Zweli Mokgata

Soweto’s economy is expanding

Small enterprises are under pressure

“Our business is growing, but we still need to teach people to use services from the township”

— STHEMBELA NKOSI

The growth in the economy of Africa’s biggest township, Soweto, is creating wealth for the community with more money spent there — but many smaller retailers are being squeezed out.

The launch of Jabulani Mall in 2006 and Maponya Mall near the Chris Hani Baragwanath Hospital in 2009 has created a new world of options for township consumers, as well as thousands of jobs.

Rather than paying hundreds of rand each month to travel to Southgate Mall in Mondeor, The Glen in Glenvista and malls in the northern suburbs, Soweto residents can find similar shops, restaurants and cinemas on their doorstep.

Thami Mazwai, University of Johannesburg’s director of the Centre for Small Business Development, estimates that annual turnover of Soweto’s businesses has risen from R13bn in 2007 to R16bn today, and says: “The economy is more informal than formal and very difficult to quantify.”

But the losers in this equation are small businesses in Soweto, which are finding it hard to compete with the new businesses setting up in the community.

Vincent Seoka, partner at research firm Kutu Consulting, says the number of small businesses has been declining since the arrival of the malls.

In 2007, when Jabulani Mall had just launched, there were 300 small businesses in the 5km radius around the centre (see graph), mostly spaza shoptype operations and corner cafés.

By the time Maponya Mall was launched in 2009, there were only 157 businesses left in the surrounding community. In 2010 there were only 135 small businesses, many of which are now run by foreigners.

“We’ve heard of people dying of heart attacks when they see their investments are suddenly washed up,” says Seoka. “You find that operators from places like Pakistan move into the abandoned businesses and set up shop. They tend to be a bit more organised than the local guys in their buying and pricing strategies.”

The businesses that are able to survive are those that adapt. By pooling their resources they can collectively buy their stock in bulk and set prices that compete with big retailers. They focus on dayto-day goods, reduce stock levels and cut down on product range.

When the malls are open they compete on a price basis, but when the malls are closed, either early in the morning or late in the evening, they charge a premium for the convenience.

Dirk Prinsloo, CEO of Urban Studies, an economic research consultancy, says: “There are opportunities to develop more small neighbourhood centres with the focus on food and other convenience products, closer to where people live. ”

There is evidence that, though some of the smaller retailers are under pressure, there are new businesses being set up in the community. Ben Slinda, director of the Soweto Business Directory, says the demand for information on local businesses is growing fast.

The company develops websites for businesses and adds them to a directory that is made available to the public. It generates around R300000/year.

And there are some small-business successes.

Zombodze Panelbeaters, a 33-year-old family business owned by Siza Nkosi and run by his son Sthembela, has doubled in size since 2007, when it invested in a state-of-the-art spray booth.

The R300000 investment was part of an assistance programme by the National African Federated Chamber of Commerce & Industry (Nafcoc) and Alexander Forbes.

The company has gone from employing 12 people at its first branch in the Orlando West Industrial Park to 23 employees after it opened a second branch in Aeroton in 2009.

“Our business is growing, but we still need to teach people to use services from the township,” says Sthembela Nkosi “The perception that you get poor service in the township is wrong. All we can do is provide good work and let the word spread.”

Soweto has a population of just under 2m. There are about 200000 businesses, with around 70% of these in the informal sector. These are operations with an average of two to three employees. “Most businesses are made up of people who employ themselves and an operation with more than 10 employees is the exception rather than the rule,” says Mazwai.

Even with the opening of the new malls, around 76% of Soweto’s spending power still migrates, most of it to Johannesburg’s inner city and northern suburbs. The mind-set of the average Soweto resident is that quality is found only outside the township, he says.

An ongoing study by the University of SA (Unisa) has found, though, that patterns are beginning to change, and consumers have started to spend more of their income in the township.

Professor André Ligthelm of Unisa’s Bureau of Market Research says: “The overall impact of these malls is that household expenditure, which is 60% of economic activity, is being redirected from the outside to in-town shopping.”

Though food retailers have been hurt by the malls, Ligthelm says that because more money is staying in the community some of that is being spent on personal services.

“The spillover effect is that businesses like hairdressers and other personal services are starting to open their doors inside the township,” he says.

Growth in the township’s economy has also meant an increased variety of businesses, with previously unavailable services on offer.

Internet cafés have taken off in most neighbourhoods and the township’s first Virgin Active, now under construction, will open in Maponya Mall.

The study showed that residents are less likely to move out of Soweto now that high-quality facilities are available, with more being developed. Of the respondents in the Unisa study, 80% say they see themselves still living in the township in five years’ time.

The recent drive by the Johannesburg city council to upgrade roads and the introduction of the Rea Vaya rapid transport bus network has helped move the township into a self-contained economy with a growing middle class.

Source: Financial Mail