Innovative solutions needed to sustain township economies

22nd May 2015 By: Sydney Majoko

The recent State of the City addresses by Ekurhuleni mayor Mondli Gungubele and his City of Johannesburg counter- part, Parks Tau, had striking similarities, demonstrating that the economic challenges facing the township economy share a common thread. In Johannesburg, 87% of the residents do not have a postmatric qualification; the figure for Ekurhuleni is 85%. These two cities are home to South Africa’s biggest townships and the figures suggest that strategies to invigorate their economies will have to be adapted to these realities.

It should be clear by now that encouraging individual entrepreneurship is the only lasting solution that will “mobilise the economically excluded to take their power back and join the mainstream economy”, as Tau stated. While programmes like Jozi@work and the Johannesburg Free WiFi project will go some way towards bringing youths in the city centre into the mainstream, solutions designed specifically for the township economy are required. These must be tailored to meet the demands of the township economy, which is flooded with individuals without an ‘adequate’ level of formal education or training to be suitable candidates for formal employment.

The most common refrain from new entrepreneurs is: “Where can I get start-up capital?” In a normal economy, where unemployment is not as rife as it is in the townships, banks provide capital in the form of loans – against some collateral, of course. But the problem peculiar to the township economy is that the unemployed youths have no collateral to speak of. What then?

About three weeks ago, I was fortunate enough to be part of an introductory meeting between local township businesspeople and some German businesspeople, facilitated by Standard Bank. It sounded surreal to hear a banker saying: “We are looking at providing loans of around $1 000 to local entrepreneurs without the need for collateral.” The loans would be based on the viability of an entrepreneur’s business and his or her ability to pay the money back, as opposed to traditional lending methods, where, ‘if you don’t pay us back, we will take your stuff’.

While this was only an exploratory meeting, it soon became clear that there is room in the township economy to explore uncommon and untested ways of providing solutions to the unemployment problem. Job creation has not made a dent in the unemployment rate of Ekurhuleni, where, up to 23% of the residents were unemployed in 2001, with the figure increasing to 25% in 2015.

Clearly, solutions to problems in the township economy require out-of-the-box thinking like the one suggested by the German bankers. The most attractive aspect of this potential solution is that it is not based on an individual’s educational level or background, but on harnessing the individual’s potential to develop as an entrepreneur and place himself and those around him in a better social and economic position.

It is easy to fall into the trap of thinking that the lack of formal education makes people unemployable and forget that entrepreneurship requires not only education but also the willingness of an individual to start where he or she is and make the best use of his or her surroundings to make a living. Human potential knows no limits and the township economy provides a platform to experiment with various ways of developing human potential where the level of education appears to be a hindrance.

It would be incorrect to suggest that this proposed funding model would be entirely new or original. It is loosely based on the Grameen banking model, which was introduced in Bangladesh to provide capital for individuals with little or no collateral. The trick here would be to adapt that funding model to South African township conditions. This funding model would not only solve the problem of capital for entrepreneurs starting out, but also provide leverage for government to provide life skills tailored to help individuals whose educational levels do not allow them to be part of the mainstream economy.

One can only hope that the fairly new Department of Small Business Development will explore these sorts of solutions to elevate small businesses so that they become the preferred turn-to option in curbing unemployment.