In South African government circles, there has been a lot of talk about the township economy. Part of this interest at the national level, is expressed in the special attention townships receive in the National Treasury’s ‘cities support’ programme as part of the Economic Development component. Within government there’s a recognition that people within the townships need to be able to live and prosper where they are.
Townships are characterised by a lack of economic infrastructure (speaking in very broad strokes), longer commute times to commercial centres than the average suburb, and often insecure property rights through government ownership of land. The government’s stated objectives in producing any ‘township economy’ strategy include increasing asset creation, increasing income returns from economic activity, creating opportunities for entrepreneurs, creating jobs, and so on. Taking as a starting point these objectives, private property rights turn out to be an essential ingredient in any township economic development strategy.
Entrepreneurs in townships, as the government itself acknowledges, face regulatory barriers, land use management barriers, and unrecognised property rights over land. Townships are characterised by mixed-use development, which is often at odds with municipal zoning regulations. Some researchers blame apartheid for this, but the current municipal councils deserve much more of the blame since they could change this with a little work, empiricism and, imagination.
The root of the problem is that the government is confused about which problem to solve when it comes to the townships. On the one hand, ideology says that townships are a creation of apartheid and all their problems derive from the racist motives of the past government. On the other, it is clear that these are now coherent communities with local economic structures that are legitimate because they are a product of voluntary transactions within the community.
The distinction is important. If you believe very little good can come from the townships since they are a creation of apartheid, then you might be just ever so slightly biased towards seeing the residents as victims that need help. The government has likely spent billions in the townships since 1994; most of this spending has been in the form of welfare programs such as grants, public healthcare, and public education.
If you consider the money that has been spent and wasted, is it not time to consider a new approach to township economic development? An approach inspired by a faith in the people who live in the townships? This approach relies critically on every piece of land in the townships being identified, as well as the ownership status thereof.
Through technology such as GPS, every plot can be linked to an address and every address linked to a set of geographical coordinates. The next step would be identifying ownership. If the land is owned by the government and is not currently being used for some important purpose, it would be transferred via auction, open to all residents of the township.
This would provide an asset base upon which entrepreneurs in the townships could build. The second step would be making every township a special economic zone (SEZ), where the only regulations that apply are related to safety, and these are written in such clear language that the average person understands what they mean. This includes making sure these regulations are short, and no special regulation for particular industries apply. There should be only one set of rules for every business operating in a township.
I am not yet sure which rules would be appropriate. A good argument can be made that regulations are not necessary at all, we already have legal mechanisms for resolving contractual disputes and disputes over property. A more effective strategy would be increasing access to the courts, it is something the government has struggled with and I do not have the answer. A good direction of travel might be increasing the number of courts (the natural limit here is the quality and size of your pool of legal practitioners) or incentivising the private sector to help build more court capacity.
After the township asset base has been built up (at zero cost to government, except the cost of signing a piece of paper) and regulations have been greatly simplified and reduced, a step that has to occur more or less concurrently is the simplification of the business registration process. The government has already gone a long way in that regard, with the introduction of a new platform by the Department of Trade and Industry which allows tax, BEE, business, bank account, and domain name registration from one platform.
While this is commendable, it is not enough. We have to always keep in mind that the goal is not to import development into the townships, but to allow people in those areas to take charge of their own lives. Simplifying a process which already includes artificial barriers which often make no sense in a township context is unlikely to do much good. The government should consider a new, more streamlined business registration process for the townships.
This process would be located at the municipal level and would involve no discretion from municipal officials. Only three things are required: business address (it must be in the township, seeing that the municipality started out by linking addresses to coordinates and owners), permission from the property owner, and that all the shareholders in the business must be identified. A special certificate would then be issued for the business, reflecting all of this information including the fact that it is part of a township SEZ.
Businesses that are based in a township SEZ would in turn be able to confer tax advantages on businesses that transact with them. As an example, a simple incentive would be to make the percentage of a company’s income spent on suppliers based in township SEZs tax free. So if a company spends the equivalent of its entire annual income (after expenses, earnings) on township-based suppliers (who can be any colour by the way), the company pays no corporate income tax for the year.
Some people might complain about the special treatment that townships would be receiving in terms of township residents having greater economic freedom, as well as the aforementioned tax incentives. It must be remembered that in the case of taxes, any reduction in tax revenue would be made up for by reductions in welfare spending within the townships. Instead of trying to help townships by spending money on them, this would be trying to help them by government spending less, and companies and consumers being strongly incentivised to instead spend the money themselves in the townships.
Of course, people in townships would continue paying VAT as well as individual income taxes (these need to be reduced for the whole country as a matter of urgency) but we should allow these businesses not only to confer tax advantages to the companies they supply, but also not to have to pay any corporate income taxes. This system of economic development would be based purely on geography.
The starting point is adopting a framework that recognises the simple truth that if property values are rising in your neighbourhood, and private property is sacrosanct and widely distributed, then you are most likely better off as well. Some activists often make the mistake of seeing property price increases as the problem, when it is what every property owner in the community dreams of.
Contrary to this thinking, property rights are essential to any solution. They are the basis upon which land use decisions are made. Asset ownership would obviously not exist without property rights. Without these, the government’s goal of productive asset creation in the townships would be impossible. There are other issues that deserve further consideration here, but the main thing is that economic development can only happen when the people we want to develop are free to develop themselves.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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