Spaza Shops: Analysis of Business Strategy


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The objective of this paper is to highlight the issues relating to informal regulation arrangements for spaza shops run by foreign nationals in some South African townships. The main point this paper wants to bring forward is that while those informal regulations are intended to bring purported ‘peace’ they can also lead to different outcomes depending on the interaction between community members, foreign nationals, community leaders and government authority. Hence, this is an attempt to understand why the spaza shop owners and related stakeholders in some South African townships have to resort to and navigate through- informal regulation arrangements with regards to the opening of the new shops. In this regard, selected areas of Dunoon, Khayelitsha, Masiphumelele and Motherwell are considered. While a similar study has been conducted in recent years in some of these areas, in the Western Cape in particular, those studies only focused on the spaza shops owned by Somali nationals. Instead, this paper focusses on the spaza shops that are owned predominantly by people of Somali, Ethiopian, Bangladeshi and Pakistani origin or descent.

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Focussing on variety of foreign nationals who are running spaza shops in these areas shed light on how informal regulations impact on their interaction with each other and other related stakeholders. Therefore, this study is another step at exploring the experiences of foreign nationals operating spaza shops in the informal economy of South Africa and an attempt to explain their involvement in informal regulations arrangements. It takes into cognizance the importance of advocating the development of informal trading policy and legislation that enhances rather than thwarts human and social rights. The study applies a qualitative approach to better understand this issue through interviews with spaza shop owners, community leaders, police and ordinary community members in Dunoon, Khayelitsha, Masiphumele and Motherwell.

Contextual Background

Informal sector

Since the country’s advent to democracy, South Africa has been and is said to be “undergoing triple transition: a transition to a globally competitive economy, attempting to consolidate democracy and remove the legacy of apartheid” (van Hold, 2002, quoted in Webster, 2003). Consequently, the country’s integration into the global economy has been marked by the process of informalisation amongst others (Valodia, 2000; Verick, 2009), which has resulted in a rapid growth in the informal sector. This growth in informal economy in the past decades has also been noticed in other developing countries (Valodia and Devey, 2011:4; Mulinge and Munyae, 1998: 41). However, it is important to mention that historically informal sector existed mostly in “hidden space” in South Africa’s urban areas during the apartheid period despite the official legal restrictions and strict zoning regulations to deny black Africans the right of permanent residence in the so-called ‘white’ cities and opportunities to informal entrepreneurs (Rogerson 2000; van Klaveren et al. 2009: 17). In the advent of democracy, the informal economy is comprised mostly of businesses that operate outside of government regulations (Skinner, 2006). It is largely the absence of regulatory restraint which makes the informal sector possible since there are less restrictions or requirements to open a business.

It is within this context where spaza shops emerged in the early 1990s and are abundant throughout the informal settlement areas particularly in South Africa’s metropolitan centres, constituting an important business in the informal economy. In South Africa, a spaza shop is a small informal grocery shop operated mostly from residential premises in townships and exist in the informal economy meaning they mostly operate outside of the institutional and regulatory frameworks (Liedeman, Charman, Piper, and Petersen, 2012: 49). The word ‘spaza’ means ‘camouflaged’ or ‘hidden’ in Zulu slang and this term is used to refers to a camouflaged or hidden shops in a townships (Terblanche 1991:37) , during the apartheid era when black South Africans struggled to get business licenses as alluded to above.

According to Liedeman et al, (2013) the majority of spaza shops in the informal settlement are unregistered, informal businesses and mostly do not adhere to the municipal rules for conducting business in residential areas. This is due in part to legacy of apartheid were black entrepreneurs were forced to open small shops inside their homes, where they were invisible to passing policemen and municipal inspectors. Since the fall of apartheid, spaza shops are a crucial part of the informal economy and a source of livelihood to many poorer communities in terms of access to goods and services. The presence of spaza shops in the townships is more predominant and not difficult to notice. Since late1990, most of the spaza shops are run by foreign nations although there were some South African locals who were operating similar business.

“Survivalist entrepreneurs”

On the other hand, since the last decade, South Africa is seen as the leading edge of social, economic and demographic change for the African continent (Cross, et. al., 2009), evidenced by ‘increase in international migrants especially from other African countries’ (Hunter and Skinner, 2001). According to Alonso (2011:1) “one of the most conspicuous signs of the process of globalisation is the increase in migratory flows among countries, regions and continents”. However, the phenomenon of international migration is not new in the history of African countries and South Africa in particular. Migration to South Africa dates back to colonial times starting with the European settlers in 1652 in the Cape and migrants who were attracted to the country following the opening of the diamond mines in Kimberley and the discovery of gold in the Eastern Transvaal in 19th century as well as missionaries. In addition, colonial and apartheid system also facilitated highly controlled and managed international migration and channel migrants into mining and agricultural industry as cheap labourers (Polzer, 2009:35).

The share of the legally African Diaspora in South Africa is reported to have increased since 1990s compared to other African countries (Cross, et. al., 2009). Minnaar (2000) also observe that, “as elsewhere in the world South Africa has also experienced increasing flows of migrants into the country during the 1990s, some undocumented, others ‘overstayers’ as well as refugees from other parts of Africa”. Conflict and war-ridden countries including social and economic ills in some African countries has forced people to migrate to other countries considered to be “safe” (Nyberg-Sorensen et al., 2002). The impacts of the Structural Adjustment Programmes (SAPs) have also been associated with the growth of international migration as a survival strategy in Africa (UNESCO, 1998). Plenty of evidence exists in the literature of an increase in migration and informal employment activities after episodes of adjustment and liberalisation (Sinha and Adam, 2006: 31) .

Thus, informal sector in South Africa can be viewed as source of entrepreneurship as well as livelihood and sustenance for the majority of the poor particularly ‘black’ and migrants both national and international, unskilled, socially and economically marginalized population. Although Habib (2005) missed to point out entrepreneurial investment by some of the migrants and locals, he described this growing phenomenon as the survivalist responses of marginalised persons with no alternatives. Consequently, informal sector participation has been increasing by the day, particularly in South Africa metropolitan centers where most migrants are located. For migrants who are in South Africa participating in the informal economy informal grocery or spaza shop is the most common business venture either as survivalist strategy or entrepreneurial investment, particularly in the townships. In brief, it is safe to mention that informal economy has proved itself to be a “safe haven” and a means of survival for both men and women, nationals and migrants, and the rich as well as the poor and impoverished who are unable to find jobs in the formal sectors of the economy (Manuh, 1998; Mupedziswa and Gumbo, 2001: 12; Barker, 2007).

While both South Africans and foreign nationals from different parts of the continent are operating in the informal sector, foreign nationals’ activities tend to appear to coalesce along ethnicities or nationalities. Although research on African immigrants in South Africa abound, and in spite of current studies indicating that large numbers of migrants are mostly engaged in the informal economy (Valodia, 2007:5; Peberdy, 2002), there is very little work that interrogate the easily observable practice of ethnic niching where a particular nationality or ethnic group is predominately represented in i.e., spaza shops in certain area or running a barbershop in another area. This phenomenon is quite observable in the certain areas where for example a group of only Somali nationals operate their businesses in a whole township while resorting to gatekeeping exercise. In a nutshell, this tendency of niching has resulted in territorial zone or spatial contestations between foreign nationals in South Africa as other migrant groups want to enter into similar business.

Regulation of informal trading

Section 22 of the 1996 Constitution of the Republic of South Africa provides for the freedom of trade, occupation and profession. It provides that “every citizen has the right to choose their trade, occupation or profession freely.” It is accepted that this freedom extends to informal trading but bearing in mind that there should be regulation by either the government or a chosen organisation. In line with the Constitution, the Local Government Municipal Systems Act 23 of 2003, local government has the authority to create by-laws relating to informal trading. In addition, The Businesses Act 71 of 1991 (as amended by Act No 186 of 1993) prohibits the conduct of any business without the possession of a requisite license and makes specific provision for the licensing of businesses. However, while they might be legal frameworks in place to deal with informal trading, they differ from municipality to municipality.

Although spaza shops mostly operate in private residences in the townships they are also identified as a dimension of informal trading. While all businesses, including spaza shops, are bound by laws such as the Health Act and Food Regulations, as well as the Business Act, Zoning Scheme, Building Regulations, Fire Safety Legislation and the Tobacco Control Act, the primary laws governing spaza shops include zoning, health and tax regulations. In terms of the Zoning Scheme areas that are zoned single residential 2 allows informal trading and house shops subject to conditions around shop size, operating hours, and the sleeping arrangements of shopkeepers. However, areas that are zoned single residential 1 require zoning in order to open a house shop. Nevertheless, for example the Cape Town Zoning Schemes acknowledges “the realities of poor and marginalised communities” and in this regard single residential 2 accommodates house shop activities as an “additional use right”, in ensuring that “local employment generation is encouraged” (City of Cape Town, 2012b: 34). Thus, spaza shops do not necessarily need to apply for rezoning in order to operate in the townships. This research also finds similar behaviour from other municipalities that were considered, i.e. Makana and Nelson Mandela Bay.

Whereas municipalities have their bylaws in place it is generally accepted by city’s officials that very few laws regulate spaza shops as mentioned above. This in part is due to sensitivity towards the realities of poor and marginalised communities coupled with the effect of the spatial inequalities of the apartheid segregation policies as alluded to above. One of the councillors in Motherwell alluded that municipal officials and other law enforcement agencies do not pressure those who open businesses in their residential premises due to poverty and high unemployment in the area. According to the councillor:

“The only business area is Motherwell Shopping complex, but the municipality does not put pressure on a person who is running a business in his/her home and I think the reason for that is because most people are unemployed”

On the other hand, in many municipalities, the availability of human resources to enforce bylaws as well as the institutional knowledge to do so has posed a huge challenge and serious impediments to the municipalities trying to comply with local regulations. For example, Gastrow and Amit (2013:18) found that ‘Cape Town city officials have generally been reluctant to enforce regulatory requirements in townships where most spaza shops are located.’ Instead, most of the regulatory bylaws related to informal trading are enforced selectively depending on the area, i.e informal trading bylaws are mostly related to street trading and applied in the city’s well-established areas than townships. Spaza shops are mostly run from private homes which poses a challenge to implement bylaws and regulate them. This is because informal trading plans adopted by the municipalities to govern informal trading within a trading area where trading takes place in public places. In regard of the above-mentioned laws, it is important to understand why spaza shops owned by foreign nationals are subjected to informal regulations and implications for such arrangements.

Informal regulation of spaza shops owned by foreign nationals

While formal regulations of business are enforced by official laws, such as municipal bylwas, trading laws, the Health Act and Food Regulations etc, this research and similar studies found that informal regulations of businesses in the townships are largely self-enforcing through mechanisms of binding agreements between community members, community leaders and business owners. An emerging business trend in the spaza business since early 1990s has been the rise of foreign shop keepers who have rapidly come to dominate the market especially in periphery of urban centres. The ever-increasing number of spaza shops in the townships operating within close proximity to each other have resulted in a competition which saw most local owners losing their businesses to foreign nationals.

Simultaneously during the last two decades, spaza shops businesses have gradually become saturated as more foreign nationals seek similar business opportunities especially in the townships. This has not only led to local spaza shop owners to lose their businesses but also concerns from community members and foreign national shop owners who perceived the congestion of shops as a source of criminal activities in their areas. Consequently, and in the absence of formal regulations by the authority, community members, community leaders and shop owners decided to formulate mechanisms to regulate foreign owned shops as discussed in detailed below. Some of the regulations agreed upon is to restrict the opening of new shops by foreign nationals, the process which requires community members to follow and that each business must be at least 100 meters away from each other. This informal mechanism to manage shop openings reflects a lack of municipal oversight around commercial/business premises. It shows that traders operating shops and shebeens mainly from private homes are not properly regulated and do not need to contend with municipal zoning requirements and procedures.

Causes of informal regulation

According to Gastrow and Amit (2015) research on Somalis traders in the City of Cape Town, informal regulations in the townships were put in place in response to ‘several developments such as vocal opposition from competing South African spaza traders, perceptions that Somali shops threaten poor South Africans’ economic opportunities, and crimes targeting Somali shops.’ While previous studies argued that competition among shop owners is mostly perceived as a source of tension between local and foreign national traders which led to above-mentioned regulations, this research findings suggests there seems to be less or no competition as groups are currently engaged in different business activities. For example, a research case study in Dunoon, Motherwell and Makana found that almost all spaza shops in those areas are owned by foreign nationals while South Africans are running taverns or shebeens. In addition, foreign nationals in Masiphumelele and Dunoon became concerned when their business reached saturation point and opted for informal regulations to prohibit new shops to open in the area. In case of Masiphumelele, it was Ethiopians who were preventing Somali nationals to enter their market, and in Motherwell Ethiopians were stopping Bangladeshi to open shops in the area. Lastly, community members and their leaders in Monwabisi Park known as eNdlovini in Khayelitsha resorted to informal regulation because they perceived “too” many spaza shops in the area as a source of criminal activities in the area. Thus, unlike findings from the previous studies there are new factors which led locals and foreign nationals to adopt informal regulations in order to promote their safety as well as to protect their social and economic interests.

In light of the above, it is imperative to discuss the basis of such informal regulation in more details namely: business competition among foreign nationals, spatial contestation or territorialisation of business area, and opportunistic behaviour by community leaders. While foreign national traders compete in the market just like any other business owner, it is only natural that they would also be competing amongst themselves. However, the darker side of this competition is business monopoly and spatial contestation when competition begin to be high and business opportunities are shrinking. As a result, some foreign national shop owners who have already established their businesses in certain areas are opposed to the practice of opening new shops by their fellow foreign nationals where existing shops are already established. Below is the discussion of each factor in details taking into account some fieldwork responses.

Competition between foreign nationals.

As noted above, informal regulations for spaza shops in the townships are often linked to a perceived competition between local and foreign national business owners (Piper and Yu, 2016 , Gastrow and Amit, 2015; Gastrow and Amit, 2012 ; Misago et al, 2009; Provincial Government of Western Cape, 2007). However, current findings reveal that spaza shops run by foreign nationals in the township are highly competitive and for the most part already saturated. Due to saturation of spaza shops foreign nationals began to view competition as a threat and constraint as there are many businesses of the same nature servicing the same market. It is within this development that spaza shops has not only brought success to foreign national shop owners but also a threat to competing migrants from different nationalities.

On the other hand, when the competition became too high for South Africans who initially resisted with threats of violence, the main coping strategy for them has been a quiet surrender of their business to foreign nationals with some simply closing shop and others selling or renting to those foreign nationals. Since then many South Africans are venturing into other businesses most notably shebeen or tavern businesses. Thus, there is less or no longer a competition between South Africans and foreign nationals for pediment to social cohesion.

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