Letter in today's Business Day: Spazas have buying power

Sir

Matthew Govender's highlighting of the need to tackle the skills deficit in township economies coincides with the publication of recent research showing that township economies are mostly disconnected from supply chains in the formal sector (Township economy plan needs to tackle skills deficit, 2 March).

Results of a survey by the Gauteng City-Region Observatory reveal that 8% of respondents own a business, of which 35% are in the formal sector and 65% are in the informal sector. A map unsurprisingly shows informal businesses to be primarily township-based while formal businesses are in established industrial and commercial hubs such as those north of Johannesburg's CBD.

Relevant to Mr Govender's point is that informal, township businesses tend to buy locally whereas formal township businesses buy from outside suppliers. This illustrates that most township businesses are not taking advantage of opportunities to expand by buying from suppliers who themselves are connected to formal and often shorter supply chains, leading to better quality products, improved logistics and lower prices. 

Both Mr Govender and the GCRO have missed a key dynamic in township economies, which is that foreign-owned spaza shops have been able to reduce their prices and so out-compete locally owned informal spazas by amassing greater purchasing power through bulk buying networks which source from formal sector suppliers. 

Much could come from the form of training Mr Govender calls for focusing on the township retail sector, which in combination has enormous buying power, if they could work together. Moves are afoot to address this key factor in revitalising the biggest sector in the township economy. Expect to see real transformation sooner rather than later.

Toby Chance
DA Shadow Minister Small Business Development