Strengthening township economies

The South African government has projected that entrepreneurship will generate 90% of all newly created jobs in South Africa by 2030. Of the 60 million people living in South Africa, 22 million live in townships and informal settlements – 38% of the country’s working-age citizens.  

However, figures cited in a new report by the Aspen Network of Development Entrepreneurs (ANDE) put township unemployment at 60%, which is double the rate of the country as a whole. This presents both a significant challenge, but also a huge opportunity – how can we grow small businesses in townships and, more importantly, lock in the wealth created there?  

In March 2024, Trialogue and Volkswagen South Africa (VWSA) presented a webinar that explored how companies and non-profit organisations can help to boost township economies.  

Panellists Nonkqubela Maliza (Corporate and Government Affairs, VWSA), Andrew Charman (director of the Sustainable Livelihoods Foundation), and Fikiswa Bokwe (founder of Vuka Recycling) discussed ways to create and grow sustainable small township businesses.   

A poll conducted during the webinar revealed that 28% of attendees believe limited access to financial products and services is the single biggest challenge for township entrepreneurs, with 16% citing an inability to scale the business, and 15% citing limited access to markets. However, Maliza pointed out that there is no single ‘pain point’ that can be taken in isolation, since there are multiple constraints that need to be addressed in parallel.  

CSI support for entrepreneurs 

Most large companies support small businesses through their enterprise and supplier development (ESD) programmes. Additionally, in 2023, 38% of companies surveyed by Trialogue indicated that they provide entrepreneur and small business support through corporate social investment (CSI), with an average of 8% of total CSI spend devoted to this. Of this spend, 75% goes to skills development.  

Figures 1 and 2: The Trialogue Business in Society Handbook 2023. 

Understanding township economies  

One of the biggest challenges, according to Charman, is a limited understanding of the dynamic, evolving nature of townships, of which there are more than 500 in South Africa, representing an economy with an estimated market value of R900 billion.   

These areas were planned to house the black population on the periphery of formal economies, but they are hubs of economic activity and key sites for investment in property and infrastructure.  

Although these economies are vibrant, the environment is not straightforward, with challenges including the availability of greenfield space for development, the scourge of crime, and an absence of regulation.  

Worryingly, of the more than 1 000 township businesses surveyed by the Sustainable Livelihoods Foundation in Kariega (adjacent to the VWSA factory), only 30% were found to be profitable, and of those, 80% were not owned by township dwellers. However, Charman noted opportunities such as the emergence of township high streets and the affordable rental housing boom. “These findings are essential to inform local government strategies with respect to the development of these spaces,” he noted. 

One of the biggest challenges to overcome is the fact that wealth generated in these geographic spaces usually leaves townships and is invested elsewhere.

The Kariega Township Economic Development Project (KTD) 

The research done by the Sustainable Livelihoods Foundation informed VWSA’s Kariega Township Economic Development Project (KTD), an ambitious programme to improve entrepreneurship in local ecosystems that was rolled out in 2018.  

The Sustainable Livelihoods Foundation conducted a detailed census and survey of microenterprises and spatial development opportunities. This was followed by a ten-month pilot project that involved selecting 48 industrious entrepreneurs in the fields of automotive services, hair-care services, and waste collection, and coaching them in personal finance, skills development, and personal development.  

“The aim was to shift these microenterprises from being purely survivalist to genuinely sustainable, profitable, value-adding businesses over time,” explained Maliza.  

Part of this would involve bringing microentrepreneurs into VWSA’s value chain and providing them with sustainable market access. However, Maliza said becoming part of an automotive manufacturer’s direct value chain is difficult due to the amount of capital required, and technological and safety requirements.  

“However, there are opportunities when it comes to after-market service, car parts, and so on,” she pointed out.  

Key learnings from the project   

Maliza outlined three key learnings:  

1. Context matters 

Although townships have commonalities, they also have their own unique features.  

“We expected to find a lot of young people running businesses in Kariega but discovered that a lot have left to find better opportunities elsewhere,” Maliza explained. “An understanding of the ecosystem in your area should be rooted in solid, testable research, rather than what you believe and think is right.” 

She added that research and interventions need to be participatory and inclusive to be meaningful. 

2. Short-term interventions are limited  

It takes more than ten months to learn a skill, so there is a need for longer-term coaching for entrepreneurs. “We have measured an improvement in financial record-keeping, customer growth, marketing strategies and so on, which means it’s valuable to offer ongoing coaching and business development services,” Maliza said. 

3. Collaboration is vital  

One company can make a difference, but more can make a greater impact.

She noted that the challenges are complex and interwoven, and “supporting township economic development is harder than manufacturing a VW Polo”, but VWSA “prides itself on solving complex and important social problems”. 

Lessons from an entrepreneur 

Bokwa outlined some of the challenges she faces as an entrepreneur, and how VWSA has assisted her.  

Access to finance is a big challenge, in her opinion, along with locating space to grow a business, finding committed staff, and overcoming nepotism and “favouritism”.  

Another difficulty is making the transition from informality to formality and taking advantage of online opportunities. Bokwa noted the need for ongoing assistance. “For example, there may be a long application you can’t finish alone, but you have nobody to help you.” She urged companies to remain invested and “come back from your offices to see how far we’ve come.”   

Bokwa said VWSA’s mentorship has allowed her to achieve “full confidence in knowing what I’m doing”, and she encourages others to start their own businesses. “Taking the first step is hard, but I advise people, young and old, to ‘hustle’,” she said. “They don’t always know they have gold in their hands and taking that first step can be difficult.”  

Figure 3: ‘Entrepreneurship in South Africa’s Townships: Ecosystem Challenges and Recommendation for the Path Forward’, Aspen Network of Development Entrepreneurs, February 2024.  

How can companies support township economies? 

Companies can step in where lack of municipal capacity has compromised services. A good example is getting involved in recycling businesses in townships, which are invariably littered with bottles and plastic. “It’s vital to get these former corporate products into the circular economy,” Charman said.  

Companies can also help small businesses to formalise and thus become part of the broader economy – a sign of progress and sustainability.  

He said the growing investment in property and vehicles in townships is notable, and there is an opportunity for financial service providers to get involved provided they seek to understand the landscape. “If they don’t, they’ll get their fingers burnt.” 

Charman concluded that national and provincial government and municipalities all have a role to play, and companies should pressure government to play its role while assisting with capacity building. Companies can also work with non-profit organisations to build social infrastructure in the townships, which requires strengthening.  

Watch the full webinar: