A level play­ing field is vi­tal

In­te­grat­ing ur­ban economies in cities as seg­re­gated as ours is not easy, but it can be done, writes

CityPress - - Voices & Careers -

South Africa is an in­creas­ingly ur­ban so­ci­ety and its econ­omy is even more so – our eight ma­jor cities are home to about 37% of the pop­u­la­tion, but ac­count for 59% of eco­nomic ac­tiv­ity. This should come as no sur­prise as cities across the world pro­duce more than 80% of global eco­nomic out­put, a fig­ure that sug­gests our cities have even greater po­ten­tial as driv­ers of fu­ture growth.

South Africa must think dif­fer­ently about how to make the most of our cities. An agenda for cities of hope and op­por­tu­nity for all res­i­dents will need to cover many is­sues, in­clud­ing in­fra­struc­ture, hous­ing, trans­port, fi­nance and reg­u­la­tion. A key goal needs to fo­cus on over­com­ing the spa­tial, in­sti­tu­tional and in­fras­truc­tural lega­cies that frag­ment the ur­ban econ­omy. South Africa needs to build in­te­grated, onecity economies that can at­tract in­vest­ment and en­cour­age en­trepreneurs.

In­te­grat­ing ur­ban economies in cities that are as seg­re­gated and frag­mented as ours is not easy. In some ways, it is un­sur­pris­ing that to­day’s plan­ners have dif­fer­ent agen­das for town­ships and the for­merly whites-only cities in which eco­nomic ac­tiv­ity was con­cen­trated by apartheid’s plan­ners.

One pos­si­ble re­sponse to the im­bal­ances in eco­nomic con­cen­tra­tion is to seek to stim­u­late eco­nomic ac­tiv­ity in the town­ships by pro­vid­ing town­ship busi­nesses with var­i­ous forms of pub­lic sup­port and pro­tec­tion. In­deed, this is an ap­proach that has at­tracted in­creas­ing at­ten­tion from pol­i­cy­mak­ers. But is it the right one?

Let’s start with the ob­vi­ous: apartheid-era re­stric­tions, in­clud­ing zon­ing rules and other reg­u­la­tions, made the es­tab­lish­ment of many kinds of busi­nesses in the town­ship il­le­gal, and made all oth­ers dif­fi­cult to run suc­cess­fully. Town­ships also lacked the phys­i­cal and in­sti­tu­tional in­fra­struc­ture (good roads, banks, lawyers, civil courts) needed for busi­ness to thrive. The re­sult was that busi­nesses, if they were es­tab­lished at all, tended to be in­for­mal, un­reg­u­lated and small. They rarely suc­ceeded, cre­at­ing few en­tre­pre­neur­ial role mod­els for oth­ers to fol­low. Given these fac­tors, as well as bad ed­u­ca­tion and low in­come lev­els among res­i­dents, it was dif­fi­cult for house­holds to ac­cu­mu­late the start-up cap­i­tal and know-how to get a busi­ness off the ground.

Much of this re­mains true to­day. There is con­sid­er­able eco­nomic ac­tiv­ity in the town­ships – mostly per­sonal and house­hold ser­vices such as re­tail and en­ter­tain­ment ser­vices, home con­struc­tion and ve­hi­cle re­pair, hairdressing and health­care, school­ing, food prepa­ra­tion and laundry – but the scale is lim­ited, and most town­ship busi­nesses re­main small and in­for­mal, and op­er­ate on nar­row mar­gins.

As im­por­tant as in­sti­tu­tional and in­fras­truc­tural is­sues are, the main rea­son town­ship busi­nesses do not fare as well as firms pro­vid­ing sim­i­lar goods and ser­vices in the rest of the city is that town­ship house­holds are far poorer than sub­ur­ban house­holds. This is an is­sue that can­not be solved us­ing the tools that pol­i­cy­mak­ers seem to be ad­vo­cat­ing.

In Gaut­eng, the de­part­ment of eco­nomic devel­op­ment ar­gues that the high fail­ure rate and low in­come lev­els of town­ship busi­nesses are due to “un­fair com­pe­ti­tion from for­eign traders and/or for­mal sec­tor busi­nesses with mo­nop­oly power”. Town­ship en­trepreneurs, it con­cludes, must be pro­tected from out­side com­pe­ti­tion.

Of course, pro­vid­ing the right kind of sup­port to town­ship en­trepreneurs could be ben­e­fi­cial. How­ever, pro­tect­ing them from com­pe­ti­tion from for­eign­ers and “mo­nop­oly” firms would be the wrong way to do so. Apart from the ques­tion of whether ex­ter­nal com­pe­ti­tion is re­ally “un­fair” or if the firms they have in mind re­ally are mo­nop­o­lies, pro­tect­ing lo­cal firms against com­pe­ti­tion would mean im­pos­ing higher costs on con­sumers. Given the over­rid­ing im­por­tance of im­prov­ing the wel­fare of poor house­holds, this would be mis­guided.

The growth of ser­vices-dom­i­nated town­ship economies depends pri­mar­ily on the ex­tent to which town­ship res­i­dents get jobs, and what kinds of jobs they are. Town­ship economies would be stim­u­lated both by ex­pand­ing em­ploy­ment across the en­tire city and by im­prov­ing the abil­ity of town­ship res­i­dents to get those jobs – by im­prov­ing ac­cess to skills ac­qui­si­tion and pub­lic trans­port.

Ul­ti­mately, how­ever, the in­ter­ests of town­ship res­i­dents lie in en­sur­ing the ex­pan­sion of busi­nesses and jobs in the city as a whole, rather than seek­ing to en­sure that jobs are cre­ated pre­dom­i­nantly in the town­ships. This means that ur­ban pol­icy should fo­cus more closely on what it would take to get ur­ban economies to grow more rapidly and to ab­sorb more labour than on grow­ing firms that hap­pen to be lo­cated in town­ships.

The truth is that pur­su­ing growth has not been at the core of our ur­ban strate­gies to date.

If it were, ur­ban lead­ers would be shout­ing about the ef­fect of na­tional poli­cies, at­ti­tudes and leg­is­la­tion on their economies, and on ur­ban labour mar­kets where re­stric­tions in­crease un­em­ploy­ment and pre­vent the emer­gence of more labour-in­ten­sive firms. They would also be cry­ing out for ed­u­ca­tion and train­ing re­forms so that young ur­ban­ites across the city could be­come a lot more skilled. Ir­re­spec­tive of where it hap­pens in the city, faster growth will trans­form the prospects of poor city­d­wellers and, through the ef­fect on their dis­pos­able in­comes, it will also help grow town­ship economies. The ob­jec­tive must be to ac­cel­er­ate eco­nomic growth in the city while help­ing town­ship res­i­dents ac­cess new op­por­tu­ni­ties for em­ploy­ment and en­ter­prise. So what, then, is needed to forge one city with op­por­tu­ni­ties for all and to cre­ate a busi­ness en­vi­ron­ment that at­tracts in­vest­ment? The ba­sic build­ing blocks are pro­vid­ing res­i­dents (wher­ever they live in the city) with high-qual­ity ed­u­ca­tion and skills train­ing. It’s also es­sen­tial that labour mar­ket poli­cies that in­hibit job cre­ation are ad­dressed and that en­trepreneurs can tap into their cities’ dif­fer­ent mar­kets. Within the town­ships them­selves, a reg­u­la­tory regime that sup­ports faster growth and more em­ploy­ment is needed. This has to in­clude a sup­port­ive en­vi­ron­ment for small busi­ness en­try, sur­vival and ex­pan­sion. Bern­stein is head of the Cen­tre for Devel­op­ment and En­ter­prise. This ar­ti­cle is based on CDE’s Growth Agenda series of re­ports

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PHOTO: MANDLA MNYAKAMA

IN­FOR­MAL BUSI­NESS Dan­more Mufa, who lives in Them­balethu near Ge­orge in the Western Cape, sup­ports him­self by sell­ing clean­ing prod­ucts to the pub­lic

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