Unlocking the economic potential within South Africa’s township economy

Across townships, mechanics who learned their trade from parents or mentors keep taxis and private cars on the road with expertise that rivals formal garages. And, in many neighbourhoods, hair salons operate from converted shipping containers, providing employment for young women and men while doubling as informal community centres where news, support, and beauty services are shared.

Author: Kagiso Mahlangu

These businesses are not merely survival strategies or stopgap measures for the unemployed. They represent sophisticated economic ecosystems that have evolved to serve communities with remarkable efficiency, innovation, and responsiveness.

While precise figures for the township economy specifically are difficult to establish, these businesses form a significant portion of South Africa's broader informal economy, which accounts for 19.5% of total employment and contributes an estimated 6% to the country's GDP.

Yet even these broader figures vastly underestimate the true economic and social value that township enterprises create. They provide essential services in areas where formal retail has struggled to establish viable operations, create employment opportunities for people who might otherwise remain economically excluded, and generate economic activity that circulates within communities rather than extracting value to distant corporate headquarters.

However, the full potential of South Africa's township economy remains locked behind regulatory barriers, resource constraints, and institutional frameworks that fail to recognise the sophisticated business models that have evolved within these communities. Unlocking this potential requires more than simplified compliance processes or designated business zones. It demands a fundamental reimagining of how legal frameworks can serve economic development, moving from regulation-focused approaches toward enablement-focused strategies that build on existing strengths while providing pathways for growth and formal economic integration.

Despite their significance, township businesses continue to operate within legal and regulatory environments never designed for their realities. Current legislative efforts, such as the Standard Draft By-Law for Township Economies and even the Gauteng Township Economic Development Act, signal growing recognition of the need to support rather than constrain these enterprises. These initiatives provide important foundations, but the full potential of the township economy remains largely untapped as a result of frameworks that prioritise control and compliance over empowerment and enablement.

Enabling frameworks must build on existing strengths

Robust legal frameworks for township businesses must begin with the recognition that these enterprises have already developed sophisticated operational models that effectively serve their communities. These businesses are not blank slates awaiting formalisation; they are dynamic entities with proven strategies and local knowledge.

The challenge, therefore, is not to transform them to fit formal sector templates, but to create regulatory environments that enhance their existing strengths while removing barriers to growth. This calls for a shift toward what might be termed “economic enablement legislation” — laws designed to eliminate obstacles rather than impose additional requirements.

Such frameworks must address the fundamental resource constraints that limit township business development, while avoiding the creation of new administrative burdens that small enterprises cannot sustain. Streamlined pathways for business legitimisation should focus on outcomes over documentation, community benefit over strict compliance, and practical support over theoretical instruction. Registration processes, for example, must reflect the realities of township operations: many businesses function from home, maintain informal records, and serve customers without formal banking or identification documents.

Zoning and land use regulations are another area where enabling frameworks must accommodate, rather than constrain, existing business models. Township enterprises often thrive precisely because they operate in mixed-use spaces, blurring the line between residential and commercial areas, adapting to seasonal patterns, and staying close to their customer base. Legal frameworks should support flexible zoning that permits mixed-use activity while providing infrastructure enhancements that strengthen, rather than relocate, these enterprises.

Access to formal financial services remains one of the most significant barriers to township business growth, yet current frameworks provide limited remedies.

Effective legislation should facilitate banking relationships for informal businesses, establish alternative credit mechanisms that leverage community-based collateral systems, and create pathways for entrepreneurs to build formal credit histories that can underpin future expansion. Solutions might include government-backed guarantee schemes, community banking initiatives, or alternative documentation systems that replace conventional financial records without penalising informal structures.

Perhaps most critically, enabling frameworks must create pathways for market access and integration into supply chains without requiring fundamental changes to operational models. This includes reserving portions of government and large private sector procurement for township businesses, developing supply chain programs that connect small enterprises with larger commercial opportunities, and building market infrastructure that enhances existing trading networks rather than displacing them.

Comprehensive support systems address barriers to growth

Legal reform alone cannot unlock the full potential of township enterprises. Comprehensive support systems are essential to address systemic disadvantages in accessing resources, markets, and growth opportunities.

Effective frameworks must mandate government provision of business development services tailored to township realities, rather than repurposed from formal sector models. Technical assistance should build on existing expertise, financial management support must accommodate informal record-keeping, and marketing guidance should leverage community networks rather than replace them with standard advertising approaches.

Infrastructure development is a critical component of enabling frameworks, yet current legislation only partially addresses it. Many township businesses operate without reliable electricity, water, or telecommunications, constraining their capacity to grow. Legal frameworks must establish obligations for basic infrastructure provision: electricity for home-based enterprises, water access for businesses that require cleaning or food preparation, and digital connectivity that supports online commerce and electronic payments.

Similarly, skills development and training programs require fundamental restructuring to be effective. Traditional training assumes formal education, internet access, and conventional business models. In contrast, township-focused programs should enhance practical skills already in use while introducing complementary capabilities – financial literacy that accommodates informal records, marketing training that builds on community relationships, and technical skills that allow the adoption of new technologies without disrupting proven operational models.

Integrating township businesses into formal economic structures also requires mechanisms to protect against exploitation or displacement by larger enterprises. Antitrust enforcement, fair contract protections, and market regulation are necessary to ensure that new opportunities expand the local economy rather than allow larger competitors to absorb or eliminate small enterprises. Comprehensive frameworks must ensure that formalisation creates real growth opportunities, safeguarding township entrepreneurs as they navigate expanded markets.

Ultimately, enabling frameworks must do more than regulate, they must empower. By recognising existing strengths, addressing structural constraints, facilitating access to finance and markets, and providing targeted support, these frameworks can transform township businesses into resilient, thriving engines of local economic growth.

When legislation moves beyond a compliance-oriented mindset toward a model of economic enablement, township enterprises can fully realise their potential, strengthening communities, generating employment, and contributing to a more inclusive, vibrant economy.