Sign In
What can Somalis teach South Africans about business?
5/1/2015

​Competition is good for customers and the economy. So, have Somalis made any contribution to the landscape of business in the townships and streets of South Africa?

. English Xhosa Afrikaans

"I am disturbed to see local markets dominated by foreign nationals. I am not xenophobic, but would prefer locals to be the dominant force in South African business. The Indian and Jewish communities have been very good at working together and I don't understand why black South Africans have never been able to do likewise." This is the lament of an elder, Richard Maponya, an entrepreneur and property developer (Destiny Man magazine, 26 March 2015).

Maponya speaks what many think.

Another question is whether entrepreneurship is part of the genetic make-up of Somalis, Pakistanis and Bangladeshis, or is their deluge into informal business merely an accessible way of earning a living? Further, are Somalis, Pakistanis and Bangladeshis survivalist entrepreneurial because they cannot enter the formal economy of a country where they have limited options, or are they deliberately entrepreneurial?

Lindiwe Zulu, the minister of small business development in South Africa, caused no small stir at the beginning of this year when she cautioned foreign business owners in South Africa's townships to share their trade secrets with their native counterparts.

Chris Stali, a politician and entrepreneur operating from Khayelitsha, warned: "Somalis are very closed people. They only share information among themselves. Customers benefit – yes. As for the growth of the economy: Somali business does not benefit the country."

Luvuyo Rani, founder and managing director of Silulo Ulutho Technologies, a multi-million rand one-stop IT company started in Khayelitsha, echoes: "I've seen that Somalis are not involved in community development where they contribute to the community and where they support community causes like charity events and fund education and entrepreneurship programmes. They are not a part of the community … they are just here to do business and take out the money." As a small business forum leader in Khayelitsha, Rani was also involved in the foundation of USB's Small Business Academy.

However, Rani remains optimistic: "I think South Africans can learn [from Somalis] to build an asset base for their businesses and not take [the] money and buy big cars. South Africans could also learn to work together, support each other and grow the community economy."

Rory Liedeman, who wrote a Master's thesis on the dynamics of spaza shop operators, found that South African spaza owners either owned 100% of the business or were in 50-50 partnerships with their spouses. This was in contrast to foreign-owned spazas, which were owned by partnerships of country nationals. Entry into the partnership was not automatic or easy. Candidates had to earn a partnership through commitment (financially or through free labour) and investment (in cash or in kind). These partnerships were often verbal and based on profit sharing.

Liedeman also found that the foreign spaza vendors had been involved in operating more than one spaza in their lifetime; they had experience in trading. Another contrast to Somali businesses is that South African spaza owners use their profits for household expenses. Moreover, most South Africans work in the business themselves or use the free and voluntary labour of family members or those living in their household. Somali businesses employ partners until such a time that they can afford to hire labour.

Prof Marius Ungerer, who lectures in Management Consulting and Strategic Management at USB, says the following about these foreign entrepreneurs: "We as South Africans can learn from successful entrepreneurs from other countries. Research on Somali traders indicated that they follow very specific retail practices to enhance their competitiveness. One set of routines focus on supply chain optimisation by working in self-organised local business networks in the form of a trade association. This business network realises benefits for members, such as bulk buying schemes to increase price attractiveness, financing schemes for stock and advice on high-volume product lines."

"From client feedback on the retail front-end practices of Somali traders we have learned that these traders are really focusing on customer service by being friendly and helpful. For loyal customers they might even advance informal micro-credit, allowing customers to buy specially packaged goods that meet their needs. The shop hours of these traders are also convenient for local customers."

Dr Alfred Mthimkhulu, who completed his doctoral thesis at USB on small enterprise development in South Africa, presents two reasons why black South Africans could be faring poorer as entrepreneurs. Firstly, apartheid created restrictions through the Group Areas Act and consequently led to informal black businesses that now do not easily receive support from small business development interventions. Secondly, social welfare grants may deter "necessity-driven entrepreneurship". 

After a quick visit to any informal market square or tshisanyama precinct in black townships like Gugulethu, Town Two in Khayelitsha or Greenfields in Thokoza, one will discover that South African vendors do not engage in direct competition through, for instance, price.

Contrastingly, Charman, Liedeman, Petersen and Piper, in a study of spazas in Delft, Cape Town, found that foreign traders positioned themselves to directly compete with their South African counterparts, thus intending to take business from the locals. The study found that the Somali shopkeepers used price discounting extensively as a market penetration strategy. The Somalis also devised smart ideas to assist their cash-strapped customers, including selling smaller product packs.  

"In the case of the Somali shopkeepers, clan-based social networks play a key role in enabling a more competitive business model. The networks provide various services, including:

  • Enforcement of contractual agreements by the network, with clan elders overseeing business deals
  • Strategic investment in geographical areas to establish Somali strongholds
  • Group purchasing to secure discounts and operational economies of scale, and
  • The facilitation of micro-finance by organising investments and business partner
  • Access to cheap labour (recruited from Somalia)

 

"The South African shopkeepers, in contrast, typically operate within a weak social network that often is limited to members of the immediate family who provide labour but little else," concluded Andrew Charman and his co-authors.

Without doubt, informal business does play a significant role in the South African economy (see SBA Fact Sheets below). Therefore, street traders, local vendors and spazas cannot be ignored or left to their own devices. 

Can entrepreneurial skills be learnt?

In his research, Dr Mthimkhulu says that the development of small businesses can help to reduce unemployment and foster social equity.

According to Prof Ungerer, entrepreneurial skills can indeed be acquired: "Hard and smart work forms part of the retail skills of successful entrepreneurs. The personal characteristics required to be a successful entrepreneur have been well documented. These include being optimistic, visionary, disciplined, persistent, resilient, flexible, passionate, focused, willing to learn, ethical and hard-working. Entrepreneurs must also have initiative, drive, risk tolerance, integrity, self-confidence and an attitude of giving back. The good news is that all these abilities can be learned."

He says the Ernst & Young G20 Entrepreneurship Barometer indicated that more than four out of five entrepreneurs in the survey believed that entrepreneurial skills can and should be taught. "Policymakers need to encourage all institutions of learning to bring in role models and set up games and competitions. This gives aspirant entrepreneurs the chance to find out what it is like to run a business.

"Entrepreneurship training at community-based centres will increase entrepreneurship capacity, especially when hands-on training is combined with traditional academic learning," concludes Prof Ungerer.


Refugees across the world

USB's German-rooted Professor Wolfgang Thomas, whose family fled from the socialist East Germany in 1954, still remembers the hidden as well as open antagonism of West Germans towards these hardworking and often entrepreneurial East German refugees. In fact, his father accepted a job offer in Sasolburg, South Africa, because he could not get a job in West Germany, although highly qualified in his field of work.

 

Similar tensions can be found in many other parts of the world where refugees work hard and closely cooperate with each other in order to beat locals in the day-to-day business struggle. History is full of heart-breaking stories about Irish immigrants to the USA in the 1840s (including JF Kennedy's ancestors), Polish refugees to Germany and the UK in the 1980s and 1990s, and diverse refugee streams across north and central Africa.


Innovation at work in Khayelitsha

Based on estimates, Khayelitsha, a township in Cape Town, has 820 000 inhabitants, 200 000 households and 85 000 medium-sized enterprises, formal and informal small enterprises and survivalist enterprises.

 

The types of enterprises range from corner shops and car repairs to spazas, shebeens, hairdressers and gardening, transport, funeral and wood collection services.

 

These are just some of the findings contained in a series of fact sheets titled Understanding small businesses in Khayelitsha. The fact sheets have been compiled by Prof Wolfgang Thomas, professor extraordinaire at USB and head of the Small Business Academy Research Unit at USB. The Small Business Academy also offers a nine-month Development Programme to small business owners in communities such as Khayelitsha.

 

Find these fact sheets at www.usb.ac.za/sba.

References

Charman, A.J.E., Petersen, L.M. & Piper L.E. 2012. From local survivalism to foreign entrepreneurship: The transformation of the spaza sector in Delft, Cape Town. Transformation 78.

Charman, A.J.E., Liedeman, R., Petersen, L.M. & Piper, L.E. 2013. Why are foreign-run spaza shops more successful? The rapidly changing spaza sector in South Africa. Econ3x3.

Liedeman, R. 2013. Understanding the Internal Dynamics and Organisation of Spaza Shop Operators: A case study of how social networks enable entrepreneurialism among Somali but not South African traders in Delft South, Cape Town. Master's thesis, University of the Western Cape.

Mthimkhulu, A.M. 2014. Small enterprise development in South Africa: an exploration of the constraints and job creation potential. Doctoral dissertation, Stellenbosch University.

Ligthelm, A.A. 2006. Size estimate of the informal sector in South Africa. Southern African Business Review 10(2): 44.

Submit your comments here
Disclaimer: The views of users published on the University of Stellenbosch Business School website are their own and do not necessarily represent the views of the University of Stellenbosch Business School. Our editors reserve the right to edit and delete any and all comments received.
6 Comments
Test Comment
Posted by Elrico on 26-06-2015 5:49 PM
Test Comment
Posted by Pieter on 26-06-2015 5:50 PM
Thank you for sharing this. It's very important we continue to study what foreign nationals do in South African townships. There are many more lessons to be learned.
Posted by Ramon Thomas on 13-07-2015 11:48 AM
Posted by on 11-01-2016 2:17 PM
The Charman et al "from local survivalism..." paper is a groundbreaking study on the foreign spaza phenomenon in South Africa and the conclusions and inferences allows one to paint a realistic picture of the problems local traders face IF we can read between the lines by asking the correct questions, but unfortunately, it still seems that despite that excellent piece of work, the dangers of unregulated smme trading by foreigners are still not recognised. I served this sector for 10 years ( having over 600 customers covering the span of nationalities on the Cape Flats) and my biggest, wealthiest customers were local (Xhosa speaking) that ran 20 year old established spazas. Even they had issues, the very same that smaller, lesser established locals had. There is no "mystery" around competitive advantages - current marketing science knows it all - it's ignorance of the facts that causes ridiculous assumptions even in academic circles to be made.
Posted by Sharif Loghdey on 24-04-2017 6:19 PM
The Charman et al "from local survivalism..." paper is a groundbreaking study on the foreign spaza phenomenon in South Africa and the conclusions and inferences allows one to paint a realistic picture of the problems local traders face IF we can read between the lines by asking the correct questions, but unfortunately, it still seems that despite that excellent piece of work, the dangers of unregulated smme trading by foreigners are still not recognised. I served this sector for 10 years ( having over 600 customers covering the span of nationalities on the Cape Flats) and my biggest, wealthiest customers were local (Xhosa speaking) that ran 20 year old established spazas. Even they had issues, the very same that smaller, lesser established locals had. There is no "mystery" around competitive advantages - current marketing science knows it all - it's ignorance of the facts that causes ridiculous assumptions even in academic circles to be made.
Posted by Sharif Loghdey on 24-04-2017 6:46 PM




Name:

Email:

Comment:


 Featured ThoughtPrints