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Advance Small Local Businesses Rather Than Regulate Foreign Ones

KIZITO OKECHUKWU | SEPTEMBER 30, 2019

After the recent spates of attacks on foreign and local-owned shops in South Africa, policymakers are now trying to regulate industries in which foreign businesses can or cannot operate.

This is directed mainly at the informal economy and especially in townships. Word on the street is that the Department of Small Business Development will be drafting new laws to restrict foreign-owned businesses from operating in certain sectors and locations, which in their view will help protect local ones.

For most governments, enacting new legislation and regulations is always a knee-jerk reaction whenever and wherever there is a problem. It also vividly reminds me of a school case study we did about Nigeria’s “Ghana Must Go” campaign. Due to the high influx of foreigners into Nigeria, and the perception that they, mainly Ghanaians, were stealing opportunities, the Nigerian government in 1983 quite literally chased out roughly two million undocumented migrants, mostly Ghanaians.

There is now a famous bag in Nigeria labelled “Ghana Must Go” and unbelievably, till today my guess is that it still sells more than Gucci and Louis Vuitton combined. I won’t delve too much into the implications Africa’s most infamous bag had for the oil-rich powerhouse 36 years ago, but it does paint an ugly historical picture, as Shola Lawal put it in his piece in the Mail & Guardian (a must-read by the way). Yet during that period, there were many jobs that Nigerians were not eager or willing to do, which prompted recruiters to employ foreigners, especially Ghanaians.

I will always be the first to defend any African, even to the extent that although the Nigerian government expelled those Ghanaians, its people are not intrinsically xenophobic. The same goes for South Africans today and, having travelled to over 30 African nations and made many friends and acquaintances, I believe no African is xenophobic.

I think the major challenges we face on the continent include severe inequality, poverty, poor leadership and selfish governance, as well as incorrectly tuned mind-sets. The United Nations reports that ten of the world’s most unequal nations are in sub-Saharan Africa, while the World Bank lists South Africa as the most unequal country in the world, mostly attributed to the various injustices of the apartheid era.

Although much has been achieved over the past 25 years of democracy, it has failed to break the divide and ensure a justifiable equal nation – and inequality breeds poverty.

Many African leaders fail dismally in developing their nations and their people, specifically their youth – forcing them to seek shelter and opportunity elsewhere. Think of the many Africans trying to cross the Libyan border to Europe. Many die at sea, many resort to crime just to survive and fend for their family, while others become victim to slavery, human trafficking and other heinous crimes. I read recently that the Rwandan government agreed to accept 30 000 refugees from the Libyan border, a 1000 of which arrived as early as last week. South Africa has also been home to many refugees which also adds pressure to the social services budget.

With all due respect to the late former President of Zimbabwe, Robert Mugabe, for his achievements, sacrifices and liberating his country, Professor Jonathan Jansen recently tweeted “an African leader dies in a Singapore hospital. Tells you everything you need to know”. On the flipside, and having chatted to a few Zimbabweans, they attribute their strong education to him and how he infused so many young people with the right mind-sets to succeed.

Someone once said to me that he believes Zimbabweans run some part of the South African economy and some part of the British economy. Whether fact or not, this just shows the skill-sets and hard work ethic of Zimbabweans, but sadly Mugabe’s presidency will be judged by the devastating economic mayhem he caused during the latter years of his governance, seeing doctors having to work as waiters, accountants working as nannies, engineers working as porters and so on.

As South Africa grapples with its inequality challenges, regulating the small business industry – especially in the informal sectors where foreigners can trade – will significantly decrease, if not cripple, township economies.

So let’s think for a moment. Why do policymakers think that foreigners are taking away the township market from locals? Are the locals not the ones that are most likely to receive government grants/support to start a business? Are the locals not the owners of the property in the townships? Are the locals not the ones that have enough buying power to source locally? Are the foreigners not paying rentals for the space? Are they not employing mostly local? The answer is a simple “yes”.

The focus for government should be on how can locals be supported to outsmart the foreign shops – or even just be competitive enough to play in the same space? How can we encourage them to embrace technology to get the edge on their foreign competitors? The challenge I see is lack of access. Due to their informality and lack of credit records etc., lots of small township local businesses fail to access capital from banks and DFIs, some also lack the skills to scale, while some lack the commitment and drive.

This invisible economy is fuelled by cash and is worth over R350bn, yet one that government benefits little from. The percentage of money held outside the banking system should be a concern for policymakers and they should work to incorporate these informal businesses into the formal system. Instead of banning foreign traders, perhaps government should consider taxing them, but not local traders. Government should also look at ways to incentivise only local traders and create meaningful partnerships with companies such as Massmart, Makro and Tiger Brands to create favourable pricing mechanisms for these micro retail chains.

A few local township business owners told me that they enjoy working with the Somalians because they have taught them many skills, such as pricing strategy and bulk buying – even teaming up with them to buy goods in bulk to sell at cheaper rates.

In my view, over-regulating or displacing the informal business sector could leave the door wide open for the big guns to march through, such as Shoprite, Pick ‘n Pay and Spar, etc. with their micro or express shops. This would inadvertently shut down both the local and foreign small business owners.

Government should rather encourage more collaboration between local-owned shops and foreign ones, provide better access to capital for locals, provide skills training, look for innovative ways to get locals to be competitive such as tax exemption, favourable pricing with manufacturers, and lastly, also consider exchange programmes for some local businesses to visit other African countries and learn from their neighbour’s informal market environments.

A former South African MTN executive that was in Dubai recently to host a telecommunication conference said that one of the lessons learnt from Dubai is that it’s

economically healthy to encourage immigrants because they add value where locals can’t or won’t do the jobs.

South Africa should aim to attract more foreign skills and entrepreneurs, as the majority of countries have started to invite and incentivise foreign start-ups to bring their innovative ideas into their nations and set up for business.

To summarize, I think the discussions on regulations should focus on how do we make it easier for locals to thrive; how do we use innovative methods to get locals to outsmart their foreign counterparts; how do we ensure that foreign traders employ more locals; how do we exempt locals from red tape and taxes and how do we get locals and foreigners to collaborate for their better economic good?

Research proves that micro businesses, entrepreneurs and even start-ups, whether local or foreign, are responsible for the most net new job creation and any attempt to stifle or shut them down will have an adverse effect on any economy.

Let’s rather fill the hole in our economic discussions and give hope to the entrepreneurship ecosystem.

 Kizito Okechukwu is the co-Chair of the Global Entrepreneurship Network (GEN) Africa – 22 on Sloane is Africa’s largest startup campus.