Market and regulatory barriers are the main barriers holding back the growth of businesses operating in South Africa’s townships and rural towns, with consumers often having to travel beyond their immediate communities to access a wider range of goods and services.
Many households in these areas are under severe financial pressure, with 53% of rural residents and 37-47% of township residents reporting monthly household income below R3,500, according to two business and consumer surveys sponsored by the Competition Commission for its inaugural rural and township economy report.
While there is significant business activity in townships, most enterprises remain survivalist and informal in nature, and face constraints in sourcing, selling and regulatory compliance, the report launched on Thursday says.
In March the cabinet approved publication of a draft township and rural economy development and revitalisation policy to transform local economies from consumption-driven areas into productive, vibrant hubs by integrating them into the mainstream system.
The policy aims to reduce regulatory burdens that constrain township and rural economic growth, among other targets.
But the Competition Commission’s report shows that township and rural economies still grapple with inadequate procurement channels and poor procurement terms and conditions, as well as inability to access formal and larger market routes such as malls, shopping centres and online platforms.
“This calls for follow-on work by the commission to understand these barriers better, but to also undertake follow-up work on the implementation of the recommendations of previous market inquiries … to identify any instances where issues of exclusivity and the cost of accessing markets still prevail,” it said, citing among others its 2029 grocery retail market inquiry (GRMI).
“This may include initiation of market conduct investigations where, for example, certain malls and shopping centres operating in township and rural areas are found to have not implemented the recommendations of the GRMI.”
The 2019 inquiry probed factors suppressing competition in the retail sector dominated by Woolworths, Pick n Pay, Shoprite Checkers and Spar, which at the time collectively accounted for 72% of retail sales in the country. It recommended that exclusive leases between shopping centres and the big four grocers end immediately.
In Thursday’s report, the commission said a new investigation may also look into whether malls and shopping centres in township and rural areas were engaging in practices such as:
- exclusionary access to formal retail channels;
- unequal procurement conditions; and
- discriminatory supply arrangements or market arrangements that keep small and medium enterprises and people historically disadvantaged by apartheid on the back foot.
At the launch of the report, deputy minister of trade, industry & competition Zuko Godlimpi said consumers in townships and rural areas also faced higher effective prices due to limited product variety and quality.
“High rental costs, exclusivity arrangements and preferences for national brands exclude them from retail. Weak compliance and infrastructure hinder their participation in e-commerce. Regulatory barriers, such as permits and tax compliance, also inhibit formalisation,” he said.
Godlimpi also highlighted the decline of general dealers in villages, with the few still operating often run by foreign nationals.
In its report, the Competition Commission also flagged procurement barriers for independent and informal firms that often rely more on smaller suppliers, wholesalers and intermediary channels, which can leave them with less scale and bargaining power.
Almost half (49%) of surveyed businesses believed suppliers charged them higher prices because of their business size, rising to 61% among independent businesses, it said, adding this could increase input costs, reduce supply reliability and limit product range.
Business Day
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