With established asset classes under pressure to perform, the likes of impact and angel investors, crowdfunders and even traditional investors are looking to new places, people and products in which to invest. While interest in the world’s emerging markets is growing, the informal economies in these nations often remain veiled in mystery. But do they hold opportunities?
In the most recent budget, Malusi Gigaba, the Minister of Finance, highlighted the importance of urban renewal and spatial transformation. He noted that cities are “at the heart of the national economy and hold the potential to drive our urban renewal” and that the importance of cities is likely to increase. But a quarter of a century after apartheid, South African cities still face significant challenges of economic and social integration, despite enormous state investment.
Researchers point to deep flaws within the post-apartheid housing delivery programme, which located poor households on the urban periphery away from jobs. They also note the unwillingness of the private sector to invest in poorer areas. To quote from a recent SERI publication: “Municipal efforts to induce the private sector to invest in poor areas have generally been successfully resisted by developers in what is a concentrated and powerful industry, while property owners have organised into strong lobbies to protect their interests”. It would seem from this literature that the private sector, in its wilful stubbornness to relinquish its apartheid capitalist mindset is, together with the state (in its misguided enthusiasm for housing form over location) have conspired to leave us no better off than we were in 1994.
While there are no doubt elements of truth in this perspective, it needs to be tempered with evidence that suggests that other very real, but controllable, factors may deter private investors from participating in township economies.
In the first instance, there is the lack of a coherent vision for how a township economy should function. Is its primary purpose to provide sustainable livelihoods for business owners or should it exist to serve the needs of customers? The current Competition Commission investigation into the retailing sector is a case in point. Its terms of reference (TOR) includes an investigation into the impact of the expansion of large grocery retailers in South Africa’s townships on small and informal retailing businesses. The TOR quotes an unsurprising result from a BER study that the opening of a large, formal retailer in a township impacted negatively on the revenues of local stores, with a more noticeable impact on traders in closer proximity to the new store. While there is no need to defend the very many uncompetitive practises that large retailers no doubt adopt to secure long term advantage – doesn’t Porter’s Five Forces recommend precisely the strategies repugnant to the Competition Commission? – I have some sympathy for their predicament; if they do not invest in townships they are anti- transformation, and if they do, they are predatory.
Curiously absent from the critique of large retailers is any enquiry into why it is that township consumers prefer to shop at large retailers, not to mention the impact of retail presence on property prices.
The intolerably high level of crime is another critical factor. Perhaps the best indicator would be the homicide rate. Of all crime statistics, this one is arguably the most reliable. The data indicates that South Africa’s very high homicide rate of 33 per 100 000 is unevenly distributed, with a substantially higher rate in many townships. By way of example, the homicide rate is around 400 per 100 000 in the well-known townships of Gugulethu and Nyanga in Cape Town dropping to an enviable 100 or so in Khayelitsha and Delft.