The backbone of the economy

Spaza shops are the backbone of South Africa’s township economy and form a most visible and vivid backdrop to the vibrancy of township life. They are symbols illustrating the dichotomy of South Africa’s economy, as these makeshift retail spaces in residential areas stand in stark contrast to the consumer landscapes of the formal economy such as malls.

Spaza shops, which began appearing in the mid-1970s, derive their name from the vernacular township slang word meaning an “imitation” of a real shop. From the Zulu verb “isiphazamisa”, “spaza” also means “hindrance” or “annoyance”, possibly referring to the way in which these shops were either viewed by privileged segments of society and larger retail outlets or by those that lived close to them and became annoyed by foot traffic and noise. However, today, the tide has been reversed as several hindrances or barriers are besieging spaza shop owners today.

Tracing the history of spaza shops reveals how this informal sector of the retail economy is entrenched in the legacy of discrimination and a history of struggle. Some see the spaza shop as a by-product of racial segregation policies, which once pursued and pushed forward a strategy of separate development, seeking to suppress the spirit of black African business, commerce and trading opportunities, only to ignite entrepreneurship from the home or garage.

Tracing the history of spaza shops reveals how this informal sector of the retail economy is entrenched in the legacy of discrimination and a history of struggle.

In recent years and following the dawn of South Africa’s democratisation, the spaza shop has at times become a focus of conflict, which has revealed underlying tensions between township residents and people of foreign culture. This is a growing issue not only in South Africa but also in many other parts of the world, partly due to the widespread espousing of neoliberal economic globalisation policies and partly due to institutional failure.

Foreign ownership in spaza shops grows

We often view the spaza shop as something very South African – part of a unique cultural heritage. A study by Unisa’s Bureau of Market Research (BMR) estimated that 300 000 jobs are created by the spaza economy and that it contributes R9 billion to the economy per annum.

However, it is not an exclusively South African enterprise as the majority of shops are owned and operated by immigrant traders and foreign nationals. To a degree, it is perhaps the largest form of foreign direct investment in the country. There is also nothing strange or nefarious about spaza shops being owned by foreign nationals. In fact, we can argue that it is a hallmark of how South Africa has liberalised its economy, eroding trade barriers and opening up its borders – standard features of all liberal economies, which by definition welcome a free flow of people, goods, services and investment. We can also name many other foreign national companies operating in South Africa in the formal sector of the economy.

It is, therefore, important to take stock of the performance of South African small business owners operating in the shadow of the formal economy in retail. If there is a genuine commitment by the private and public sector to improve growth in the South African economy, a focus must fall on working to remove the barriers that prohibit sustainable growth for South African spaza shop owners.

Start-up capital essential

A recent study by the Sustainable Livelihoods Foundation, “The Informal Economy of Township Spaza Shops”, found that South African-owned spaza shops are less competitive than foreign-run spazas.

Foreign business owners of spaza shops tend to lay out more capital in informal retail startup ventures than their South African counterparts do. The study showed that the average value of the startup investment in a spaza shop for foreign shop-owners is R45 000 compared to R1 500 to R5 000 invested by South African small-business entrepreneurs.

A recent FinMark Trust study showed there is inadequate knowledge among small business owners of the benefit of credit as a financial tool. Participants in the survey indicated that they do not borrow money because they do not need it or do not believe in borrowing money. A smaller percentage of candidates do not borrow funds because they are scared or feel they do not qualify for a loan.

Having access to formal credit that will ensure enterprise growth will improve the growth of spaza shops in general. Programs geared to facilitate access to credit should target especially the poorer provinces in our country, where smaller businesses rely on finance that is more informal. Improved access is necessary for large firms.

According to Small Business Connect, an online publication, in May 2015, the Minister of Small Business Development, Lindiwe Zulu said the department would also look to reduce by-laws and red tape and draw up plans to review policy to enable market access and proper registration of businesses.

Credit provision should be supported by extensive skills development programmes, because spaza shop owners are being held back by a combination of inadequate retail and merchandising knowledge. Also, spaza shop owners have insufficient bargaining power to effectively negotiate discounts, which puts them at a disadvantage.

Crime is another problem that spaza shop owners face. Interestingly, there is a relationship between crime and pricing, as discussed in a research article on competition and violence in the spaza sector in South Africa.

Business incubators

Government should continue to find better ways to help this industry grow and equip shop owners with the necessary business skills to run and manage their stores. More business skills training must be provided by the DTI, the Department of Small Business Development, local business chambers, and the Wholesale and Retail Sector Education and Authority (W&RSETA).

We have also not really seen spaza business incubators – this type of initiative can really stimulate growth and sustainability.

South Africa needs to help spaza shop owners grow this informal economic industry. Government should partner with NGOs or even training institutions to provide business skills courses to equip spaza shop owners with the necessary skills and training needed to run a business successfully.

With limited space to stock products in bulk, spaza shop owners are forced to purchase their goods in smaller quantities, which limits the opportunity to grow their businesses into more successful and larger enterprises.

Spaza shops in general rely on wholesalers and distribution centres for their wares, mainly commodity items, as the quantities they purchase can never match wholesalers nor warrant a direct account with a manufacturing supplier. This further hinders growth. Due to smaller quantities purchased over a basket of limited items stocked, negotiating power with a supplier is limited.

All these challenges raise questions regarding the sustainability of small retailers and confirm that there is a need for local traders to be empowered with skills to manage their businesses better for their own survival.

. Jeeva is the CEO of Afri-Save

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