Foreign traders in South Africa thank networks for their success

Nazil Munssi, surrounded by police, in front of his looted shop on Friday. Townships including Soweto have been hit by looters targeting foreign-owned stores. Picture: AFP / STEFAN HEUNIS

By Carol Paton
Monday, January 26, 2015

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Resentment against foreign shopkeepers runs deep in SA’s townships.

It took only one altercation between a known thief and drug addict, and a Somali shopkeeper in Snake Park, Soweto, last week to ignite mass looting of foreign shops across the township. All that is required is a spark and mobs are ready to pile into foreign shops, loot and sometimes kill their owners.

While events in Soweto made headlines and were reminiscent of the 2008 xenophobic violence that swept across the country, isolated incidents against foreign businesses occur daily. With foreigners being disliked by many South Africans amid the belief that they lay claim to national resources, it is their success in business that irks township dwellers particularly.

Foreign shop-owners in townships, many locals believe, crowd them out of opportunities and starve them of business. Whether foreigners are the main reason locals fail is debatable; what is undeniable is that foreigners are better at doing business and research shows that their enterprises are more likely to survive.

In a small but important study that tracked the fate of survivalist enterprises in the Cape Town township of Delft over three years, a group of researchers has been able to show that over time, ownership has become increasingly foreign. In 2010, the first year of the survey, researcher Rory Liederman wrote that ownership of spazas in Delft was equally divided between locals and foreigners, mainly Somalis.

But by 2013, 70% of the spazas that were owned by locals had closed permanently, including businesses that had operated for more than 10 years. Foreign-owned shops had increased by a third.

Mr Liederman and his co-authors 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", which could "have a significant and lasting negative impact on entrepreneurship and self-employment in the informal economy". But why is it that foreigners do so much better?

Somali trader Faizal Mohammed — the first foreigner to set up a spaza in the Mitchell’s Plain suburb of Beacon Valley — shared the story of his business success with me a while ago. Low mark-ups, high volumes, long hours and a willingness to give credit are at the heart of his success, he says. In what can be interpreted as a microexperiment, a neighbour, seeing his success, decided to emulate his example.

"I said to her: ‘Yes, do it. Open your own shop’. But she didn’t know how to do business. If they felt like closing the shop they did. They didn’t wake up early. They didn’t care. Now, they are renting that shop to some Bangladeshis."

Mr Mohammed said he had tried hard to get his South African friends to become self-employed. "Their answer always is that they don’t have someone to help them."

Helping one another and joining together to capitalise enterprises is germane to the Somali way of doing business. In his case it was through the generosity of a relative who employed him in his own shop when he first arrived in SA.

"I worked for him for six months for R2,000 a month. But he paid for everything for me — my food, my rent. He told me to keep the money for my future. He helped me like I was his brother, not an employee," Mr Mohammed says.

A survey carried out by the City of Cape Town in Khayelitsha several years ago found that foreigners invest far more than locals when starting shops. On average, a foreign trader has start-up capital of R15,000 compared to a local shop-owner, who invests only R450 in his/her venture.

The capital is raised by clubbing together and almost every Somali store is started up by two or three investors. Mr Mohammed and two others invested R20,000 in setting up the Beacon Valley store.

Mr Liederman’s research showed that the foreign-run shops in Delft were better stocked and appeared to be generally favoured by local consumers. In a comparison of six key commodities, foreign shops were cheaper and Somalis used price discounting to capture market share from existing stores.

The answer 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, he says. Networks provide services including cheap labour, group purchasing, investment and microfinance.

Among Somalis, mutual trust is under-pinned by a cultural and religious foundation, which makes it easier, it seems, for Somalis to set up joint ventures, to part ways amicably when necessary, to trust one another with money and to save.

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