Ricochet News

Thought Leader: Supporting success of a home-grown Spaza economy

By Munir Jeeva, CEO of Afri-Mart Supermarkets and Afri-Save Cash & Carry - Jan 26, 2017
Thought Leader: Supporting success of a home-grown Spaza economy

Since the mid-1970s and continuing into the present day, spaza shops have not only been the backbone of South Africa’s township economy, but they are the most visible and vivid scenery depicting the vibrancy of township life. 

They are symbols often illustrating the dichotomy in South Africa’s economy. These make-shift retail spaces in residences often stands in stark contrast with consumer landscapes of the formal economy such as malls.

Tracing the history of spaza shops reveals this informal sector of the retail economy’s entrenchment in discrimination and a history of struggle.  On the one hand, some see the spaza shop as a by-product of racial segregation policies which once pursued and pushed forward a strategy of separate development which sought to suppress the spirit of black African business, commerce and trading opportunities only to ignite entrepreneurship from home or a garage. 

In recent years and following the dawn of South Africa’s democratisation, the spaza shop became a battlefield for xenophobia, which unfortunately revealed the currents of hate and prejudice against foreign culture – a growing issue not only in South Africa but in many parts of the world partly due to the espousing neoliberal economic globalization policies two years after and in part due to institutional failure.

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

But, it is not a truly 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 shop foreign national ownership.

In fact, we can argue   it is the hallmark showing how the country liberalized the economy and eroded the trade barriers and African border – a standard feature of all liberal economies which by definition welcomes 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.

Spaza is believed to come from vernacular township slang word meaning an ‘imitation’ of a real shop. 

From the Zulu verb ‘isiphazamisa, it 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 these shops and became annoyed by foot traffic and noise. And today, the latter has been reversed as several hindrances or barriers are besieging spaza shop owners.

It is therefore important to take stock on 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 growth, sustainability for South African spaza shop owners.

A recent study, 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 are outlaying more capital in informal retail start-up ventures than their South African counterparts.  The study showed that the average value of the start-up 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.

Interesting, 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 which will ensure enterprise growth will improve the growth of spaza shops. Programmes like this should target the poorer provinces in our country where smaller businesses rely on more informal finance.    Improved access is necessary into 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 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 suffer from a combination of inadequate retail and merchandising knowledge and insufficient bargaining power to effectively negotiate discounts which has been discussed extensively, as pointed out in a study Exploring the barriers to the sustainability of spaza shops in Atteridgeville, Tshwane.

I highly recommend that government continue to find better ways to help grow this industry and equip shop owners with necessary business skills to run and manage their stores. More business skills training must be provided by the Department of Trade and Industry (dti), the Department of Small Business Development, local business chambers, the Wholesale and Retail Sector Education and Authority (Seta). 

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

Crime is another problem the 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 

With this limited space to stock products in bulk, shop owners are forced to purchase their goods in smaller quantities, which results in the limitations of growing the businesses into a more successful and larger business.

Spaza shops in general feed off wholesalers and distribution centres mainly of commodity items as quantity purchased can never match that of a wholesaler nor warrant an account direct with a manufacturing supplier further hindering growth. Due to smaller quantities purchased over a basket of limited items stocked, negotiating power with supplier limited.

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

South Africa needs to help these spaza shop owners grow this informal economic industry. I would recommend that government partner with NGO’s or even training institutions to provide business skills courses to equip these spaza shop owners with the necessary skills and training needed to successfully run a business.

Image: Munir Jeeva the CEO of Afri-Mart Supermarkets and Afri-Save Cash & Carry.