Economics of South African Townships: Special Focus on Diepsloot

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.