In March, we brought you a new DBIA case on Yebo Fresh, a logistics company specialising in fast moving consumer goods for South African spaza shops and informal sellers. In this case, we see how strengthening supply chains for small retailers in townships is one very critical way of improving livelihoods, food security, and quality of life for more South Africans. In April, the South African government announced it would be launching an initiative to bolster township retailers: the Spaza Shop Support Fund. Here, we will take a closer look at the fund and what it could mean for township entrepreneurs and their customers.
The Department of Small Business Development (DSDB) in partnership with the Department of Trade, Industry and Competition (DTIC) recently launched a R500 million Spaza Shop Support Fund. The fund is intended to provide financial as well as non-financial support to South African-owned spaza shops, general dealers, and grocery stores operating in townships and rural areas. This ambitious initiative is part of the public sector efforts to revive township and rural economies, and promote job creation and economic development in marginalised communities. It is a strategic push by the government to empower local township and rural retail businesses with resources and funding.
The township and rural economies, which are largely informal, are essential to the country’s overall economic well-being, acting as a lifeline for many marginalised communities by providing opportunities for income generation, job creation, and poverty alleviation. They represent an often overlooked yet important sector of the economy that has continued to show resilience and entrepreneurial spirit. The township economy is estimated to be worth around R900 billion, of which the largest contributor is the informal retail sector. Spaza shops are the backbone of informal retail, serving as access points for basic goods and often representing the only local retail option for people in these communities. There are an estimated 150,000 spaza shops operating across the country that contribute around 5.2% to South Africa’s GDP and employ 2.6 million people.
Yet, despite their value and contribution to the economy, spaza shops face several challenges including limited access to capital, lack of infrastructure, regulatory challenges, health and safety concerns, crime, and competition. The R500 million fund is coming in the nick of time, as a much-needed financial injection into the sector that will hopefully help address the systemic challenges faced by spaza shop traders through a combination of financial assistance, training, mentorship, and infrastructure updates and upgrades, as well as formalisation support. Specific plans for the fund are as follows:
- Financial support: Spaza shop owners can apply for working capital to replenish stock. In addition, the funds cater for refrigeration, shelving, and other necessary shop upgrades.
- Collective buying power: The initiative seeks to encourage bulk buying through cooperative models. This is to help shop owners negotiate better prices, gain competitiveness, and increase profitability.
- Training & compliance: Training will be provided to shop owners in food safety, hygiene, and basic business management to bring spaza shops in line with national standards and addressing recent concerns about foodborne illness and health compliance.
- Youth and women empowerment: A significant portion of the fund is set aside for youth (ages 18–35) and female entrepreneurs, aiming to level the playing field in historically male-dominated business environments.
- Formalisation: As part of efforts to formalise, beneficiaries must register their businesses and comply with municipal and health regulations. This not only boosts their legitimacy, but also brings them into the formal economy.
However, as ambitious as the Spaza Shop Fund appears on paper, the real test will be in implementation. Given recent challenges witnessed during the registration process of spaza shops and informal traders across the country, it remains to be seen if government officials have learnt lessons and taken measures to improve coordination of the processes and bottlenecks in the system. Another concern is that many of the informal traders might not be ready to formalise their businesses, or do not meet the criteria for formalisation. How will the government put measures in place to ensure that informal traders can gradually transition into formal status without excluding them in the funding process?
Other questions surround the sustainability of this initiative and its long-term goals. How will government sustain the fund, especially given the austerity measures that are being implemented across the whole of government? Considering the size of the sector and the number of spaza shops that will require assistance, a R500 Million fund may be a drop in the ocean: it might not be sufficient to meet the needs of spaza shop owners just in one province.
The establishment and launch of R500 million fund represent a bold move and a significant investment in South Africa's township economies. However, its success will depend on well-planned implementation, transparency, and inclusivity. By addressing the unique challenges faced by spaza shops and other township businesses, and by complementing government efforts with private sector and community support, there is potential to revive and create a more vibrant and sustainable economic landscape in South Africa's townships, while also building a diverse and inclusive economy.
by Luvuyo Mncanca
