Competition from foreigners: fair or foul?
Sithembile Ngobese CEO, ZOOI Consulting
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. Sithembile Ngobese, CEO of ZOOI, a leading social enterprise solutions company focusing on the development of the Township & Village Retail Economy, weighs in.
Attributing the latest round of attacks on foreigners and foreign-owned businesses to SA’s persistent and growing socio-economic inequality barely scratches the surface of the problem.
There’s no doubt SA faces massive macro-economic challenges, with unemployment climbing to a shocking 29% 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?
SA needs to embrace its foreigners. A joint OECD/ILO paper released in 2018, “How Immigrants Contribute to SA”, found immigrant workers do not displace locals in jobs and they may raise SA’s income per capita by up to 5%, possibly because of their higher educational attainment and productivity. They also add to income tax and VAT.
Playing a prominent role as owners of tuckshops 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 tuckshops.
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 SA’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.
President Cyril 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 medium enterprises in our cities, townships and rural areas and create marketplaces where they trade their products.”
In his February SONA 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 transferrable 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 SA’s peri-urban townships and villages, ZOOI has been commissioned by the North West Development Corporation (NWDC) to provide a spectrum of services in communities in four targeted provinces. To date, we have assisted 180 beneficiaries and 6 155 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 1 534 residents in five districts (Tswaing, Mafikeng, Ratlou, Ramotshere and Ditsobotla) to provide a baseline study for our interventions.
Among the findings were that 100% 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 60-80% 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 SA’s local entrepreneurs rely only on themselves, the Somalian entrepreneurs derive their strength from their social network.
Although the Small Business Development Corporation (SBDC) and the Department of Trade and Industry (DTI) are making many useful interventions, the perceptions of the respondents in our study were that they were ineffective. Respondents wanted 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.