Rich town, poor town ... and why the poor ones can’t catch up


Rich town, poor town ... and why the poor ones can’t catch up

Poor towns are caught in a 'catch 22'-like poverty trap, from which it will be very difficult to escape, says an expert

Cape Town bureau chief

Poor towns are stuck in a what appears to be an inescapable poverty trap, says one of SA’s leading experts on rural communities.
“They lack productive knowledge, yet to overcome poverty they need to have productive knowledge,” said Daan Toerien from the University of the Free State.
In the latest of numerous studies he has published on small towns, Toerien said poor communities’ “catch 22” had “potentially crucial implications for local economic development plans to reduce poverty and enhance employment”.
He identified 19 towns, alphabetically organised from Allanridge to Vredefort – both in the Free State – with the worst “enterprise dependency index”.
The index assesses the number of people required to sustain each enterprise in a town; the higher the number, the poorer the town.
The 19 towns in the direst situation have an index of more than 300, while those that are best off – from Albertinia to Yzerfontein, both in the Western Cape – have an index of 80 or less.
Toerien, from the Centre for Environmental Management at UFS, said his findings had implications for “pro-poor” economic development, which could succeed only if the productive knowledge of towns was increased.
He said his study in the South African Journal of Science was the first to establish links between towns’ productive knowledge and poverty status.
Toerien looked at the population and the number of businesses in 188 towns, from Aberdeen to Zastron, and found that doubling productive knowledge – measured by the variety of enterprises – more than doubles the number of businesses.
“The economic growth of towns always requires additional enterprises of types not yet present,” he said.
“This requirement is more stringent in towns with fewer than 100 enterprises, but even in large towns, enterprise growth has a … requirement of 20% of new enterprise types.”
The towns in Toerien’s study all had at least 10 enterprises, and he said their poverty level had a “severe” influence on the development of business.
“A rich town with an initial population of 50,000 residents will have 718 total enterprises and 210 enterprise types,” he said.
“A similarly sized poor town will have only 79 total enterprises and 47 enterprise types.”
After five years of 2% annual growth, the rich town would have 774 businesses but the poor town only 85.
“In all scenarios, richer towns are linked to higher numbers of enterprises and more enterprise types,” said Toerien.
“Importantly, the growth of all towns, irrespective of their wealth/poverty status and population sizes, requires entrepreneurs that can visualise new opportunities.
“In this regard, richer towns benefit more than poorer towns, larger towns benefit more than smaller towns, and towns with high growth rates benefit more than towns with lower growth rates.”
This illustrated the impact of wealth in a town, said Toerien, “and highlights the ‘catch-22’-like poverty trap of poor towns: They are poor because they lack the productive knowledge to produce products or deliver services needed outside their domains.
“However, to overcome poverty they need to have productive knowledge.
“Entrepreneurial dynamics and the wealth/poverty status of South African towns are clearly linked. It will be very difficult for poor towns to escape the poverty trap.”
Toerien said attempts at local economic development by municipalities had achieved only modest success because they had failed to address the need for more productive knowledge.

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