Banking

One South African bank is pumping billions into the informal economy

Nedbank Corporate and Investment Banking (CIB) has current funding in township, rural, and non-metro retail projects worth R32 billion. 

The bank expects this funding to only grow in the future as the informal economy proves its resilience and outstrips the growth of its formal peer. 

South Africa’s informal economy plays a vital role in absorbing the country’s huge unemployed population and providing additional income for individuals. 

In particular, the retail subsector, made up of spaza shops and informal, mobile traders, is crucial in providing millions of South Africans easy and cheap access to basic goods. 

This forms the backbone of the wider informal economy, estimated to be valued at R750 billion. 

What makes this sector so attractive to large informal companies is its strong growth and apparent immunity to South Africa’s structural economic problems. 

While South Africa’s formal economy has grown by less than 1% on average over the past decade, the informal sector has grown by high single digits.

This has led to large JSE-listed retailers, such as Shoprite, and fast-moving consumer goods companies, such as Tiger Brands, expanding into this sector.

South Africa’s large banks have followed their clients into this sector and have invested heavily to expand their presence.

Nedbank’s CIB division has focused on financing property deals in particular, with its current funding standing at R32 billion in the sector.

“Retail in townships is crucial in addressing socio-economic challenges, and through our funding, we’ve supported the growth in townships such as Soweto, Alexandra, Tembisa, and Mamelodi,” Vanessa Murray, Divisional Executive of Property Finance at Nedbank CIB, said.

“We see huge potential in the township economy and are excited about the opportunities ahead.”

Township retail has evolved from an overlooked market to a critical component of the country’s broader economic growth strategy.

Strong trading densities reflect very low vacancy rates and increasing demand from both national and local tenants who are looking for space in these centres.

Exemplar REITail’s township malls, for example, are part of a portfolio that has seen 8.9% like-for-like rental income growth.

These centres continue to drive foot traffic and act as community hubs, highlighting the sustained demand for physical retail in these areas.

Township property boom

Dobsonville Mall

Property in townships and outlying rural areas has boomed in recent years as more companies look to participate in the thriving informal economy.

Looking at the results of some of South Africa’s largest property investors, one can see that their township portfolio outperformed other assets.

Murray said Vukile’s local township portfolio, for example, outperformed in terms of high footfall, loyalty-based initiatives and almost every metric.

Vukile’s results showed trade increasing, particularly in the township and rural segments, which grew by 5.3% and 3.5%, respectively.

“Overall retail vacancy for their township malls is 1.4%, and the average trading density at R45 796/m² is higher than their other category of malls,” she said.

Exemplar’s retail portfolio, which comprises township and rural retail and includes malls such as Alex Mall and Mall of Thembisa, delivered 8.9% like-for-like rental growth for the year ending February 2024.

Murray’s comments echo those of Stanlib’s head of property, Nesi Chetty, who said the township economy had weathered economic storms far better than its formal peer.

“There is a clear appetite among increasingly affluent consumers in township communities for formal retail within easy reach, creating a strategic growth opportunity for larger retail chains,” Chetty said.

This shift in strategy is coupled with a desire for retailers to look for growth outside of already saturated higher-income markets.

An influx of formal retail chains will create employment and offer consumers greater choices and lower prices.

This property boom has not been confined to major JSE-listed players – residential property has also seen a significant uptick in value.

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