Spaza shop owner Ohiedurrahman Rahman, originally from Bangladesh, at his spaza shop. Picture: DAILY DISPATCH
Spaza shop owner Ohiedurrahman Rahman, originally from Bangladesh, at his spaza shop. Picture: DAILY DISPATCH

SPAZA shops run by foreigners are out-competing locals, putting them out of business and threatening the future of employment in the home-based sector, says a study by online economic policy debate forum econ3x3.

Spaza shops account for 9.2% of home-based employment, according to figures from Statistics South Africa, and are a significant contributor to township livelihoods.

In a research paper based on a study in the Cape Town township of Delft, Rory Liedeman and three others analyse why spaza shops run by foreigners, in particular Somalis, are more successful than those operated by South Africans. Their key finding is that the two have a markedly different business approach, which results in a larger scale of operations by foreigners.

Over the past three years, the ownership of spazas in the area has shifted almost completely into foreign hands.

In 2010, ownership was about equally divided between locals and foreigners, mainly Somalis. But by last year, 70% of the spazas owned by locals had closed permanently, including businesses that had operated for more than 10 years. Foreign-owned shops had increased by a third.

The researchers warn that although their work is focused on one geographical area, the research suggests that "the general spaza sector is changing at a rapid rate". This might "have a significant and lasting negative impact on entrepreneurship and self-employment in the informal economy, at least in the home-based sector".

The researchers say that "foreign shops appeared to have positioned their business to compete directly with established South African businesses". On a sample of six key commodities, the report shows that foreigner-owned shops are cheaper as they use price discounting to capture market share from existing stores.

"The foreign-run shops were also better stocked and appeared to be generally favoured by local consumers," the paper states.

The answer as to why South African businesses cannot employ the same approach as their Somali competitors lie in ethnographic differences between the two and the relative strength and role of their social networks. The se provide services including cheap labour, group purchasing, strategic investment in geographical areas and microfinance.

In contrast, South African shopkeepers typically operate in a weak social network often limited to immediate family members providing labour and little else.

The contrasting models manifest in businesses of very different sizes, says the paper. While most Somali business are big enough to be considered formal businesses, local ones tend to be survivalist, microenterprises.

The writers agree South Africa must allow legal immigrants to establish businesses, including spazas, but argue that the continued survival of small and locally owned spazas is important. Small, local spazas help to "address unemployment and poverty".

The report suggests that once businesses reach a certain size, they start complying with the requirements of formalisation, which could include relocation and compliance with labour laws. This, the researchers argue, would allow a space for "the rekindling of survivalist spazas".