Remaking the townships of Gauteng as catalysts for accelerated growth

The potential of townships and informal settlements to drive shared economic growth through small and medium enterprises has not been mined maximally, even pre-Covid-19 and the July insurrections. A new deal for townships and informal settlements, anchored in praxis, is being implemented to rebuild better and accelerate economic opportunities that benefit everyone.  

Townships and informal settlements are geographic and demographic spaces that represent SA’s lived reality of continued class and racial inequality. To address this inequality decisively and comprehensively, the Gauteng department of economic development (GDED), working with social partners, is executing a new deal for the township economies of the Gauteng city region (GCR). 

This new deal, designed deliberately to defy the history of township underdevelopment, is centred on the deployment of industrial corridors. In turn, these corridors are propelled by special economic zones targeting export markets and innovative investments in public infrastructure to unlock private development. It’s projected that these structural interventions can double the size of the Gauteng economy within a decade and cut unemployment by two-thirds. This new deal comprises one of the core objectives of Growing Gauteng Together 2030 (GGT2030).

Why is the GGT2030 seminal in township economic development? Experience has informed the GDED that one of the keys to breaking into higher economic growth lies in growing — and diversifying — the hundreds of thousands of firms lining the streets and back alleys of townships. There are thousands more firms that can be established servicing value chains, public and private alike, which criss-cross our economy.

This is also one of the strategic outputs to cutting down youth unemployment to reasonable single digits and halving intergenerational inequality that fuelled the July insurrection. 

Township-based firms, half a million of which are active in Gauteng’s informal economy alone, plus another 400,000 SMMEs operating formally across the GCR, can be those very clusters of fast-growing firms we need. Their potential to incorporate and empower the army of eager young workers clamouring for economic opportunities more than dependence on state welfare is unlimited. 

Like their counterparts across Asia, these young people, due to their demographic dividend, can also become immediate customers for new equipment, software and services that drive the economy. This mutually reinforcing ecosystem has been proven to be indispensable for any sustainably shared growth and social cohesion. 

The GDED’s data projections highlight that simply moving the informal layer of township firms to a more productive footing, from an average of R30,000 monthly turnover to R100,000, would result in each firm creating two jobs. This would yield about a million new jobs in Gauteng alone, twice the number created by the province’s formal businesses between 2014 and 2020. In this calculus, townships and informal settlements are an indispensable nucleus for job and wealth creation at a mass scale that would be possible when innumerable new and smaller firms start creating productive capacity in townships. 

Of course, this is not feasible under the current business trading rules and regulations or when using the mainstream banks’ credit scoring systems. Moreover, this is not possible when relying on the fragmented and narrow programmes which the public and private sector deploy to support growth of SMMEs in townships. 

Hence the need for support for the province’s new deal for the township economy by social partners at National Economic Development and Labour Council. One of the legal instruments being proposed is the Township Economic Development Bill, which is before the provincial legislature, plus the new Township Economy Partnership Fund, to be delivered as a partnership between a reconfigured Gauteng Enterprise Propeller (GEP) and the Industrial Development Corporation (IDC). 

Specifically, R250m from the Gauteng provincial government is being allocated into a wholesale fund that leverages both public and private money. This money will now be loaned out to platforms that can run portfolios of loans to small, medium and micro firms operating at all levels of our township economy, particularly targeting those firms not well served by the current banking system. 

GEP and the IDC are allocating R100m from this fund to a rapid deployment township rebuilding effort, which will be matched by private sector contributions. The intent is to provide funding that will be 50% grant and 50% loans, with a cap of R1m for smaller formal businesses in distress, and up to 50,000 for informal businesses. 

This is only the beginning of what we estimate will be close to R1bn worth of blended finance to be disbursed through intermediaries, especially those who will match us rand for rand. 

The investment committee of this new wholesale fund will be convening shortly to review proposals from these platforms, and we have several strong proposals. These include:

• those who have committed to match us rand for rand and partner with us on rebuilding funding for distressed township firms;
• those who have proposed funding for working capital loans, stock credit and purchase order financing to township-based and township-linked firms using nonbank intermediaries;
• those who have proposed a stock credit and capital investment scheme for organised retailers; and
• those who have proposed to use our wholesale funding to finance thousands of backyard shack upgrades to create commercial and residential units in our townships. 

Mirroring these funds, the proposed Township Economic Development Act is targeted at changing how commercial activity is governed and supported in township areas. It’s also aimed at expanding existing businesses in townships and enabling the creation of new business activity to drive mass-scale employment and self-employment in the deprived communities of Gauteng. It undoubtedly changes the rules — including via a new draft model bylaw — to make it much easier, faster and cheaper to start and run a business in a township. 

The proposed act will unleash the potential of the 6-million commuter market that passes through our taxi ranks every day by turning those taxi ranks into micro-CBDs. It’s envisaged to turn the 4-million backyard shacks in GCR into sites for new flats and commercial shops that will come together as township high streets. Cumulatively, these practical structural interventions look set to allow services, light manufacturing and any other type of business associated with Gauteng’s 10 targeted high-growth sectors, to be set up in townships.

It will put in place incentives to install broadband infrastructure in township areas, and it will make the partnership fund a permanent legal mandate of the Gauteng provincial government. The act heralds a game-changing intervention for small township businesses to reach a ladder rung of formality, and for those not yet started to gain a foothold to access markets, funding, insurance and other support to allow them to grow profitably and sustainably. This act is also designed to enable small township businesses have explicit linkage to the new value chains that the special economic zone-led industrial corridors will kick-start across the city region.

Another timely mechanism the new act will enable is setting up community benefits agreements, between clusters of local businesses and new investors from outside the township in question, which set out agreed-on programmes for value chain inclusion. In this regard, there is a beneficial emerging consensus this is a matter of long-term security as much as a catalyst for shared prosperity. 

While the bill is going through its final revisions, the GDED is working with the property sector, on a voluntary basis, to make this kind of social compact a reality. We are negotiating a retail support fund that will target very small enterprises for inclusion in rebuilt retail malls and other township retail developments, particularly black-owned businesses that would typically not have access to bank finance. This fund is intended to be an organised platform for property developers to finance the transformation of the townships which surround their developments. 

Along with this fund, we will be convening an action lab with the property sector focused on how to deploy much bolder, more integrated transformation of value chains across the retail and property sector. The aim is to create opportunities for new pipelines of township suppliers into retail; create new township retail spaces outside mall precincts; and build internal networks of SMME black industrialists running warehousing and logistics that service all levels of business in townships.

At the same time, we are lobbying the national government to, among other things, make the capital costs of rebuilding tax-deductible for companies, and the value of investment into township-based firms tax-deductible for individuals.  

If correctly targeted, such that the spending directly builds economic capacity and linked employment, these interventions can actually be net positive for the tax base in the medium term in that they will drive up corporate tax intake, VAT intake and PAYE intake over the coming years. 

The GDED is also positioning the new deal for townships to seamlessly accommodate hundreds of thousands of stipended young trainees funded by the Presidential Employment Stimulus programme. Our proposal is to deploy these young people across a range of digitalised tasks supporting the implementation of the new deal for townships, and combining this with online learning modules that will make a livelihood possible once they leave the public programme. 

Much of what we term our current crises are symptoms. The disease is an economy not built for job-rich growth — an economy riven with inefficiencies and misalignments between the government and business. Covid-19 and the July insurrections are fault lines holding opportunities to rebuild better and more inclusively. 

In Gauteng, the GGT2030 initiatives and the new deal for township economies are critical interventions to realise practically shared economic acceleration, using townships and informal settlements, for the greater benefit of SA. 

Parks Tau is the Gauteng MEC for economic development, environment, agriculture & rural development. 

This article was paid for by the Gauteng department of economic development.