ENTREPRENEURS can learn a lot just from visiting and trading with other businesses and so can those making public policy.
But this critical street-level perspective is missing with government officials in the wake of recent attacks on foreign-owned spaza shops, seemingly unable to explain whether foreign-owned shops are super profitable, if they pay taxes and whether they should be formalised.
I recently went to a foreign-owned spaza shop in Yeoville, Johannesburg. The shop owner willingly sold me a soft drink, but was reluctant to share stories.
Yet even a quick glance around the shop was revealing. A machine dispensed prepaid electricity and airtime. Items of fresh produce were sold individually, as were pieces of chicken. Advanced payment systems for certain services sat cheek-by-jowl with the traditional method of selling single servings.
The setup reminded me of tactics outlined by CK Prahalad in his book The Fortune at the Bottom of the Pyramid.
Another example: on a Sunday afternoon, we needed to repair a school uniform — which was no problem, because we had a choice of about a dozen tailors in Fordsburg.
After a couple of quick quotes and the compulsory haggling, we had a repair completed professionally and within half an hour. The business we chose had one person dealing with customers and two tailors working through a large number of garments.
This business intrigued me. Three people employed in a small shop, with neat fittings, the requisite equipment and doing a brisk trade.
It is the type of business envisaged by the National Development Plan, which sees lower-skilled service businesses as employment generators. The tailors would not take kindly to being described as such — indeed, they could probably produce a bespoke suit — but their niche is for repairs done inexpensively and for day-to-day women’s outfits. If you wanted a bespoke suit, you would find a specialist around the corner, and next to him someone displaying his summer collection of evening wear for women.
Crucially, these tailoring businesses are thriving, despite the enormous job losses in the clothing and textile industries and tough negotiations on a minimum wage in the sector.
These ventures raise questions — significant policy questions — especially if the number of such businesses can be increased to reduce unemployment.
In townships, besides collective buying and the selling of single servings and prepaid technology, an important service is the provision of credit, often interest free.
For some it is about practising the Islamic prohibition on charging interest, but more generally it is a time-honoured way of doing business.
This practice is supported by monthly transfers from the state through social grants, remittances and salaries in these communities, and an acceptable default rate on payments.
These informal credit agreements are an important part of operating in South Africa’s townships.
One could get wrapped up in the seeming exceptionalism of foreign-owned stores, but the Gauteng City-Region Observatory has revealed that the majority of informal businesses in Gauteng are owned by South Africans. And success is not foreign to them.
Moreover, one should remember that, for a range of reasons, many foreign-owned businesses are not fully formal. But the kneejerk response to formalise them must be questioned. The Sustainable Livelihoods Foundation argues for a two-pronged strategy: formalising larger businesses and allowing microenterprises to remain informal.
This could be an optimal strategy for our government and is a policy recommendation worth considering.
Around the world, governments are encouraging immigrant entrepreneurs. The education and entrepreneurship Kauffman Foundation recently offered guidance to national, state and local governments in the US on attracting talented expats, specifically in the technology sector. And a “start-up visa” to support the relocation of businesses is already available to entrepreneurs in Chile, France and Canada, with other countries adopting similar strategies.
The common refrain in South Africa is that immigrant entre-preneurs are only involved in retail, so do not bring anything “new to the table”.
But these entrepreneurs are also involved in light manufacturing, making products such as washing powder, sweets and mattresses.
Often they are importing technologies and processes developed in other countries to serve poorer consumers. These experiences in manufacturing are an important area of study, especially because the government has a commitment to creating 1000 black industrialists.
The attacks on foreign-owned shops in Gauteng are clearly xenophobic. Underlying them are assumptions about the profitability of foreign-owned businesses and a sense that the economy does not offer locals any opportunities. But aspirant entrepreneurs can learn by observing successful businesses owned by South Africans and immigrants.
This would be enhanced by addressing the root causes of violent protest: resilient and high levels of inequality in wealth and opportunity in South Africa.
In addressing this underlying challenge, better public policy will be developed from us all having more of a street level perspective.
This article first appeared in the Sunday Times: Business Times on the 8 February 2015.