The viability and economics of townships economies
Townships have a long and complicated history in South Africa. Before 1994, the townships were forced to function outside of the mainstream economy and so were a major tool in the racial segregation and economic marginalisation of black people. After 1994, the institutionalised system of racial segregation came to a formal end and the government has since worked to integrate the townships into the formal economy. However, the formal disbandment of the previous system did not eliminate these underdeveloped, (typically) urban residential areas located on the outskirts of metropolitan areas.
Currently there are over 500 townships in the country, whose combined land mass surpasses that of Johannesburg and Durban combined and which are home to an estimated 40% of South Africa’s urban population. Much like the rest of the country, townships are plagued with high unemployment rates.
Most township businesses are necessity-based and unable to grow beyond a store front or small-scale operation. Additionally, these businesses tend to operate informally, with low financial and employment returns. The World Bank estimates that only 15% of township enterprises are formally registered, compared with 30% of similar enterprises in urban areas, and they generally do not provide goods or services that reach larger markets or create quality jobs.
Despite these characteristics, governments at various levels have focused on leveraging township communities, and the entrepreneurs and small businesses that operate within them, to support economic growth at the provincial and national levels. Initiatives have been implemented over the last few decades to support township small businesses, though many of these efforts have been criticised as only improving townships at a superficial level, rather than an ecosystem level. The ineffectiveness of these interventions is evidenced by the stagnant state of the overall South African MSME sector over the past decade, as the total number of MSMEs in the country dropped by nearly 300,000 between 2008 and 2017.
