Opinionista Gracelin Baskaran 3 December 2019

SA economy: Time to turn attention to rural-urban inequality

To grow an inclusive economy, the often-overlooked rural areas must be the centrepiece of the development agenda.

At the Investment Conference in November 2019, South African President Cyril Ramaphosa highlighted the importance of the township economy. He noted that “townships have always represented the heartbeat of a thriving economy, which grew against all odds. The time is upon us to re-ignite the township economy for the purpose of growing an inclusive economy”.

While townships are indeed a crucial part of the South African fabric, they are more nurtured than their rural counterparts, which have often fallen to an “out of sight, out of mind” mentality. Ultimately, to grow an inclusive economy, the often-overlooked rural areas must be the centrepiece of the development agenda. As it sits today, compared to many townships, the rural economy is more constrained by limited physical and financial infrastructure, which has constrained social and economic development and preserved the pervasive nature of inequality in South Africa.

Let’s take the Alfred Nzo District Municipality in the Eastern Cape, which is relatively rural. In 2016, World Bank analysis identified it as the district with the highest level of multi-dimensional poverty. Recent census data showed that only 8.1% of people have access to flush or chemical toilets – less than one-fifth of the South African average. Additionally, 26% of residents do not have access to electricity, only 39% are getting water from a regional or local service provider, and less than 5% are getting refuse disposal from a local authority or private company.

Meanwhile, in Ward 108 of Johannesburg, in which a sizable portion of the township of Alexandra sits, a stark contrast exists – 92% of residents get water from a regional or local service provider, 94% have access to a flush or chemical toilet and 97% are getting refuse disposal from a local authority or private company. And Ward 108 is not unique in this regard.

In terms of financial infrastructure, a substantial gap remains. Capitec triggered a transformation of the financial infrastructure landscape in townships. It has been a catalyst by penetrating township markets, such that its competitors have also had to diversify their product offerings. For example, in July, FNB announced it had begun actively targeting townships with a new combination of offerings earlier this year, and Nedbank has partnered with township-based retailers, Boxer Stores and Pick n Pay, to provide customers with financial services. However, rural spaces have a vastly different situation.

Whilst visiting with rural cooperative financial institutions (CFIs) earlier this year, I asked why members were choosing CFIs – which had very limited product offerings – over commercial banks, which had low-cost accounts. The answer: they didn’t want to travel hundreds of kilometres to access an ATM, which could easily cost them a half-day or more for the round-trip journey. Even though South Africa has the most sophisticated financial sector on the continent, cash transactions still account for over half of all consumer transactions. Thus, strengthening financial infrastructure, and the necessary financial literacy, as well as ensuring that products and services are tailored for the needs of rural residents, is critical for inclusive growth.

Economic history tells us that financial infrastructure is a critical part of rural development. For example, in Taiwan, the government put in significant effort to encourage voluntary rural savings by creating a variety of incentives and creating a series of savings and banking institutions in rural areas. By the 1960s, rural agriculture households were saving one-fifth of their incomes.

The constraints facing townships and rural areas are vastly different – a granularity often missed in policy discourse when the two are lumped together. President Rampahosa recently announced a township and rural entrepreneurship fund along with plans to bring incubators and digital hubs to these areas. But will this innovative “leapfrog” over more basic (infrastructure) needs lead to inclusive growth? Will incubator hubs and digital transformation compensate for the lack of reliable water, electricity, toilets and refuse collection in rural areas?

The late Calestous Juma, a prominent global advocate for sustainable development in struggling African countries, once noted that although technological innovation is a driver of economic growth, innovation is dependent on having infrastructure and capacity first. This is where the government and municipalities should deliver on, before embarking on ambitious projects of technological adoption for development.

In terms of capacity, strengthening education and human capital should be a priority over incubator development. For example, in Ward 108 of Alexandria, 42.4% of residents have completed matric. In rural Alfred Nzo District, half of that – 21.8% – have reached the same educational attainment.

Strengthening the infrastructure and capacity of rural areas is critical for developing a strong rural economy that is able to attract investment and create jobs. Without these fundamentals, high levels of rural outmigration will place an immense burden on both the urban landscape, where unemployment is already high, as well as on the state. Rapid urbanisation will continue the employment crisis this country’s cities are facing.

While it is important to continue investing in townships, policymakers need to give rural economies additional attention to ensure they do not continue in the vicious poverty cycle. Basic physical and financial infrastructure is necessary to create an attractive investment destination, for industries such as manufacturing, agriculture and tourism, that would benefit from the surplus of low-skill labour.

Ultimately, reducing rural-urban inequality requires more than a technological leapfrog. DM

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