Standard Bank recently released a report entitled, “Powering growth from the ground up: insights into the businesses, challenges and growth pathways shaping the township informal economy.”
Despite this promising title, there is nothing in this report that is not already well known in published sources. This fact alone raises questions about why Standard Bank should now issue a commentary on what actions ought to be taken to contribute towards “powering” informal enterprise growth.
The report is agnostic on exactly what role the bank intends to fulfil on this development agenda. Nor does it provide a clear statement on how government policies or programmes might be improved. If Standard Bank is seriously looking at an enabling role, it must reconsider the stereotyping of entrepreneurship and myths about growth solutions that the report advocates.
On the matter of stereotypes, the report’s authors state that within the township economy there is an SA mindset and a foreign mindset. South Africans, in this stereotype, are “typically characterised by a traditional, reactive and inward-focused mindset”. Hence, entrepreneurially unsuited to growth.
Foreigners, in contrast, are “agile, aspirational and customer-centric”, hence growth-orientated.
Useless comparisons
Comparing South Africans to foreigners in this manner is as pointless as comparing a street trader who sells vegetables to a tenderpreneur who provides municipal services.
Any comparison between entrepreneurial strategies must take into account firm size, network strength and proximity, social capital and institutional interfaces, to list some of the main variables known to affect growth.
There is a broad consensus among entrepreneurship scholars that most small, resource-constrained informal businesses across the globe don’t grow. It’s not a particularly SA entrepreneurial mindset trait. SA has low participation in the informal sector, but that’s a different matter.
How is this growth problem understood? We know some firms don’t pursue growth, not least in accordance with Western business logic. We know some firms can’t grow because of policy barriers and market asymmetries. We know many firms fail, with the exited person then rotating between labour markets, livelihoods and entrepreneurship.
We also know when firms grow, they commonly embrace strategies of disguising or dispersing their investments. African scholars have described this as an octopus firm with many tentacles, including non-business interests.
On the growth myths, there are three. First, the report claims formalisation is a panacea for growth. Were this to be true, there would be a stampede at the Companies and Intellectual Property Commission (CIPC) offices.
Only a few township business sectors — such as educare and liquor traders — would directly benefit from formalisation. Yet these same sectors are in effect prevented from formalising due to regulatory obstacles. There is a good reason many firms, including corporates such as Uber and Checkers, keep some operations semi-informal.
In the case of Checkers, the benefit of its informal economy Sixty60 delivery service must far outweigh the costs of having delivery drivers formally registered and fully compliant with all labour, health and other such regulations.
The second myth is about technology adoption. The report points to the low adoption of digital banking and products such as point of sale as a barrier to growth. Yet township entrepreneurs have widely adopted smartphones and use them for things they value, such as communication, not for things that banks value, such as digital commerce.
A lot of research has gone into the digital inclusion problem. The problem is often framed in “mindset” terms, to be solved through education. But if we flip the logic, the main digital inclusion “problem” is that banks are averse to listening to what entrepreneurs actually want from them.
In my own experience these include better access to physical banking infrastructure and service agents they can talk to in person. The real mindset problem is that banks want township entrepreneurs to build a business relationship with an abstract digital concept.
The third myth is that a higher quantum of entrepreneurial support will lead to growth in informal firms. While increasing expenditure is politically appealing, it may have little effect. Before spending more, we should take stock of the current (not insignificant) enterprise development expenditure via the state, philanthropic entities and corporate enterprise and supplier development (ESD) programmes.
What has been the effect? No-one can say. This is either because they don’t know or won’t tell. There are few publicly available evaluations that have credibly measured the long-term effect of these expenditures. If these endeavours are not producing growth firms, merely creating a dependency on a continued cycle of grants, maybe these resources should be spent differently.
Standard Bank might take a lead in this respect, being upfront and honest about its own achievements, failures and lessons for township entrepreneurship.
Township entrepreneurship is important. Small businesses have transformed these once monofunctional settlements. Many livelihoods have been sustained. Services have responded to state failures. Brands have emerged, and some dynamic entrepreneurs have arisen.
However, thinking about all these achievements through a “growth” lens misses this bigger picture.
• Dr Charman, a director of the Sustainable Livelihoods Foundation, is co-author of “Township Economy: people, spaces and practices”.
