There’s a notion that the informal rural and township economy is the most lucrative in the land. This Competition Commission report says it’s by volume only.
The biggest misconception about South Africa’s township economy is that township dwellers don’t spend money outside of eKasi. However, a new Competition Commission report reveals that approximately 50% of rural and township households spend their money outside their local economy – a spatial leakage that is not limited to luxury goods or other discretionary purchases, but rather skewed heavily towards essentials.
This leakage represents a major supply-side failure. Because township stores are small, informal and survivalist in nature, they are unlikely to have licences or permits to stock certain products, such as pharmaceuticals, which leaves consumers with no choice but to spend their money outside the local economy.
Getting out is expensive
And it’s when South Africans need to get out of their neighbourhoods that the legacy of segregated spatial planning weighs heaviest on the pocket.
The Competition Commission reports that “across many product categories, minibus taxis are the main mode of transport, including for food, banking and financial services, phones and electronics, building and hardware, pharmacy services and medical services”.
Blackbullion and Sanlam’s latest Zaka index echoes these findings: 30% of respondents identify transport as a major source of monthly financial pressure. Because money must be stretched across multiple competing priorities, spending on minibus taxis just to purchase basic food directly inflates household shopping costs and the broader cost of living.
This is where Shoprite and Pick n Pay’s latest forays into selling household staples by refillable individual volume and not prepackaged portions make the most sense.
Traditional FMCG (fast-moving consumer goods) packaging adds a massive price premium that forces price-sensitive consumers to seek cheaper urban hypermarkets. Bringing that price gap down requires rethinking how products are delivered. Integrating retail refill technology, such as Smartfill, directly into township spaza shops enables bulk-refill dispensing. As Nevo Hadas, the CEO of Smartfill, explains: “Sustainability only succeeds at scale when it’s convenient and affordable”.
The company’s transaction data show that when major brands adopt this model, local retention skyrockets: B-Well captured and maintained a 20% market share in spaza stores where it was available only through Smartfill, while Unilever achieved a 40% market share for washing powder by converting consumers to refill stations. This keeps commercial transactions and capital circulation squarely inside the local economy.
Missing the spaza point
Then there’s the other big assumption that independent spaza shops and informal retailers act as strong competitive constraints on major national supermarket chains due to proximity.
The Competition Commission’s consumer survey exposes this as a fallacy. While more than 60% of respondents view independent and informal stores as good substitutes to chain stores, across all categories (rising to 80-81% of the respondents for food), subsequent answers show a contradiction:
“The responses to subsequent questions relating to the reasons for the perceived substitutability are inconsistent with the initially perceived high substitutability, suggesting low levels of substitution. Lower quality was reported as the main concern... Another reason that was cited by respondents was limited variety.”
Specifically, for clothing and footwear, 54% of consumers in rural towns and 43% in large townships cite “lower quality” as the main reason independent/informal stores are not preferred substitutes.
For household goods, 57% of rural consumers and 43% of large township consumers report the same quality deficiency.
Janice Johnston, the CEO of Edge Growth Ventures, explains that this quality gap is reinforced by corporate purchasing structures, where “buying firms often see small suppliers as riskier or inferior, the exact bias the policy was meant to fix”.
This is further compounded by a widespread misconception: that the absence of township SMEs from formal shopping malls stems from a lack of ambition or a preference for informal trade. In reality, property-market gatekeepers systematically exclude local operators.
The report found that “high costs of moving, exclusive lease agreements and preference for more established brands hinder the relocation of business to more formal and larger routes to market”.
When businesses were surveyed on why they could not relocate, rental costs emerged as the most consistent barrier, cited by 76% of township businesses and 68% of rural town businesses.
Negative incentives
There are many other layers of bureaucratic red tape that restrict loxion businesses from growing into thriving enterprises; 33% of township automotive businesses report being “unable to expand or open a second location due to zoning restrictions”, or are entirely unable to formalise because their business does not comply with zoning restrictions.
When formal pathways to entrepreneurship are suffocated by local red tape, young South Africans are pushed into risky survival strategies.
The Zaka Index 2.0 paints a bleak picture of youth finances: 82% of young South Africans receive less than R6,000 a month, and 71% say their income does not cover everyday needs.
Desperation drives 35% of young South Africans to gamble, driven by what focus groups describe as being “impatient with poverty ... wanting to wager R30 today and wake up with R1-million tomorrow rather than slowly working out of hardship”.
This means that 70% of young people in South Africa are exposed to digital scams – including fake job or internship offers (17%) or pyramid schemes (11%) – as they search for quick financial relief.
It turns out that the truth behind the rural and township economy is reflected in the realities playing out in South Africa’s economy. High rates of youth unemployment exist because township and rural businesses are stifled, and the cost of getting out of the location is sometimes too high.
We need to unlearn what we thought we knew about kasinomics and build better systems that will produce better outcomes for all. DM
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