Gauteng townships deserve real development, which includes skilled foreign entrepreneurs

09 October 2020
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The draft Gauteng Township Economic Development Bill is an attempt to promote the interests of small business. In some cases, the bill might succeed via the proposed model by-law for regulating township business at the local level but success would only be attained if the barriers currently faced by small business are removed by municipalities that choose to do so.

Unfortunately, the other parts of the bill either double down on failed small-business development strategies of the past or rely on a protectionism last seen during the dark days of apartheid. The bill relies on two mechanisms to effect township development: preferential treatment of township businesses by the provincial and municipal governments and reserving township businesses for citizens and permanent residents only.

This will, in the first instance, affect refugees who have to hold a refugee permit for 10 years before they can apply for a permanent residence permit. This would mean some of the poorest people on the continent would be prevented from trading for a minimum of 10 years in order to benefit South Africans who may or may not take up these opportunities.

The proposal by the provincial government in Gauteng ignores that many township businesses had gone into stagnation before the arrival of migrant entrepreneurs; that these entrepreneurs brought with them skills that are scarce in the townships, including manufacturing skills; that these entrepreneurs are in mutually-beneficial relationships with landlords who are mostly South African citizens. 

Above all else, the proposal ignores that these immigrant-run businesses are successful because South Africans choose to buy from these businesses rather than from alternative outlets. It is forgotten that these enterprises are competing with retailers such as Pick'n Pay and Shoprite's Usave and boxer stores. Nor does it necessarily follow that South Africans would take up the mantle, or, if they do, it likely won’t be township residents but the big retail chains.

We can immediately discount the spending that is going to be allocated to township enterprises. Government does not understand that the biggest barriers are not in the private sector but within government itself. Having said that, there are things the provincial government could do to promote township enterprise.

An immediate suspension of all provincial gambling and liquor licensing requirements in the townships would be one suggestion, another could be opening up the education market via their control of education policy. Again, exempting township-founded schools from some of the onerous requirements for starting a new private school (requirements that many public schools don't meet) would be a positive change for entrepreneurs.

The government must understand that entrepreneurs are not created by the government, they are not chosen by politicians or bureaucrats. Entrepreneurs rise up through competitive markets, by offering the best value to customers. The government cannot replicate this process. The only thing they can do is remove the barriers that prevent efficient market functioning in townships.

By carefully considering and removing superfluous regulation, competition improves the township economy, the efficient businesses adapt to the strategies employed by new migrant-owners, and the result is lower prices and improved service for customers. This is a necessity in a township environment often recognised by researchers as being geographically remote, meaning transactions frequently incur additional transportation costs.

Innovative immigrants resolve these challenges by employing strategies such as group buying and sourcing of inventory from multiple suppliers. They also bring business skills like developing a pricing strategy that is responsive to demand. South Africa can choose to become a country that punishes success. If it does, we shouldn't be surprised when we suffer for it.

The problem with township development all along, has been that, for a variety of reasons, people who are competent at deploying capital (which obviously excludes government) are not choosing to deploy it in the townships. We should be encouraging more entrepreneurs from Africa and elsewhere to base themselves in the townships. And, to the extent that this is the case, it should be a cause for loud celebration throughout the whole country.

This article was first published on City Press on 1 October 2020

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