Douglas Racionzer is bringing economic opportunity and social development to marginalized townships by transforming existing small businesses into successful enterprises that also serve as delivery networks for a variety of community services.
The New Idea
In South African township communities where it is next to impossible for outside organizations or government agencies to function on a formal and effective basis, Douglas is tapping the corner store and other local businesses to become the foundation for community economic development and a hub for social services. Through Emerging Market Services (EMS) and other organizations, Douglas is giving neighborhood entrepreneurs the expertise and resources they need to expand their operations from mom-and-pop shops to real commercial enterprises, and at the same time using their position in the community to deliver needed services like HIV testing. By participating in Douglas’s effort, shop owners increase their earning potential, provide jobs for others in the community, and contribute to the overall well-being of the neighborhood.
Nearly two-thirds of South Africans live in townships, where housing ranges from cardboard shacks to small cement boxes. Originally built by the apartheid government to keep low-income workers near white cities, townships have developed into areas that are culturally vibrant yet crime-ridden and lacking formal economic infrastructure, where sanitation is haphazard, pollution is rampant, and opportunities for advancement limited.
One of the few businesses that has survived over the long term is the township shop. These small groceries are vital sources of food and supplies in communities where large grocery stores rarely venture. Yet even within the neighborhood, they are not seen as real businesses, investments, or career opportunities. These tiny enterprises are profitable and extremely limited in scope. Shop owners travel up to 60 kilometers to replenish stock, as no bulk supplier will deliver in quantities so small; no cold foods can be stored because there is no refrigeration; no bank will offer credit; and no advertiser will waste time (or risk hijacking) entering the township to negotiate ad space. Underlying all these “no’s” is racism: no large white company will do business with a small black enterprise.
As a result, township entrepreneurs develop few retail and marketing skills, and have few role models for business development. And those within the community look outside for socially legitimate employment. For example, many residents will travel two hours out of the township to work as a clerk at a big-box supermarket, rather than walk to work in a township shop, where there is little room for advancement and no sense of career path. The net result is wasted energy—not only fuel energy on vans that carry workers away from the township marketplace, but also human energy that could be better invested in developing opportunities closer to home.
There is a dearth of social services and development resources in communities like these, where government agencies and aid organizations are viewed with some suspicion by long-neglected populations, and seen as easy targets by criminals. And while church- and school-based programs may have the local ties needed to secure community trust, they often reach only a narrowly-defined group.
Targeting assistance to existing small businesses not only shores-up the economic foundation of the townships, but is also an effective means of providing people with new opportunities and needed services. Douglas first saw the potential small retailers had to become platforms for economic and social change while doing work with street children in the townships. No matter how rickety or run-down, the township shop is a community mainstay. Each serves up to 1,000 people, or 300 households, most of which have no other supplier of groceries, and doubles as social hub where families gather and neighbors come to share news, ask for help in an emergency, or simply pass the time.
Although Douglas’s vision was as much social as economic, he knew he had to first help township shopkeepers transform their tiny stores into real business operations. In addition to training in retail and bookkeeping skills, owners would need access to suppliers, advertisers, and other outside resources that were heretofore inaccessible, geographically or otherwise. To address these underlying needs, Douglas established Emerging Market Services (EMS). As a larger operation with more buying power, EMS is able to negotiate bulk discounts with food companies like Nestle that usually deal only with large supermarkets, and secure contracts with advertisers to place colorful signs on shop walls that bring in revenue and help legitimize the shops as real businesses. When meeting with suppliers and advertisers, Douglas emphasizes that the market footprint is not a single township or small collective, but nearly three million people in the 24 townships where EMS now works. And he always brings a black EMS executive with him to these meetings to challenge the racial biases in the predominately white corporate world.
Once the deals are in place, EMS orders goods in quantity, warehouses them, and then delivers to shops as needed, using small vans driven by local employees in place of large delivery trucks. Each van makes 40 deliveries per day, reaching 280 shops per week, and replaces tiny quantities of stock at bulk prices. Douglas also devised an innovative solution to the lack of refrigeration in small shops, hiring local workers to design a low-cost “township-style” cooler made from an oil barrel and used cooling parts that shop owners can rent cheaply with a service contract. EMS then arranges leases of shelf space to yogurt or milk suppliers, and outside surfaces to advertisers. EMS delivery vans are now equipped with cold chain capability as well.
To address shop owners’ lack of formal business education, EMS started its Ensemble Training program, or retail school, teaching entrepreneurs everything from running a cash register and bookkeeping, to assessing local demands, to marketing. These new skills and resources not only increase profits, but also allow owner-run shops to hire and train employees, finally creating a “career path” from what was once considered a dead end.
Once township shops are prospering economically by offering more products, replenishing stock regularly, and selling more strategically, EMS helps them diversify into value-added enterprises like take-away stands. These prepared-food counters have, on average, a 700 percent profit margin, and are a logical extension for township shops with ready access to supplies and an existing client base. Douglas founded the Tshwane Credit Union to give entrepreneurs access to small business loans, and encourages them to hire family members to run their stands. To address the problem of high fuel costs and pollutants from the stands’ heating elements, Douglas made a deal with German development agency GTZ to sell three kinds of non-polluting cookers—a parabolic solar oven, a “hot bag” insulating cooker, and a low-coal oven—through EMS’s subsidiary, Dithlare. In six months, Dithlare sold 6,000 units to become the largest distributor of solar cooking equipment in the world, and GTZ has committed to making carbon payments to EMS for the offset of pollutants. EMS’s own affiliated solar take-away chain, African Burger, had 12 stands in operation as of February 2004, and serves as an important model for environmentally sound businesses.
The same features that make township shops logical platforms for economic development make them an important potential base for community services. After EMS helps shop owners build their businesses, the focus shifts to social development opportunities. One of Douglas’s first projects was HIV testing. Many township residents are fearful of going to a faraway hospital or clinic, and so the shops, as trusted and established community hubs, seemed an ideal location to host the service. Douglas arranges for HIV tests and pre- and post-test counseling, and has developed a unique communication strategy for getting the word out: a “mass text message” is sent to the cellular telephones of shops’ clients to announce when the tester has arrived. Douglas is also promoting land reform in the townships, using the proven profitability of the shops to arrange for credit to purchase property.
Douglas was born to an itinerant life. His father was a traveling salesman who lived with the Masai, and his mother hailed from Ethiopia. The pair moved the family more than 70 times before Douglas was 18 years old. Because of his empathy for transient people and his inherited business sense, Douglas’ life has been devoted to direct service for the needy through creative money-making techniques. As a young man, irritated by an unfair jump in the cost of coffee at the University of Cape Town where he studied, he set up a cooperative café that was still operating in 1995 after 15 years. And while in exile for nine years in the UK, he worked in a home for disadvantaged youth while simultaneously writing a manual on how to design work schedules for caretakers to avoid burnout. His method reduced sick leave by 70 percent in 25 children’s homes, and the book sold enough copies to finance his return to South Africa.
In 1995 Douglas had gained enough experience to become an instigator for the kind of change he wanted to see in his homeland. After serving as development director for Child Welfare, he helped found the National Alliance of Street Children, and organized the first census of homeless people in 1996. But it was an office he rented while working on his doctoral dissertation that led Douglas to found EMS in 1998. Noticing that the building housed a number of skills-training programs for township residents, the instinctive entrepreneur began offering a retail skills course to earn some money on the side. But of the 300 students that graduated from his program, only 12 got jobs. When Douglas followed up on the students who had failed to find employment, he discovered that his students did not consider township shops “real businesses,” and realized then the immense opportunity to transform them into economic and social development opportunities.