JB Cronjé, tralac Researcher, comments on the challenges facing the micro-retail sector in South Africa

South Africa’s President recently assured investors at the World Economic Forum in Davos, Switzerland that “South Africa remains fully open for business. We are inviting both domestic and foreign business partners to invest in the South African economy”. At the same time back home, the Minister of Small Business Development said “Foreigners need to understand that they are here as a courtesy and our priority is to the people of this country first and foremost. A platform is needed for business owners to communicate and share ideas. They cannot barricade themselves in and not share their practices with local business owners”. The Minister’s comments came after foreign-owned micro-retail (spaza) shops were looted and vandalised, fuelled by xenophobia, in different townships across the country. Research has shown that foreigners, mainly Somalis, Ethiopians and Bangladeshis, dominate the micro-retail sector in South African townships.

The underlying reasons for local shopkeepers’ inability to compete with foreigners should concern the Minister. Indeed, the National Development Plan foresees that most job opportunities and economic growth in future will come from more and expanding small and medium enterprises. Some of the challenges that need to be addressed to support business development include the development of business and labour skills; access to finance and credit; secure property rights; the removal of unnecessary regulatory requirements for the establishment of a business; and the provision of economic infrastructure. However, foreigner business owners’ ability to pool resources to buy stock in bulk and share costs affords them the opportunity to offer a wider range of products at lower prices are repeatedly highlighted by commentators. This seems to suggest it is the foreigners’ business acumen that forces their local counterparts out of business, despite not being eligible for the government’s finance and development schemes for small businesses.

It appears the Minister’s solution to the challenge is to resort to regulation by saying that “Non-South Africans should not be allowed to buy or run spaza shops or larger businesses without having to comply with certain legislated prescripts”. Obviously, enforcement agencies should clamp down on any business not paying taxes; operating without the necessary licences and permits; or selling counterfeit and illegal goods. It is not clear what else the Minister has in mind. The fact that the government can and should regulate business activity is beyond question. One would think this should typically include matters such as zoning and planning; control and licensing of undertakings selling food and liquor to the public; building restrictions, and trading hours. But regulation on these matters should equally apply to all businesses. Regardless, these matters fall mainly within the constitutional competence of local and not national government.

Serious concerns will arise if regulation is contemplated that would subject foreign retailers to economic needs tests to determine whether new entry will be allowed; restrict them to certain geographical areas; prohibit them from selling certain products; limit the number of outlets each may own and operate; restrict floor space; and, require them to enter into partnerships with locals and transfer skills. Applying these types of restrictions on foreigner retail businesses would have been possible had South Africa not undertaken specific commitments on retail services under the General Agreement on Trade in Services (GATS) of the World Trade Organisation (WTO). South Africa is a member of the WTO which regulates the international trade in goods and services, including the establishment of foreign owned and controlled retail businesses and the goods they may sell. South Africa made full market access and national treatment commitments on retail services allowing the establishment of foreign retail businesses of all shapes and sizes originating from any other WTO Member State. These commitments on retail services are linked to the sale of certain products including, but not limited to, food, beverages, tobacco; non-food products such as textiles, clothing, pharmaceutical and medical products; household appliances; hardware, paints and construction materials; office equipment; and, specialised products such as games, toys, souvenirs, flowers and jewellery. Introducing new regulation, including those made by local government, in violation of South Africa’s existing GATS commitments would have consequences. South Africa’s WTO obligations exclude the market access and treatment provided to persons originating from non-WTO Member States, such as Somalia and Ethiopia (WTO accession in progress).   

However, South Africa is currently seeking improved market access opportunities for local businesses, including local retailers, through the negotiation of preferential trade in services agreements on the continent. Five South African retail companies count among the world’s 250 largest retailers. They each operate, on average, in 14 countries (mainly on the continent). Apart from South Africa, the only other African countries that have made multilateral trade commitments on retail services are Burundi, Lesotho, Gambia and Senegal. Further market access opportunities for South African businesses will need to be secured through trade negotiations. Careful consideration must therefore be given to the implications that the introduction of new restrictions on foreign investors may have for the country’s reputation as investor and investment destination in the continent.

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Sources:

Deloitte, 2014. Global Powers of Retailing 2014: Retail Beyond Begins [Online] Available: http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Consumer-Business/dttl-CB-GPR14STORES.pdf

Magubane, K, 2015. Reveal trade secrets, minister tells foreigners [Online] Available: http://www.bdlive.co.za/national/2015/01/28/reveal-trade-secrets-minister-tells-foreigners

Steyn, L., Mataboge, M., De Wet, P., Zwane, T., 2015. Spazas: It’s not just the economy, stupid [Online] Available: http://mg.co.za/article/2015-01-29-spazas-its-not-just-the-economy-stupid