Spaza shop registration: government needs a re-think in order to drive sustainable change

Annelene Dippenaar, chief business officer at Shop2Shop.Image supplied

While proper regulation is crucial, the requirements that have been currently imposed on entrepreneurs are impractical, go against efforts to reduce red tape in order to promote the creation of new businesses in the country, and have the potential to negatively impact the economy.

As per the requirement, all spaza shops must be inspected prior to registration and be issued with a Certificate of Acceptability.

Although this sounds straightforward in theory, regulation of spaza shops falls under the ambit of local government, and while large municipalities are equipped to deal with these regulatory requirements, smaller municipalities don’t have the skills or resources to register spaza shops.

It currently takes on average between three to six months for a spaza shop to be issued a Certificate of Acceptability, making the 21-day deadline unattainable and unfair on entrepreneurs.

An influx of applications from spaza shop owners is likely to further lengthen the process, and moving to shut down unregistered shops are likely to have a negative impact on the country.

On top of these administrative challenges, the reality is that this law - Regulation 638 of 2018 - is not fit for purpose, which is evident in its poor enforcement, and by publication of the Standard Draft By Law for Township Economies a week prior to the President’s announcement.

Guide to register spaza shops

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Spazas can be an economic driver

During his speech at The Presidential MSME and Cooperatives Awards, President Cyril Ramaphosa said that micro, small and medium enterprises (MSMEs) and cooperatives form a vital part of the economy with immense growth potential.

He added that an estimated 5.8 million MSMEs were needed to meet the country's job creation targets, effectively doubling the number of such businesses in the country.

President Ramaphosa even alluded to the streamlining of business licensing in order to facilitate the growth in businesses, and this current drive to get all spaza shops to register themselves with an unrealistic time frame is counter to what the President is aiming for.

It is almost as if the government has yet to fully grasp the enormous role that spaza shops play in this environment.

According to research from Accenture in 2023, there are more than 150,000 spaza shops with an estimated total market size of R178bn, and this industry has been growing at a compound annual growth rate of 14.7%.

Beyond just the economics, spaza shops provide a valuable service by offering affordable and convenient access to goods for people in townships, who would have otherwise had to spend on transport to buy household items.

More than this, the spaza shop is also a reliable source of food security to many locals, offering customers the option to purchase on credit when they don’t have the necessary financial means to buy essential goods.

A study conducted by Unisa in 2017 also found that the 'spaza rent' collected by homeowners amounted to between R2,800 and R3,000 per month, providing them with a much-needed source of passive income.

For some, this is their only source of income, and a move to shut down unregistered spaza shops after the 21-day deadline will result in dire consequences.

When one includes the value addition created in the wholesale, distribution and transportation sectors, it becomes clear as to why spaza shops should not be looked at in isolation, but as part of a broader ecosystem that makes the economy tick.

As an example, some wholesales have already witnessed a decline in stock being bought by spaza shop owners, which not only affects their revenue, but also has a negative impact on the country’s VAT collection.

Partnership for growth

To assist spaza shops, the government is providing access to around R500m in funding, but these are in the form of a loan or stock grant, completely missing the point that filling a store with stock is just one half of the problem.

Running a spaza shop however is a very demanding job that takes some skill, and the owners have usually been managing these shops for years, and understand supply versus demand and customer purchasing behaviours, as well as having a network in order to leverage on stokvels or buying groups to negotiate better pricing.

Government funding open for registered township spaza shops

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The government wants more South Africans to be entrepreneurial, however skills training for new business owners must accompany this drive. Training in areas of managing stock, how logistics work, purchasing from reputable brands, use of point of sale (POS) systems and technology, understanding cost margins and selling value-added services (VAS) are examples of critical skills needed to build sustainable businesses.

The lack of knowledge also makes them vulnerable to accepting loans without understanding the business’s financial standing.

A more responsible approach to developing the sector would be to have spaza shops - that are already being run well in communities - employ one or two staff members to help with the employment crisis.

Instead of criminalising the industry, a more sustainable option would be to partner with the spaza industry to grow the economy.

The decision to enforce this regulation within such a short period of time is unreasonable given the government’s perceived acknowledgment that better regulation is needed with reference to the Township Economy By Law.

Furthermore, the apathy shown by government and the lack of structures put in place to assist spaza shop owners with the registration process, feels like an assault on some of the hardest working citizens in country as spaza shops are open at the crack of dawn and often close late at night in order to service the last minute needs of the community.

The impact of decisions made under the pressures of populist narrative to address a food safety crisis that will not be resolved by requiring registration of spaza shops, can be harmful to the South African economy rather than foster the intentions it was meant to drive.