Business Day: JOHN DLUDLU: Informal business sector needs to be regulated and soon

For years the government has been promising to regulate informal sector economic operators. No credible action has been taken to fulfil this promise.

However, the deaths of dozens of black schoolchildren appear to have bolted the government into action. A week ago the ministers of health, state security, police and small business commissioned an investigation into the deaths of children in the townships of Gauteng and parts of Mpumalanga.

The deaths of the Soweto children have been attributed to Terbufos, an agricultural pesticide, ingested from spaza shops. Terbufos is banned in Europe, but not in SA. The deaths have revived the debate about regulating the informal sector traders in SA. This is an opportunity to do something drastic and bold.

To be clear, this sector plays a vitally important role in SA’s economic wellbeing. Without it, millions of South Africans would be severely inconvenienced. Historically these shops were owned and operated by SA nationals such as retired teachers and nurses, to supplement their pensions. As well as providing extra income, they provided informal employment to children of relatives transitioning into tertiary education institutions.

After the dawn of democracy SA’s borders were opened to foreigners from neighbouring countries and other countries outside the continent such as Pakistani, China and India. Wars and economic conditions also forced Africans from neighbouring countries to flee to SA.

As a consequence, in the past 15 years small township general trading stores were taken over (not by force or at gunpoint) by foreigners. The SA black store owners, who had their profit margins cut through competition from major chain retailers, which have expanded into SA townships since 1994, opted to rent out their premises to foreign nationals instead of competing with the behemoths.

Households also jumped into this new revenue stream by renting out a garage or a container to Somali and Pakistani traders. The few SA informal traders who stayed in business ended up on street corners or around malls, where they could trade rent-free, though in constant fear of having their goods confiscated by metro police.

While the post-apartheid administrations were decisive in forcing big companies to take on black shareholders through the BEE laws, they have not known how to deal with the transformation of the township economy, which suffered the double blow of foreign traders and big retailer invasion.

Successive administrations have paid lip service to the sector’s importance. But they did very little to support and protect it or insist on minimum standards, including policing the use of illegal immigrant labour.

Instead, some ministers are on record dishing out ridiculous advice, such as that SA traders should learn from their foreign counterparts how to run businesses successfully. Some have, without proof, suggested that South Africans are lazy.

The reticence to intervene decisively in this crisis has stemmed from two factors — pure incompetence (not knowing what to do), and fear of being accused of ill-treating foreigners, especially Africans whose governments hosted liberation fighters in their own countries during the apartheid era.

With no clear evidence-based policy-making, SA’s townships and villages soon became a jungle. Without regulation, major international brands had their brands counterfeited and no-name food and drink brands found their way into the spazas at hugely discounted prices.

Every now and then police and customs officials would raid the premises that warehouse the counterfeit goods. Few raids ever took place at the foreign-owned township spazas. Even assuming the best of intentions, there are fewer health inspectors than there are foreign traders.

A week ago the government panicked and sprang into action with an interdepartmental investigation into the death of the children. It has to be commended for this action, even if it is too belated. However, more needs to be done.
Most importantly, South Africans need to be assured that the spazas and their owners do not pose a national security threat, and that the proceeds of their businesses are fully accounted for and not used to fund illicit operations in and outside SA.

A nationwide clampdown is long overdue. Minimally, this should seek to establish the owners’ status to be in SA, and adherence to the country’s health and safety standards and other bylaws. The crackdown must target tenants (or operators and owners of these spaza shops), their workers and landlords.

The Competition Commission, which has previously done commendable work with various market inquiries, has badly failed SA’s township and village economies. The commission should investigate the business practices of the retail chains, especially pricing in townships and rural villages, and the impact these are having on SA-owned small businesses.

The government needs to designate the township and village economies as sectors for ownership and operation primarily by South Africans. The law must also make clear that 90% of the workforce of these entities must be South African nationals. Running a successful spaza shop can hardly be termed a scarce skill.

There is nothing xenophobic about this. Other countries do it without the skies falling. Nor is there anything progressive about allowing foreigners of ill-defined status to do as they wish in SA.

Finally, the government needs to enforce partnerships between the established white retailers and township entrepreneurs. It is clear that BEE has benefited a few individuals and left township entrepreneurs behind.

If no bold action is taken after these avoidable child deaths there is a risk of a new social conflagration engulfing SA’s townships and villages.

* Dludlu, a former editor of The Sowetan, is CEO of the Small Business Institute.

by Business Day – https://www.businesslive.co.za/bd/opinion/columnists/2024-10-30-john-dludlu-informal-business-sector-needs-to-be-regulated-and-soon/