While state intervention is still crucial, investment by the first economy in the second one is a very attractive option in terms of social and financial return.
Conventional thinking holds that the level of under-development in South Africa’s so-called second economy coupled with the small size of its market renders it useless as an investment vehicle. Theoretically, therefore, the market economy cannot help transition economically marginalised people into the economic mainstream.
Bonisile Makubalo, Corporate Affairs Director, for SA Taxi, the country’s only independent financer of minibus taxis, says that this thinking is flawed.
“While it is true that the second economy consists of people and communities that have minimal or no skills and don’t benefit in terms either of goods and services or developmentally from progress made in the mainstream economy, this doesn’t mean that such people are incapable of generating wealth.
“In the past decade, we’ve watched hundreds of taxi operators grow from ownership of a single vehicle into operating fleets of taxis – or using the profits from their taxi operations to start other businesses.
“In the process, they migrate into the mainstream economy, accessing finance not just in the form of a vehicle loan but for starting and sustaining small businesses. And, as their personal and business wealth grows, so their families gain access to better education and healthcare. The family’s dependence on social grants and other forms of government support diminishes or is completely eradicated. More often than not, the next generation moves straight from school into the first economy.”
However, this natural expansion process is utterly dependent on the initial seeding finance for the first vehicle.
When the concept of two parallel economies was first mentioned by President Thabo Mbeki in 2003, giving rise to a way of talking about and addressing economic dualism in South Africa, initiatives such as the Ten Year Review, the Medium Term Strategic Framework, and the Accelerated and Shared Growth Initiative (asgiSA) were set in motion, with an emphasis on the need for government to play the commanding role in eliminating the second economy.
Core to this role would be the provision of finance.
“The difficulty government has in providing finance is being able to access finance itself,” says Mr Makubalo. “Neither local nor international investors will entrust their funds to the informal sector without an intermediary that has both a top tier credit rating and a track record of success in the sector.
“SA Taxi has a triple-A rating. We also have a twelve-year track record not only of giving investors the financial return they want but also the social return most investors now want in respect of their monies having a positive developmental impact.
“We can prove that the minibus taxis investors help to finance are the cornerstone of tens of thousands of sustainable small businesses run by taxi operators.
“In addition, we are accredited by the National Credit Regulator as a developmental credit provider. As an official gateway financer, we are extremely attractive to investors.”
For Mr Makubalo, SA Taxi provides an example of just how effectively the first economy can, in fact, help goverment to eradicate the second economy.
“One of the primary objectives of government initiatives is to ensure mobility from the second economy to the first by building a bridge between the two. Another is creating conditions for sustainable livelihoods within the second economy that also have inherent links to the mainstream.
“We’ve been doing both for more than a decade. So, there’s no need to wait for government to ‘fix’ the second economy. Any effective business working to sound business principles in an impact-based model can accelerate the process.”