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TRANSFORMATION 78 (2012) ISSN 0258-7696 47
Article
From local survivalism to foreign entre-
preneurship: the transformation of the spaza
sector in Delft, Cape Town1
Andrew Charman, Leif Petersen and Laurence Piper
andrew.charman@livelihoods.org.za,leif.petersen@livelihoods.org.za,
lpiper@uwc.ac.za
Abstract
Small, home-based grocery stores, known as spaza shops, are ubiquitous throughout
the township areas of urban South Africa, constituting an important business in the
informal economy. In recent years, this retail market has become a site of fierce
competition between South African shopkeepers and foreign entrepreneurs,
especially Somalis, and is often cited in the media as one reason behind the
xenophobic attacks on foreigners. Drawing on original data collected in the Delft
township in the city of Cape Town, this paper demonstrates that foreign
entrepreneurs, overwhelmingly Somalis, have come to own around half of the
sizeable spaza market in Delft in the last five years. This increase is attributable to
larger scale and price competitive behaviour as these entrepreneurs operate collectively
in terms of buying shops, and stock, as well as in stock distribution. Also important
are some more customer friendly services too. Compared to the more JsurvivalistK
local business model where individual owners look to supplement existing household
income rather than generate an entire livelihood, the Somali business model has
rapidly outcompeted local owners, bringing spaza prices down and forcing many
locals to rent out their shop space to foreign shopkeepers. Consequently, while
South African shopkeepers resent the Somali influx, most consumers appreciate the
better prices and improved service. The rise of Somali shopkeepers thus represents
a transformation of business practice in the spaza sector from survivalist to
entrepreneurial modes.
48
Andrew Charman, Leif Petersen and Laurence Piper
Introduction
Spaza shops are often cited as examples of micro-entrepreneurial endeavour
and success within the informal economy of South African townships. The
term <spaza= is taken from the isiZulu language, meaning <hidden= (Bear et
al 2005), and emerged in the apartheid era when business opportunities for
black entrepreneurs were restricted. These micro-convenience stores traded
in a clandestine manner to provide township residents with local access to
everyday goods otherwise only available at distant supermarkets. Over time
the scale of the spaza shop market has grown steadily (Marketing Mix 1995),
in part due to the greater levels of disposable income in the hands of
historically poor communities (Van der Berg and Louw 2003:7). While there
is no precise data on the current size of South Africa=s spaza market, a
detailed investigation in 2002 estimated that spaza shops account for 2.7%
of total retail trade, equivalent to approximately R8 billion in value (Ligthelm
2005:202). More recently, SPAZA News (2011) estimates that there are more
than 100,000 spaza enterprises with a collective turnover of R7 billion.
Since about 2005, a growing class of entrepreneur retailer has emerged as
a major economic player within spaza markets. These entrepreneurs,
characterised by <opportunity-motivated= individuals (as described in
Ligthelm 2005:204; see also Charman and Petersen 2010), have steadily
outcompeted many survivalist businesses (estimated to be 75% of all
enterprises by Ligthelm 2005:204). The majority of these retailers are
immigrants, and the ensuing consequences of their rising dominance has a
distinct national or ethnic character, pitting South African shopkeepers
against immigrants from countries including Somalia, Egypt, Ethiopia,
Rwanda, Tanzania, Pakistan and Bangladesh. This is cited as a source of
tension between South Africans and foreigners, especially Somalis. Thus in
the xenophobic attacks of 2008, a considerable number of foreign operated
spaza shops were looted and burned down. Aside from this event, foreigner
storekeepers, in particularly the Somali community, continue to report
attacks on their possessions and persons (Charman and Piper 2011). The
advent of foreign storekeepers is thus widely associated with social conflict
as well as a changing business environment, and therefore any research of
this sector ought to cast light on these issues too.
This paper provides a street level insight into the competition between
local and foreigner retailers in one case study. The study is set in Delft South
and a portion of Eindhoven (hereafter Delft), a relatively poor township on
the outskirts of the City of Cape Town (see Figure 1). The objective of the
49
From local survivalism to foreign entrepreneurship
research was to investigate the extent to which immigrant entrepreneurs
have entered the spaza market and the strategies they have utilised to
capture market share, as well as popular attitudes towards these dynamics.
To this end the paper begins by situating the topic within the literature on
the informal economy. We then outline the methodology, before specifying
the key findings and the emergent analysis.
In brief we discover a story of the relatively rapid capture of the spaza
retail market by larger-scale, collective businesses run by Somalis. Further,
these immigrants employ entrepreneurial business practices, especially
price competition, to outcompete and in many cases, take over, South
African shops typically run on more individual and <survivalist= lines.
Importantly, the latter includes the local practice of competing on location
rather than price, reducing profit margins but also retaining market entry
opportunities for nearly anyone looking to supplement income. The advent
of a price-competitive business model has upped rates of profit and reduced
prices but simultaneously reduced market access options. In terms of
popular attitudes towards this change, our research revealed that while
South African shopkeepers resent the Somali advent, most consumers
appreciate the better prices and improved services.
The informal economy and spaza shops
The informal economy refers to the existence and activities of informal
businesses (and their employees) outside the legal and institutional regulatory
framework. The concept refers to enterprises and workers that are unregistered
and unincorporated (Statistics South Africa 2010). In its broadest
interpretation the informal economy encompasses illegal activities such as
crime and tax avoidance and activities that, apart from the non-compliance
with specific national and local laws, are otherwise legal such as street
trading (see Ligthelm 2008). It includes all activities for which income is
unreported for taxation. In this article we refer specifically to that component
of the informal economy situated spatially within poor communities, where
small-scale, unregistered and usually family-based firms with less than five
employees predominate. These enterprises fall within the definition of
micro-enterprises, as set out in the Small Business Act (1996 and 2004); that
is, an enterprise with less than five full time employees, a turnover below
R0.2million and total gross assets valued at less than R0.1 million. Scholars
argue that informality should be conceptualised in terms of gradients of
formalisation, rather than absolutes (Maloney 2004:1168). This is particularly
50
Andrew Charman, Leif Petersen and Laurence Piper
evident in the spaza market as these micro-enterprises sometimes abide with
particular regulatory requirements (such as registering as businesses) and
ignore others such as zoning requirements.
The current state of knowledge of the informal economy still requires
much development, given that existing theoretical frameworks do not
adequately explain the internal dynamics of micro-enterprises in the informal
economy. It is not necessarily correct to see the informal economy as sphere
of marginalisation, although Meagher (2005: 268) argues that, in Africa, the
informal sector is mostly populated by the poor and marginalised, and that
genuine entrepreneurs are a small minority. Studies have found that there is
a rationale, on the basis of an implicit cost-benefit analysis, for micro-
entrepreneurs and informal workers to position themselves in the informal
economy (see Becker 2004, Charman and Petersen 2010, Devey et al 2006,
Petersen and Charman 2008). Thus no generalisation can be made on whether
the terms of employment in informal businesses are inferior to the formal
labour market or whether the failure of micro-enterprises to expand indicates
that they are trapped in a low growth cycle. Through the increasing
availability of qualitative studies, the field of knowledge now recognises the
rules of doing business in the informal economy do not (necessarily) mirror
those of formal businesses. For example, working capital is typically raised
from family and friends, where surety rests on the strength of social relations
and repayment terms are flexible. Doing business through social networks
and family makes sense, as Maloney (2004:1168) points out, because it
enables the <micro entrepreneur to enforce implicit contracts, insure against
risks=, whereas <participating in the formal institutions of civil society is
needlessly expensive=.
The informal economy in developing countries such as South Africa
provides an entry point for persons otherwise excluded from the formal
labour market due to a lack of education and skills to pursue business
opportunities or gain employment. There is a great diversity of economic
activities and forms of employment in informal micro-enterprises (see Valodia
et al 2007). The majority of these entrants, however, either engage in trade,
often starting off through selling goods on the street or by working for others
doing the same, or provide personal services such as hair care or child
minding. It is thought that about 50% of the economic activity of the poor
in the South African informal economy involves trade (Ligthelm 2008:373).
The considerable demand for goods and services within poor communities,
especially where formal businesses are largely absent, provides an
51
From local survivalism to foreign entrepreneurship
opportunity for the emergence of micro-enterprises that are modelled on
formal businesses, but operate informally. It is in this context that spaza
shops conduct their business.
The great majority of spaza shops operate informally without a license to
trade (Chebelyon-Dalizu et al 2010). A number of studies have investigated
the enterprise characteristics of spaza shops (Cant and van Scheers 2007,
Chebelyon-Dalizu et al 2010, Ligthelm 2005, Perry 1989). Their success was
based on three factors: first, the role of the extended family in providing start-
up capital and labour; second, the business location, physically operating
from rooms of residential households and spatially situated close to people=s
homes; and, third, the informal rules that permitted each spaza a small share
of the market on roughly equal terms. The research also emphasises the
importance of the social ties between the micro-entrepreneur and his/her
neighbours and the broader community, which determines the terms on
which lines of credit are extended (Ligthelm 2005:205). At the same time credit
is also recognised as a potential cause of business failure.
Whilst the spaza market offers potential opportunity for success, many
new entrants fail. Although no accurate data on the survival of spaza
business is available, it is thought that up to 50% of new entrants are unable
to sustain their businesses for longer than five years, though those that do
survive have great longevity. The Ligthelm (2005:205) study reports that an
impressive 40% of spazas in the urban context had been in operation for
longer than five years. It is significant that existing spaza shop micro-
entrepreneurs were willing, until the arrival of immigrant shopkeepers, to
permit a continuous stream of new entrants into the market. Before this time,
spaza shops rose and fell, but accounts of foreigner competition and/or
violent entrepreneurship from competitors were rare.
There is anecdotal evidence, confirmed during our research, that the
historically low barriers to entry in the spaza market was attributable to some
form of collusion in price setting, a practice widely evident among street
traders (Charman and Petersen 2007). In this regard, Charman and Petersen
have shown that the use of price competition is considered unfair and
unethical. Instead street traders compete through non-price mechanisms,
including their spatial location, product presentation, customer engagement,
the bonds of clan and kinship, and by seeking supernatural support (Charman
and Petersen 2007, Petersen and Charman 2008). Price competition is strongly
discouraged among these informal micro-entrepreneurs because <fixed=
prices help to ensure that market entry barriers remain low, thus keeping the
52
Andrew Charman, Leif Petersen and Laurence Piper
market open for others who equally need a means of survival. This informal
<rule= of doing business enables street traders to sustain their micro-
enterprises for many years, for under fixed prices, they have an equal
opportunity to sell their goods or services even though growth prospects
are limited for all.
This outlook underpins the <survivalist= practice identified in much of the
research on the South African informal economy. Ligthelm (2008) proposes,
for example, that less than 15% of all micro-entrepreneurs have the necessary
skills and business acumen to expand and develop their business. Unlike
classical opportunity-driven entrepreneurship, the strategy of the survivalist
micro-entrepreneur is to derive an income as a means of employment, often
until such time as a better paying job becomes available, though not
necessarily to expand the business if growth requires the elimination of
competition.
These insights help inform the key finding of this study, namely that the
conflict between local and foreigner spaza retailers is less about identity
politics than it is about fundamentally differing approaches towards business.
Most local spaza micro-enterprises, we propose, had not historically engaged
in price competition but rather operated on the basis of their location and
relationships with clients. Foreigner entrepreneurs, in contrast, are known
to use price competition and bulk procurement strategies to aggressively
compete with local spaza shops through undercutting their price (Knowledge
Link Services 2009: 39-40), a practice confirmed by this study.
Methodology
The study looked to explore the scale, nature, and perception of the spaza
sector in one study site. It is fundamentally a case study driven approach,
although extensive use of both quantitative and qualitative methods is
made. In terms of sites, the research was confined to the residential area and
high street of Delft that fringes the City of Cape Town. The case study site
was chosen because of the known penetration of foreigner shopkeepers into
the market and, as a consequence, of the history of tensions between
immigrants and South African residents in the area (see Charman and Piper
2011). The case study site comprises a racially diverse community, made up
of <coloured= and <black African= (predominantly Xhosa) people, whose
heterogeneity is reinforced through the diversity of religions (Christian,
Islam, traditional) and cultural belief systems.
53
From local survivalism to foreign entrepreneurship
Figure 1: Spatial Distribution of Micro-Enterprises, Delft South / Eindhoven
The township of Delft was established as a new housing development in the
54
Andrew Charman, Leif Petersen and Laurence Piper
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56
Andrew Charman, Leif Petersen and Laurence Piper
Figure 2: Spatial Distribution of Spaza Shops, Delft South / Eindhoven
gauge local shopkeeper views on the historic practices and recent changes in
57
From local survivalism to foreign entrepreneurship
gauge local shopkeeper views on the historic practices and recent changes
in the Delft spaza market, the researchers facilitated a focus group discussion
with eight South African spaza shop owners.
Findings
The findings emerge in the order identified in the research methodology
section starting with the number, ownership, and spatial distribution of
spazas; price competitiveness and other businesses; and South African
responses, including popular attitudes. The key findings include, first, the
remarkable scale of the informal economy in Delft, and especially the
comparative size of the spaza market; second, the substantial portion of
foreign ownership, and its recent arrival into the market; third, the importance
of price competitiveness to this success, but also other business practices
and, fourth, the inability of South African spaza shops to match the
competitive challenge with customers choosing foreigner-run shops.
The scale of the informal economy of Delft
The scale of the informal economy in Delft is much larger than officially
thought. The City of Cape Town, for example, identified 123 businesses
within Delft South in a recent strategic planning survey. Our research
identified 818 registered and unregistered micro-enterprises, whose spatial
distribution is presented in Figure 1. The various categories of micro-
enterprises identified are shown in Figure 3.
Figure 3: Identified Micro-Enterprises, Delft 2011
Enterprise Category No Enterprise Category No Enterprise Category No
Agriculture 6 Game Shops 32 Seven Eleven 2
Building Services 22 Green Grocer 21 Shebeen 83
Business Services 12 House Shop 124 Soup Kitchen 8
Butchery 7 Manufacture 36 Spaza 179
Car Wash 6 Mechanical /
Electrical Services
58 Take-Aways 31
Drug Dealers 6 Personal Services 73 Tavern 18
Educare/ Crèche 32 Phone Shop 10 Trade (general) 25
Fire wood 4 Recycling 16 Transport 2
Food Retail 14 Restaurant 5 Wholesaler 3
58
Andrew Charman, Leif Petersen and Laurence Piper
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59
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Figure 4: Transect, Household Survey
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Figure 6: Comparative Aggregate Prices (ZAR)
64
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Figure 7: Price Variation (in ZAR), Standard Deviation of Mean
65
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66
Andrew Charman, Leif Petersen and Laurence Piper
Figure 8: F1#2&$&*4-$/,$6*+1"$7)%/(',$&.'@'$PR$*)$&1*%#&Q$("#'.#%$1"',
1"#$'0#%'3#$.%/(#$/,$6*2'4/$&.'@'&
Large businesses versus small
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milk
eggs
½ loaf
loaf
250g
sugar
500g
sugar
1kg
sugar
340ml
coke
450ml
coke
1.5L
coke
Jive
Premium
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67
From local survivalism to foreign entrepreneurship
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68
Andrew Charman, Leif Petersen and Laurence Piper
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South African responses
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69
From local survivalism to foreign entrepreneurship
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70
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71
From local survivalism to foreign entrepreneurship
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@#9*-699&56"5:6D&6956+*,::?&()"7&!"7,:*,<&M#)$%6)7")6D&,-;&7"9$&*75")$,-$:?D
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+"756$*$*C6-699& $%)"#>%& +"B"56),$*C6& "E-6)9%*5D& 5)"+#)676-$& ,-;
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'9&9?9$67,$*+,::?&;67"-9$),$6;&$%)"#>%&$%*9&)696,)+%D&>6">),5%*+&:"+,:*$?
*9&*75")$,-$&*-&;6$6)7*-*->&7,)86$&,;C,-$,>6D&$%"#>%&6C6-&E*$%&$%6&,;C,-$,>6
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Note
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c'.#$',-$%#&#'%("$&+..*%1$)%*2$1"#$6+&1'/,'94#$d/0#4/"**-&$>*+,-'1/*,$P6d>Q8
References
K#'%:$[:$N$K%'-,+2:$6$!4'-/$',-$T$N#-%*$P^DDIQ$Making Retail Markets Work for
the Poor 3 why and how triple trust organisation decided to intervene in the Spaza
market in South Africa.$L'&"/,31*,:$T8c8E$!"#$6SSN$e#15*%;8
K#(;#%:$h>$P^DDCQ$`!"#$/,)*%2'4$#(*,*2<O8$61*(;"*42E$\Wg]!$c*,&+41/,3$7K
)*%$1"#$T#.'%12#,1$)*%$F,)%'&1%+(1+%#$',-$S(*,*2/($c*=*.#%'1/*,$P6FT7Q8
c',1:$[$',-$d$0',$6("##%&$P^DD?Q$`7,'4<&/,3$1"#$/,)4+#,(#$*)$1"#$&.'@'$&"*.$*,
1"#$('&"$',-$('%%<$5"*4#&'4#%$/,$1"#$6*+1"$7)%/(',$-/&1%/9+1/*,$("',,#4O8$!*;<*E
N%*(##-/,3&$*)$1"#$F,1#%,'1/*,'4$K+&/,#&&$7('-#2/(&$c*,&*%1/+2$c*,)#%#,(#:
!*;<*8
c#,&+&N4+&$^DD?8$Community Survey 2007 Database8$
5558&1'1&&'83*08@'. Accessed
12 March 2009.
c"'%2',:$7$',-$d$ N#1#%&#,$P^DD?Q$Informal Economy Study: trade component.
Micro economic development strategy8$c'.#$!*5,E$N%*0/,(/'4$g*0#%,2#,1$*)
L#&1#%,$c'.#8
c"'%2',:$7$',-$d$N#1#%&#,$P^DBDQ$`7,$/,0#&1/3'1/*,$*)$("'%'(1#%/&1/(&$-/&1/,3+/&"/,3
i#,1%#.%#,#+%&j$)%*2$1"#$i)=#2.4*<#-j$/,$6*+1"$7)%/(',O&$/,)*%2'4$#(*,*2<O8
k*"',,#&9+%3E$ ],.+94/&"#-$ N'.#%$ .%#&#,1#-$ '1$ 1"#$ LF!6$ c*,)#%#,(#$ *,
S,1%#.%#,#+%&"/.8
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%#'&&#&&2#,1$*)$1"#$2*9/4/&'1/*,$*)$A#,*."*9/($0/*4#,(#$/,$1"#$('&#$*)$&.'@'
&"*.&$/,$ T#4)1$ 6*+1":$ c'.#$ !*5,:$6*+1"$7)%/('O8$c'.#$!*5,E$ ],.+94/&"#-
.'.#%$ .%#&#,1'1/*,$ 1*$ T#.'%12#,1$ *)$ N*4/1/('4$ 61+-/#&:$ ],/0#%&/1<$ *)$ 1"#
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73
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%*4#$*)$&.'@'$&"*.&O8$Development Southern Africa8$^^P^Q:$BYY=^BC8
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