Market forces part of xenophobic violence

The business acumen of foreign nationals, rather than xenophobia, is being named as the trigger that led to attacks against Somalis and other migrants in the South African port city of Cape Town.

In the aftermath of the violence that swept across the country in May 2008, killing more than 60 people and displacing tens of thousands of others, the City of Cape Town commissioned a report, An Audit of Spaza Shops in Khayelitsha, a township on the outskirts of town.

In an eerie reprise of those events, on 13 June 2009 Somali businessmen in Gugulethu township, in Cape Town, received letters telling them to leave the township within seven days, a day after the report was released.

On 15 June, Cape Town police called a meeting between Somali shopkeepers and their local counterparts to diffuse tension and thwart any repeat of the violence.

The report surveyed 214 locally owned and 138 foreign-owned spaza shops in Khayelitsha, a sprawling township established in 1983 by the apartheid government in an attempt to manage the migration of black people from rural areas to the city.

Khayelitsha was initially envisaged to accommodate 220,000 people, but the number has ballooned to nearly 10 times that, and has an unemployment rate of about 50 percent.

Apartheid planners ensured that Khayelitsha, like other townships, was divorced from South Africa's commercial mainstream by distance and poor transport systems, so spazas (informal shops) filled the vacuum, providing residents with basic goods from maize-meal to cigarettes, but often at higher prices.

The demise of apartheid has not altered the commercial dynamic of the township, but has seen a shift in demographics as African immigrants are drawn to there both by their socio-economic plight and the business opportunities that townships present.

In 2006, it was estimated that the spaza industry was responsible for about 4.7 percent of retail trade, or more than R9 billion (US$1.1 billion).

Township supermarkets

The report speculated that attacks on Somali-owned businesses were "ethnically motivated"; but "there are issues of pricing, consumer choice and the growth of supermarket-like spaza shops that has an impact on retail business in the area," it noted.

"Many spaza shops owned by Somali immigrants have evolved into mini-superettes [convenience stores], which tend to be preferred choice of consumers as they offer a wider range of products compared to an over-the-counter or through-the-window spaza shop."

Local spaza shop owners "were motivated by survival and would rather work for a company, should the option become available. Foreign spaza shop owners, on the other hand, were more innovative and envisaged growth in their businesses," the report commented.

The stark differences were seen in the start-up capital: locally-owned spaza shops averaged about R500 ($62.50) while non-nationals invested more than R3,000 ($375.00) and "remarkably, the majority of foreign spaza shop owners have started their businesses as a result of identifying an opportunity in the market."

The report said the approach by foreign-owned spaza shops to retail was illustrated in the lay-out of their shops, which were more reminiscent of the "7-11" approach, with a greater diversity of commodities on offer and cheaper prices.

"Foreign spaza shop owners had a wider range of products and services at lower prices. Foreign spaza shop owners conducted bulk buying through social networking and also accessed finance through these networks. This resulted in foreign spaza shop owners obtaining substantial discounts. As a result of this, local spaza shop owners were struggling to compete."

''The distinct differences between the two groups of business owners have resulted in different buying methods, where foreign spaza shop owners do collective buying and thereby qualify for bulk discounts, which impacts directly on pricing strategies''

Cultural differences

The report said there were "cultural differences" that made foreign spaza owners more "collectivistic in nature", as opposed to the "individualistic" approach of locally owned shops.

"The distinct differences between the two groups of business owners have resulted in different buying methods, where foreign spaza shop owners do collective buying and thereby qualify for bulk discounts, which impacts directly on pricing strategies."

The report highlighted local spaza shop owners' absence of book-keeping - as practiced by foreigners - which, apart from detailing the financial health of the business, was crucial to accessing finance.

Interviews with the Khayelitsha police at the time of the May 2008 "xenophobic violence" blamed criminal elements for the attacks on foreign traders.

However, the police also acknowledged that "tensions that exist between foreign and local spaza shop owners are ... [because] the spaza shop market is becoming increasingly competitive ... [so] local spaza shop owners ... [do not] compete effectively with foreign spaza shop owners in terms of price and changing customer preferences."

The report said there was a lack of information on government business programmes, but the City of Cape Town, in partnership with the University of Cape Town's Graduate School of Business, was providing business support programmes, such as entrepreneurial skills development, to Khayelitsha's small business owners.