Gavin Pieterse is working in South Africa’s Western Cape to transform the one-time transfer of ownership of state housing to residents into ongoing economic development involving savings, credit and investments in community and small-business development.
The New Idea
Gavin Pieterse is using the current one-time process of transferring state-owned housing to existing occupiers to instigate a “virtuous cycle” of economic growth and black empowerment. Gavin has designed and begun to implement a set of educational, training, advisory and investment services that link new home ownership to home loans, personal investments, the local business establishment and the creation of local financial institutions.
As the apartheid system in South Africa gives way to economic and political democracy, there is a great need for economic institutions in the service of black South Africans, who have been legally proscribed from most meaningful roles in the economy, even to the extent of not being able to own their own homes. Whites virtually own the private economy, and, as a consequence, the financial sector—banks, lenders, investment funds, institutional investors—have paid no attention to advancing black businesses or to building local economies in black townships.
Gavin’s venture fills this gap with a chain of interventions designed to stimulate black economic empowerment. Working with individuals and banks, he educates blacks about credit and the opportunity to access credit that comes with home ownership. He is facilitating the process of ownership transfer to make sure that blacks obtain all the benefits of home ownership. He is educating the banks to the opportunity to provide credit to new black home owners and is facilitating the underwriting of mortgage bonds on the houses. He designs personal investment plans for new bondholders. His vision extends further, to include the creation of new financial institutions that are capitalized by the new black investors that he has helped to create. He is creating an investment fund that is dedicated to supporting local black entrepreneurs and a business advisory service to help them succeed. In the longer term, he hopes to establish a fully fledged community bank and venture investment fund, both targeting investments in black businesses for the benefit of the black community.
As the democratic era dawns in South Africa, the central economic challenge is to bridge and integrate a white-owned and white-managed formal economy with the black majority, who have been deliberately undereducated and frozen out of economic power quite as systematically as they have been excluded from political power.
The scale of the problem is daunting. Under apartheid, blacks, who constitute 87 percent of the South African population, could not own land except in designated black reserves. The state provided whites with superior education, employment opportunities and entrepreneurial incentives. It worked equally hard at keeping these advantages from blacks.
The highly centralized nature of South Africa’s private sector also inhibits the economic development of the disenfranchised. Four conglomerates control 80 percent of the country’s capital. The financial services industry has been structured to serve the needs of these conglomerates, rather than the needs of the disenfranchised. Poor people neither trust, nor are able to communicate with, financial service institutions.
The consequence of this history is that the majority of the disenfranchised are trapped in poverty. In the black communities of the Western Cape, for example, the majority have a negative savings balance, are overextended on hire purchase agreements, do not have the money to educate their children beyond high school and are unable to access capital to start small businesses. Life in these communities is characterized by atrocious living conditions, a high dropout rate from schools, a high rate of unplanned pregnancies, family fragmentation, crime and a low level of independent economic activity.
With the advent of democracy, the new government is seeking to enable black economic advancement. And the white corporate sector will begin to want to appear, at least, to support black economic enfranchisement. But the toughest challenge will be in the creation of new appropriate institutions to provide blacks with the skills and contacts to seize the new opportunities occasioned by political liberation.
Gavin’s strategy is to put in place a series of intermediary services to enable blacks to obtain the greatest benefit from the advent of democracy. Seizing on the one-time transfer of housing ownership within his own community in the Western Cape, he is teaching those taking title to their homes how to turn this ownership into credit for personal investment. By guiding these new investors toward participation in new permanent financial institutions designed to reinvest in black businesses and the black community, Gavin is building a new black economic infrastructure.
The first phase of Gavin’s program involves friendly and affordable personal financial advice and credit education. In order to reach a large number of people quickly and effectively—approximately 272,330 families in his target area are entitled to take ownership of their homes from the state—Gavin created a team of 23 people and budgeted eighteen months to design and implement an effective business service. Furthermore, he has thought through a number of innovative methods of service delivery. He will use networks established by existing community organizations to mobilize residents around credit education and the ownership of housing. The team will also produce accessible media, such as comics, and a serialized radio play.
The second phase involves facilitating the transfer of state-owned houses to the property occupiers. Gavin has already ensured that the legislative changes that support the unconditional transfer of houses to their occupants have been effected. But given the historical animosity between residents and the state, laws alone will not a smooth transfer make! Gavin’s group here will facilitate the process by providing intelligent brokering services.
The third phase consists of facilitating the underwriting of mortgage bonds by financial institutions to the new home owners. Gavin has already entered into agreements with financial institutions, whereby they have given him an understanding that they will move into this market.
Furthermore, as first-time home owners, these people would qualify for state subsidies, another area where Gavin hopes to intervene. A specialist member of Gavin’s team would then assist these people to design a personal financial plan so as to get them the most from their credit. This plan would include considerations of personal expenditure (e.g. home improvements, tertiary education, the establishment of a small business), contingency insurance and portfolio investments. It is this last element, the investment portfolio, that lays the foundation for the next phase.
This phase of the program, called the Investment Projects Development Operation, involves investing a proportion of asset holders’ money in local enterprises. Money would be invested in property projects and equity ventures so as to stimulate the creation of community-owned and community-controlled businesses. Qualified local black entrepreneurs would manage these businesses. A business advisory and training service will also be formed to assess the viability of ventures, as well as to back up entrepreneurs with the technical supports to help ensure profitability.
The fifth phase of the project consists of the establishment of a community-owned bank that would provide consumption credit to residents. A venture fund to support black entrepreneurs would also be established during this phase.
The final phase entails the creation of a “secondary market stock exchange” that will serve as a vehicle for the further capitalization of the small businesses established through the activities of the Investment Projects Development Operation.
A near-compulsive doer, by the time he reached “matric” (aged fifteen) in 1976, Gavin was chair of the Association of Christian students, the Community Youth Social Group, the Debating Society, the Drama Society and the Photography Club in his school. He captained the school’s soccer team and athletics club. During his matric year Gavin led a march of students from three high schools in the turbulent Cape Flats to protest conditions in schools. Despite being detained and tortured, on his release Gavin went on to sit his matriculation exams and was the only person in his school who passed his matric with a score high enough to qualify for university. His university career was cut short in 1979 however, when he was again detained and banned from attending any university in South Africa.
Gavin did not allow these circumstances to keep him down. He embarked on a multifaceted career that included teaching, youth counseling, crisis intervention and free-lance photojournalism. It was his work as a financial consultant with a brokering firm, however, that made him aware of how the legal and institutional structures of apartheid functioned to exclude disadvantaged South Africans from effective participation in the development of the mainstream economy. He developed a burning desire to equip himself with skills and expertise necessary to redress these conditions. In all, he spent ten years accumulating experience with a mainstream brokering firm. In 1991, he quit the firm to pursue his goal to create and build new and appropriate financial and business institutions to meet the economic needs of the disadvantaged.