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South African Journal of Economic and Management Sciences

versão On-line ISSN 2222-3436
versão impressa ISSN 1015-8812

S. Afr. j. econ. manag. sci. vol.20 no.1 Pretoria  2017

http://dx.doi.org/10.4102/sajems.v20i1.1617 

ORIGINAL RESEARCH

 

Micro-enterprise predicament in township economic development: Evidence from Ivory Park and Tembisa

 

 

Andrew Charman

Sustainable Livelihoods Foundation, Cape Town, South Africa

Correspondence

 

 


ABSTRACT

BACKGROUND: In South Africa, the idea that the township economy needs to be 'revitalised' has begun to gain significant political traction. The Gauteng provincial government has responded to this challenge by setting out a strategy that promises to channel resources and create opportunities for micro-enterprises. The paper responds to development interventions such as this through interrogating the nature of the challenges facing micro-enterprises that need to be overcome in South African townships.
AIM: In response to the developmental need to stimulate micro-enterprise growth in South African townships, the paper poses the question: what approaches are most likely to have a positive impact on township businesses, given current micro-enterprise dynamics?
SETTING: Primary research was undertaken in two neighbouring townships in Gauteng province, in Ivory Park and Tembisa.
METHODS: The data comprises a geospatial census of enterprise activities, a survey of select firms and qualitative interviews with business owners. The research utilised a small-area census approach to obtain data on business activities within an area of approximately 2km2 in each site. The census enumerated 2509 micro-enterprises in Ivory Park and 1722 micro-enterprises in Tembisa. Firm interviews were conducted with business owners in four sectors: grocery retail, liquor retail, hair care and early childhood development centres.
RESULTS: The business census identifies a strong similarity in the structure of the townships' informal micro-entrepreneurship despite the considerable differences in the socio-economic status of the respective case sites. The enterprise survey highlights the resource constraints of township businesses and thinness of local markets. Interviews with entrepreneurs reveal four main pathways through which individuals enter into self-employment with the most dynamic enterprises established by inward investing entrepreneurs. Spatial considerations exert an influence on the position of enterprise sectors, whilst access to land and business infrastructure are notable constraints.
CONCLUSION: Reflecting on the evidence, the paper concludes with making a call for a more low-geared development approach, focusing on lessening the legal, institutional and regulatory obstacles to enterprise growth as a first step. Municipalities have an important role in liberalising the spaces and places where township informal enterprises can and should be permitted to trade as well as creating a more favourable business environment. The challenges of crime and finance demand more purposeful action from the national government.


 

 

Introduction

In South Africa, the idea that the township economy needs to be 'revitalised' has begun to gain significant political traction. For a while it had seemed as though the informal economy1 and micro-enterprises2 had fallen off the developmental radar, with the National Development Plan (NDP) focusing on job creation in the formal economy. Fourie (2015:14) argues that the NDP provides inadequate attention to the 'unique obstacles faced by micro-enterprises in the margins of the economy'. That current policy blind spot is not only specific to South Africa but is also noted in low-income sub-Saharan African development strategies in general, where informal micro-enterprises have much potential for job creation (Fox & Sohnese 2012; Ligthelm 2006; Mead & Liedholm 1988). Whereas the national government may have an ambivalent approach to the informal economy and micro-enterprises, the Gauteng provincial government has positioned itself squarely in support of reviving the economic margins. Its objectives in this respect are set out in a strategy document 'Revitalisation of the Township Economy' (2015). The strategy details a plan of action through which the government seeks to channel resources and create opportunities to foster an inclusive economy based on the promotion of manufacturing, support for cooperatives, and the growth of opportunities in retail and financial services. But what precisely are the challenges for micro-enterprises that need to be overcome in South African townships?

This paper seeks to encourage reflection on the kinds of enterprise development interventions that might be possible, or indeed feasible, in urban townships. To explore such possibilities and practicalities, the aim is to examine actual informal micro-enterprise activities, their scope and scale, and the reported challenges of doing business in two specific township contexts in Gauteng, namely in the settlements of Ivory Park and Tembisa. The paper seeks to address questions about what business activities occur, where people conduct business, how entrepreneurs enter into the township informal economy, what challenges they face and how they respond to these issues. The emphasis in this paper is on the geographical context of the township, rather than on the size of the businesses operating therein - although most of the businesses in this study are 'micro' in size vis-à-vis assets and employment criteria - or the position of the enterprise relative to institutional processes of regulation. Our perspective includes micro-enterprises that are partially or fully legal and those that are illegal, and engaged in both licit and illicit activities.

 

Literature review

There is a wide literature on informal micro-enterprises, and considerable research has focused on the South African context. Macro studies, drawing on nationally and regionally representative data sets, such as the Statistics South Africa Quarterly Labour Force Survey (QLFS), or independent surveys such as the one undertaken by the Finmark Trust (FinScope 2010), provide a generalised indication of the sectors in which the self-employed participate and some indication of informal micro-enterprise dynamics. The literature raises two main concerns. First is a concern that the level of participation in micro-enterprise activities (including informal employment) is low, in relative and absolute terms (Wills 2009; Yu 2012). The developmental implication is that unemployed persons are reluctant or unable to pursue self-employed businesses. In seeking to understand motivational factors, research has examined sociocultural considerations such as perceived barriers towards self-employment amongst the unemployed (Cichello et al. 2011). The Cichello study identified crime, the high costs of capital, transport costs, fear of failure and jealousy as obstacles that hinder a more widespread embracing of self-employment. The second concern is that the structure of the township economy is dominated by small-scale trade in food and/or consumables, serving 'thin' localised markets with 'weak effective demand' (Mahajan 2014), whilst the retail sector in general has come under increasing competition from supermarkets and large retailers, thus reducing opportunities (Charman, Petersen & Piper 2012; Ligthelm 2008; Piper & Yu 2016). The FinScope survey (2010), which prides itself on being the 'first study being able to provide a credible sense of the size and dynamics of the South African small business sector' (2010:7), found that 78.7% of small businesses are retail oriented (21.3% service-oriented), though in Gauteng province service businesses increased proportionally to 34%.

Sector-specific studies, using qualitative and/or quantitative methods, have sought to examine entrepreneurial and firm dynamics (including resource allocation) and motivational considerations amongst township entrepreneurs. These include writings on grocery retail outlets (spaza shops) (Ligthelm 2005; Charman & Piper 2013), liquor retailers (Charman, Herrick & Petersen 2014; Rogerson & Beavon 1982), traditional healers (Petersen et al. 2014) and township tourism enterprises (Nemasetoni & Rogerson 2005) to list four examples. Research on street traders, in contrast, has predominately investigated urban inner-city informal markets and central business district localities (see Benit-Gbaffou 2015; Skinner 2008). Sector studies permit a more nuanced understanding of entrepreneurship. For example, writers have highlighted the considerable differences between large (more sustainable and entrepreneurial) and small (though nevertheless resilient) enterprises. The concern with differentiated enterprise size has helped bring about the idea of 'survival' or 'survivalist' businesses: micro-enterprises that are not deemed to derive from entrepreneurial motivation (for one of the original uses of the survival concept, see Mead & Liedholm 1988). The projection of the analytic lens on 'survival' has also drawn our attention to the structural weaknesses of informal township enterprises as a result of under-capitalisation and resource constraints (Rolfe et al. 2010).

Counter to the concern with slow or little growth amongst survivalists, Neves and Du Toit (2012) have indicated that township enterprise activities are embedded in a social context where relationships of mutual support and reciprocity can be as important as profit motives, whilst economic participation itself serves a social function and reinforces peoples' sense of belonging, place in community and self-identity. This argument aligns with institutional theory's tenet that enterprise decisions are influenced by both formal institutions (laws, regulations etc.) and informal institutions (consensual agreements, moral practices etc.). In consequence, Webb et al. (2013:601-602) argue that the 'incongruence' between formal and informal institutions' conception of social acceptability enables 'opportunity recognition' for informal entrepreneurs, a process which in the township environment explains the widespread illicit sale of both licit (such as beer and pharmaceuticals) and illicit products (such as drugs, traditional medicines and grey market goods).

Area studies have sought to understand the influence of the specific socio-political and urban context on enterprise activities (or absence thereof). These include the World Bank-funded study of the Diepsloot township economy (Mahajan 2014; Mengistae 2014) and the business census studies in five Cape Town townships (Charman & Petersen 2014). The area approach allows researchers to interrogate notions about the kinds of enterprises that operate within a geographical environment and their business dynamics. Mengistae (2014:192), for instance, found that despite the constraints on business growth, 40% of the surveyed enterprises reported to operate on a larger scale than when starting out and concluded that even survival businesses have growth potential. The finding that 'time helps' is consistent with research elsewhere on the African continent (Gulyani & Talukdar 2010; McPhersen 1996; Mead & Liedholm 1998). Yet the comparative literature offers caveats. Gulyani and Talukdar (2010:1711, 1722) emphasise that 'living conditions matter', bearing an influence on the formation of the enterprise as well as its performance. Of relevance to the South African situation is their finding from Nairobi slums that those informal enterprises that sell their goods (or a portion thereof) outside the settlement are less likely to be poor. It is also important to note McPhersen's (1996:274) finding that human capital has a significant bearing on enterprise growth, such that those entrepreneurs with experience, education and training are better able to grow their businesses than persons with less such capital.

South African researchers have devoted little attention to understanding the impact of the institutional context on township business development. Research in the Global North recognises the polycentricism of policy approaches (especially differences between national and local levels) with respect to the institutional process of business regulation and divergences in enforcement in stimulating informal entrepreneurship (Webb et al. 2013). In this respect, the township informal economy has enabled certain kinds of entrepreneurs (both local residents and outsiders) to take advantage of the 'ambiguities' around jurisdiction to operate businesses, which, outside the township, would confront more onerous state control. Some of the examples in the literature are 'large' informal retailers (Liedeman 2012), traditional healers and unregistered health services (Petersen et al. 2014), and gambling rings (Scott & Barr 2013). Additionally, the institutional barriers that confront township entrepreneurs are inadequately understood, apart from those sectors where regulation a priori determines formalisation. Understanding these obstacles is important if facilitation towards formalisation is to be embraced as a policy strategy, an approach that is currently not part of the discussion on township economy development. A developmental approach to business regulation is considered to be the most viable option given the recognised limitations inherent in the 'do nothing' and 'eradication' policy strategies (for a review, see Williams & Nadin 2014, 2012).

The paper now turns to the two case sites to examine entrepreneurial constraints facing township micro-enterprises. The paper is structured into four further sections. Firstly, the paper introduces the case sites, providing an overview of their contrasting histories and demographic profiles. Secondly, we detail the methods utilised to gather data through an enterprise census and qualitative firm survey. Thirdly, the article examines the results. We first highlight the surprising similarities between the two case sites in the range of enterprises and their distribution. We then distinguish the different pathways that entrepreneurs have taken to establish their business. Then we describe the main obstacles that micro-enterprises confront. Fourthly and finally, the paper takes a sober reflection on the question posed at the outset: what developments are achievable given the business dynamics identified? The paper concludes with making a call for a more low-geared approach to township economic development, focusing on lessening the legal, institutional and regulatory obstacles to enterprise growth as a first step.

 

Case sites: Ivory Park and Tembisa

The case sites are portions of two adjoining townships: Ivory Park, which falls into the City of Johannesburg, and Tembisa, which falls into the City of Ekurhuleni. Our focus is on the sub-place areas of Section 2 and Section 5 in Ivory Park and the neighbourhoods of Entshonalanga, Umnonjaneni, Moedi, Khatamping, Endayini, Umfuyaneni and Umthambeka in Tembisa. In both cases, the research sites measure approximately 1.6 km2. The two townships are situated in Gauteng province. In topographical terms, the sites are divided by a small stream, though share a common spatial geography in relation to the broader metropolitan area. In their settlement histories, layout and demographic profiles, Ivory Park and Tembisa differ significantly. In the spatial segments under examination, there are no formally established markets. Instead, businesses have silently 'encroached' (Bayat 1977) and now operate from 'public space', homes, utility servitudes and streets.

Ivory Park is a post-apartheid township. It was established in 1996 on a site at which an informal settlement had emerged (Mahon 2010). The new settlement accommodated residents from overcrowded townships including Alexandra. As a result of informal settlement, the urban planning process had to align with land claims and settlement patterns. The street layout is haphazard apart from the 'high streets' that bisect the settlement and provide transport corridors linking Ivory Park to Tembisa and the major North-South freeway arteries. Under the government Reconstruction and Development Programme, the first generation of settlers obtained brick and mortar housings. The settlement has also benefited from a modicum of social infrastructure, including schools, a taxi rank, a police station and a clinic. Today, all land within the township (apart from a few parcels reserved for commercial activities) is occupied with settlement. Tembisa was established in 1957 (SAHA n.d.). The settlement, in spatial terms, epitomises apartheid modernist planning, the streets laid out in a grid pattern, social infrastructure clustered in the centre of each segment, positioned on the hill ridges, and a green fringe preserved on the perimeter. The population is ethnically heterogeneous with the largest group, isiZulu, accounting for one-third of the total. Over time, the settlement has changed in size and composition, with neighbourhoods becoming less ethnically segregated and notable investments in home improvements. In the neighbourhoods under consideration, one neighbourhood has informal dwellings within this neighbourhood less than 4% of the households reside informally.

Despite their dissimilarities (historical, spatial, demographic and structural), the two settlements share similar characteristics in socio-economic profiles. Unemployment is high (31.4% in Ivory Park and 34.5% in Tembisa, narrow definition) and spatially distributed across both sites. In terms of income distribution (using the 2011 StatisticsSA census data, categorised in quintiles), about one-fifth of households report 'no-income', 34% - 40% earn between R9600 and R38 000 per annum, and a further 24% - 34% earn between R38 001 and R153 800 per annum (see Table 1). The latter cohort approximate to full-time salaried workers. In both settlements the 'middle class' comprises less than 5% of the population. The proportional income distribution across quintiles suggests that households in Tembisa have marginally higher income than those in Ivory Park. It is possible that the official census data under-report informal income streams from business activities, accommodation rental, welfare transfers and private transfers.

Ivory Park accommodates a substantial community of migrants and immigrants. The census data indicate that 29% of the population gave their home language as Xitsonga, isiNdebele and other, thus potentially including Mozambicans and Zimbabweans. Some of the new settlers reside in shack settlements, which accommodate 13% of the population in Ivory Park, although most migrants and/or immigrants are accommodated in single dwelling 'backyard' structures built by the house owners who have thus acquired a highly profitable and reliable income stream.

 

Research methods and analysis

Field research was undertaken over the period May 2012 - August 2012. The research formed part of a project to study the township informal economy in various localities.3 The research methods comprised two main components: a census of business activities and a business survey. The research utilised a mixture of qualitative and quantitative methods in a small-area census approach, described in Charman et al. (2015). The data collection process entailed traversing every street, pathway and passage within a specific area, recording the spatial position and activity of each identified business, undertaking a survey of specific businesses, and gathering data from conversations, collecting artefacts (such as flyers, posters) and taking photographs of business activities and contexts. The survey component was not applied universally but targeted to particular sectors and within sectors to businesses with specific characteristics. The focus was on sectors considered to be most significant (numerically and in terms of their potential for business growth). These were grocery shops (known as spaza shops), taverns (and shebeens, an unlicensed liquor retail outlet), hair salons and businesses providing child care (known as educares). In addition, the research protocol restricted the interviews to enterprises that met the following criteria: businesses had to have dedicated infrastructure (however modest, including a room in a house), have a commercial identity (a name or signage) and trade on a regular basis. In most cases, the targeted businesses were micro in size, evident in the modesty of assets and sole proprietorship, with employment uncommon and restricted to part-time workers and occasional family assistance. All enterprises traded solely in cash.

The data from the census were extracted from the geographic information system (GIS) devices and compiled into a data set. Based on preliminary enterprise categorisation, field notes and photographs, each entry was classified into one of 34 categories of business activities (reflecting the goods and services provided; not industrial classifications which are inappropriate in their aggregation; see Wills 2009) and ordered according to the primary, secondary or subsidiary business activity. The classification of businesses on their spatial location, such as the street, was avoided where their activity, such as selling fruit and vegetables, could be more accurately reflected within a sector categorisation. The survey data were recorded on paper questionnaires and were subsequently transferred to a database and categorised to enable comparative analysis (following suggestions on data organisation in Creswell 2014). The qualitative responses were examined to identify core themes and substantiate the analysis with human voices. Where first names are given, these are the actual names of the business owners, though their identities remain otherwise anonymous. The reference refers to a unique identification number in the data set. The research also draws on personal observations and/or field notes from having criss-crossed both settlements and engaged in dozens of conversations.

 

Results

Similarities in scope and scale

The results of the enterprise census are summarised in Table 2. The census identified 2509 enterprise activities in Ivory Park and 1722 in Tembisa. This equates to 55.1 enterprises per 1000 people for Ivory Park and 38.4 for Tembisa and 13.1 per 100 households in Ivory Park against 9 per 100 households in Tembisa. The level of entrepreneurship is substantially higher in Ivory Park and comparatively higher than other township sites we have studied in the Western Cape where we identified an average of 30 enterprises per 1000 people or 9.7 per 100 households (Charman & Petersen 2014). The heightened level of business activity in Ivory Park is probably attributable to a combination of factors, though two influences are notable. Firstly, immigrant entrepreneurs have responded to their economic situation through creating new opportunities (or 'make work jobs', Mukhopadhyay 2011); secondly, entrepreneurship benefits as a result of the broader scope for informalisation within Ivory Park, such as the spatial opportunities to conduct business in the street environment, utility servitudes and private households and so forth.