Township land-use systems hinder access to enterprise formalisation

Imagine running a small business in a township. You would face many obstacles to achieving business growth, including constraints that are common to most start-ups, such as an absence of affordable finance, market competition from established and larger businesses, external risks including crime and high regulatory barriers. But unlike start-ups in the formal economy, township businesses have to confront a particularly onerous set of land barriers. Their challenge can best be described through a simple example.

Steve operates a spaza shop, take-away and off-licence. He is a real person, running a real business somewhere in Gauteng. He ought to have a licence from the municipality to sell perishable food, and another licence to certify that his equipment for serving take-away food complies with environmental health and safety standards to minimise the possibilities of the transmission of diseases such as listeria. Then he should have a licence for selling liquor.

He has none of these legal requirements, but not because he does not want to be formalised. His efforts to acquire the necessary licences and enter into the formal economy have been unsuccessful mainly due to the inflexibility of SA’s urban land systems.

What are these land constraints? Like millions of other township residents, Steve "owns" his house, but does not have legal title. He bought the property from his mother through an informal transfer. If people don’t legally own a property, the bundle of rights attached to that land unit cannot be unlocked for their advantage. For example, people need to be the legal owner or have consent from the legal owner should they wish to submit an application to the municipality to have building plans approved, a regulatory requirement for businesses such as his.

Even if Steve did legally own the property, his building set-up does not comply with national building regulations and standards. Moreover, some of his buildings encroach onto neighbouring properties and public land — the street. This is not surprising, as many township properties do not sit neatly within the cadastral plan, the conceptual grid that provides the basis of the South African land-use system.

Should Steve succeed in gaining approval for his buildings, he still has to confront two other major obstacles. As an entrepreneur seeking to grow his business, Steve has sought to maximise the commercial use of the property, changing the predominant use from residential to business.

The current town-planning scheme penalises such entrepreneurship by insisting that residential properties remain residential in use. Town planners still demand that townships remain as "dormitory" settlements, permitting survivalist activities (such as small house shops) but blocking the kind of investment the country requires to transform these economies.

To trade liquor products Steve would have to have the property rezoned from its residential status to business use, a procedure that is bureaucratically complex, relatively costly and highly risky as failure to obtain rezoning (or a departure-use certificate) would mean he would have to close his business.

So instead of formalising his business, Steve chooses to remain informal.

National debates on land reform have not thought about the predicaments that confront thousands of micro-entrepreneurs such as Steve. The land debate should recognise that SA’s land-use systems hinder access to enterprise formalisation. In response to this argument, I am often asked why township businesses would want to formalise in any case. Such questions are often posed as though informality is a mind-set issue, not recognising the structural barriers. My answer is that formal business recognition provides incentives to certain kinds of township business, including street traders (tenure security), liquor traders (rights to trade), educares (rights to trade and access to state subsidies) and spaza shops (rights to trade), to list some of the better-known sectors.

If land system barriers did not present such steep obstacles to regulatory compliance, many micro-enterprises would seek to maximise these benefits. To navigate the land-use system requires expert knowledge, a high degree of technical skill and financial resources. Even with the support of corporate power or civil society initiatives — in which legal, technical and financial resources are no limitation to the goal of formalisation — it is a struggle to unlock land for township entrepreneurs. People who doubt this argument should speak to any entity that seeks to formalise township educares to confirm just how onerous these land obstacles are.

The Sustainable Livelihoods Foundation has undertaken a series of important studies on how land-use systems constrains micro-enterprises. The research underlines our view that "unlocking land" would benefit micro-enterprises, enable business formalisation and accelerate economic growth. In conjunction with UrbanWorks, we have hosted two Solutions Lab events, held in Johannesburg and Cape Town respectively, to identify potential strategies that could unlock land. The two events were attended by a select group of specialists drawn from business, the government, civil society organisations and academic institutions. The aim was to foster a dialogue on the significance of land constraints and draw upon the accumulative knowledge base to explore workable solutions.

Through the Solution Lab discussions, the following areas were identified in which solutions to the urban land problem could be achieved:

Government roles should be aligned in two respects. The objectives of spatial justice and micro-enterprise formalisation should be aligned across the three government tiers and political leadership should empower bureaucracies to align their actions with the intention of legislation to accommodate micro-enterprises.

There is a need for policy reform to enable micro-enterprise formalisation without undue land restrictions, such as zoning or restrictions on property use. We see a case for aligning enterprise formalisation with land system rights and services, thus giving municipalities a revenue-generating incentive to support businesses that comply with regulations and not hindering formalisation.

Property owners should be afforded security of tenure, especially freehold title deeds where appropriate and demanded. The government should expedite the process of transferring land titles through partnership with non-state actors where state capacity is constrained or compromised.

There should be greater participation from communities and other non-state actors in the implementation of land-use systems and micro-enterprise regulation. Such participation could take the form of community planning tribunals or social contracts. There are cases in which the effectiveness of social contracts have been demonstrated in ensuring that micro-enterprise comply with attainable norms and standards.

The government and municipalities in particular should initiate bold actions and experiments to test possible solutions. The foundation strongly advocates the development of township high streets as business corridors where micro-enterprises can access a bundle of land-use rights that are suitable for commercial activities. Other ideas should be tested and their impact monitored. Continuing with a "business as usual" approach does not contribute to finding solutions to the problem.

Urban land reform should not be equated simply with the provision of housing, even though this is important. It should also be about rights to use land in ways that can produce economic growth while reducing the legacy of spatial injustice.

• Charman is a director of the Sustainable Livelihoods Foundation.