Economics of South African Townships: Special Focus on Diepsloot (World Bank Studies)

Countries everywhere are divided within into two distinct spatial realms: one urban, one rural. Classic models of development predict faster growth in the urban sector, causing rapid migration from rural areas to cities, lifting average incomes in both places. The situation in South Africa throws up an unconventional challenge. The country has symptoms of a spatial realm that is not not rural, not fully urban, lying somewhat in limbo. This is the realm of the country’s townships and informal settlements (T&IS). In many ways, the townships and especially the informal settlements are similar to developing world slums, although never was a slum formed with as much central planning and purpose as were some of the larger South African townships. And yet, there is something distinct about the T&IS. For one thing, unlike most urban slums, most T&IS are geographically distant from urban economic centers. Exacerbated by the near absence of an affordable public transport system, this makes job seeking and other forms of economic integration prohibitively expensive. Motivated by their uniqueness and their special place in South African economic and social life, this study seeks to develop a systematic understanding of the structure of the township economy. What emerges is a rich information base on the migration patterns to T&IS, changes in their demographic profiles, their labor market characteristics, and their access to public and financial services. The study then look closely at Diepsloot, a large township in the Johannesburg Metropolitan Area, to bring out more vividly the economic realities and choices of township residents. Given the current dichotomous urban structure, modernizing the township economy and enabling its convergence with the much richer urban centers has the potential to unleash significant productivity gains. Breaking out of the current low-level equilibrium however will require a comprehensive and holistic policy agenda, with significant complementarities among the major policy reforms. While the study tells a rich and coherent story about development patterns in South African townships and points to some broad policy directions, its research and analysis will generally need to be deepened before being translated into direct policy action.

Countries everywhere are divided into two distinct spatial realms: one urban, one rural. Classic models of development predict faster growth in the urban sector, causing rapid migration from rural areas to cities, lifting average incomes in both places. The process continues until the marginal productivity of labor is equalized across the two realms. The pattern of rising urbanization accompanying economic growth has become one of the most visible and self-evident empirical facts of development across the world, with almost 200,000 people making the rural-to-urban trek every day, according to the United Nations. Cities across the world are powering growth, development, and modernization. The study then takes a close look at Diepsloot, a large township in the Johannesburg Metropolitan Area, to bring out more vividly the economic realities and choices of township residents. Although atypical in many ways, by the virtue of being newer, poorer, and more informal, with a bigger concentration of migrants (many of them foreign nationals), than the historically established townships, Diepsloot also retains many of the economic characteristics of South African townships: Issues of joblessness, uneven access to basic public services, and overwhelming levels of crime and violence are almost as pervasive in Diepsloot as they are in other T&IS. At the same time, an emergent informal sector more visibly pervades the township than seen in the average township, which makes it a particularly useful place to study in order to develop an understanding of the kinds of economic activities that are feasible in townships. It focuses particularly on the nature of business activity in the township, the key investment-climate constraints faced by its firms, income and expenditure patterns across households, and some aggregative social and human indicators. In a first attempt of its kind for a township, the report also develops a Social Accounting Matrix (SAM) of Diepsloot for a comprehensive and consistent picture of the place, including the circular flow of income within the township, the nature of its interaction with the rest of the South African economy, and a simple multiplier analysis of its economy.

Countries everywhere are divided into two distinct spatial realms: one urban, one rural. Classic models of development predict faster growth in the urban sector, causing rapid migration from rural areas to cities and raising average incomes in both realms. South Africa faces an unconventional challenge in that it has symptoms of a spatial realm that is not rural and not fully urban. In many ways, South African townships—and especially informal settlements—are similar to slums in the developing world, although never was a slum formed with as much central planning and purpose as were some of the larger South African townships. Unlike urban slums, most townships and informal settlements are geographically distant from urban economic centers. The near absence of an affordable public transport system makes job seeking and other forms of economic integration prohibitively expensive. Motivated by the uniqueness of townships and informal settlements in South African economic and social life, Economics of South African Townships: Special Focus on Diepsloot seeks to develop a systematic understanding of the structure of the township economy, yielding a rich information base on the migration patterns to townships and informal settlements, changes in demographic profiles, labor market characteristics, and access to public and financial services. Economics of South African Townships then looks closely at Diepsloot—a large township in the Johannesburg Metropolitan Area—to vividly identify the economic realities and choices of township residents. Given the current dichotomous urban structure, modernizing the township economy and enabling its convergence with the much richer urban centers may unleash signifi cant productivity gains. Breaking out of the current low-level equilibrium, however, requires a comprehensive and holistic policy agenda, with signifi cant complementarities among the major policy reforms. Although the study tells a rich and coherent story about development patterns in South African townships and points to some broad policy directions, its research and analysis will generally need to be deepened before being translated into direct policy action. Front Cover -- Title Page -- Copyright Page -- Contents -- Acknowledgments -- About the Authors -- Abbreviations -- Overview -- Introduction -- A History of South African Townships -- A Conceptual Framework for the Township Economy -- Economic and Social Trends in Townships and Informal Settlements -- The Township of Diepsloot: A Case Study -- Toward a Dynamic Township Economy -- Notes -- References -- Chapter 1 A History of Townships in South Africa -- Introduction -- Townships, Labor Supply, and Apartheid -- Resistance, Reform, and the End of Apartheid -- Postapartheid Policy and Practice -- Impacts of Wider Policies and Social Dynamics on Human Settlements -- Townships within the Wider Economy -- Conclusions: Townships Today -- Notes -- References -- Chapter 2 A Conceptual Framework for the Township Economy -- An Integrated Analytical Approach -- Dual-Economy Literature and the Urban Informal Sector -- An Analytical Framework for South Africa's Urban Economy -- In Search of a South Africa "Convergence Machine" -- Notes -- References -- Chapter 3 Economic and Social Trends in Townships and Informal Settlements -- A Segmented Economic Terrain -- Demographic Trends across Settlement Types -- Labor Market Trends across Settlement Types -- Consumption, Poverty, and Household Trends across Settlement Types -- Social Indicators and Access to Services -- Summary and Conclusions -- Annex 3A: The Data Sources and Their Limitations -- Annex 3B: Tables with Detailed Data -- Annex 3C: Figures with Detailed Data -- Notes -- References -- Chapter 4 Access to Finance in Townships and Informal Settlements -- An Unequal Access to Finance -- Household Access to Finance -- Access to Finance for Micro, Small, and Medium-Size Enterprises -- Access to Finance and Banking Structure in South Africa -- Conclusions -- Annex 4A: Regression Analyses -- Notes -- References Countries everywhere are divided within into two distinct spatial realms: one urban, one rural. Classic models of development predict faster growth in the urban sector, causing rapid migration from rural areas to cities, lifting average incomes in both places. The situation in South Africa throws up an unconventional challenge. The country has symptoms of a spatial realm that is not not rural, not fully urban, lying somewhat in limbo. This is the realm of the country's townships and informal settlements (T & IS). In many ways, the townships and especially the informal settlements are similar to