Foreign vs Local Spaza wars

The DTI and industry and SARS are working together to ensure that they tax foreign-owned shops and strengthen legislation to regulate their operations

The debate about the unabated proliferation of foreign-owned small businesses in South Africa, especially in the townships, continues to rage across the spectrum of society, with questions being raised whether the expatriates are benefitting or killing indigenous entrepreneurship.

The number of foreign-owned general dealer shops that are mushrooming around the various townships in the country has increased, and they have a competitive edge over local shop owners, some of whom have been forced to shut down.

As it stands, there appears to be no solution in sight to the problem, as more foreign nationals continue to swarm into the country in pursuit of a better life. As government seeks to embrace international practices by, among others, relaxing trading regulations, it appears it is doing so at the expense of locally driven business and job creation.

While some South African’s are benefitting from jobs created by the foreign-owned businesses, others are upset that they have had to shut down their tuck shops due to stiff competition prices.

Trade and industry minister (DTI), Elizabeth Thabethe, recently slated foreign-owned businesses and accused them of promoting rural poverty.

According to Thabethe, foreigners are hurting local owners as they sell their goods at incredibly low prices, something that pushes the latter out of businesses.

As a result of the growing population of migrant business people, South Africans are constantly living in fear of losing their livelihoods.

Ntheko Mthembu is one of the business owners that have been forced out of business by competitors from the Middle East.

“When I opened my business, I did not bank on Bangladeshi people coming in and taking my business. I was forced to shut down, because I could no longer slash my prices to their levels,” said Mthembu.

According to Mthembu, many Middle Eastern shopkeepers open four to five businesses at a time and purchase their stock in bulk.

“This enables them to drop their prices significantly. When this happened, I couldn’t make it, so I had to close the shop. Why would I continue to run my shop at a loss?”

Mthembu said the gradual increase in the number of Middle East shopkeepers has seen many home-grown shops closing down, one at a time.

Yet, in the face of the odds stacked against them, many shopkeepers keep opening businesses, which are doomed to fail anyway. Clearly co-existence with foreign competitors is a tall order and as a result, the latter have been left to dominate the playing field.

A Chinese businessman in Bloemfontein’s Phase 4 township said he moved to South Africa seeking business opportunities.

The man, who only identified himself as Johnny, said that his entire family moved from China to escape stiff competition.

“There are just too many businesses in China and it costs a lot to establish a business there. South Africa is very much flexible and I don’t need much to start one here.”

Johnny said he moved from China in 2004 and found it profitable doing business in South Africa, where there is not much competition. According to him, business has always been good, but it has taken a nosedive this year due to the global economic crisis.

“The dollar has gone up, with much of the production costs increasing at an alarming rate. The prices of transportation, labour and goods have increased. This has clearly affected business.”

Asked how he felt about the closure of local businesses, he said that he has no problem with competition and said businesses actually thrive under healthy competition.

“Anyone can open a business, the problem is that many South African’s do not understand how business and competition work.”

According to Johnny, one of the factors that have negatively affected his business is the xenophobic attacks against foreign shop owners.

“Crime in this country is rif; not just here in the Free State. The recent attacks have however not fazed us; we are staying.”

Johnny said that the situation in South Africa is much better than that in China despite the high crime rate.

“There is a big market here and it promises to open doors to other African countries.”

He reiterated what Brand South Africa portal had stated that the cost of doing business in South Africa is reasonably inexpensive with the country being the least expensive country to do business with.

“South Africa’s exchange rate makes it one of the least expensive countries for foreigners to live and do business in – with a first-world infrastructure and high living standards ensuring good value for money.

“The country’s energy costs have increased in recent years, but the government is determined to meet its growing energy needs through renewable and efficient sources. The country compares favourably for petroleum prices, with private sector and multinational oil companies refining and marketing nearly all imported petroleum products in southern Africa,” said the website.

The spokesperson of DTI, Bongani Lukhele, said measures to curb foreign-owned businesses from dominating the local market are in the pipeline. According to Lukhele, the minister is still in the process of launching the Informal Traders Upliftment Project (ITUP), which seeks to improve to competitiveness among local traders.

He blames the competitive prices presented by foreign nationals as the main reason for the failure of local businesses to sustain themselves.

“The experience and bulk buying approach by foreign nationals are said to be giving them a competitive edge over local traders, who are mostly working in silos. Accordingly, the pilot project will target 1 000 informal retailers in all nine provinces and still to be launched by the minister.”

Lukhele said the department recognises the Immigration Act No 13 of 2002 which states that, for a foreigner to open a business in South Africa, a business permit must be issued.

The Act states that a foreign national needs to apply for a business permit and disclose the details of his or her business. He or she also needs to register and follow the laws as administered by the South African Revenue Service (SARS).

“So much still has to be done given that it’s a new area of focus, but the department is in the right direction. The strategy recognises various legislations that have an impact on the sector, for instance the Immigration Act and the Refugees Act. It is key that we find proper alignment so as to have proper regulatory processes.”

According to Lukhele, it is very evident that foreign-owned shops have an impact on the economy of South Africa and at this point, the department has embarked on a formal study to assess the number of foreign-owned businesses that exist within the country and how much they are actually costing the economy.

“Some of the issues that have become a case for concern include tax evasion, import of sub-standard goods and the issue of illegal and illicit goods. The closing down of shops is not an option for now as they have rights to trade as articulated in the Bill of Rights (as refugees).”

He said the only option at this point is to find ways of synergising local and foreign-owned shop owners, by uplifting local traders to be more competitive in the market and by regulating those who come into the country illegally. He also said that it was important for the department and SARS to explore ways to tax foreign shop owners.

“We as the government of SA are a signatory to UN protocols on refugees, thus our approach should be developmental to both locals and foreign nationals. We believe that more synergy is needed among government and various agencies in this regard.

“There is work that has been done in this area by the Dti and one of its agencies.  South Africa will fight against the importation of illegal goods and the economy is not open to be invaded by sub-standard products,” added Lukhele.

Ethiopian shopkeeper Cries Foul

Ethiopian shopkeeper, Zeleka Meshamo, has suffered a numerous criminal attacks at his Chris Hani Township shop which he also calls home.

His shop is secured with hard wire and locked with a big pad lock. He said he has experienced the most gruesome acts, as he peeps through the gates.

According to Meshamo, some attackers have come in armed with guns, robbing him of all the goods in the shop.

“We decided to lock ourselves in like this due to a serious crime problem here. As you can see, many of the people living here are poor, so I was expecting this to happen,” said Meshamo.

He said opening a business in his home town of Addis Ababa is a struggle as there is food scarcity in his country.

“There is no food, no jobs and no money there. We came here because we heard life was better in South Africa and that is exactly what I am experiencing.

“Things are open here and we do not have to ask government for permission to establish our businesses. It’s an open market and there are a lot of buyers,” he said.

Meshamo, who has a wife and three children, says he had to leave them behind in order to make a living in South Africa.

“I am not going back home, I am just hoping to bring them here instead,” he said.

Meshamo said the situation in his country is so bad that he finds it better to work in the poor communities of South Africa than to be at home with his family.

“Business is doing well and despite the criminal activity, everything is fine, we are able to make a living here.”

Ghanaian hairdresser’s Slons Thrives

Amanda Tuckson used to work for a shipping company in Ghana but lost her job when the firm went under. The ensuing joblessness and poverty turned her life upside-down.

Then her sister made arrangements for her to join her in South Africa, where she soon opened a hair salon in Chris Hani Township in Bloemfontein.

Her children are still in Ghana, a place she still calls home.

“I wish that one day I’ll make enough money to bring them here; life is easier in South Africa. The government supports its people.

“I opened this business with money I had borrowed from my sister, which wasn’t that much. I don’t think I would be able to do that back home. Unlike us back home, you have social and old age grants,” said Tuckson.

Tuckson, who lives in a rented RDP house in Namibia Square, described herself as an asylum seeker. The only people she calls family here are her sister and a few compatriots.

“We didn’t come here because we wanted to. It was due to political reasons I cannot divulge.”