Even before the advent of Covid-19 and the recent July insurrections, the potential of townships and informal settlements to contribute to drive shared economic growth, through small and medium enterprises, was not mined maximally. A new deal for townships and informal settlements, anchored in praxis, is being implemented to rebuild better and accelerate economic opportunities that benefit everyone.

Without a doubt, townships and informal settlements represent geographic and demographic spaces that represent South Africa’s lived reality of continued class and racial inequality. To address decisively and comprehensively this lived reality, 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 is designed deliberately to defy the history of township under development and 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 is projected that these structural interventions can double the size of the Gauteng economy within a decade and concurrently 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. Additionally, thousands more firms 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 inter-generational inequality that fuelled the July insurrection.

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

Like their counterparts across Asia, these young people seek opportunities from public and private industries since they also realise that due to their demographic dividend, they can also become immediate customers for new equipment, new software and new services that drive the economy to the next trajectory. 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, say from an average of R30,000 per month turnover to an average of R100,000, would result in each firm creating two jobs. This would yield around 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 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 that the public and private sector alike deploy to support the growth of SMMEs in townships.

Hence the need for support by social partners at Nedlac for the new deal for the township economy which the Gauteng government is implementing. One of the legal instruments being proposed is the Township Economic Development Bill, currently 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, R250-million 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 firms not well served by the current banking system.

GEP and the IDC are allocating R100-million 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/50% loans, with a cap of R1-million for smaller formal businesses in distress and up to R50,000 for informal businesses.

This is only the beginning of what we are estimating will be close to a billion rands worth of blended finance we will be able to disburse 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 non-bank 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 is 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 six-million-strong commuter market that passes through our taxi ranks every day by turning those taxi ranks into micro-CBDs. It is envisaged to turn the four million backyard shacks in the 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 for 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. Therefore, the act heralds a game-changing intervention for small township businesses to reach a ladder rung of formality and for those yet to be started to gain a foothold to access markets, funding, insurance and other support that will allow them to grow profitably and sustainably. This act is also designed to enable small township businesses to have explicit linkage to the new value chains that the SEZ-led industrial corridors will kickstart across the city region.

Another timeous mechanism the new township act will enable is the setting up of community benefits agreements between clusters of local businesses and new investors from outside the township in question which will set out agreed programmes for value-chain inclusion. In this regard, there is an emerging consensus that 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 which 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, creating opportunities for new pipelines of township suppliers into retail, new township retail spaces outside of mall precincts, and building internal networks of SMME black industrialists running warehousing and logistics that service all levels of business in townships.

At the same time, we are actively 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 so that it will seamlessly accommodate hundreds of thousands of stipended young trainees funded by the Presidential Employment Stimulus Programme. Our proposal there is to deploy these young people across a range of digitised tasks supporting the implementation of the new deal for townships, 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 government and business. Covid-19 and the July insurrections are fault lines holding many 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 South Africa. DM