TOWNSHIPS HAVE POTENTIAL
Settlements ripe for rapid economic development
A 2014 World Bank study, titled “The Economics of South African Townships”, estimated that South African townships and informal settlements accounted for 38% of the country’s workingage population and yet were home to 60% of the country’s unemployed population.
On the other hand, township residents have spending power of billions of rands. For example, the same report estimated household expenditure in Diepsloot alone to be around R2.3-billion per annum. Given such a high concentration of untapped human capital and expenditure, townships are ripe for rapid economic development.
The unfortunate truth on the ground, however, is that many people in townships remain unemployed and economic activity remains stagnant and highly informal. Moreover, the entry of formal retailers and large malls into townships has brought almost unbeatable competition to township entrepreneurs, while at the same time expatriating their profits from townships, thus reducing the expenditure multiplier of township household expenditure.
The question now is: how can township economies grow in a sustainable and inclusive manner and how can township entrepreneurs best participate in this growth?
The answer to this question has three parts: firstly, township economies have to capture as much of township household expenditure as possible, secondly, they need to attract expenditure from outside the townships and, thirdly, they need to create innovative products, leveraging intimate knowledge of consumer pains.
While township households spend billions, this spending tends to take place in city and suburban malls rather than at township businesses. This presents an opportunity for township entrepreneurs to provide goods and services to their neighbours.
But to do this, entrepreneurs need to provide products at competitive prices and with convenience. This is often difficult as informal retailers in townships don’t have economies of scale and logistics management capabilities required to keep prices at the same levels as the formal retailers.
Many township entrepreneurs are already overcoming these shortcomings by forming or joining small retailer buying groups that buy goods in bulk and then distribute smaller quantities to individual retailers.
Others offer value-added services such as door-to-door delivery of products. These strategies go a long way in making township retailers more attractive to township buyers.
There is also a need for government to step in with initiatives to help township entrepreneurs with the infrastructure they need to be competitive. This could take the form of building marketplaces that improve customer traffic for retailers, or availing more funding and targeted training to entrepreneurs. Government is already doing some work in this regard, but reaching more entrepreneurs in the locations they are based in needs to become an urgent priority.
Beyond attracting the rands of township-based households, township entrepreneurs need to recognise that there is a whole world out there, and devise strategies to attract consumers to the townships. Cringeworthy as they are, activities such as township tours are a good indicator that townships can attract consumers from outside townships. The question now is: how to do this at a larger and more lucrative scale?
The internet provides a great opportunity here. Services such as Airbnb have shown how powerful the internet is at removing the information asymmetries that have provided large retailers with an unfair competitive advantage.
Hotels now compete with spareroom and backroom owners for tourist dollars.
Similarly, there is no reason not to believe that some tourists might want to go off the beaten track and find rooms in townships if these are available, easy to find and pay for.
Moreover, where can I get a good seven-colour meal on a Sunday afternoon, or a good, low-cost cleaner for all my sneakers?
These are products and services I have encountered by chance while visiting friends in many Johannesburg townships. Putting these on the internet would surely increase customer traffic to those retailers.
The lethargy of township economies cannot be blamed entirely on the lack of effort on the part of township residents. Townships bore the brunt of apartheid disenfranchisement. Built far from city centres, with poor town planning, limited infrastructure and overcrowding, these spaces were never built to be economic centres.
What’s required now is for entrepreneurs to re-imagine entrepreneurship in these spaces, and for government to lend a carefully directed helping hand.
“Township residents have spending power of billions of rands