During the first quarter of 2018, South Africa’s gross domestic product (GDP) decreased by 2,2% according to Stats SA. This low growth trap followed a period of cautious optimism and highlights the need for creative thinking from all role players in the economy.
For the South African business community it highlights the need to begin looking for growth opportunities in areas that traditionally were not contributing actively in the formal economy, such as township economies and former homelands.
South Africa boasts 2,500 modern trade outlets that include supermarkets and 140,000 traditional trade outlets, which includes spaza shops. Together, these outlets generated annual retail sales of R316.5 billion to March 2017. According to a Nielsen study of this total, traditional trade within urban as well as rural areas amounted to R70.5 billion (22.3%).
It is very clear that South Africa must tap into the dynamism of township and rural economies and employ these as strategic springboards that are able to propel the country’s economy forward.
A deeper look into township economy
Across many parts of South Africa, the township economy is growing at a faster rate than the formal economy. According to the Gauteng Enterprise Propeller (GEP) document from GDED, employment within the township economy in the province has grown by over twice as much (11%), compared to employment within the formal economy (5%).
The growth is attributable to various factors including high unemployment and job losses within key sectors such as mining and manufacturing.
The increase in the establishment of informal businesses has been driven by necessity for economic survival, as well as entrepreneurial drive, with half of small businesses surveyed in the township economy baseline survey conducted by Gauteng Department of Economic Development (GDED) in 2017, being started to generate basic income.
The baseline survey also revealed the main hindrances to business across these prevailing sectors are crime, lack of funding, the skills gap, expensive electricity tariffs, and competition amongst others.
Partnering with businesses active within the township economy
Some of these problems can be overcome through partnerships and businesses of the formal economy getting involved and assisting township companies. This can be achieved through mentorship, skills transfer or even providing alternative funding for these businesses. Franchising provides a springboard for clients who are interested in owning an established brand without starting from scratch. The industry norm of the 50% unencumbered own contribution towards the set-up of a franchise ensures gearing of the business at the right level. Absa then participate in funding the 50% of the set-up costs. Absa offers Alternative funds of between R50 000 and R5 million for small, medium or micro-sized enterprises for the clients who have the 50% own unencumbered contribution, but however lack the security for the loan.
The Department of Small Business Development has awarded a tender to SA Franchise Warehouse in 2016 for the identification, education and packaging of 15 emerging franchisors over a three-year period. The incubation of the emerging franchisors assists township business concepts that can be franchised to participate in the programme and become franchisors. Thanks to this level of investment, the role that the township economy plays as an employer and driver of economic growth across a large part of the South African population looks set to increase in future.
Partnerships such as these will lead to novel business models within the township economy, that will turn into profitable and lucrative business opportunities that help drive national economic drive.
Franchise presents a great model for a proven business concept, that is independently owned, but having the support of the franchisor. Township economies offers growth opportunities for brands that are brave, passionate and eager to tap into this growing market.