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Lots of factories, no jobs

Teigue Payne

Abandoned by the government and industry, Qwa-Qwa is a prime example of entrenched poverty.

Some way from the former homeland of Qwa-Qwa, the road sign says: “No fences for the next 8 kilometres”.

Perhaps the sign implies “you are entering a communal land area where no one cares enough to have fencing”, “we don’t have money for fencing” or “everything is shared here, so we don’t fence”.

But whatever it implies, these days land probably isn’t as important in this and other homelands as you might think, except perhaps emotionally. Agriculture—seldom more than subsistence anyway—is declining in this and other former homelands.

One possible reason for this is that families have come to rely on state grants. Professor Gerhard Coetzee of the University of Pretoria, an expert on inclusive banking, says research indicates this does happen with less productive farmers, but the decline probably has more to do with a decline in support services to these farmers.

The former homelands, overwhelmingly communal lands, are still a huge “sink” of South Africa’s lower-income population. The apartheid government worked hard to develop “decentralised” manufacturing industries in them to provide employment, but for the wrong reason—to keep black workers out of white areas.

It succeeded well in Qwa-Qwa (now called Maluti-a-Phofung municipality, though this excludes Botshabelo, east of Bloemfontein). At its peak, with generous investment incentives before 1994, 250 000 people were employed there, mostly in low-wage clothing, knitting, carpet, furniture and caneware factories.

The new government stopped the remaining subsidies—there were rising pay demands and strikes - and the factories closed. The last garment factories closed last year.

So, as you enter the former capital of Qwa-Qwa, Phuthaditjhaba, you pass a succession of factory parks filled with empty, deteriorating hulks.

According to the 2004 census, Maluti-a-Phofung municipality had a population of about 400 000 (split almost evenly between rural and urban dwellers). Almost every family must have been affected by the lay-offs.

Since then, jobs have been created in rapidly increasing government services and in the national retail chains that have moved into Phuthaditjhaba, such as Build It (everybody builds their own house), Markhams and Pep Stores (clothes), Shoprite (groceries) and KFC (takeaways).

Two-thirds of the population is under 29 years old, only about a quarter of the population are employed, 82% live below the poverty line and 35% have been recorded as HIV-positive.

Phuthaditjhaba is a sprawling peri-urban city. Like the rural areas beyond it, it is a place of last redoubt. You can survive here with very little money and no job.

A bank manager lists the business drivers in the area, in order, as government employment, government grants, retail and wholesale of liquor and groceries (liquor outlets abound), the taxi industry and the national retail chains.

The government is relied on in almost every area—roads, schooling, housing, health, business and agricultural assistance.

By far the largest asset of most families in Phuthaditjhaba is their house.

Most of the houses are on freehold land. Therefore, theoretically, bonds could easily be raised on them and a large amount of capital could be released for private and business use, even though most houses are of low value, between R60 000 and R100 000.

But bank managers say that, as with land, home owners don’t see their houses as a way to finance anything. Their houses are their last redoubt. They are often built and extended with money remitted by the whole family, especially those who have jobs in urban areas.

One manager says that occasionally a successful businessman will offer his flashy house as security for a venture but when he’s informed that because he is married in traditional community of property the application is generally dropped because wives don’t want their houses to be put in jeopardy.

The banks generally look at lending to businesses that are larger than the one or two-person hawker businesses. For instance, the loans are for pitching for a tender, setting up a hair salon, buying taxis or expanding a welding business. None of the managers mentions any loans for businesses any larger than these.

For these business loans, the bank managers look first at the viability of the business plan and second at the ability of the applicant to repay.

The biggest resource here is not houses, agricultural land or tourism in the Drakensberg, but the people. There is something demoralising about a place that produces virtually nothing and where almost all commerce is trading in what other people produce.

Although the town has a fair complement of micro-enterprises (such as hawkers), according to a 2009 study by a University of the Free State student, Pam Peyper, these “survivalist enterprises” are predominantly one-person businesses and are unlikely to employ more people.

The people of Phuthaditjhaba seem to have been marooned by the demise of the factories, for which no real substitute has been found.

Personal loans rule
Extending very short-term personal loans seems to be much bigger business in Phuthaditjhaba than extending business loans.

I walk into a loan shop, Reathusa Africa Finance, and joke with the manager: “Fifty percent of the shops in this town are personal loan shops.” He replies: “No, 75% are.”

And that is just the legal personal loan shops, not taking into account stokvels, funeral clubs and illegal loan sharks.

“You won’t find them because they hide,” says another loan shop manager.

For example, the legal loan shops all offer bridging finance for a first payment on a car, extending a house, or holding a funeral.

The most common loans are R1 000 for one month. The law regulating the shops allows for a maximum loan of R8 000 for six months.

None of the managers would tell me what interest and administration fees are charged on the loans, but the law stipulates a maximum of 2.2 times the repo rate (5.5%
currently) plus 20%, making 32.1%—plus initiation fees, which are likely to take the effective rate to about 40%.

But even these high-interest, legal loans are only for a restricted elite—those who can produce payslips from regular employment and whose earnings are paid directly into their bank accounts (from which the repayments are deducted directly).

The big banks have the lion’s share of this market, which is estimated to be worth about R60-billion a year.

Loan shops like Reathusa get business by being more lenient than the banks and, for instance, by lending to state pensioners (who receive R1 140 a month).

The rest of the population must get their personal loans by more informal and illegal methods, possibly paying even higher interest rates.

Communal land
The theories of Peruvian economist Hernando de Soto could help to raise the prosperity of rural communal areas of South Africa. He advocates the granting of title deeds to small farmers and home owners in poor areas to make capital and collateral available to them.

But increasingly analysts of communal rural areas are saying that Southern Africa’s communal areas were never meant to be for conventional commercial development. They are regulated by a king, chief or tribal authority, who allocates land for housing or cultivation to members of the tribe. Beyond the arable lands, people graze their stock, usually without restrictions on numbers, a free-for-all that accounts for most of the obvious land degradation in communal areas.

In fact, the rights are not entirely communal. For instance, houses built on the land can be inherited or sold to other members of the tribe. But title deeds are not issued and bond finance is not feasible.

Economists tend to view the chief as a director of a development company who could “get the economy going” by getting his people to convert to freehold, raising finance and leading development.

This is allowed under the Communal Land Rights Act of 2004, but there is little demand for it.

Why this may be explained by the chief’s role as the custodian of family values—on matters of discipline through the kgotla courts, consisting of himself and his headmen—and of the heritage of the tribe and the land. In today’s terms, he preserves the social security net of the family.

Most families in communal area, even if they have strong urban links, apparently buy into this. The communal areas provide them a refuge where everything is shared.

This is “hidden poverty”, according to one banker.

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