnologicaldisruptionaffectinglow-skilledjobs,butnewtechnologiesarealsoallowingpeopleatthehigherendoftheskillsscaletoworkincompletelynewways.Technologyisblurringthelinesofthefirm.Newtechnologiesareallowingmoreandmorepeopletowork independentlyandbeyondnarrowconfinesofjobtitlesorprofessions.Inthisemergingfuture,basiceducation,humancapitaldevelopmentandnewsocialcontractswillbeveryimportanttounlockcapabilityorenableindividualstocontributetosociety.Figure3showsthatwhilethenumberofformalenterpriseshasslowlygrownfrom587000in2010to640000in2017,thenumberofinformalenterpriseshasgrownfastertothemostrecentestimateof1.5millionenterprises.ThiscalculationwasdonebyTIPS(2019b)usingtheLabourMarketDynamicsdataofStatisticsSouthAfrica(2018).

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Figure3:InformalandformalenterprisesinSouthAfrica

Source:TIPS(2019b)

The informalsector isan important temporary refuge forpeoplewhomayhave lost theirjobs,orwhoaretryingtoearnmoneyontheside.However,itappearsthatmanyablepeopleinSouthAfricaarestayingindefinitelyininformalenterprises.Theinformaleconomyismorelabour intensive,and itcouldbesaid tobemoreunproductivewhencomparedto formalenterprises.Thelowproductivityprobablyhastodowiththelowskillslevelsofmanyoftheworkers,thelow use of technology (in its broadermeaning), and the low levels of capital employed.However, worker productivity is also a function of management, and the South Africanstatisticsshowthatoftentheownersofinformalenterpriseshavelowskillsliketheirworkers.Informality isoftenused to imply thatbusinessesarepurposefullyavoiding taxandotherformsofformalcompliance.Sometimesinformalityisusedtoimplyblackortodescribemicroretail and other micro enterprise activities. What is sometimes overlooked is thatprofessionalswhofreelancemayalsobelabelledasinformal,ortheextraincomegeneratedbymiddle classhouseholdsbeyond full-timeemployment couldalsobe seenas informal.There are four terms that are often used interchangeably: informal sector employment,informalemployment, informaleconomyand informalsector.Whiletheydoappeartobeoverlapping,thereareimportantdifferencesinthedifferentlabels.Textbox2disentanglesthesefourlabels.

THE REAL ECONOMY BULLETIN

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Key facts on small business in 2017 i Formal small businesses: 640 000, up from 590 000 in 2010 i Informal small businesses: 1,5 million, up from 1,3 million in 2010

i Waged employees in formal small businesses in 2018: 4,2 million, or 50% of formal private jobs

i Estimated share of GDP: Around a quarter i Rate of return on assets before tax in 2017: 7,6% for small enterprise, 7,2% for

medium-sized enterprise, 7,1% for large enterprise

i Main sectors for formal small business: Business services (25% of total number), retail (23%), community and personal services (14%), construction (14%)

i Main sectors for informal small business: Retail (49% of total number), personal and community services (14%), construction (14%)

i Location: Two thirds of formal small business in the five largest metros, but only 20% of informal business

i Median income for formal employers and self-employed: R12 500 for firms with under 10 employees; R17 000 for firms with 20 to 49 employees

i Median income for informal employers and self-employed: R3010

i White ownership of formal small business: 45%, down from 62% in 2002 i Women’s ownership: A quarter of formal and just under half of informal small

business

HOW MANY SMALL BUSINESSES ARE THERE?

As Graph 1 shows, the number of formal small business reported in the labour market surveys climbed from around 600 000 in 2010 to 2012 to 640 000 in 2017. The number of informal business grew from 1,3 million to 1,5 million in the same period.

Graph 1. Number of formal and informal small business (under 50 employees), 2010 to 2017

Source: Calculated from Statistics South Africa. Labour Market Dynamics Surveys for relevant years. Electronic datasets. Series on sectors including agriculture in formal and informal sectors; employers and own-account workers; and number of employees. Datasets downloaded from Nesstar facility at www.statssa.gov.za.

1 328

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Informality has different consequences in the economy in general, and in plumbing andelectricalcontractinginparticular.Generallyspeaking,progressiveconsumerprotectionlawsandregulations inSouthAfricaaremaking itharder forpeopletoprosper in the informalsector. Inplumbing, the regulations are at this stagemainly focuson the installation andmaintenanceofhotwatersystems.However,discussionsarealreadyfaradvancedtoextendtheregulationstootherplumbingfunctions.Intheelectricalfield,theregulationsaremorerestrictivebecauseofthedangerandliabilitiesinvolvedinillegalorunregulatedelectricalwork.It is illegalforanypersontoworkontheelectricalwiringorsystemsofabuilding,ortodoanymaintenanceonelectricalequipmentiftheydonothavetheappropriatequalifications(DepartmentofLabour,2009).AllsuitablyqualifiedpersonsarerequiredbylawtoregisterwiththeDepartmentofLabourbeforetheymayworkonelectricalequipmentor infrastructure.Thismeansthat intheelectricalfield,informalityisindeedundesirable.

Arecentlocalattempttodisentanglethedifferentusesofthelabel“informality”wasmadebyFrederickFourie(2018).FouriebaseshisdefinitionsonthedeliberationsoftheInternationalConferenceofLabourStatisticians,butpointsoutthatthesamedefinitionsarealsousedbyStatsSAintheirQLFS.FouriecautionsthatStatsSAusesaslightlydifferentformulationintheSESE.Fourieformulatesthekeyconceptsasfollows:

• Informal enterprises: enterprises with or without employees, which are notincorporated and not registered for taxation. Sometimes the definition is limited tounregisteredenterprisesthathavefewerthanfiveemployees.

• Informal sector: all informal enterprises, their owner-operators/employers and allemployees, paid and unpaid, in all economic sectors (manufacturing, retail, etc.,includingagriculture). Itexcludesdomesticworkersandalsosubsistenceagriculture,whichisdefinedasnotproducingforthemarketbutratherforownuse.

• Informal-sectoremployment:anenterprise-basedconcept,comprisingthoseworkingin the informal sectoraseither owner-operators/employers oremployees, paidandunpaid.Itsfocusisemploymentininformalenterprises.

• Informalemployment:anemployee-basedconceptwhichcomprisesallemployeesorworkersthatdonothaveformalemploymentcontractsorbenefitsinboththeinformalandformalsectorsaswellashouseholds.Itsfocusisonemploymentconditionsandunprotectedwork.

• Informal economy: all forms of informal employment: ”all economic activities byworkers and economic units that are – in law or in practice – not covered orinsufficiently covered by formal arrangements” (ILO 2002: 25). Thus the informaleconomycomprisesallinformal-sectoremploymentplusinformallyemployedworkersin the formal sector and households. It is premised on the analysis of employmentconditionsratherthanonemploymentopportunitiesandemploymentcreation.

Textbox2:Disentanglinginformality

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Furthermore,theexistenceoftheNationalBargainingCouncilfortheElectricalIndustryofSouth Africa (NBCEI) in the electrical industry extends all agreements reached betweenemployersandemployeestothewholesector.Thismeansthatpeopleoperatingaselectricalcontractors,oremployingpersonsworkingintheelectricalfield,mustberegisteredwiththeNBCEI andmust complywith thewage andwork conditions gazetted by theMinister ofLabour(DepartmentofLabour,2017).Thegazettedcollectiveagreementcoverskeypointsofcontentionsuchasshort-termdurationcontracts,makingitillegalforemployerstohireworkerswithout drawing up a proper contract. The implication is that informal electricalcontractorswhoareinformallyemployingworkersarebreakingthelawonseveralfronts.AnextensionofthisisthatseveralelectricalcontractorswhoareregisteredforVAT,andperhapsevencorrectlyregisteredwiththeDepartmentofLabour,andwhoarecomplyingwiththecollectiveagreementarebreakingthelaw.3.4 SmallbusinessinSouthAfricaThePresidentialJobSummitframeworkagreementtargetedgrowthinsmallbusinessasacentralwaytopromoteemploymentandgreatereconomicequalityinthelongrun(NEDLAC,2018).ItiswidelyacknowledgedthatSouthAfrica’ssmallbusinesssectorisunderperformingwhencomparedtomanyotherpeercountries1.TheTIPSRealEconomyBulletinofJanuary2019isdedicatedtoSmallBusinessinSouthAfrica,andprovidesaveryup-to-dateandtrustworthyassessmentofthesector(TIPS,2019b).TIPSestimatesthatsmallbusinessescontributeabout25%totheGDPofSouthAfrica.DrawingfromtheLabourMarketDynamicsSurveys(StatisticsSouthAfrica,2018),TIPSestimatesthatin2017therewere640000formalsmallbusinesses,upfrom590000in2010.Thenumberofinformalenterprisesisestimatedat1525000,withastrongupwardtrendinthepreviousthreeyears.Mostofthesmallbusinessesareinbusinessservices(25%),followedbyretail(23%),communityandpersonalservices(14%)andconstruction(14%).Whiletwothirdsoftheformalsmallbusinessesareinthefivelargestmetros,only20%ofinformalbusinessesareoperatingthere.TIPS(2019b:3)foundthataquarterofformalsmallbusinesseswereown-accountenterprises,with no permanent employees.Over half of small businesses had between one and nineemployees,andonlyafifthhadbetween10and49employees.Incontrast,80%ofinformalenterpriseshadnoemployees,andvirtuallynonehadmorethanfour.Strikingly, small business accounts for 45% of all waged employment, while the informalsectorcontributes10%.However,theshareofsmallbusinessisonthedeclinefrompreviouslevelsofmorethan50%.Withregardtoeducationlevels,TIPS(2019b:12)foundthatinformalsmallbusiness,ownersand self-employed people were substantially better educated than their employees (seeFigure4).

1 See for instance the Global Entrepreneurship Monitor profile page of South Africa athttps://www.gemconsortium.org/country-profile/108

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Figure4:Educationlevelsinformalandinformalbusinessforemployers,self-employedandwageworkers

Source:TIPS(2019b:12)

About50%offormalself-employedworkershadauniversitydegreeorapost-matricdiploma,which includes artisan training. In the informal sector there was hardly a difference ineducationbetweentheemployersandemployees,andtheseeducationlevelsweremoreorlessthesameasforjoblesspeopleofworkingage.DefiningsmallbusinessinSouthAfricaTheGIZ/SD4GE requested thatwe clarify how small business is defined or understood inSouthAfrica.Overthepasttwoyears,theDepartmentofSmallBusinessDevelopment(DSBD)havebeenworking on a new definition for small businesses in South Africa. The previous definitionclassifiedsmallenterprises intofourgroups:micro,verysmall,smallandmedium(thedti,2004a,2004b).Thenew (draft) definition reduces thedifferent categoriesof enterprises to three (DSBD,2018):“Small,mediumandmicroenterprises;andtwoproxiesoftotalfull-timeemploymentandtotalannualturnover.”According to theDSBD, "Small enterprise"means a separate anddistinct business entity,togetherwithitsbranchesorsubsidiaries,ifany,includingcooperativeenterprises,managedbyoneownerormorepredominantlycarriedoninanysectororsubsectoroftheeconomy.Thenewdefinitiontakesintoconsiderationthesectoraldifferencesbyaddingadjustmentsonthethresholdsfollowingthestandardindustryclassification.Afurtherrefinementisbasedontheannualturnoveroftheenterprise.Intheelectricity,gasandwatersector,microenterpriseshave10orfeweremployeesandaturnoveroflessthanR10million,whilesmallenterpriseshavelessthan50employeesandan

THE REAL ECONOMY BULLETIN

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Graph 16. Education levels in formal and informal small business (under 50 employees) for employers, self-employed people and wage workers

Source: Calculated from Statistics South Africa. Labour Market Dynamics Surveys for relevant years. Electronic datasets. Series on sectors including agriculture in formal and informal sectors; employers and own-account workers; and number of employees. Datasets downloaded from Nesstar facility at www.statssa.gov.za.

OWNERSHIP BY RACE AND GENDER

In the early 2000s, around two thirds of formal small business owners were white. Their share had fallen to a third by 2010, and it continued to decline steadily to under half in 2017. In contrast, Africans consistently made up around 90% of informal business owners, with whites constituting around 5% and Coloureds and Indians some 6%.

Graph 17. Ownership of small formal and informal business by race, 2010 to 2017

Source: Calculated from Statistics South Africa. Labour Market Dynamics Surveys for relevant years. Electronic datasets. Series on sectors including agriculture in formal and informal sectors; employers and own-account workers; population group; and number of employees. Datasets downloaded from Nesstar facility at www.statssa.gov.za.

18% 17%

44%

62%70% 66% 67%37%

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university degree

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less than matric

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annualturnoverof lessthanR50million.Plumbing is includedunderconstructionandthesameclassificationforemploymentandturnoverisused.StatsSAusesdifferentproxiesofsmallbusinessesdependingonwhetheritisreportingonsocialstatisticsoreconomicstatistics.However,itisexpectedthatStatsSAwillinthecomingyearsalignwiththenewdefinition.3.5 The effect of the construction sector on plumbing and electrical contracting

industriesTheTIPSresearchfoundthattherearejustover2millioncraftsortradespeopleemployedinall sectors of the economy (TIPS, 2019a). Of these, 466 000 people are employed in themanufacturing sector, while the construction sector employs 811 000 people. ThecontributionofmanufacturingtotheGDPis14%,whilethecontributionofconstructionis4%.Bothmanufacturingandconstructionarenotperformingwellintermsofgrowth.Theconstructionsectorisagoodindicatorofthecountry’seconomichealth.Itrespondstobothpublicandprivateinvestment,aswellastodisposableincomeatthelevelofhouseholds.TheTIPSresearchshowsthatbothplumbingandelectricalcontractingareaffectedbytheperformance of the broader construction sector. The construction sector is an importantmarket.However,adeclineintheconstructionsectoralsoleadstoincreasedpricepressure(morecompetitionatlowerprices)andanincreaseinnewmarketentrants(bothformalandinformal).Followingthe2010FIFAWorldCup,largeinfrastructureprojectshavebeenonthedecline,withthesectorbeingdrivenbysmallfirmsandindividualconstructionconsumption.Generalgovernmenthasreduced itsspendingoneconomicandsocial infrastructureoverthepasttwoyears,withrealfixedinvestmentspendingbygovernmenthavingfallenby4.1%between2015and2017(thedti,2018).Figure5showstheperformanceoftheconstructionsectorinrelationtotheothersectors,andhowthishasbeendeclininginthelastquarters.Figure5:Growthindexbysector:manufacturing,constructionandothers

Source:TIPSAnnexure1.1calculatedfromLMD2008-2017(TIPS,2019a).

Figure6showsthecontributionoftheconstructionandmanufacturingsectorstotheGDP.Constructioncontributesabout4%,whilemanufacturingcontributes13%.

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Figure6:Constructionandmanufacturingshareintherealeconomy

Source:TIPSAnnexure1.1calculatedfromLMD2008-2017(TIPS,2019a).

Whenengagingwithplumbersandelectrical contractors, three complaints are frequentlyheard:first,thecompetenceofgraduatesandjobentrantsislow,second,mostcompaniesarenotlookingtoaddmoreemployees,andthirdthereisinsufficientregulationofinformalentrantswhoarecompetingagainstexistingenterprises.The decline of the construction sector directly results in an increase of informality andpressureonallthesupplychainsintotheconstructionsectortoreduceemployment.

4 SummaryoftheTIPSstudyFor the sake of convenience, the summary of the TIPS high-level survey (TIPS, 2019a) isattachedasAnnexure1.1.TheanalysisfirstpresentedthenumberofplumbersandtypeAandtypeBelectriciansovertheperiod2008–2017.Therewasanoverallincreaseinthenumberoftradesmenthroughouttheanalysisperiod.Thiswasalsothecasewhenconsideringtheproportionof tradesmenrelative to the workforce. However, in proportional terms, there were fewer type Belectriciansin2017thantherewerein2008.Intermsoftheracialcompositionoftradesmen,Africanswerethelargestracegroup.Theracialdecompositionoftradesmenrevealedtwoprominentfindings:(1)Theproportionof

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Indiansworkingasplumbersdecreasedsubstantiallybetween2008and2017,andinanycasetherewerefewIndiansworkingasplumbersinthefirstplace.(2)AsubstantiallylargerportionofWhitesareworkingaselectriciansthanWhitesworkingasplumbers.There isagreaterproportionofWhitetypeBelectriciansthanWhitetypeAelectricians.The provincial distribution of tradesmen follows expectations whereby the three largestmetrosinGauteng,theWesternCapeandKwaZulu-Natal,possessthemajorityoftradesmen.AninterestingfeatureintheprovincialdistributionoftypeBelectriciansisthattheyexhibitagreaterclusteringaroundthethree largestmetroareasrelativetoplumbersandtypeAelectricians.ThisfindingislikelytoreflectthenicheskillsetoftypeBelectricians,forwhichtheremaybeagreaterdemandinmoreadvancedprovincialeconomies.ThemajorityofplumbersandtypeAelectriciansworkintheconstructionindustryandtheproportionhasincreasedduringthesurveyperiod.TheproportionofplumbersandtypeAelectricians working in the community, social and personal services industries hassubstantiallydecreasedbetween2008and2017.TypeBplumbersarespreadacrossarangeof industries, butmost are found in thewholesale and retail trade industry.Anoticeablefeature of the industry trends among type B plumbers is that the proportion of type Bplumbersworkinginthefinancialintermediation,insurance,realestateandbusinessindustryhasdoubledbetween2008and2017.Themajorityoftradesmenworkforprivateenterprisesandthemajorityofthosewhoworkintheformalsectorworkinorganisationsthatemploy50ormoreemployees.Theinformalsectorischaracterisedbysmallorganisationswith80%ofworkinginorganisationswithfewerthanfiveemployees.Onbalance,therewasnomajorshiftinthesizeoftheorganisationsthattradesmenreportedworkingin.However,therewasanincreaseintheproportionoftypeAelectriciansintheinformalsectorwhoworkfororganisationsthatemploybetweentwoandfouremployees.Therearetwoespeciallyconcerningfindingsofthisreport:highlevelsoftradesmenworkingin informal employment and declining levels of TVET qualifications. This requires morethoroughinvestigationusingothersourcesofdata.Theincomesofalltradesmenhaveincreasedinnominaltermsovertheperiod2008–2017.Comparedtoelectricians (especially typeA),plumbers’ incomesaremuch lower,withthemajority earning less than R5 000 amonth. Tradesmen who have TVET qualifications orcertificatesordiplomastendtoearnthemost–thisislikelyduetothesesortsofqualificationsbeingnecessarytooperateintheformalsector.AfricansandColouredsearnsimilarincomes,while White tradesmen earn the most. This finding follows from the race-decomposededucationanalysis,whichfoundthathighproportionsofWhiterespondentshavepost-schooleducation.Akeyfindingfromthisreportisthatalthoughself-employedtradesmenearnmorethan their employed counterparts, this premium is more pronounced among WhitetradesmenandtendstobequitesmallforAfricanandColouredtradesmen.Thisfindingislikely tobedue toahighproportionofAfricanandColoured respondentsworking in theinformalsector.Althoughnotpresentedinthisreport,plumbersarelesslikelytobelongtoa

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union than electricians. These points taken together are likely to explain the disparitybetweenplumbers’andelectricians’incomes.

5 UnintendedresultsoftheresearchAttherequestoftheGIZ/SD4GE,weformulatedsomeoftheunintendedresultsfromthisfirstpartofourwork.Thesepointsshouldbeseenasaveryearlyreflection,althoughthismightchangeaswecontinuewiththerestofthework.

• TIPSfoundvalueinofferingaservicetoindustryassociationsbeyondtheirusualwork,which is mainly focused on the public sector and policy makers. Many industryassociations do not have good data, and TIPS could both assist with identifyingavailable public statistics as well as providing an analytical service to analyse theresultsofthefirm-levelsurvey.

• The role of the industry bodies in the promotion of skills development,professionalisation and becoming effective development organisations wasrecognisedbyMesopartnerandbroughttotheattentionoftheGIZ/SD4GE.Themorewe spoke to industry experts, themorewe realised that thereweremany SouthAfrican-fundedanddrivenprogrammeswhichaimedtoimproveeducationoutcomesandtheperformanceoftheselectedindustries.

• However,at thesametime,we realised thatorganisations suchas IOPSAandECAwere working in a relatively isolated way, as they were mainly focused on theirmembersandtheregulatoryenvironment.Horizontalcoordinationwithothermesoorganisationsandprogrammesisonlypursuedifthesynergiesareveryclear.Inthecase of IOPSA, the organisation is still relatively under-resourced, and developingpartnershipsandimprovementprojectswithotherorganisationstakesupthetimeofa few senior executives. ECA has a more established head office and a regionalnetworktoimplementprogrammes.Inseveralinstances,programmesimplementedbydevelopmental organisations or by the SouthAfrican government haveworkedagainstthebusinessmembershiporganisations.

• Themanyintermediariesthatarerespondingtomarketandgovernmentfailureswereidentified.ThisincludestheNBI,JETEducationandHarambee.TheGIZ/SD4GEcouldnegotiatecooperationagreementswiththeseorganisationstopursuesynergies.

• The loweconomicgrowthandthedownturn in theconstructionsector ishavingastrongeffectonthehigh-levelstatisticsofbothplumbersandelectricians.

6 ConclusionThis firsthigh-levelassessmentof the industryand statistics is importantas it shapes thescope for the more detailed industry diagnosis of plumbing and electrical contractingenterprises.

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ThestatisticalanalysisthatTIPSdidprovidedsomeinterestinginsights,butitalsoraisesmanymorequestions thatmustbeexplored in the remainderof this project. In theprocessofmeeting with stakeholders, asking questions, analysing data and double-checking ourinterpretations,wealsonoticedsomestakeholdersmakingadjustmentsandalreadytakingactiononearlyfindings.Wecapturedsomeoftheseunintendedresultsinsection5.

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9-WDR-Report.pdf

SKILLS DEVELOPMENT FOR A GREEN ECONOMY (SD4GE)

The Skills Development for a Green Economy Programme (SD4GE) supports a structural change towards more employment-oriented dual TVET approaches in South Africa.It supports the:

The cooperation of private and public stakeholders to promote dual training approaches The implementation of dual training approaches – e.g. the dual system pilot project

(DSPP), the centres of specialization (CoS), and dual short courses The strengthening of the capability of personnel involved in the implementation of dual

training approaches: lecturers, in-company mentors and TVET college management.

On the German side it is implemented by the Deutsche Gesellschaft für InternationaleZusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry for EconomicCooperation and Development (BMZ). GIZ collaborates with its national partner, the Department of Higher Education and Training (DHET).

IND

UST

RY

AN

ALY

SIS

Skills Development for a Green Economy (SD4GE) Programme

www.skills-green-economy.org