World Vision International

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1 World Vision International Balancing the macro with the micro in Soweto - Orlando East and the challenges of building a local economy By John van Kooy, Dr Liam Magee and Dr David Lansley

2 This case study originally appeared in Cities for the future: Innovative and principles-based approaches to urban equity, sustainability and governance (published in April 2015). Cities for the future is the biannual flagship publication of the Global Compact Cities Programme and is financially supported by the Research and Innovation Portfolio at RMIT University. For more information, visit Cover image courtesy of World Vision International.

3 Johannesburg, South Africa Human Rights Labour Environment Anti-corruption Cross-sectoral Collaboration Balancing the macro with the micro in Soweto Orlando East and the challenges of building a local economy John van Kooy, Dr Liam Magee and Dr David Lansley for the Centre of Expertise for Urban Programming, World Vision International A review of a pilot urban development project by World Vision in Soweto, Johannesburg, South Africa, suggests collaboration between government, community, business and the NGO sector could be critical to tackling economic issues facing the urban poor. In 2008, international non-government organization World Vision launched a pilot urban development project in Orlando East, what was once termed a dormitory suburb in the South Western Townships (Soweto) of Johannesburg. The project adopted an openended, exploratory and participatory approach to local economic development challenges in the area with the aim of understanding and countering some of the effects of urban poverty traps in Soweto. The project focused on strengthening community partnering and conducting government-oriented advocacy and network-building to create something of a business zone in Orlando East. This article presents an overview of that project and a summary of the economic challenges and opportunities facing local actors. The views of local people working in business, communities, government and nongovernment organizations (NGOs) all tend to highlight the difficulties in overcoming structural developmental deficits in this case brought about by the hostile political, economic and spatial effects of the apartheid regime. By teasing out a small sample of these views, we hope to better understand local economic development challenges and opportunities in disadvantaged urban contexts. Urban microeconomic development and the World Vision pilot project Cities are drivers of economic growth: they attract populations with employment opportunities, and offer ready-made markets and infrastructure for products and services. However, stimulating economic development at a local level in cities is a persistent challenge for communities, governments, policy-makers and NGOs. Prescribing generalized economic policy and programmes can be problematic when they are applied to the complex social structures, community relations and diverse populations living in urban areas. Microfinance as a means of building local economic growth has received considerable attention in the past two decades. Increasingly, it makes sense to think of microfinance as a family of related approaches that encompass formal microfinance lending systems, community-based savings and loans groups, and business and life skills training. All of these approaches emphasize small-scale and community-based interventions. As some scholars have noted recently, the huge diversity of urban communities in different parts of the world or even within the same city means that such programmes need to be carefully tailored to reflect the historical, political and cultural aspects of local communities in urban areas. World Vision started a pilot local economic development project in 2008 in the Soweto area of Johannesburg. The project took an open-ended, exploratory approach to the design and implementation of its activities and engagement with project partners. The initial approach focused on working with sectoral task teams who would plan and execute economic strategies and were focused on issues of environmental action, skills development, tourism, informal traders and small and medium enterprises. However, the project quickly advanced to a greater emphasis on growing a local network of community and business organizations, and on advocacy to government and local authorities. This transition was a significant learning outcome: in Orlando East, purely financial schemes (loans, savings, skills development) needed to be embedded in a broader context of power and activism to have efficacy. This may not be a uniform feature of urban local economic development; rather it was born out of the particular history of Soweto.

4 A key pillar of the project and one that proved to be quite active in its advocacy to the city government was the Small, Medium and Micro-Enterprise (SMME) Forum. The Forum, which was initiated and facilitated with the support of World Vision, serves as a networking and planning body for economic initiatives in the local area. Activities include matching CVs and skills of forum members with available job opportunities, linking members with government schemes and identifying local business opportunities. In late 2012, the SMME Forum was also in the process of registering for formal status as a financial institution. A research team was deployed in late 2012 to review the project and capture lessons from the first phase of implementation. The review attempted to map the array of obstacles to and opportunities for economic development in Orlando East, as reflected by program participants. Our findings contribute to better understanding of the barriers to local economic development in an urban context. A poverty trap amidst South Africa s growing economy Researcher Ivan Turok describes South African cities as having a low-density, fragmented form that creates poverty traps on the periphery. The Orlando East area in Soweto is located in just such a poverty trap. Spatially distant from the economic hub of Johannesburg s centre, Soweto is a low-income area with a fast-growing population. Chronic housing shortages and limited basic infrastructure, including paved roads, water and sewerage, add to the range of social challenges. During the apartheid era, Orlando East functioned largely as a dormitory suburb for black workers commuting into Johannesburg. Since 1994 the area has struggled to participate in South Africa s strong economic growth, in spite of several positive developments such as hosting the World Cup games at a newly built stadium in 2010 and gradual growth of tourism to the area. Soweto suffers from high levels of unemployment and makes only a marginal contribution to the national economy. Small and micro businesses are the main type of private economic activity and the area is home to a substantial number of informal, unregistered businesses and traders. Microenterprises in South Africa s informal economy typically do not survive beyond their first five years and Soweto is no exception. Small informal businesses operating in the area face high mortality rates due to a lack of skills, business knowledge and resources; inappropriate training; cash flow problems; a lack of business networks; and isolation from formal financial institutions and state-run business support schemes. Obstacles to economic development in Soweto In our review of the World Vision project, we conducted interviews and questionnaires with residents of the Orlando East area, project staff and partner organizations that are developing economic training, local business people, health or other community services. We asked questions about the general economic environment, employment and business obstacles and prospects for the future. The World Vision International pilot project worked to counter the urban poverty trap in Soweto. It found that macro level approaches are required to stimulate the economic development of small, medium and micro enterprises. Image: World Vision International.

5 Cities for the future Case Studies - Gobal Compact Cities Programme Nearly all respondents agreed that the outlook for business had not improved, or had become more difficult in recent years. The main reasons given for this were increased competition, lack of business management skills, a changing technology environment, and ongoing security and safety issues. Of these reasons, competition from recent migrants to Soweto (from countries as far away as Somalia or Pakistan) was by far the most significant issue. Respondents also talked about problems of crowded and poor-quality housing, describing the influx of people to Orlando East as particularly difficult for young people, and that children were frequently left with elderly carers due to the impact of HIV/AIDS on the adult generation. Education, skills and access to information were mentioned as strategies for countering this vulnerability. Most respondents also agreed that there was substantial economic inequality in the area, with suggestions that some 50 millionaires reside in Soweto. Small businesses and contractors, it seems, face a damaging combination of obstacles. The situation is captured well by one of the managers interviewed at the SMME Forum: A lack of skills is a major obstacle facing small businesses... Mobility is also a problem; particularly in the building sector [where] there is a constant need for training There is the problem of the need for businesses to expand out of Soweto and even beyond South Africa. This requires skills and finance. And competition has become more intense, forcing businesses to become more creative, for example the development of a new greenfields township... The main obstacles are a lack of information and a lack of preparedness, for example what is the gap in the market? As an example we recently met two young people wanting to sell ideas. They had not done enough research into the advertising industry, which already employed lots of creative people. We advised them to re-think and change their business plan. Other barriers identified, from government corruption to infrastructure gaps, contribute to the high rates of small business mortality (particularly in the informal sector) across all of South Africa. Opportunities for the future The two key aims of our study were to review community members assessment of their current and future incomegenerating opportunities and the extent to which World Vision could contribute. When asked about possible business and employment options in Orlando East, it was clear that community respondents were considering a range of potential sectors. Jobs were considered to be available in: repairs and maintenance, car washing, computer sales and maintenance education, including sports coaching, music performance and teaching hospitality and food, such as in restaurants, bed and breakfasts, kiosks, selling fast food ( bunny chows ) and bakeries construction-related industries, including installation and maintenance of energy and water facilities, recycling and buy-back of construction materials. Community respondents identified an even broader range of sectors when it came to small business opportunities, including waste management, food production and urban agriculture, bricklaying, painting and paving, IT, tourism, house renovations, car washing, health, and sport and associated sectors. The SMME Forum respondents believed that between 70 and 80 per cent of people they engage with have the potential to run their own business, if only they could acquire business and financial management skills. Other respondents also highlighted characteristics important for finding jobs or earning income, mentioning skills, education and self-reliance or independence. In response to questions about finance, two small business owners expressed doubt about whether this would help expand their business. One respondent, a computer reseller, stated: I believe I should save money for myself rather than taking loans because at the end it is difficult to repay them. In response to a general question about the future, respondents were generally confident that things will pick up. Among the reasons given were: volunteers at one of the co-operatives were developing skills and education, and were in a better position to gain full-time education improved management of HIV/AIDS meant that those with the motivation and focus might be more able to do something for themselves. Moreover a fully-fledged, multi-party democracy in the country s political system was seen to give hope, and to encourage large-scale national investment. Importantly, this suggests that specific schemes targeting savings, loans or skills are necessary but not sufficient; broader political representation, accountability and policy support for small business development are also critical. With regard to World Vision s contribution, partnering has proved to be a significant aspect of the project, as it connected World Vision staff to the diverse skills, resources and networks available through other organisations. Strong institutional relationships also allowed for so-called soft advocacy developing relationships and influence with local government officers to promote specific interests and agendas that fail to be heard through other channels. This is not only an issue of social justice and equity. As the comments of the SMME Forum respondents showed, organized collective action on the part of small businesses, tradespeople and community groups can help drive economic opportunity. Conclusions Major cities such as Johannesburg are powerful attractors of financial, human and social capital. However, marginalised zones such as Soweto contribute little to the economic output of the city and suffer a disproportionate

6 share of urban blights, including high unemployment, crime, perceptions of government corruption, the effects of HIV/AIDS and other transmitted diseases, skills and service shortages and general poverty. In short, they enjoy little of the benefits of urban development, while inheriting many of the costs. These issues are illustrated clearly in Orlando East, which has seen many of the economic development benefits experienced by South Africa as a whole generally pass it by. Our review of the World Vision project has identified three main sets of obstacles to economic development in the area. First, it is obviously difficult to enter the formal economy to gain employment or to start up a business. There is a lack of physical infrastructure and financial capital to incentivize businesses to set up shop in Orlando East. Security and health issues compound the difficulties of operating, as does a lingering reputational attitude, even among local residents, that better retail opportunities could be found in Johannesburg proper. The second obstacle makes this situation worse; that is, the ongoing difficult operating environment for businesses. Respondents mentioned factors like fluctuating demand and fickle customer preferences, heightened competition in low-skilled service sectors, lack of investment, low formal education levels and the complexities of business regulation. All of these dampen the usual incentives that motivate business development. The third set of obstacles relate to institutional weakness. Respondents noted a number of concerns in dealing with government agencies, including poor and infrequent communication; the complexities and difficulties of business compliance; corruption, particularly concerning government funding and job vacancies; and, conversely, the high degree of reliance upon government investment. Indeed, the government was largely absent from our findings as a facilitator or contributor to local economic growth in Soweto. Community respondents views on government ranged from ambivalent to acrimonious though there was hope that the democratic system would improve this situation. Conversely, participants spoke highly of World Vision s role in promoting economic development issues. According to respondents, programmes for training and equipping communities with financial literacy, business management and practical skills address some of the difficulties with finding employment and operating businesses. While these findings may be skewed by participant bias the authors were conducting a review in the name of World Vision it is nonetheless striking that an internationally funded NGO was viewed with far less suspicion than the locally elected government. Indeed further collaboration between government, community, businesses and the NGO sector could be critical. We conclude by noting Turok s appraisal of South African cities, amply confirmed by our own findings, which suggests that development programmes need to be adapted to address the specific economic dilemmas of the urban poor. The stark inequity of Johannesburg s wealth distribution demonstrates that urban poverty traps are less determined by physical location than by social and political structures. We suggest that this means development efforts cannot remain limited to the current stream of micro -oriented programmes; some, at least, must be supplemented by attention to, and attempt to intervene in, macro-systems that reside at the urban and regional level. World Vision International has been a strategic partner of the Global Compact Cities Programme since This article draws on collaborative research undertaken in 2014 by World Vision s Global Center of Expertise for Urban Programming, the Global Compact Cities Programme and RMIT University. A lack of skills is a major obstacle facing small businesses... Mobility is also a problem; particularly in the building sector [where] there is a constant need for training... There is the problem of the need for businesses to expand out of Soweto and even beyond South Africa. This requires skills and finance. SMME Forum interviewee Microenterprises in South Africa s informal economy typically do not survive beyond their first five years and Soweto is no exception. Image: World Vision International.