Is the township economy a route to empowerment?

 In Africa, Economics, Politics, South Africa

Since the pandemic, we’ve heard several government officials saying that the ‘township economy’ is ‘vital to South Africa’s recovery’. Following a xenophobic clause in the Gauteng government’s proposed law about the township economy, now removed because it violates the constitution, we have also heard the notion taken up as thinly disguised code for chasing out immigrant traders. This foolishness reached new heights recently on Tik Tok when someone who had organized to defend the malls from looting now made a long speech telling immigrant traders to stop setting up shop in the townships. Meanwhile, it is the malls that are killing what little ‘township economy’ exists, and it is the continued dominance of large conglomerates throughout the South African economy – not the Somalian or Pakistani trader – that keeps the township economy strangled.

Townships were designed specifically to not have an economy. They were intended solely as dormitories for Black workers during apartheid. Spaza shops sprang up illegally despite the bad intentions of racist planners. But, even without the legal constraints imposed by apartheid, spazas have never graduated to anything greater than the very tail end of Johann Rupert’s and Coca-Cola’s distribution networks. Other businesses in the township ‘economy’ (mechanics, panel beaters, upholsterers, small builders, fridge repair, hair and nails, childcare, tent and chair hire and the like) provide services where bigger companies don’t care to find a market because they charge more than the proletariat can pay. Like the spaza shops, they come into existence as strategies for people to make a living, and they make life easier for their proletarian customers; however, at the same time, they expand the distribution of products such as car parts into markets that are not lucrative enough for the companies which produce those parts to market in themselves.

The township economy, therefore, is not an economy in itself at all; it is the fringes and, the cracks and crevices of the broader economy. The fate of the township economy, therefore, is bound to the twists and turns of the conglomerate economy.

South Africa’s informal sector is very small compared to similar economies in other parts of Africa. That is rooted in the fact that colonial governments, and later the apartheid regime, went to great lengths to stamp out Black businesses and farmers. The 1913 Land Act destroyed the sharecroppers (who were Black farmers whose land had been stolen but who remained enormously productive on that stolen land until 1913). In the early part of the twentieth century, Black traders were banned from dealing in anything except minor groceries, and prevented from trading in areas designated white by the Group Areas Act. In the 1930s, hundreds of thousands of women were arrested for brewing and selling beer (immortalized in Miriam Makeba’s song, Khawuleza) – arrests for liquor related offences in 1937 were more numerous than arrests in terms of the pass laws. At the same time, white farmers and white-owned businesses were given state support and finance. 

Concentrated and centralised

A small part of the reason for this was to reduce competition for white farmers and small businesses. A much bigger motivation was, initially, to drive Black people to become labourers in the mines and for white farmers, by taking away any alternate means of making a living. Subsequently, it was cemented by the process of intense concentration and centralization of capital (fewer, bigger companies) in South Africa around the British-owned mining houses, which shaped the economy until today. Because the gold ore around Johannesburg was deep and difficult to extract, only large companies which were able to afford large equipment could get at it. Gold was once crucial to the world economy – most major currencies then were measured against stores of actual gold held by their governments. Colonial and later settler governments in South Africa bent over backward to give the mining houses everything they needed, passing laws and creating various state enterprises over the years to ensure that the mines had plentiful electricity, tons of water, rail, and road networks and plenty of underpaid labourers.

The mine bosses were reaping giant revenues from gold and wanted to make more money from that money, so they began to diversify – in other words, to invest in different sectors of the economy. This established the configuration we see today, where a handful of giant companies, with fingers in many pies, dominated the economy. It also cemented the exclusion of small businesses and the informal economy, and in particular Black small businesses, which we see until this day. By the 1990s, according to one piece of research, there was no manufacturing sector in which 5% of the firms did not produce at least 50% of the total output in that sector. (This is quoted in an OZA report, Women’s Work and Inequality, which contains good detail of the history and current state of the economy described here.)

For a time, South African manufacturing bloomed in the rain of conglomerate investment and the whole economy expanded, creating many new jobs, although not to the benefit of Black manufacturing workers, and without opening space for Black businesses to form. But, despite enormous government support for these manufacturing businesses, too, the garden apartheid planted was blighted by its racist foundations: on one hand, the market for buying manufactured goods was constantly limited by the low wages (or outright exclusion to the Bantustans) of the Black majority, and there was no demand from other parts of the world for South African manufactured goods; on the other hand, black manufacturing workers, in particular, began to organize and fight for higher wages, as well as better conditions within those very townships they returned to every day after work. This proved to be the beginning of the end for apartheid, but not, unfortunately, for the dominance of the conglomerates that apartheid served.

By the time apartheid ended, the mining houses, in the atmosphere of the ‘Washington consensus’, had gained the ability to legally export capital. Now, instead of being forced to invest their revenues locally, they could export their profits to stock exchanges or invest in mines and other concerns anywhere in the world, and they wasted no time doing so. Similarly, retailers such as Shoprite began to export their stores across the continent – shrinking the livelihoods of many informal traders and small farmers in those countries, too. So, while platinum profits were still flooding into the mining houses and retail profits into the supermarkets, manufacturing in South Africa crashed, leading to a jobs bloodbath and throwing ever more people into an informal economy which was finding even less space to expand.

Corporate stranglehold

All the conglomerates, including those which relied on local markets, were into a new strategy by the end of apartheid: unbundling. This involved selling off investments in companies that were not part of their ‘core’ business. But unbundling did not mean the conglomerates were releasing their stranglehold on the economy: on the contrary, the big companies now began to buy or otherwise seek to control the whole value chain of their ‘core’ functions, from production all the way to distribution. So, for example, a company producing bread would now buy the flour mill and the wheat farm, and a supermarket selling vegetables would now buy up or invest heavily in farming equipment and fertilizer production. Smaller farmers can only sell to these big players if they enter into binding, unfavourable agreements with them, which prevent them from selling elsewhere if they are not happy with the price. Meanwhile, small farmers who do not enter these agreements struggle to find markets for their goods and struggle to afford the fertilizers and equipment controlled by the conglomerates without the discounts which help to trap other small farmers. Many of the conglomerates also have investments in big banks, increasing their ability to get finance at favourable rates that small businesses would never get. As a result, the expansion of the conglomerates, instead of creating new opportunities for small producers and distributors, has squeezed them further.

South Africa is number six globally in the amount of space given to shopping centres, and it has been established that when shopping centres open, the number of small traders in the area declines and the incomes of the surviving small traders decline. And now, these big retailers are even setting their sights on the township ‘economy’ itself, which was one of the last crevices in which small distributors were able to get a footing because it was not profitable enough for the big guys. Before the pandemic, both Shoprite and Pick ‘n Pay had announced their plans to set up their own ‘spaza’ shops in containers in the townships. This will be a disaster for people living in townships as well as for shopkeepers: poor families often rely on credit from local shopkeepers to tide them over the worst times, but there will be no neighbourly sentiments from a Shoprite container.

These companies are big enough to absorb a few failures in their thirst to suction the small change out of township pockets, unlike actual spaza shops run by families and individuals, which fail at a truly alarming rate: almost four out of five individuals who were in the informal sector in 2014 had left the sector within three years. Those who manage to survive are generating relatively far smaller profits to keep afloat.

When a shopping centre moves in, property prices and rents tend to rise in the surrounding area making it impossible for traders and workers to afford property rates and rent within the radius of the shopping centre; similarly, financialisation – the tendency of conglomerates to want to make money from money, instead of from producing and selling a physical thing – also bumps up property prices and rents, which makes the most central and convenient land too valuable, in market terms, to allocate to small traders and the poor, who therefore remain forever on the margins.

Blaming traders from other countries for the supposed paralysis of the township economy, therefore, is a false explanation, because it can’t explain why the township economy is so small and narrow in the first place. While the conglomerate continues to have a big chunk of the profit, on the other hand, small traders are pitted against each other for whatever remnants of the township economy are left. Traders from other countries are preyed upon for the failure of the township economy while big supermarkets get away with dominating the market and in the process crushing whatever existing spaza shops, chisa-nyamas and car-wash.

The conglomerate economy in miniature

The Gauteng premier’s programme for the township economy promises to support township ‘enterprises’ with finance and space to trade. But on closer inspection, we find a programme to concentrate and formalise township capital and probably to squeeze some rents and taxes from them, almost as if they intend to make a juicier fruit for the conglomerates to reap later when the risks have been taken.

The program promises to use unused state land and to sponsor trade fairs, and even to procure 30% of provincial government things from township enterprises. But it also insists that all township businesses will have to display a license, and those that don’t have one must be ‘helped’ to get one. (It does not specify who can refuse a license or on what grounds, or whether fees will be charged for licenses). It promises to rezone areas around taxi ranks to allow buildings up to five stories high, encouraging something like a CBD (Central Business District) in the townships. But it is thus also making a township plot more attractive for larger investors by multiplying the square meters, and therefore the potential income from building rental shops, by five. Before long, traders who build their own structures will be pushed to the outskirts or will have to pay rents to crowd against and above and below their sibling-competitors closer to the taxi rank. Will small businesses be allowed beyond these zones, or will government eventually decide to only license businesses inside these zones?

And although it promises support in reaching markets (though you wonder what form this will take as it only elaborates on trade fairs) and promises ‘technological’ training, there is no plan for challenging the market dominance of the conglomerates. And therefore, when a township enterprise takes a loan from the government, it is gambling on making it through the eye of a needle in competition with many others just like them, in a situation where the market available to them is beyond their control. It is not surprising that the people who wrote the bill took care to define ‘an entrepreneur’ as someone who takes risks for profits.

This vision towards reproducing the conglomerate economy in miniature may allow conglomerates to extend tendrils directly into the township economy, through the property market for example, or it may produce local tycoons. There is very little chance that it will produce a corporation capable of challenging the giants which apartheid birthed, but it will probably produce a handful large enough to step up into boardrooms of the cappuccino economy in return for delivering the township economy to big capital, packaged with a bow, and filling the role vacated by Ramaphosa in those circles.

Even for radical nationalists, there is no route to regain indigenous control of the overall economy via the township economy, which is not independent of the overall economy in the first place, and completely at a disadvantage when forced to compete within it, as small traders have found when supermarkets move in.

The recent stats released by Stats SA on the country’s unemployment figures show unemployment is higher among ‘Black Africans’ – 36.5% – compared to other races. The majority of ‘Black Africans’ continue to be alienated in the economy which has resulted in the township being turned into a pseudo-Gulag, and aggravated by the continuation of the apartheid spatial setting which rendered the township a camp for the reserve army of cheap labour for capital to exploit.

Shopping centres have become sites of exploitation for workers. Wages are below the poverty line, working hours are longer and most workers are un-unionised, and at any moment face dismissal. In 2016, for example, Roots Butchery at Tsakane mall fired all workers for going on strike demanding better working conditions and wage increases. As a matter of fact, capitalism has found ways to extract profit at a much cheaper rate without any resistance. There is another way: workers’ power, where workers in the big conglomerates, together with all the rest of the proletariat, take control of all the companies, machines, mines and shops to produce and distribute for human need, not for profits. Only in this world would the townships finally escape their apartheid origins.

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