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Upgrading key to overcoming poverty and unemployment in informal settlements

Isandla Institute | 2019-04-09 | 636 views

Informal settlements form and grow due to in-migration as people seek better prospects in urban areas from rural areas or smaller towns, and partly due to natural population growth in the urban area and in other informal settlements. These settlements can provide a foothold for low income migrants due to low rentals, with proximity to opportunity leading to minimal transport costs. Thus, informal settlements provide potential for a ladder out of poverty. Not only do they serve as access points to economic activities in nearby formal areas, but a host of economic activity occurs within these settlements. These need to be protected and promoted. Most of this economic activity is in the informal sector.

A sustainable settlement should host a number of functions other than purely residential. It should have open spaces and recreational facilities where possible, and depending on proximity to existing facilities, should also have health and education facilities. A functional urban settlement should have activity routes which are conducive to small emerging business and informal sector economic activity. Such considerations need to be factored in when upgrading an informal settlement in order to create a spatial structure consistent with settlement-making principles[1].

A holistic in-situ settlement upgrade is key to creating an integrated neighbourhood space for residents. Upgrading through a participatory approach instils a sense of belonging, ownership and contribution to the neighbourhood restoring a level of dignity for informal settlement residents.

As zoning is a core land use management tool, it is essential for informal settlement zoning to allow for more than a residential function. The City of Cape Town’s Single Residential 2 (SR2) zoning facilitates upgrading and the progression of incremental housing from an informal to a formal settlement. It recognises the primary use of property for dwelling, private road, utility services, urban agriculture; as well as additional uses that allow the occupant to participate in economic activity such as a house shop, home-based occupation, bed and breakfast establishment, home child care, and informal trading, among others. This allows for small scale business establishments[2]. However this zoning does not allow for double storey units. This is a serious limitation given the high population density in informal settlements. Double storey units ensure more efficient land utilisation, as in Mtshini Wam informal settlement in Cape Town, where residents have innovatively upgraded their one storey units into a double storey. The top floors are often used to obtain rental income. SR2 zoning also limits the nature of economic activity to service-oriented uses, not allowing for manufacturing or light industrial economic activities. This is mainly due to safety concerns.

International experience suggests that there are a range of tools available to unlock economic opportunity in informal settlements. One illustration of this can be found in Dharavi, an informal settlement in Mumbai, India. Having walked in the streets of Dharavi during a visit a few years ago, I observed a myriad of ways in which the informal economy is at play. The type and extent of economic activity is mostly unrestricted. Numerous small-scale enterprises employ local residents (some of whom are seasonal employees) in leather, textiles, recycling, pottery- and soap-making businesses, among others. The total annual turnover has been estimated at over US$1 billion[3]. Dharavi has successful merged residential and industrial settlement functions[4]. This raises the question as to whether or not Cape Town’s SR2 zoning should be further relaxed in order to allow manufacturing and light industrial economic activity and double storey units in informal settlements.

In terms of what’s needed to catalyse economic opportunities, the upgrading process should improve security of tenure. When tenure is secure, there is a tendency for private investment, both in businesses and housing structures. In conjunction, there is need for dedicated spaces for small scale and informal business activity[5].

In addition, for business to thrive, it is also essential for local government to take initiatives such as:
- Streamlining informal sector permit requirements which would help simplify the registration process.
- Providing infrastructure for informal sector marketplaces and
- Approaching small scale business supporters and investors to engage with small scale businesses in informal settlements. This may entail developing business profiles to market local areas to investors[6]. This would be done on the premise that local government cannot support the small scale and informal business sector on its own[7]. This support may be provided through training or funding for businesses in informal settlements or in formal areas owned by informal settlement residents. Both NGOs and the private sector can play this supportive role.

Ultimately, ingenuity and political will are required from municipalities, within the constraints of limited resources, to support the growth and survival of small scale and informal sector businesses in informal settlements. The support rendered to these businesses can be through on-site or off-site interventions. Finally, to lessen the burden on local government, it can seek the assistance of other stakeholders in support of small scale and informal sector businesses.

1. CSIR. 2000. Guidelines for Human Settlement Planning and Design (The Red Book) Vol.1. CSIR Building and Construction Technology. Available online at:
2. City of Cape Town. 2015. Municipal Planning By-law. Available online at:
3. Chandran, R. 2016. What's a slum? In India, Dharavi's thriving informal economy defies the label. Reuters World News. October 11 Available online at: Accessed 28 March 2019
4. Prabhune, A. 2015. 11 Interesting Facts You Probably Didn’t Know About Dharavi. Available online at: Accessed 28 March 2019
5. du Trevou, C. 2017. The city vision for Philippi: Where does informality fit in? People’s Environmental Planning. Available online at:
6. UN-Habitat. 2009. Promoting local economic development through strategic planning – Volume 5: Trainer’s Guide. United Nations Human Settlements Programme and Eco Plan International Inc. Available online at:
7. Timm, S., 2012. How the state and private sector can partner to boost support to SMEs: Lessons from Chile and Malaysia. Report for Department of Trade and Industry and TIPS. Available online at:

Written by Martha Hungwe, Isandla Institute

Slum upgrading remains the most financially and socially appropriate approach to addressing the challenge of existing slums. UN Habitat (A Practical Guide to Designing, Planning, and Executing Citywide Slum Upgrading Programmes 2015 (PDF), page 15)

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