The Township Economy Is Critical To South Africa’s Future

The 2021 South African census indicated that some 24.35 per cent of the country’s population lives in townships. This means these vibrant and innovative communities are home to 11.6 million people, indicating that townships represent billions of rands in spending power.

The kasi economy is almost circular, with businesses created by residents and supported by their fellow township citizens. The Township CX Report 2023 shows that township residents prefer to shop close to where they live, with 23 per cent of survey respondents saying they spend 25 to 50 per cent of their income in the townships. A further 25 per cent of respondents say they spend more than 50 per cent of their earnings in the townships.

This is, at least, partly driven by rising food prices – albeit that food price inflation has dropped significantly over the past year, from a 14-year high of 13.4 per cent in January 2023 to the current 7 per cent in January 2024, according to CPI data from Statistics SA – with residents still keen to stretch their rands by buying smaller items closer to home, rather than spending on travel to shop.

This has opened the door for a growing number of micro enterprises to be created and fully operated by township dwellers themselves, delivering much-needed paid-for services and products. In this article, we break down six key market segments within the kasi economy, considering their impact and potential for growth.

Spaza shops

The Township CX Report notes that spaza shops are an essential part of the township economy, providing goods and services to residents, indicating that there are approximately 200 000 spaza shops in South Africa – the majority located in townships.

The study also found that more than 54 per cent of respondents said they have bought products that were repackaged outside of their original packaging (by spaza owners), partly demonstrating the trust between consumers and spaza owners, as well as customers’ search for value.

Karabo Mamabolo, through-the-line strategist at marketing agency Matte BLK, points out that spaza shops contribute to the economy in the sense that they help people save money, both in terms of their relative pricing compared to large retailers and by saving money that otherwise might have been spent travelling to a mall.

“However, more broadly economically, there is less impact from this sector, as spazas are predominantly owned by foreign nationals. This has positives and negatives. On the one hand, locals lose out on opportunities to open their own shops due to the rapid proliferation of foreign-owned ones. However, on the other hand, it does provide easy access to such shops for residents, with one available on every other corner,” he explains.

“I do believe there is plenty of scope for corporates to assist in empowering businesses within the township economy. A key issue preventing people from opening their own businesses is a lack of financial literacy.

“If corporates recognise the brand value of providing such skills they can contribute to formalising the kasi economy and ensuring that everyone has an equal opportunity to compete in the market itself.”

Fast food and shebeens

There is little doubt that shebeens and fast-food restaurants benefit both the township economy and the broader national one. Mamabolo suggests that it is a thriving market and a massive segment within the township economy as a whole.

“Shebeens, in particular, are leaders in demonstrating how national brands can formalise partnerships and assist shebeens to grow their clientele and reputation. Through effective branding, coupled with efforts to make the shebeen itself look like an environment where people want to enjoy a drink, large brands can assist these small businesses to grow to a new level.

“This type of collaboration can, in turn, lead to many other positive spin-offs, as these national brands can leverage their initial shebeen sponsorships into broader, more community-related ones, such as social, cultural and sports-related benefits,” Mamabolo says.

Setlogane Manchidi, head of CSI at Investec, explains that a thriving township economy is very important to South Africa’s recovery as our poor-performing economy has led to high job losses.

“The township economy provides a possible solution to this crisis as it presents a platform for many who have lost their jobs to re-enter the economy by looking for opportunities. These may initially just keep them above the poverty line, but if all goes well, they could build a business that ultimately employs others,” he says.

“The real opportunity is for many young people keen on running businesses as the township economy serves as a learning ground to create and grow operations that can move beyond the township. Starting a business at the grassroots level also affords these individuals the opportunity to make mistakes, learn from these and ultimately grow their entrepreneurial confidence,” comments Manchidi.

Backroom rentals

Mamabolo suggests that this kasi sector is one of the biggest business opportunities in townships as this is a high-demand market that is growing continuously.

Remember, we are seeing a huge shift of people coming to the urban areas – generally seeking employment – from rural ones. So, if someone has a house where they can rent out a room, they can often make enough to look after their family and even potentially save money to invest in other business opportunities.

“This is an ideal way to grow the township economy – having people earning enough money to invest in other opportunities. There is definite growth in the economy in this sector.”

Mamabolo notes that, as an observer, he feels government has a role to play here in assisting this sector. “Let’s create a space where we can regulate these dwellings, ensure the living conditions are right, and bring them more into the formal economy,” he adds. “This will boost the broader South African economy and open up indirect routes for additional job creation.”

Manchidi backs this up, saying that there is a crying need for entrepreneurs who not only succeed, but also have the ability to impact positively and transform their communities and broader society.

“We are a country beset by many socioeconomic challenges, but these very challenges also present opportunities for entrepreneurially minded people to add value by designing and delivering innovative solutions. Entrepreneurs should seek to solve problems, meet needs and ease pain points through their products or services.

“People’s active economic participation has such a positive effect on them, their communities and society. People who are active economically quickly realise a sense of worth, contribution, dignity and direction, offering them a better chance of occupying their rightful place in society,” he explains.

Mechanics and panel beaters

Unlike the growing backroom rental space, this is one of the most informal segments in the township economy, says Mamabolo. Generally, he says, this sector comprises former employees of major automotive manufacturers who now run a small operation repairing vehicles, usually ones out of warranty, in their area.

“These mechanics are so informal that they are seldom registered as businesses. So, while they are good for the individuals, they have less impact on the broader economy. On the other hand, there is a level of ad hoc employment created in this market as these players sometimes have to call on help when repairing a car, so will usually bring in unemployed youngsters to assist them.

“However, this market seems to be dying slowly, mainly because of improved car payment plans that offer effective and cheap service plans. This means that many car owners now get their vehicles serviced professionally through these plans,” he continues. Nonetheless, he adds, there is still space in the market for such mechanics to service second-hand, older vehicle models.

Asked what impact corporate brands might have on stimulating this sector, Mamabolo replies that although there are opportunities to build relationships with these players and help them formalise their businesses, there may be a lack of will, as these enterprises might view such mechanics as competition for their own business.

“We should, of course, encourage young people to look beyond traditional employment,” comments Manchidi, “and explore entrepreneurial opportunities that not only enable them to become active economic participants, but also solve people’s pain points in the process.”

Taxis

As a more formal industry sector, taxis contribute to the economy significantly – providing a cheap, convenient and always-available transport system. Furthermore, suggests Mamabolo, operating a taxi business is also quite easy.

“From a job creation perspective, to drive a taxi requires a valid driving licence and the attendant driving skills, plus a public driving permit. We have seen scenarios where youngsters who may have left school early, drive taxis for a living and use the money earned to either further their education or even to start their own taxi business,” he says. For entrepreneurs wishing to operate or own a taxi business, three permits are required – an operator’s permit, an owner’s permit and a driver’s permit.

“It is also an area ripe for partnerships with the formal sector. There are massive opportunities to be found in transit advertising, while there is also potential to gather data to help understand specific scenarios better. With better knowledge of people’s behaviours and shopping or spending patterns, we are in a better position to grow the country’s economy.”

Manchidi suggests that this is a great industry for entrepreneurs who are, by nature and definition, job creators, as opposed to job seekers.

“The simple translation is that when we support an entrepreneur, there is one less job seeker in the economy, and these entrepreneurs have the potential to provide employment for multiple other job seekers. This prospect excites me, because it means through entrepreneurship, we can create the ability for others to also become active economic participants,” he adds.

Mamabolo notes that the nature of taxis as a cheap, easy form of transport means that people in the township will likely continue to use them.

“Remember that although Uber and similar ride-sharing businesses have proliferated, the price points between this service and a taxi operation are quite different. Furthermore, some residents in townships do not yet own smartphones, which makes it impossible to download the ride-share application,” he explains.

Barbers and hair salons 

When it comes to barbers and hair salons, Mamabolo continues, this is also a relatively small segment within the kasi economy. He explains that this is due to many residents adopting a DIY approach to their hair and choosing to cut it themselves.

“This is quite a small contributor to the economy, but it doesn’t mean there aren’t opportunities for brands within this space to collaborate with individuals – influencers, for example, who may post videos online of hairdos they have completed.”

Hair and beauty brands can collaborate with these small businesses, and by helping with things, such as upskilling, formalising these businesses, and maybe even implementing some infrastructure for them, they can help stimulate and grow this environment,” Mamabolo points out.

“Remember, opportunities create demand,” he continues, explaining that by partnering with township salons and barbers, running training workshops and equipping these businesses better, large brands will make this a more attractive arena for those starting up while also boosting the South African economy.

The way ahead

Manchidi points out that it is clear that, as the digital economy takes an increasing hold in the townships, it will present even more opportunities for entrepreneurial activity.

“We can expect growing numbers of township-based entrepreneurs to begin utilising technology as a way to differentiate themselves and their businesses.

“Given the sheer number of people who continue to live in townships, I think the township economy will remain somewhat resilient. At the same time, given how challenged townships are in terms of service delivery, infrastructure and poor connectivity, I think a lot more can be done by government and corporates to tap into the true value of the township economy,” he states.

Mamabolo agrees, claiming that it is vitally important to try and formalise more of these businesses.

“A formalised business is better positioned to develop stronger relationships with other players in the market and has a better chance to grow and develop. Furthermore, a formalised business also has structures it can call on to assist in an emergency.  “Ultimately, it’s about ensuring these micro enterprises can access the tools, education and assistance they need to grow and begin employing others. This will not only be a significant boost to the township economy, but will also help the national economy to begin flourishing,” he concludes.