Programme Director
Ladies and gentlemen
If any one of us here today were to be quizzed about the pressing challenges facing the South African economy, we would most certainly find consensus on a number of issues.
Firstly, I believe that we would agree that our economy is defined by black subjugation and white domination. Any source of statistical information confirms that the ownership of economic assets and earning patterns are still largely in favour of white South Africans.
Secondly, most of you would also nod at the idea that South Africa has experienced a significant erosion of its industrial base over the years – a reality occasioned by trade liberalisation, amongst other things. In the face of glaring evidence, it is difficult to contest the notion that increased foreign and monopolised ownership of the economy has been a close companion of the sweeping changes that took place in this country since the late 1980s.
We may even go as far as saying that a further hindrance to the growth and prosperity of our economy is the nature of our insertion in the global economic system – our over-reliance in Western and to some extent the Chinese markets with insufficient integration in the African economy and the fact that although we are significantly more industrialised than our counterparts in the continent, there is insufficient value add to our raw materials and inadequate linkages across the major industries and sectors in our economy.
I am also confident that a majority of you would agree that we have not made momentous strides in overcoming the racialised dynamic in our spatial economy. Black people still largely live far away from centres of economic activity.
With that said, I am aware that our consensus usually dissipates when faced with the task of defining what strategies are required to change this reality. We may even subtly differ on the order or importance we attach to each of these challenges.
It is not my intention to dwell much on the minor differences we may have. My interest today is to outline the areas where I believe we need your expertise and insight to make the right interventions in the right places.
Ladies and gentlemen, the resolution of the contradictions facing the South African economy is the major pre-occupation of the Gauteng government under the leadership of the ANC.
Our vision is anchored firmly on the radical economic transformation, modernisation and restoring the industrial base of our economy to create jobs, fight poverty and undermine the horrid levels of inequality that haunt our society.
In view of these reflections and in the quest to give practical expression to this vision, this government has adopted a number of strategies to restore the productive capacity of the economy, strengthen Gauteng’s role in Africa’s re- industrialisation process and tackle racially skewed ownership patterns, barriers to entry and localisation across different sectors of the economy.
For the purposes of today’s seminar, I wish to spend a bit of time on the township economy as a critical aspect of this vision.
The seventh of October was the first year anniversary of the Township Economy Revitalisation Summit held in Soweto. This summit was preceded by rigorous engagements with township business across all corners of this province.
During these consultations, we met with a total of 50 000 entrepreneurs across 65 townships.
We heard of the enormous difficulties township businesses face in relation to securing markets for their goods and services and drew insight from those who bemoaned the shortage of industrial land for conducting business and the restrictive business regulations and compliance framework.
We were also made acutely aware of the onerous requirements that township businesses have to meet in order to qualify for private sector funding.
We travelled from one township to the other armed with the knowledge that history has always been unkind to township entrepreneurs.
From our conversations with township businesses, we emerged, with a strategy that places townships at the centre of our plans to grow the economy and redistribute wealth.
In line with the vision to decisively transform Gauteng’s spatial landscape, this strategy embodies a clear spatial bias with an emphasis on not just small business support but township enterprise development.
It is anchored on seven focus areas and interventions to support the township economy including:
- Securing markets for township goods and services and facilitating the integration of township businesses in the value chains of different sectors and industries
- Promoting entrepreneurial development and support through incubation, knowledge transfer between established and smaller businesses
- Addressing the infrastructural needs of township businesses through our programme on industrial parks and enterprise hubs
- Championing a legal and regulatory framework that is conducive to the development of strong township businesses
- Incentivising and recognising innovation, indigenous knowledge systems, hard work and resilience of township entrepreneurs through the Township Entrepreneur Awards
- Promoting the entry of township businesses into the productive sectors of the economy and supporting the expansion of those already engaged in these sectors
- Exploring self-sufficient funding mechanisms to the township economy.
During our roadshows, it was not surprising to hear most businesses highlighting funding as a major hurdle stifling the growth of township enterprises.
We are all aware that our banking and investment climate is highly conservative with financial services and investment opportunities accruing mainly to smaller firms at later stages of development as opposed to those in the start-up phase.
Until recently, township enterprises were completely off the banking industry’s radar – with banks making onerous and often unattainable requirements for township business to qualify for funding.
Admittedly, although our development and micro-finance finance institutions have done a great deal to fill this gap, they under-capitalised and often struggle to make substantial lending amounts available to SMMEs.
So essentially, a combination of these and other factors makes the township economy some interesting and contradictory characteristics. The township economy simultaneously occupies a place of significance and marginality in our economy.
This may appear like a contradictory statement but makes perfect sense upon deeper reflection.
Although it is through black labour, housed in townships as labour dormitories and Bantustans as labour reserves, have built some of the most formidable companies and industries that now operate outside South Africa’s borders, townships have little positive to show for South Africa’s elaborate history of industrialisation.
Moreover, the incomes of township residents – be it wages, social grants, savings from Stokvels and petty profits generated from informal businesses – ultimately leak out of the townships and oil the wheels of an economy that systematically excludes the black majority.
The mere fact that township entrepreneurs enlist funding as a pressing issue – when the collective savings of mainly township residents through solidarity savings mechanisms such as the Stokvels command billions of rands – underscores this paradox.
An example that communicates the gravity of this situation is that while it is estimated that at R44 billion, the financial clout of Stokvels was equal to the order book of one of the country’s big five engineering and construction firms in 2011, this money rotates in the hands of an untransformed banking industry, the largely white and monopolised funeral insurance industry and the big wholesale and food retail outlets in the country.
In the end, only 25% of the income generated from townships remains in the township. These are the contradictions that our township economy revitalisation campaign seeks to overturn.
Ladies and gentlemen,
I hold the view that this reality provide a crystal clear picture on the state of things and what we need to do to change the status quo. It also maps out tow major tasks of this seminar – namely to explore ways in which the incomes of township residents and their spending power can be utilised to build the township economy and deliberate and share knowledge on some of the innovative and ground- breaking avenues to mobilise resources for township businesses.
The Township Economy Revitalisation Strategy makes a clear assertion that building strong financial institutions and instruments to mobilise and effectively deploy funds for township business is paramount to the success of efforts to transform our townships. Several options are currently on the table:
Firstly, we might have to start by drawing from the rich experience of Stokvels, which contrary to some assertions, are not relics of the past but carry immense prospects for resource mobilisation to meet the needs for the township economy. I do think we must ponder on ways to leverage these resources and push for a change in the mindset of many who see Stokvels as simply social mechanisms that provide safety nets as opposed to economic assets with a potential to generate wealth for black people.
Secondly, there is a need to introduce a differentiated system of funding township businesses with a strong emphasis on start-ups. This should be complemented by the responsive commercial lending mechanisms for more organised township businesses with government stepping in to provide collateral or guarantees for funding.
Thirdly, the Township Economy Revitalisation Strategy also commits us to investigating the possibilities of initiating a State Bank that will have the mandate to, amongst others, mobilise resources to build strong and vibrant township enterprises.
Finally, there is a need to develop more sophisticated capital markets by way of increased securitisation, taking into consideration of the resources that are channeled to saving institutions in the townships. This area also includes exploring mechanisms for the establishment of the Township Bond and Stock Exchange as a medium and long-term imperative.
I am confident that we will dedicate sufficient time and attention reflecting on all these options and alternative mechanisms to mobilise resources for the township economy.
I have no doubt that government can gain greater insight and understanding from what you as market participants and industry players think are the best solutions to facilitate and increase access to finance our township enterprises.
Thank you.
