JOHANNESBURG – The recent spate of xenophobic attacks highlights the need to address real disadvantages experienced by local township retailers trying to compete with foreigners and South Africa’s big retail chains.
Attributing the latest round of attacks on foreigners and foreign-owned businesses to South Africa’s persistent and growing socio-economic inequality barely scratches the surface of the problem.
There’s no doubt South Africa faces massive macro-economic challenges, with unemployment climbing to a shocking 29 percent in the second quarter of this year to about 6.7 million people, and a 0.87 Gini coefficient, which is the highest in the world.
Tackling these issues is a focus of the 2012 National Development Plan, which President Cyril Ramaphosa is in the process of resurrecting.
But progress is slow and on a micro-economic level the challenge is still not being properly articulated or addressed. At this level, the question is what is making foreign-owned businesses targets of hostility in townships and peri-urban areas and what can be done to prevent it?
South Africa needs to embrace its foreigners. A joint Organisation for Economic Co-operation and Development/International Labour Organisation paper released in 2018, “How Immigrants Contribute to SA”, found immigrant workers do not displace locals in jobs and they may raise South Africa’s income per capita by up to 5 percent, possibly because of their higher educational attainment and productivity. They also add to income tax and VAT.
Playing a prominent role as owners of tuck shops and spazas, foreign nationals have raised awareness of the economic value of these activities, which are an essential early step in creating black industrialists and rural industries.
At the same time, local spaza owners struggle to compete with foreigners for reasons including inadequacies in their business models, procurement of stock, client service and networking. So they lay the blame squarely on foreigners, not on the other factors that put them at a disadvantage.
There is a very powerful argument for supporting township and village businesses, which can be done through provincial government initiatives, such as ensuring hospitals and school nutrition programmes procure from local bakeries and tuck shops.
Earning a living
In earning a living and supplying their communities, local spaza owners ensure that capital continues to circulate locally. On the other hand, income earned by foreigners is remitted to families abroad, while the roll-out of township franchises by South Africa’s biggest shopping corporates (which in some municipalities is the preferred policy), results in a large portion of profits reverting to JSE-listed entities for distribution to shareholders. Ramaphosa acknowledged the importance of the township and village economies in his State of the Nation Address in June.
“Through spatial interventions like special economic zones, reviving local industrial parks, business centres, digital hubs and township and village enterprises, we will bring economic development to local areas,” he said. “We will also focus on small and medium enterprises in our cities, townships and rural areas and create market places where they trade their products.”
In his February State of the Nation Address speech, Ramaphosa admitted that one of the constraints on local entrepreneurs was the high degree of concentration, which “has stifled growth and enterprise and has to a large extent kept many young South African entrepreneurs and small enterprises out of the economy or confined them to the margins”.
But South African legislation is not supporting these ideals or creating a steadfast-enough framework in which they can operate. The law currently gives the proviso that foreign nationals must have a valid work visa, are not transferable when linked to a specific employer and that employers just act in good faith and not employ illegal foreigners. But nothing governs the ways of working, and conduct – and business practice is often the area requiring the most guidance.
As a consultancy focusing on revitalising the economies of South Africa’s peri-urban townships and villages, Zooi has been commissioned by the North West Development Corporation to provide a spectrum of services in communities in four targeted provinces. To date, we have assisted 180 beneficiaries and 6155 operational businesses and established two hypermarkets in Potchefstroom and Mafikeng
One of our first steps was to survey the views of those living in townships in the North West Province towards the competition presented by foreign-owned businesses and the major retail chains. We sampled 1534 residents in five districts (Tswaing, Mafikeng, Ratlou, Ramotshere and Ditsobotla) to provide a baseline study for our interventions.
Among the findings were that 100 percent of residents in Mafikeng preferred to buy their groceries from foreign-owned shops, because they offered better value for money. In the other districts, the preference was 60 percent to 80 percent in favour of foreign-owned stores. This is despite some reservations expressed about the quality of goods sold in foreign-owned stores.
Asked what locals could do to improve their businesses, the respondents’ suggestions ranged from lowering their prices, working together on a common goal, improving their attitudes towards customer service and extending their opening hours.
Respondents in the Ratlou community emphasised the importance of partnerships and co-operation among local businesses. It is a very important point. Somali businesses operate as a cartel, which is led by a group of elders. While South Africa’s local entrepreneurs rely only on themselves, the Somalian entrepreneurs derive their strength from their social network.
Although the Small Business Development Corporation and the Department of Trade and Industry are making many useful interventions, the perceptions of the respondents in our study were that they were ineffective. Respondents wanted the government to deport foreigners, make them pay tax, compel them to employ South Africans, provide start-up funding and refurbishment funding for existing businesses, and offer workshops on various aspects of running a spaza shop successfully.
We believe that black-owned businesses need a value-chain approach to develop their full capability, from primary production to logistics, processing, packaging and market access. Government intervention is vital, as our experience in North West province shows.
While strong regulation and enforcement is needed to protect foreign-owned tuckshops, strategies are needed to support South African spaza shop owners, monitor their progress and evaluate their success.
Sithembile Ngobesi is the chief executive of Zooi Consulting.