THE TOWNSHIP ECONOMY

Townships are a complex ecosystem of entrepreneurship opportunities, however there are number of complexities and challenges that hinder the full potential of township entrepreneurship

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During this year’s State of the Nation address in February, President Jacob Zuma promised that, in line with the radical economic development that the government is embarking on, the State will use its buying power to boost and empower small business enterprises, especially rural and township enterprises.

Gauteng Premier David Makhura followed Zuma’s example by giving flesh to the President’s figures in his State of the Province address. Makhura highlighted the Gauteng government’s focus on the growth and stability of black-owned township enterprises. Besides ensuring that township businesses are given access to wider market opportunities, the provincial government will ensure that the empowerment that the government has always trumpeted is made real by stipulating that “every rand that the government spends on black-owned business development goes to township enterprises”.

Makhura went on to give figures that indicated that, in 2014, the government spent only R600 million in the township economy, with the figure increasing tenfold to R6 billion in 2016. As of January this year, up to 2 800 township businesses were benefiting directly from government spend. This focus on the township economy is not limited to Gauteng only—other provinces have also benefited, with the Western Cape, for example, having partnered with established businesses like Neotel to ensure the successful delivery of broadband in the City of Cape Town and in other municipalities in the province. The City of Cape Town has gone ahead with the establishment of e-centres, which ensure that residents, including those in townships, also receive broadband so that they too can be in the information superhighway of the mainstream economy.

While all these are welcome efforts in ensuring that the township economy grows and truly help in eradicating the unemployment burden, it is of paramount importance that measurable efforts are made to uplift the township economy.

‘Township economy’ refers to enterprises and markets based in the townships. These are enterprises operated by township entrepreneurs to primarily meet the needs of township communities and, therefore, can be understood as ‘township enterprises’, as distinguished from those operated by entrepreneurs outside the townships.

The term “township” refers to old, new, formal and informal human settlements that are predominantly African, Coloured and Indian, characterised by high levels of poverty, unemployment and low incomes as well as distance from the main centres of economic activities. Township enterprises have different legal forms—for-profit and not-for-profit enterprises registered under the Companies Act and for cooperative enterprises registered under the Cooperatives Act. However, the majority of township enterprises have high rates of informality.

Hub of potential

Township enterprises are involved in wide and diverse economic activities, ranging from spaza shops, street vending, hair salons, shebeens and minibus taxis, to mechanical services, manufacturing, burial societies, stokvels and child care services. These are largely micro-enterprises with low capital and a low skills base.

The de-industrialisation of the South African economy and subsequently, tertiarisation, had pushed the entrepreneurs from the township to periphery of the mainstream economy and re- structured the township economy to service orientated economy, with no manufacturing capacity. Township economy had a minimal contribution to the development of productive sectors of the economy. For instance, no township has manufacturing sites for train tracks, a cement plant, bolts plant, tin plant etc. Townships have become debt-driven consumption-based communities instead of vibrant productive centres. And as such, Africans experienced economic exclusion and have relied on labour as the only asset that they can place a price on.

The principal aspect of this path is attributable to the decisions taken by large firms in various sectors. Large firms drive the demand and supply of inputs (access to inputs) and also set the standards and prices within their value chain. The power lies in the value chain and how that affects existing and prospective entrepreneurs’ ability to participate in the sector as well as the distribution of returns from such activities throughout the value chain.

The exclusion from these upstream and downstream linkages means that township enterprises will survive on low margins with no comparative or competitive edge. The failure of the government to channel public spending to township economies through competitive regulation regimes as well as a lack of access to developmental finance has exacerbated the problem. There is lack of recognition of the importance of social organisation, embracement social capital and handholding approach in supporting township enterprises. The one size fits all enterprise development strategies have further alienated entrepreneurial initiatives in the townships.

Furthermore, the entrepreneurs who have thrived in the township before through trading activists in both formal and informal settings have been choked off by the influx of foreign national entrepreneurs in the traditional township economic activities. Foreign national entrepreneurs are better organised and possess a competitive edge over local entrepreneurs through networks, bulk buying and, ultimately, offering goods and services at competitive prices.

What has compounded the stranglehold for local entrepreneurs is the proliferation of shopping malls in the township crowding-out old township general dealers, grocery shops and bazaars as well as informal food and grocery outlets.

The broad set of principles associated with the township economy is cooperation and solidarity on which growth of the township economy depended. Cooperation refers to a process of working together by township enterprises in every way possible to derive the benefits of competitive advantage. Solidarity refers to an ongoing commitment to purchase goods and services within and between townships.

These principles distinguish the township economy from the dominant (mainstream) economy. Instead of cutthroat competition amongst township enterprises (as taxi, or spaza shop owners etc.), there have been varying levels of cooperation and community solidarity. Township enterprises have a distinct and valuable role to play in helping to create a vibrant, socially inclusive economy.

Township enterprises offer goods and services predominantly for the township markets where they seek to address essential community needs. However, township entrepreneurs themselves do not produce most of the products and services traded. A key objective of the government policy is to encourage township entrepreneurs to produce everything that is possible within and around a township space, given the infrastructure, skills and technology at their disposal. Township enterprises can be vibrant and engage in productive activities, especially for value-added products and services to meet the needs of the township market and beyond.

Through sustainable economic activities, township enterprises can draw hundreds of thousands (if not millions) of black people into the mainstream economy, not just as workers but also as owners of wealth. Township enterprises, as community-based or localised enterprises, can participate in sustainable economic activities in ways that ensure the money and benefits from such activities flow directly back into the townships.

Although most township enterprises are established to address a specific local or community need, this does not mean that they are incapable of reaching out and successfully delivering their products to wider markets. The Real Economy Impact is often achieved if township enterprises, based on their principles of cooperation and solidarity, are ‘clustered’ together to benefit from supply linkages and greater economies of scale. Once the critical mass is achieved, there are opportunities for inter-trading, collective access to public, private and non-governmental procurement contracts, cost sharing of services, leading to the further growth of township enterprises.

Challenges ahead

In addition to the common challenges facing small enterprises and cooperatives, they are more pronounced for township enterprises. These barriers include, among others:

a. Lack of entrepreneurial and productive activity;
b. Poor understanding of the abilities and value of township enterprises;
c. Little hard evidence to demonstrate the impact and value-add of township enterprises;
d. Limited account being taken of the particular characteristics and needs of township economy enterprises within an enabling framework; and
e. Complexity and lack of coherence within the township combined with widely varying skills and knowledge bases.


A number of studies, including the latest study by the World Bank (2014) on the Economics of South African Townships, with special focus on Diepsloot, show that the townships have a low rate of entrepreneurial activities in South Africa compared with other countries of the South (Latin America and Asia) and the rest of Africa. When compared with non-township micro-, small and medium enterprises, the sector distribution of township enterprises is more preponderant with retail than non-township enterprises—indicating a lack of productive activity, particularly in manufacturing activities.

In addition, only 80% of all new businesses in South Africa survive past the first two years—a low rate when compared with other South countries. Factors influencing the lack of entrepreneurial and productive activity are largely historical—the Apartheid state suppression, marginalisation and even criminalisation of township entrepreneurship.

Township enterprises are not properly understood outside the networks of those within the township economy. Limited understanding has meant that: a) Policymakers have not considered township enterprises as a potential (but not only) solution to a wide range of social and economic problems affecting township communities; b) Enterprise support providers targeting township enterprises have often not been able to offer appropriate advice; c) Financiers have been unsure of the risk and appropriateness of lending models and insurance to the township enterprises; and d) Mainstream businesses have not seen the potential for new partnerships or supply linkages emanating from township businesses.

At present, there is limited information on the size and growth of the township enterprises, there are only a few and isolated cases of such information. Township enterprises, therefore, are largely ‘invisible’ and informal. This can make it difficult to plan and provide appropriate government support. One of the reasons for the lack of statistical evidence is that township enterprises create a range of social impacts, beyond their financial return that is hard to measure (even by the township enterprises themselves). Limited information on their social and their financial impact also means that policymakers, enterprise support providers and finance providers find it difficult to assess the economic and social value of targeting township enterprises or include them in their activities.

The particular characteristics of township enterprises—such as the cooperative and solidarity practices and principles—are not always taken into account by existing financial, legal, and regulatory frameworks and in procurement activities. Addressing the needs of the township economy, which does not fit neatly into mainstream private or public sector models, also poses challenges for the government.

If township enterprises are to be sustainable, entrepreneurs need to possess good management, financial and production expertise. Because addressing needs or ‘survival’ drives many necessity entrepreneurs, those supporting and training these enterprises need to be aware of both the ‘business’ and ‘social’ side. However, township enterprises must regard themselves as businesses that seek to become more professional and continuously raise their standards of performance and ambitions.

On the right track

Earlier this year, the Gauteng Department of Economic Development hosted the Township Entrepreneur Awards. A first for the province and the country as a whole, the main objective of the awards is to recognise and reward entrepreneurial talent in township settlements whilst building and cementing confidence in township-based businesses. Equally important is the impact that the awards will have in changing negative perceptions about township-based businesses as well as encourage and inspire township entrepreneurs to realise the conceivable economic gains for communities within which they operate. The awards had a reality show component that ran on free-to-air national station e-tv, showing the entrepreneurial journey of participants.

Although the awards are still in the development stage, it has the potential to grow into a driving force behind innovation and growth in the township economy, if they receive the right kind of publicity and management. It has the potential to become a national event that can be spread to all local municipalities, which must then ensure that entries come from every single township in the country.

Youth and township entrepreneurship

Work in township micro-enterprises offers the unemployed youth a point of entry into the labour market. Those engaged in ‘make-work jobs’ will no doubt abandon informal work for better opportunities and formal employment when available. Whether youth persist in informal work, the township economy provides opportunities to acquire skills, gain on-the-job experience and build social networks. There are good business opportunities for those youth able to apply their knowledge and skills and to mobilise capital.

Youth unemployment in South African has reached alarming levels. The challenge of bringing youth into the economy is particularly worrisome in the urban township context. In Gauteng, where opportunities for employment are the greatest, youth unemployment still exceeds 30%. Youth access to the formal job market is constrained by the comparatively poor education standards of township primary educational institutions. As a result, the rate of school non-completion is high in absolute terms, whilst those matriculating have reduced opportunities for post-school training. Two other factors negatively affect labour market access. First, the spatial dislocation of the townships from commercial centres makes job seeking costly. Second, pervasive unemployment in combination with family legacies of low-skilled (and low-paid) work means that the youth have relatively weak social networks in formal labour markets, especially in sectors such as trade, finance and services where jobs have been created.

The most promising options for the government lie not in creating entrepreneurs but in improving the framework conditions in which township entrepreneurship will take root. This means that the government should start interventions at the school level. Students should be encouraged and supported to pursue an interest in ‘hobbies’ (beyond playing sport and singing), because ‘serious leisure’ does translate into business. Studies should give students exposure to inspiring enterprises that individuals like them could operate and to markets that they could develop. Without having travelled, most township students would have little appreciation of the retail possibilities beyond their own encounters with street traders and shopping mall retailers. The school curriculum should devote more attention to the subject of technology. Township youth have a limited knowledge and experience of tools (such as artisanal tools, DIY electrical tools and home production machinery) and an inadequate comprehension of the way tools and technologies can enhance productivity. Without an appreciation of tools and technology, young persons will continue to perceive vocational training in narrow terms (as a means to employment), not as a path to entrepreneurship.

South Africa’s informal economy is booming. However, the lack of reliable data and realistic policies from the government means millions of people are without security and support on the one hand, while potential opportunities are wasted on the other. A closer look and the introduction and implementation of a number of interventions are needed to support township SMMEs and entrepreneurs in order to help them flourish. It is the hope that these township enterprises will be sources of employment and will help to bring the township economy into the mainstream

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