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Township Economy

The Untapped Potential Of The “Township economy”

SPONSORED: Understanding the ins and outs of KasiNomics.

Author: Isana Cordier, Sector Head of Consumer Goods and Services, Absa Corporate and Investment Banking

Author and entrepreneur GG Alcock has long been one of the loudest voices when it comes to the potential of the “Township-economy”. Absa, as one of the prominent banks that serves the South African Consumers living and working in “Township-economies”, realises the potential. It has become our responsibility to understand the needs and nuances of the South African “Township economy” in support of our partners in the Retail and Wholesale space serving the small businesses, entrepreneurs, and consumers from KasiNomics. 

Did you know that Soweto residents spend a higher proportion of their income in retail than residents in Sandton, Johannesburg? Or with R77.9m available per formal grocery retail store, it appears that there is at least three times the opportunity for new formal grocery stores in Khayelitsha, a densely populated township in Cape Town, then within the suburb of Milnerton? 

One of the main points raised by Alcock1 is that the “Township economy” can no longer be a catch-all phrase for economic and business activities that take place in traditional townships. Absa and IRL Consulting conducted research into the business activity and spending habits of various townships across South Africa and compared these with similarly situated suburban areas (benchmark areas*). Alcock’s point is confirmed in this research, which highlights that each of the traditional townships are now developing into uniquely independent economic hubs. These are just some of the insights that have been produced as part of the research. 

At a high-level, the trends are clear: Clothing and Food are the most well-represented categories, but there are large opportunities in townships for brick-and-mortar retail stores across the board. The ratio of expenditure potential to formal retail availability – up to 3 times the benchmark – suggests a significant opportunity for retailers to expand their footprint and reach into townships.

Certain areas offer greater potential. 

For instance, Umlazi, Tembisa and Mamelodi have a higher density of registered businesses than Soweto and Khayelitsha, both of which are significantly lower. 

Encouragingly, entrepreneurship activity is increasing across the board and some of the key takeaways from our research include:

  • The average business ages in townships are roughly 40-50% younger than their benchmarks
  • The townships in this study have shown more business registration per square metre post-Covid than their respective benchmarks 

Economic mobility was a key focus area and is such an important element when one considers that a major challenge in the South African economy is that people often struggle to access economic opportunities close to where they live and must travel at a greater relative expense to work, or shop. 

It is no surprise that much of the mobility of residents outside of each township is concentrated in primary business and transport hubs. 

It’s clear from our research that not only does the “Township economy” represent a significant opportunity for entrepreneurs in the retail and fast-moving consumer goods (FMCG) space, but as these ecosystems are developing, they are taking on a personality of their own that will be imperative to understand and assist in strategic investment to untap potential in the “Township economy”.

*The comparison was done looking at The Township vs The Benchmark: Soweto vs Sandton, Centurion vs Mamelodi, Germiston vs Tembisa, Umlazi vs Westville and Khayelitsha vs Milnerton.

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