Township economies struggle with a hostile ecosystem
The township economy concept has been around for a while, but remains fuzzy: is it about transforming townships into better places to live or creating industrial clusters in their midst? Either way, success depends on understanding and dealing with deep-seated structural blockages to small, SA business growth, especially in working-class areas.
The concept is more relevant with Covid-19 devastating small businesses, with black owners losing out disproportionately. The number of small formal enterprises fell about a 10th, from almost 700,000 to 630,000, from early 2020 to early 2021. Black owners’ share in all formal businesses fell from 60% to 50%.
The concept of the township economy did not, however, originate to promote blackowned business. Rather, it responded to the impact of apartheid on urban areas. Townships are still mostly dormitory settlements, with inadequate cultural and social spaces. Supporting local retail, restaurants and entertainment venues would help fill the gap, improving the quality of life while opening economic opportunities.
In the past few years, industrial policy programmes entered the township space. They mostly centre on industrial activities, however, rather than community needs. That raises a question: how many homeowners want to live next door to heavy industry? Historically, apartheid planning often located townships around dirty industries, the mine dumps for Soweto and power plants in Mangaung, for instance. Whatever their aim, programmes to promote township economies must tackle substantial obstacles. A range of structural factors work to depress economic activity in the townships.
One reason is obvious: black working-class households have far less disposable income than the leafy suburbs. In 2019, the 9-million urban African households had a median income of R4,000 a month, according to Stats SA’s general household survey. For the 1.5million white households the median income was R12,000 a month. By comparison, in the historically labour-sending regions the median household lived on less than R3,000 a month. The pandemic depression has undoubtedly further reduced township incomes, since job losses disproportionately hit less-qualified workers.
Some township neighbourhoods are far more prosperous than the norm. Still, it is harder to run a boutique or restaurant when people are stressed just meeting basic needs. In 2019, one out of 10 African urban households went hungry at least sometimes, compared with one in 30 white households.
A second core challenge is continued disparities in infrastructure, reflecting more than a century of unequal investment. Even today new RDP developments often don’t provide commercial or cultural sites. The backlogs in household services underscore the extent of the problem. In 2019, one in seven African urban households still lacked electricity and one in 10 did not have water. Moreover, services in the townships are often unreliable. For instance, Eskom’s policy of “load reduction” often shuts down electricity in some urban townships during morning rush hour though it does not publish how many businesses and households are affected.
SA’s profoundly unequal distribution of wealth is a further constraint. Studies show that the richest 5% of households own almost all financial assets apart from pensions. In the townships, the median house was worth R500,000 in 2019, about onethird as much as housing in the leafy suburbs. Without assets, emerging business owners find it harder to get credit and they were much less likely to survive the pandemic depression. These constraints add up to a hostile ecosystem for new small businesses, which must be addressed holistically.
A critical step is for the new infrastructure programme to provide mass upgrades for commercial sites and housing in urban townships. Even more fundamentally, successful township economy initiatives must respond, not to officials’ abstract plans and performance indicators, but to people’s hopes and needs for their communities and their lives.