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Economics of South African Townships: a Focus on Diepsloot A WORLD BANK STUDY Public Disclosure Authorized Public Disclosure Authorized Economics of South African Townships Public Disclosure Authorized SPECIAL FOCUS ON DIEPSLOOT Public Disclosure Authorized Sandeep Mahajan, Editor Economics of South African Townships A WORLD BANK STUDY Economics of South African Townships Special Focus on Diepsloot Sandeep Mahajan, Editor WORLD BANK GROUP Washington, D.C. © 2014 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpreta- tions, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http:// creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: Mahajan, Sandeep, ed. 2014. Economics of South African Townships: Special Focus on Diepsloot. World Bank Studies. Washington, DC: World Bank. doi:10.1596 /978-1-4648-0301-7. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Responsibility for the views and opinions expressed in the adaptation rests solely with the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. 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Economics of South African Townships • http://dx.doi.org/10.1596/978-1-4648-0301-7 Contents Acknowledgments xv About the Authors xvii Abbreviations xxi Overview 1 Introduction 1 A History of South African Townships 3 A Conceptual Framework for the Township Economy 5 Economic and Social Trends in Townships and Informal Settlements 8 The Township of Diepsloot: A Case Study 10 Toward a Dynamic Township Economy 19 Notes 26 References 27 Chapter 1 A History of Townships in South Africa 31 Kate Philip Introduction 31 Townships, Labor Supply, and Apartheid 32 Resistance, Reform, and the End of Apartheid 37 Postapartheid Policy and Practice 40 Impacts of Wider Policies and Social Dynamics on Human Settlements 43 Townships within the Wider Economy 45 Conclusions: Townships Today 46 Notes 47 References 48 Chapter 2 A Conceptual Framework for the Township Economy 51 Sandeep Mahajan An Integrated Analytical Approach 51 Dual-Economy Literature and the Urban Informal Sector 51 Economics of South African Townships • http://dx.doi.org/10.1596/978-1-4648-0301-7 v vi Contents An Analytical Framework for South Africa’s Urban Economy 54 In Search of a South Africa “Convergence Machine” 59 Notes 62 References 62 Chapter 3 Economic and Social Trends in Townships and Informal Settlements 65 Hans Binswanger-Mkhize and Fernando Im A Segmented Economic Terrain 65 Demographic Trends across Settlement Types 67 Labor Market Trends across Settlement Types 69 Consumption, Poverty, and Household Trends across Settlement Types 75 Social Indicators and Access to Services 82 Summary and Conclusions 87 Annex 3A: The Data Sources and Their Limitations 89 Annex 3B: Tables with Detailed Data 90 Annex 3C: Figures with Detailed Data 102 Notes 111 References 113 Chapter 4 Access to Finance in Townships and Informal Settlements 115 Dorothe Singer An Unequal Access to Finance 115 Household Access to Finance 117 Access to Finance for Micro, Small, and Medium-Size Enterprises 128 Access to Finance and Banking Structure in South Africa 135 Conclusions 135 Annex 4A: Regression Analyses 137 Notes 138 References 139 Chapter 5 Qualitative Assessment of the Diepsloot Economy 143 Catherine Cross Diepsloot Township: A Potent Brew of Anger, Disillusionment, Suspicion, Fear—and Hope 143 An Overview of Diepsloot 144 The Politics of Housing and Land Ownership 147 The Small-Business Sector 150 The Labor Market 164 The Foreign Trading Sector 168 Conclusions 175 Economics of South African Townships • http://dx.doi.org/10.1596/978-1-4648-0301-7 Contents vii Notes 177 References 178 Chapter 6 Diepsloot’s Investment Climate 179 Taye Mengistae Amid Constraints, Growth Potential 179 Diepsloot’s Entrepreneurs 180 The Potential for Enterprise Development 194 Constraints to Enterprise Development 199 Conclusions 209 Annex 6A: Detailed Data on Diepsloot’s Investment Climate 211 Notes 218 References 218 Chapter 7 Income and Expenditure Patterns in Diepsloot 219 Phindile Ngwenya and Precious Zikhali Household-Level View of a Township Economy 219 Demographic and Social Profile of Diepsloot Households 220 Sources of Income for Diepsloot Households 228 Household Expenditure Patterns for Diepsloot 229 Implications of Income Growth for Economic Activity in Diepsloot 237 Conclusions 238 Annex 7A: Estimation Procedure 240 Annex 7B: Estimation Results and Discussion 241 Notes 244 References 244 Chapter 8 A Social Accounting Matrix for the Economy of Diepsloot 245 Rob Davies and Dirk van Seventer Modeling a Township as an Economic Entity 245 A Diepsloot SAM: Conceptual and Design Issues 247 Multipliers for Diepsloot 258 Policy Implications 265 Conclusions 268 Notes 269 References 270 Boxes O.1 Rural Causes for Some Urban Effects 8 O.2 Global Experience in Establishing Industrial Parks and Clusters 24 1.1 Laws That Were Building Blocks for Apartheid 35 Economics of South African Townships • http://dx.doi.org/10.1596/978-1-4648-0301-7 viii Contents 5.1 Methods and Sample Description 149 5.2 A Medium-Size, Shack-Based Spaza 152 5.3 A Larger, Home-Based Spaza 153 5.4 A Semiformal Manufacturing Business 156 5.5 A Plan to Diversify Business, Expand Client Base 157 5.6 Café Operator Balances Location and Costs 157 6.1 The Exemplar: A Home-Based Spaza Shop 184 6.2 The Salesman: A Larger Retail Enterprise 190 6.3 The Entrepreneur: Success through a Diversified Portfolio 192 6.4 The Steady Operator: A Thriving Restaurant 196 6.5 The Risk Taker: A Diepsloot-Based Construction Firm with Widespread Clientele 198 6.6 The Survivor: An Array of Services Firms 202 7.1 Survey Sampling Methodology and Data Collection 220 8.1 What Is a Social Accounting Matrix? 248 Figures 2.1 Informal Employment and GDP in Latin America (1990–2007) and Southeast Asia (1985–99) 54 2.2 Current Dual-Economy Representation of South Africa 56 2.3 Dual-Economy Representation of South Africa after Boosting the IME 57 2.4 Unconditional Convergence in GDP Per Capita among OECD Countries, 1951–2010 60 2.5 Unconditional Convergence in Per Capita Personal Income among U.S. States, 1929–2010 60 2.6 No Signs of Convergence among Sub-Saharan Countries 61 3.1 Employment and Labor Force Participation Rates, by Settlement Type in South Africa, 2000 and 2011 72 3.2 Narrow and Broad Unemployment Rates, by Settlement Type in South Africa, 2000 and 2011 73 3.3 Youth Not in Employment, Education, or Training, by Settlement Type in South Africa, 2000 and 2011 74 3.4 Shares of Consumption and Population, by Settlement Type in South Africa, 2010/11 75 3.5 Consumption Per Capita of Male- and Female-Headed Households, by Settlement Type in South Africa, 2005/06 and 2010/11 81 3.6 Educational Levels of Adults 25 and Older, by Settlement Type in South Africa,
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