BN@10: GG Alcock – SA’s economy in far better shape than believed, growing too, just not where you think

South Africa’s globally respected futurist Clem Sunter rates GG Alcock as one of the most important of all South African voices. Like Sunter, this White Boy raised Zulu in a Msinga mud hut is a champion of entrepreneurship. We have seen on numerous occasions that whenever GG Alcock gets the opportunity to engage with local audiences, he leaves them thinking differently about their country, uplifted and inspired. It happened again at the BizNews@10 conference. Can’t wait for BNC#6 in March 2024 where both GG and Clem have agreed to deliver keynotes. – Alec Hogg

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Edited transcript of GG Alcock’s keynote address to the one day conference celebrating the 10th BizNews anniversary

I grew up in mud huts in a Zulu village in a place called Msinga in KwaZulu-Natal. People often asked me, “Where is my Msinga?” and I would struggle to explain where it was. Now I just say it’s right next to Nkandla, so you get an idea.

I moved from Msinga to Johannesburg, known as indawo lapho izindonga ziduma, which means the place where the walls thunder. I moved there with only a backpack and very few material possessions, having grown up incredibly poor in a Zulu village – we washed in the river, having lots of running water. My mother, now in her eighties, still lives in the mud huts and refuses to change her life.

I was a capitalist and deep down, I realised there was no glory in poverty. So I moved to Johannesburg. My only real friends were IFP warriors or ANC comrades, as I was a political activist who had grown up among the Zulu people. When I moved to Johannesburg, I didn’t even know what entrepreneurship was. I realised that my value lay in access to places that were invisible and inaccessible to others, such as the townships and rural areas of South Africa.

In that access, there was a huge richness, and part of my life has been not only running a successful business focused on the townships but realising that there’s a massive economy in these places. Often we are surrounded by doomsday images like rows of shacks next to fancy houses or narratives of poverty and inequality. However, these are not true for the majority of people.

A recent headline in The Daily Maverick angered me. It read, “Cash Crunch, Consumers Turn to Alcohol and Clothing,” explaining the growth in alcohol and clothing businesses, yet failing to recognise that there may be an economy where people have money to afford these luxuries. Such narratives lead us to believe that individual stories of poverty represent the whole population.

Let me shatter some misconceptions. People might believe that 80% of households in South Africa live in informal dwellings, with an average household size of six. However, only 12% of households live in informal dwellings, and over 86% of households live in formal dwellings.

This is significant because if you visit the average township, whether it’s Khayelitsha, Soshanguve, or Mdantsane, you’ll see an extraordinary transformation. People have gone from a basic structure to a double-storey or have extended their homes. It represents a broader economic picture that we should be more aware of and should be portrayed accurately in our media and perceptions.

Read more: SA’s new generation entrepreneurs: Meet township baking mogul Refiloe Rantekoa – with GG Alcock

If you go to the average township today, you’ll find that most houses are impressive formal structures. Visit a place like Orange Farm in the Vaal, and you’ll see an astonishing transformation from rows of shacks ten years ago to double-storey and beautiful houses now. This transformation in housing, without any formal home loans or credit, has largely been achieved through what I call “brick by brick home loans” or informal savings like amasociety or stokvel savings.

People in townships invest in their homes, spending on things like elaborate ceilings. A company called PG Bison, part of KAP, specialises in decorative wood furnishings and has seen growth in the township markets. The trend of stainless steel or chrome gutters, although seemingly functionless, also illustrates this investment in home improvement.

I once took a group from Shoprite into Soweto and showed them these trends. In one house, we found chrome gutters with the imprint of Louis Vuitton. The lady in the house, who was unemployed, still had these designer gutters. We should celebrate this transformation, as the majority of people are living in formal houses, representing a significant change in the socio-economic landscape.

According to the South African General Household Survey, only 12% of households live in informal dwellings, and the same percentage live on the breadline. While it is not acceptable for 12% to live in shacks, we must acknowledge that over 88% are not, and we should recognise the remarkable transformation they’ve made in their environments.

A common misconception is the belief in large household sizes. In fact, the average household in South Africa is 3.3 people. Astonishingly, 23% of households are one-person households, with 18% being two-person households, and 17% being three-person households. This trend towards smaller households is important as it means more disposable income and spending on personal comfort. It creates a massive sector of back room or room rentals, reflecting a substantial shift in living arrangements.

Overall, these observations highlight the growth and evolution within the townships, a transformation that is often overlooked or underestimated. It reveals a more nuanced picture of South African society, with individual investment in homes and lifestyles signifying economic empowerment for a substantial part of the population. It’s a dramatic difference that we should recognise and incorporate into our understanding of the contemporary South African landscape.

If you look at Scandinavia, particularly Sweden, around 30 years ago, a company named IKEA built a massive business around flatpack furniture designed for one-person households in small formal dwellings. The demographic situation in our country today is no different from Sweden’s three decades ago. We have a large number of people living in formal small spaces and small households.

What do these smaller households, consisting of one or two persons, do? They spend more on items like electronics and personal care and less on staples. During a session with an executive from one of South Africa’s biggest retailers, the executive observed that people are buying smaller pack sizes of staples like rice, flour, and sugar, moving from ten and 12.5 kg down to 5 kg. The conclusion drawn was that people must be struggling economically.

I posed a question: Is this shift because of the economy, or simply because smaller households don’t require large pack sizes? The executive was unaware of the number of one or two-person households. Imagine shaping business decisions around misconceptions and headlines, assuming everyone is living in large households and struggling financially. While I’m not denying that some are struggling, we must understand that the majority are under budget pressure, not income pressure.

My wife, for example, complains about the rising price of rotisserie chicken at Woolworths; that is budget pressure, not income pressure. The UCT Liberty Institute’s research pointed out that there are 3.4 million black middle-class individuals in South Africa, a million more than the white middle class. Their report titled “Thriving versus Striving” emphasised thriving, not merely getting by. We have a significant young population in smaller households, doing relatively well, and there’s more income out there than we realise.

Despite dubious unemployment figures, one of the first big sectors is backroom rental, generating 20 billion rand a year. Why is this rental so significant? It’s connected to one and two-person households. The most stolen product in South Africa’s ports, according to the insurance industry, is not staple food but hair extensions, indicating a growth in the personal care sector.

Read more: iJob iJob: The mystery of unemployment increases! – GG Alcock

There’s a massive sector of beauty and personal care worth R10 billion, earned by salons in hair extensions, and R25 billion a year in Spaza rental. The Spaza sector is a R160 billion a year industry, with 70% of the shops owned by Somalis, Ethiopians, Bangladeshis, and Pakistanis. They rent the properties from South Africans, a fact often overlooked.

Further, we have R50 billion in fast food across about 45,000 outlets, R110 billion earned by 45,000 licensed taverns and shebeens, and R60 billion a year in the taxi industry, which alone accounts for R50 billion a year.

In townships, one of the first businesses to be started, often by the unemployed, is car washes. What does this indicate? There are 10 million net-financed, generally uninsured cars on our roads. At the time I wrote “Kasinomics Revolution,” it was about 40% of the cars on our roads.

We now observe traffic jams in townships, and the emergence of car washes there tells us something significant about the nature of the vehicles on the roads. These are not bakkies that people are using to transport others. Consider that you don’t find car washes in Lagos.

I read a recent article that stated most of the Uber drivers are working within what’s known as the ‘Kasi mechanics sector. Within this sector, there are about 80,000 highly efficient businesses, including Kasi mechanics and panel beaters, servicing the taxi industry and the informally financed car sector.

Over and above that, there are many more examples of economic growth. There’s R44 billion in stokvel savings. My brother works on an extraordinary rural development project in KZN with goats. They have about 7 million goats owned by rural households, and they sell 2 million of these a year at an average cost of one and a half thousand rand. This amounts to R3 billion rand earned by rural households, primarily women.

In downtown Cape Town, at the top deck Taxi Rank or other main taxi ranks, you’ll find posters that advertise things like ‘Find lost lover’, ‘Penis enlargement’ (you can see I’ve been looking at them) and then they say ‘Credit – blacklist not important. Bring three month’s bank statements and three months payslips.’

It’s a curious reflection of our society, where a job is equated to a payslip. Without a payslip, you essentially don’t exist. However, there is a massive informal sector thriving beneath the surface.

I spoke to a woman who sells various food and drink items, turning over R3 500 a day, with a profit of about R1 500. She’s building a house in Meadowlands, selling various goods including Amagwinya (vetkoek). When I asked if she had a job, she said, “Ja, sebenza nam sebenzi,” a play on words meaning she works but doesn’t have formal employment. She sees herself as a worker, not employed in the traditional sense.

We’ve created a society focused on payslip earners, but we ignore the rise of entrepreneurial hustle. There’s an incredible growth of independent business people. Who supports them? Who helps them grow? Traditional lending is often unavailable to them. I interviewed a young lady who rents out backrooms in Soweto, earning a substantial income. She was denied a bank loan for building, but quickly approved for a vehicle loan.

We should be celebrating these industrious individuals. The revolution is happening among entrepreneurs, not in soup kitchens. Whether it’s a business like Capitec or Shoprite investing in banking and wholesale, there’s a recognition of the size of sectors like Spaza. If traditional businesses can’t beat them, they should at least supply them.

This is where the opportunities are. If the businesses you invest in or manage aren’t invested in these environments, they should be. Without a strategy for this sector, you will be left behind.

I truly believe that this is not only an opportunity; it’s where this massive sector exists. In my book, I described my journey into a world inhabited by tribes of survivors, pioneers, traders, hustlers, and various business entities. Go among them and give them respect, for they are the future.

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