How the Gauteng Township Economic Development Bill will help establish thriving township SMMEs

The Gauteng Township Economic Development Bill is now in the public domain and soliciting public comments before it’s promulgated as an act by the Gauteng Legislature. The bill intends to change how townships are regulated and governed, to transform them into zones of widespread job-creating commercial activity. 

Gauteng director for inclusive economy Mathopane Masha, answers some questions about the upcoming bill.

How does the bill propose to help establish viable and thriving township SMMEs?

The scope of the bill is framed by research. Direct data has been collected from townships, identifying the types of businesses located there and how support should be structured to most immediately address their needs. The research highlighted regulatory failure and their high costs borne by township enterprises, while location frequently undermined SMMEs’ risk profiling.

Intervention was required to change the spatial management of township economies and to provide incentives for entrepreneurship and job creation. The research identified a need for funding partnerships to reach SMMEs that have the potential to expand and grow. The province has established an SMME fund to provide both wholesale and blended finance (in which the fund acts as first-loss guarantor) to intermediaries that can derisk lending to township-based firms. The Gauteng government and Industrial Development Corporation have each committed R250m to the fund, which is at the stage of formalising rules of access and mobilising private sector participation. 

A portfolio of lenders is being identified to share their experience, know-how and technology to reach the most deserving SMMEs. Ultimately, the fund will total R1bn, employing flexible lending policies that take into account not just collateral but other non-conventional factors. It will provide working capital for township-based firms, stock credit and purchase order financing.

There will also be separate funds for the township backyard real estate and taxi economy initiatives.

Explain the retail value chain aspect of the bill?

The Competition Commission retail chain study in 2018/2019 uncovered uncompetitive practices where anchor tenants in township malls benefited from favourable lease terms permitting them to influence direct competition. Second, the supply chains of these big retailers evidenced little participation by local township suppliers and producers.

The bill seeks to open these value chains to local suppliers of appropriate-quality products, offer access to training through retailers’ enterprise development programmes, and open up the malls to local businesses.

The Gauteng government will help absorb the costs of certifying these township suppliers and testing products. This will stimulate township production and access to opportunities, opening them up to traditional bank funding. This retail component of the bill is consequently potentially a game-changer.

How will Gauteng government leverage its procurement spend to benefit township enterprises?

This component of the bill seeks to leverage government procurement to compel formal enterprises that obtain government contracts to spend a certain percentage of their procurement spend on township-based enterprises.

Through back-end support systems, it looks to co-operatise the latter with systems linking groups of SMMEs as if they were one large enterprise with the capability to become a viable supplier to tender in the formal economy. This will also permit on-the-job learning so that once a tender is complete, they will have sufficient competence to be sustainable and bid for bigger contracts.

Unpack the taxi economy initiative?

The bill promotes incentives for municipalities to develop taxi ranks into micro-CBDs, enabling the taxi economy to use its scale to grow supporting value chains and industries. Given the concentration of people around taxi ranks, it makes sense to commercialise and develop taxi ranks by introducing zoning interlays for the types of buildings which will be permitted within a certain radius of a taxi rank. 

What of all the property government owns in townships?

The commercial rapid land release initiative will free up publicly owned land — both vacant land and buildings such as disused schools — for developmental use in township areas. The bill will introduce a transparent process to enable people or businesses with entrepreneurial plans to acquire the land either by leasehold or outright purchase. Some of these properties lend themselves to become office parks, and others light manufacturing.

How will the township backyard real estate initiative help with housing in townships?

The bill aims to confer rights on the many informal and often illegal back rooms in township homes so that landlords can invest in and upgrade them into income earners. This process of densification will also assist with upgrading social and physical infrastructure, such as fibre connections, and physical infrastructure. It will look at alternative forms of affordable housing that use advanced technology.

This is a large market, but being informal has typically not had access to bank mortgage-backed finance. There is no relaxing of building regulations, but rather easier access to funding and a streamlining of processes. These initiatives are based on the concept of a model standard bylaw: in the event of a conflict with existing bylaws, the municipality can simply adopt the model bylaw, or adapt to it.

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