Smart townships

Kickstarting SA’s 4IR strategy by investing where tech is needed most.

Dr. Motshedisi Mathibe

Gordon Institute of Business Science

Dr. Motshedisi Mathibe, a full-time faculty member at the Gordon Institute of Business Science (GIBS) is collaborating with Dr. Tonderai Muchenje, from Tshwane University of Technology (TUT), and Dr. Moshe T. Masonta, principal researcher and a research group leader at the Council for Scientific and Industrial Research (CSIR), to explore the idea of smart townships.

South Africa’s informal sector is considered to contribute up to 30% of the country’s GDP and can be an economic growth driver for the country. Yet, while there has been much talk of creating smart cities to stimulate job creation and position South Africa to embrace the Fourth Industrial Revolution (4IR), little has been mentioned regarding townships.

Mathibe and her colleagues believe that by focusing on creating smart townships, entrepreneurship can be stimulated, the contribution of the informal economy can be maximised, and digital transformation can be accelerated. We spoke to her about why they believe “smart townships” can also contribute towards helping to solve broader challenges, such as unemployment and poverty.

What do you mean by “smart townships” and what role do you think these could play?

Smart townships can share similarities to smart cities, but there are important differences and a unique township context that needs to be taken into account. For example, in the face of COVID-19, online shopping has boomed in South African cities, with on-demand grocery apps like Sixty60 from Checkers experiencing exponential take-up. However, while there may be demand for similar services within townships, there are challenges that make it harder for entrepreneurs to deliver these services. For example, consumers may not be able to provide street addresses, and mobile internet connectivity is still expensive, while broadband rollout into townships remains tricky and fairly uncommon.

Incorporating townships into South Africa’s 4IR strategy will ensure some of the country’s largest communities are included as active players, with access to technologies such as the Internet of Things (IoT), virtual and augmented reality (VR/AV), cryptocurrency, and cashless payments, among others.

Entrepreneurs in townships will then be able to leverage these technologies in their businesses without having to travel to cities to do so, thus increasing their already substantial contribution to GDP and positioning South Africa for the future. It will also help to circulate more money within township economies instead of cash being spent elsewhere.

How do you see the SA banking sector supporting the smart township concept?

The smart township is not a concept that has to be actioned or supported by the government. In our article published in Acumen (for GIBS), we argue that the government is already struggling to provide essential services such as water, electricity, sanitation and housing.

Smart townships should be a collaborative initiative between government (to ease the regulations and amend their policies) and the private sector (banks and corporates) to effectively use their corporate social responsibility in supporting consumers and entrepreneurs in the townships; as well as communities (consumers and entrepreneurs) to get involved through being funded and being made owners or overseers of properties in the townships so that they will have a sense of ownership. The assumption is that when communities are involved, they have a sense of belonging and turn to protect what they own, leading to decreased vandalism and crime.

Workspaces at CIC Boston

Banks and financial institutions can get involved by:

Revising their lending criteria for the missing middle-class township students who wish to further their studies at a tertiary institution but do not qualify for o National Student Financial Aid Scheme (because they do not fall within the government brackets) or for bank or financial institutions’ study loans (because they fall outside the criteria again). About 6% of the South African households earn an income between R350 00 to R600 000 per annum. In 2019, the bursaries for missing middles students were estimated to be R19.2bn. With support from the banks, this amount could fall at least to 11.4bn per annum.

Addressing gaps in the township housing market. Consumers wish to own property in the townships, but do not qualify either for RDP houses or bank home loans. The criteria indicate that they earn more income, which throws them out of RDP brackets, yet they earn less income than required to qualify for a home loan. Since 2017, the number of missing-middle households has shrunk from 6.1 million to 2.7 million in 2022, making it a 55.7% reduction. However, there is a 54% increase in ultra-poor individuals who are earning a minimum wage. This number is predicted to be about 6.6 million people.

Supporting entrepreneurs. Many entrepreneurs do not have assets as security when applying for funding from the banks to start or grow their businesses in the townships. Research shows that one of the challenges facing small and medium enterprises is access to funding. This is because of the red tape that still exists at traditional financial institutions, making it difficult for SMEs to access funding. Research shows that 58% of entrepreneurs who require funding to start growing their businesses need between R10 000 and R50 000. Some entrepreneurs claim they do not know where to access this funding as the process is complicated and complex.

If financial institutions could review their policies and find ways to support the missing middle, developing smart townships could be the starting point.

We recommend creating business parks in townships that could serve multiple purposes. By creating these spaces in partnership with the communities, a sense of ownership and community stewardship could be fostered. This would assist with the security of infrastructure and create a safer environment.

Business parks could also create bridges between township entrepreneurs and corporates. For example, financial institutions could create satellite offices at these business parks so that people could visit a branch to apply for a loan, instead of having to travel to the city. These offices could employ people from the local community as staff, who would understand the context and language of the specific environment and assist with things like smart documentation systems in a way that community members could understand and trust.

These centres could be connectivity hubs, set up with broadband or mobile internet access, and offer training facilities and courses, partnering with local government and corporates to run such initiatives as part of their enterprise development and socio-economic investment programmes. These centres could offer training at various levels, from business skills to software coding and intellectual property

How do you think this could be a game changer, especially with regards to home loans for township dwellers?

When you educate a child, you educate the entire society. So if banks can fund students, they will automatically be contributing to a future elite of the township community. These students would be working class that could afford and buy property in the near future. Meaning the market share for homebuyers will increase further.

The inclusion of the missing-middle household in accessing home loans would mean that there will be more brick houses in the townships and fewer shacks. Statistics show that shacks, especially those that are not on sites allocated by the municipalities, are where most crime occurs. Therefore, this support for owning property would mean less crime and more minor service delivery protests, as we know or have seen from the media that most service delivery protests are people from the shacks demanding houses or sites from the government.

Ease of access to funding by entrepreneurs would mean that entrepreneurs could also be able to own property where they could do business with ease. They can then focus on being innovative and creative, growing their businesses and creating more jobs for the township communities, as we have seen the statistics of unemployment for the fourth quarter of 2021, which hit a highest 35.5%.

Access to funding by entrepreneurs will help reduce this high rate of unemployment and crime, which we see increasing year-in-year-out.

Most banks are innovative and trying to meet their customer needs innovatively. But, whether they innovatively meet the needs of township consumers, especially when we think of accessing bursaries, study loans and home loans, remains a big challenge.

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