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Foreign traders are vital to township economies: Removing them will be bad for economic growth


Vanya Gastrow is a Research Associate at the Centre for Law and Society at the University of Cape Town. She holds a PhD in migration studies, and recently completed a book on the formal and informal regulation of foreign-owned businesses in South Africa.

Foreign business activities are deeply embedded in township business sectors. Even the notion of a foreign township business is misleading. The vast majority of foreign-owned businesses in townships involve a mutually beneficial partnership between foreign nationals and South Africans — that of tenant and landlord.

The Gauteng Township Economic Development Bill plans to reserve certain business activities in designated townships “exclusively and solely” for South African citizens and permanent residents. One could be forgiven for thinking that such a policy will promote South African economic advancement, the rationale being that the diminishment of foreign business activity — frequently portrayed as threatening and parasitic — will create opportunities for South Africans. But on closer examination, the impact is unlikely to lead to outcomes that benefit South African township economies.

Foreign business activities have become deeply embedded in township business sectors. They are intricately linked to many stakeholders and beneficiaries ranging from consumers, employees, to numerous formal and informal distribution and supply chains. Even the notion of a foreign township business strictly speaking is misleading. The vast majority of foreign-owned businesses in townships involve a mutually beneficial partnership between foreign nationals and South Africans – that of tenant and landlord.

Between 2010 and 2013 I conducted research on spaza shops in several townships in the Western Cape. What stood out was that the vast majority of foreign spaza shops in these sites were rented from South African landlords. South African landlords — who often self-identified as “shop-owners” — benefited economically from these arrangements. An elderly South African shopkeeper described how he rented out his business to a Bangladeshi trader and his South African wife after he fell ill and decided to retire. A single mother relied on rent paid by her foreign tenants to raise her children. Some landlords relied on rental incomes to become community volunteers. A landlord in Kraaifontein converted her shebeen into a spaza shop which she rented out to foreigners, enabling her and her children to enjoy a more peaceful life.

Township police officers reported that few South African shopkeepers in their jurisdictions had in fact been displaced by foreign shopkeepers. Rather, many South African shopkeepers had taken advantage of the new economic opportunity to rent their businesses out to foreigners. In leasing out their shops they earned a higher income than they did before, with the added advantage of not needing to work.

These joint South African/foreign ventures did not only act as a lifeline for many South African landlords. Some landlords used partnerships with foreign retailers to go beyond survivalism and expand their business footprint. Renting out premises to foreign nationals freed up landlords’ hands to open further businesses which they either operated themselves or rented once more to foreigners. In the process, they earned passive incomes, while foreign nationals carried out most of the business legwork.

Foreign business activities in the spaza market did not only benefit landlords. There were other less visible associated businesses that depended on foreign spaza customers such as transport hire, and small-scale suppliers. South Africans were also increasingly being employed as shop assistants, cleaners, and security guards.

Customers also benefited from foreign spaza shop services such as low prices, the provision of credit, and the sale of goods in flexible quantities (ranging from bulk discounts to selling single eggs or pouches of sugar). These practices, which were introduced by foreign retailers, enabled residents to access food and other basic necessities in close proximity to where they lived, thereby contributing to food security among those living below the breadline.

Because of their diverse relationships with township residents and enterprises, very few if any foreign-run spaza shops that I encountered operated as some kind of island detached from South African beneficiaries or stakeholders. This state of affairs, echoed in studies conducted in Gauteng, will make it difficult for the provincial government to implement its bill without significant collateral damage to many South African township dwellers.

Foreign entrepreneurs’ impact also stretches beyond township locales. Many large formal South African wholesalers depend on foreign customers. Andrew Plastow, who marketed consumer products to the spaza market, asserts that the spaza market was in decline in the mid-2000s as a result of the entry of supermarkets into townships. However, the arrival of foreign entrants reinvigorated the spaza sector, which in turn boosted the wholesale market. He notes that one of the largest instances of direct foreign investment in post-apartheid South Africa — Walmart’s acquisition of 51% of wholesale giant Massmart for $2.5-billion — was arguably underpinned by the purchasing power of foreign spaza retailers.

The banking sector also enjoys gains from foreign entrepreneurs who have a disproportionately high propensity to save their earnings. Abdu Mohamed Hikam’s study of 64 Somali shopkeepers in Motherwell showed that traders surveyed saved up to 100% of their income each month. Where did they keep these savings? Mostly in South African bank accounts, sometimes their own, but frequently in friends’ accounts given the barriers they faced accessing accounts. His study also finds that on average each Somali shop in the township paid R38,740 in VAT annually to the revenue service.

There is also opportunity cost. A number of Somali spaza shopkeepers that I encountered gradually exited the spaza market for the formal sector. Abdullahi Ali Hassan’s study of 10 formal Somali business owners in the grocery, clothing and poultry sectors found that they collectively employed more than 200 people. Nine of these 10 entrepreneurs had originally started out in the informal sector. Closing off access to informal township markets might inhibit foreign nationals from gaining important economic footholds in the country, which many use as a springboard for investing in larger formal sector activities.

Then there is the question of whether South Africans will actually take over abandoned businesses. When I conducted research on Somali spaza shopkeepers in small towns in the Western Cape in 2012, a number of shopkeepers indicated that their countrymen had packed up and left due to lack of profitability. Their shops, however, had not been sold to aspirant South African shopkeepers, but rather to Ethiopian traders. This suggests that South Africans may simply not have the inclination to take over emptied shop premises. Rather the gap in the market will likely be exploited by the corporate sector, which does not bode well for small micro-enterprise start-ups.

Foreign nationals engage in other township enterprises apart from spaza shops. For example, they also operate shoe repairs, hair salons, mechanic services, and cellphone repair shops. In doing so they have not taken away jobs, but rather brought in new skill sets and useful services to township customers.

Rather than being economically parasitic and threatening, foreign entrepreneurialism is a vital force in township economies. Shopkeepers pay rent to landlords, service customers, introduce new business know-how, and benefit connected economies. Excising them from township landscapes will not create greater economic fortunes for local residents, but instead pose significant economic danger. It would be wiser to leverage and build on foreign ingenuity — as many South Africans already have — rather than attempt to sever their activities from which many South Africans benefit, and have come to rely on. DM


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