A new tale of two “cities” — interconnections between the “formal” and “informal” economy

This is a story as it unfolds in many developing countries, but allow me to tell it from my personal perspective. I live in a small suburb on the Atlantic Seaboard of Cape Town called Hout Bay. This was once a quaint fishing village and then became a bit of a hippy enclave also fondly referred to as the “Republic of Hout Bay”. Due to a lack of educational and economic opportunities in the Eastern Cape, we have seen large-scale migration from this part of the country into Hout Bay over the recent years. This has lead to new urban developments that are well documented in a project called Unequal Scenes http://unequalscenes.com

If we now zoom out from this micro-level perspective to what is happening at a macro-level on South Africa, we see the pattern repeating itself. There is a small part of the population in what could be referred to as the “formal economy” that enjoys some of the highest quality of living standards globally — especially in the beautiful city of Cape Town. And then we have the so-called “informal” economy that far outweighs the formal economy — interestingly also if you look at the volume (not value) of economic activity. One of the key sites of economic activity where this “grey money” circulates is within the informal settlements like Imizamo Yethu above or Kayamadi — were the final part of this tale unfolds.

Kayamandi is part of the greater Stellenbosch area — also known to have a rather high density of wealthy individuals; some of which live on some beautiful wine farms.

A few months ago I started engaging with one of the bigger producers of alcoholic beverages to shape their “shared value” journey — one of the alternative growth models that is starting to gain more traction in the business school mainstream.

One of the fast-growing “industries” in informal settlements like Kayamandi is around waste managment and this is already creating many formalised jobs as well as helping minimise waste — which is a key objective of local municipalities.

This project also seeks to support a circular economy approach to business by focusing on glass recycling and is centered around the establishment of bottle buy-back centres in informal settlements.

The main idea is to find areas with low bottle return ratios and set up small diversified recycling operations that are run out of shipping containers as in the image below from Kayamandi.

In this case glass, plastic, paper and aluminium are collected with these customised bikes that are able to penetrate much deeper into the narrow streets of this township. The material is then sorted and packaged to be onsold to various companies. The small business owner receives various types of business development support from the project team such as help with creating awareness about his services, logistics, managing payments and accounting in order to become sustainable. An operation such as this “small business in a box” creates up to 4 further jobs and also provides a stable source of income in areas with very little formal employment.

Based on the learnings from different pilot sites we are looking at finding a blueprint to roll this concept out at scale soon. It’s also a good example of what happens when the “formal” (e.g. big business) and “informal” (e.g. grassroots entrepreneurs) economy collaborate to drive more inclusive models of socio-economic development.

Originally published at magazine.vunela.com on July 29, 2017.