This article forms part of the Kasipreneurs 2015 series, in which SME South Africa from 23 March to 27 March, will explore the complexities, challenges and success stories of the township entrepreneurship ecosystem.
About half of South Africa’s urban population lives in townships and informal settlements, accounting for 38% of working-age citizens. This is according to research done by the World Bank Group in 2014.
To understand the challenges that township entrepreneurs currently face, you would have to look at the challenges faced in townships generally, as well as their history.
South Africa’s townships are relics of the country’s apartheid regime. The impact of past neglect, lack of investment, overpopulation and isolation from urban centres is still largely evident today. Most notably with the lack of resources and infrastructure, as well as high unemployment levels.
Asad Alam World Bank Group country director for South Africa describes townships as spaces filled with “working-age people desperate for economic opportunity, being spatially disconnected from urban centres that offer better economic prospects”. And research by the same organisation shows the majority of the unemployed (about 60% of the total) come from townships and informal settlements.
The township economy
South Africa’s townships have always been a hive for entrepreneurial activity, but the main challenge has been unlocking the potential in order to generate broader economic benefits.
While townships are places of great wealth, very little of it is generated within the township or stays in the economy.
According to research quoted by Premier David Makhura last year during his speech at the Small Business Development Institute dinner, only 25% of money generated in the townships was spent there.
For example, research by the World Bank Group shows that the township of Diepsloot has a R2 billion economy most of which is spent in the surrounding suburbs of Sandton and Fourways. And First National Bank estimates Soweto’s consumer spending power to be about R5 billion.
In an effort to solve some of the challenges experienced in South Africa’s townships, the government has introduced a number of interventions to support township SMMEs and entrepreneurs, and to help them flourish.
The hope is that these township enterprises will be sources of employment, and help bring the township economy into the mainstream.
Premier Makhura, in his State of the Province address, said the province would contribute to the township economy revitalisation by supporting township enterprises and SMMEs in the province.
The Gauteng Provincial Government announced that it would allocate approximately R300 million in support of township enterprises and cooperatives in the 2015/16 financial year.
Is entrepreneurship the answer?
Entrepreneurship is also considered a key driver for job creation and economic growth, with the National Development Plan stating that 90% of jobs will be created by small and medium businesses by the year 2030.
The reality is however, that the levels of entrepreneurship in South Africa are worryingly low.
According to research by Global Entrepreneurship Monitor (GEM), South Africa’s total early-stage entrepreneurial activity (TEA) is very low (6%-10%), especially when compared to other developing countries such as those in South America and sub-Saharan countries like Ghana, Nigeria, Uganda, Angola, Ethiopia, Malawi, Zambia, Namibia and Botswana.
In all cases these countries had TEA rates three and four times that of South Africa.
Early-stage entrepreneurial activity is defined as the percent of the working age population both about to start an entrepreneurial activity.
And for even those entrepreneurs who are already in business the challenges continue.
In 2013 the South African Black Entrepreneurs Forum conducted a survey of potential and small business owners who attended one of the SABEF’s Kasi-to-Kasi SME Development Tour 2013 workshops.
The survey sampled 130 entrepreneurs from townships across the country including KwaThema, Durban, Umlazi, Khayelitsha, East Rand, Alexandra and Soweto.
According to SABEF executive director Matsi Modise, one of the biggest challenges reported by the entrepreneurs was a lack of access and infrastructure.
“The infrastructure doesn’t support progressive business environment,” says Modise.
What is needed, she says, is more spaces and business infrastructure like business hubs in the township. As most townships are located far from urban cities, this she says would help so that entrepreneurs don’t have to go to city centres to do business.
Modise gives an example of the Bandwith Barns in Cape Town, a shared office ecosystem. The concept has been expanded to the township of Khayelitsha and will soon offer the area’s entrepreneurs access to an office space from which they can conduct their business.
Tashmia Ismail is the head of the GIBS’ inclusive markets programme. Her organisation works to help corporates serve low income segments better.
The impact of a lack of infrastructure cannot be underestimated, she says.
Her organisation has found that landownership and access to decent working premises is a critical issue for township entrepreneurs.
Not having title deeds and confusing ownership patterns of properties means that those entrepreneurs are less likely to invest in their businesses.
“You see a difference in the businesses with established ownership, they seem to do better.”
According to Ismail it comes down to a lack of certainty – knowing that their business won’t be closed or moved – often results in increased levels of investment and growth.
The other issue Ismail describes is that of uncomfortable working spaces. Spaces which she says “are not well designed for the work that business owners do”.
In the township of Diepsloot she says, business owners have to contend with bad roads, incomplete road works and spaces with no covering which are open to the elements. This often leads to overcrowding in those few premises offering better infrastructure.
These premises also often don’t have electricity and water. “How do you operate a business without electricity?” she asks.
Shoppers want to spend their money at a place which is well kept and stocked, which is why some consumers would rather travel outside the township to spend their money, instead of supporting township enterprises.
Ismail also points to the issue of business skills and a lack of business literacy and education. She says many entrepreneurs lack fundamental skills required to run a business. This can be helped by observing and becoming involved in the value chain of established larger businesses and learning through interaction.
Another factor highlighted by Modise, which she says affects the chances of success of township enterprises, is the over-saturation of certain business sectors.
“There a lot of businesses in food and beverages,” she says.
Kasi-to-kasi survey results show that 14% of participants had businesses in this sector. Followed by agriculture and forestry at 13% and construction (11%), clothing and textiles (11%). The reason for this she says is that these are the industries with low barriers to entry, low capital requirement, with little skills required.
“There are very few business in manufacturing and engineering,” she says.
Aside from government support and initiatives, it’s also the responsibility of each townships’ entrepreneur to work towards solving some of the entrepreneurship challenges, says Modise, who adds that there needs to be more honesty among entrepreneurs, especially those who have already walked the path, about the challenges they face. “It’s tough, it’s not easy”, says Modise.
We also need to encourage a culture of entrepreneurship she says, as a start, changing perceptions around failure. “With entrepreneurship what you put in is what you get out.”