The Undeveloped Possibility of the Township Economy – Business Media Magazine

by AI DeepSeek
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Author: Isana Cordier, Sector Head of Consumer Goods, ABSA Corporate and Investment Bank

Author and entrepreneur GG Alcock have long been one of the loudest voices regarding the potential of a “town economy.” Absa is one of the most well-known banks serving South African consumers who live and work in the “town economy” and recognizes its potential. It has become our responsibility to understand the needs and nuances of South Africa's “township economy” to support our partners in retail and wholesale spaces serving Casinomics' small businesses, entrepreneurs and consumers.

Did you know that Soweto residents have a higher percentage of income in retail than in Sandon, Johannesburg? Alternatively, with R77.9m available for each official grocery retailer, it appears that the opportunity for the new formal grocery store in Kayelitssha, a densely populated town of Cape Town, will have at least three times as much opportunity.

One of the main points raised by Alcock1 is that “township economy” does not become a catch-all phrase for economic and business activities carried out in traditional townships. ABSA and IRL Consulting conducted studies on business activities and spending habits in various South African towns, comparing these with similarly situational suburban areas (benchmark areas*). The points of Alcock have been confirmed in this study. This highlights that each traditional town is now developing into an independent economic hub. These are just some of the insights that were created as part of the research.

At a high level, the trend is clear. Clothing and food are the most representative categories, but there are great opportunities in the brick and mortar townships across the board. The ratio of spending potential for formal retail availability – up to three times the benchmark – suggests an important opportunity for retailers to expand their footsteps and reach townships.

Certain areas offer greater possibilities.

For example, Umlazi, Tembisa and Mamelodi have a higher density of registered businesses than Soweto and Khayelitsha, both of which are significantly lower.

Encouraged, entrepreneurship activities are on a full rise, and some of the key points from our research are as follows:

The average business age in a township is about 40-50% younger than the benchmark. The townships in this study show business registrations per square meter after Covid than their respective benchmarks.

Economic mobility is an important focus, and a key challenge in the South African economy is a very important factor considering that people struggle to access economic opportunities close to where they live and have to travel at greater relative costs for work and shopping.

It is not surprising that much of the mobility of residents outside of each township is concentrated in major business and transportation hubs.

From our research, the “township economy” is not only an important opportunity for entrepreneurs in retail and fast consumer goods (FMCG) spaces, but also undertakes a unique personality that is essential to understand and support the strategic investments to grow the “township economy.”

*Comparisons were made looking at township vs benchmarks: Soweto vs Sandton, Centurion vs Mamelodi, Germiston vs Tembisa, Umlazi vs Westville, Khayelitsha vs Milnerton.

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