Hyperlocalising the Value Chain: The Multiplier Effect in Township Economies
Posted by Floyd Baloyi (Community Manager) 
on
17 December 2025, 12:50
SAST
Abstract
The structural legacy of South African townships as "dormitory towns"—labour reserves with limited internal economic logic—has created a persistent phenomenon of economic leakage.1 Income generated by township residents is predominantly spent on goods manufactured and retailed by entities outside the township, resulting in a net capital outflow. This article argues that the "SPAZA Supply+" model, by establishing a closed-loop, hyperlocal supply chain, serves as a mechanism for Township Import Substitution. By integrating local manufacturing, logistics, and retail (spaza shops), the model plugs economic leaks, accelerates the local multiplier effect, and fosters endogenous community development.
The Economics of Leakage vs. Localisation
Township economies are often characterised by the "leaky bucket" syndrome (Alcock, 2015). While billions of Rands circulate within these areas annually—estimated at R900 billion for the township economy as a whole (UCT, 2025)—the value capture remains low because the supply chains are externally owned. When a spaza shop stocks products manufactured by multinational corporations and delivered by external logistics firms, the profit margin retained within the community is negligible.
The SPAZA Supply+ pilot proposes a structural intervention: Township Import Substitution. By replacing goods "imported" from the formal city economy with high-quality equivalents manufactured within the township, the model retains the manufacturing margin, the logistics margin, and the retail margin within the local ecosystem.
The Multiplier Effect and Closed-Loop Systems
The core economic driver of this vision is the Local Multiplier Effect (often quantified as LM3). In a standard linear economy, R100 spent at a spaza shop might result in only R5 remaining in the township (via the shop owner’s profit), while R95 leaves immediately to pay external suppliers.
In the closed-loop SPAZA Supply+ model, the same transaction triggers a chain reaction:
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Retail: The spaza owner earns a profit.
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Logistics: The local delivery partner earns a fee, which is spent on local vehicle maintenance or fuel.
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Manufacturing: The township manufacturer earns revenue, which pays for local labour and raw materials.
According to the Keynesian multiplier theory adapted for local economic development (Heideman, 2011), this increased velocity of money circulation means that a single unit of currency generates significantly more than its face value in local economic activity before leaving the ecosystem.
