MAVIMBELA AWAM AND SONTUNDU APHELELE: The paradox of participation

Historically, spaza shops in SA were predominantly owned by black South Africans. Under apartheid, black citizens were prohibited from owning formal businesses in designated commercial areas. As a result, many entrepreneurs operated informally from their homes, giving rise to the term spaza, derived from the Zulu word for “hidden”.

These informal businesses were more than just survivalist ventures — they contributed meaningfully to the local economy and addressed socioeconomic challenges such as poverty and unemployment. They also indirectly supported public revenue collection through VAT on purchases from formal wholesalers.

With the advent of democracy in 1994, the new government lifted many apartheid-era restrictions, aiming to create legal and economic opportunities for black entrepreneurs. The informal economy, including spaza shops, became central to township and rural development strategies, as reflected in policies such as the National Informal Business Upliftment Strategy.

Spaza shops remain vital for providing affordable goods, particularly in underserved communities. However, the ownership landscape has changed significantly, with a substantial share now operated by foreign nationals, including migrants from Bangladesh, Ethiopia and Somalia. 

This shift has coincided with increasing socioeconomic tensions. The post-apartheid economy, characterised by high unemployment and inequality, has created a competitive and often hostile environment for micro-enterprises. Tension has arisen over perceptions that many foreign-owned spaza shops do not sufficiently contribute to the local economy.

Common concerns include nonpayment of taxes such as VAT and income tax; limited employment of SA citizens; lack of community investment or charitable contributions; and price undercutting, sometimes enabled by sourcing from unregulated or illicit supply chains.

While these claims are often generalised and should be interpreted with caution, they resonate with many South Africans who feel economically excluded. According to some economists, more than 70% of informal retailers selling fast-moving consumer goods are foreign-owned. A 2020 township study found that only 26% of spaza shop owners were South African, compared to 34% Somali and 34% Ethiopian. 

In 2024 the government launched a national spaza shop registration campaign to formalise the sector. Between July 2024 and January 2025 more than 82,900 applications were received. Of these, more than 30,600 (about 37%) came from foreign nationals. However, only 2,586 of these were approved, suggesting issues related to regulatory compliance.

In Gauteng, nearly 3,000 of the 21,000 applications were from undocumented foreigners (about 14%). By contrast, in the Free State 5,528 of 8,309 applications (about 66%) came from foreign nationals. These figures raise critical policy questions about regulatory enforcement and economic inclusion. For us as emerging economic scholars, this also raises questions about sources of public revenue beyond VAT and manufacturing. 

Estimates suggest the spaza sector could contribute more than R178bn a year to the economy. Yet the limited formal integration of many foreign-owned shops results in lost tax revenue. This is especially pertinent amid debates around increasing VAT to fund public initiatives such as the National Student Financial Aid Scheme (NSFAS), public healthcare and infrastructure. 

Spaza shops owned by South Africans are more likely to be reflected in official income assessments used by NSFAS. Parents or guardians with verifiable income from such businesses may be disqualified from funding, allowing NSFAS to prioritise more vulnerable students. In this way, SA-owned spaza shops indirectly support educational access and national development goals, a contribution not easily attributed to undocumented or unregistered foreign-owned businesses. 

Against this backdrop, we argue for policy adjustments to better regulate foreign-owned spaza shops and integrate them into the national revenue system. The state should enhance enforcement mechanisms while streamlining the registration process. It must ensure compliance with tax and labour laws, coupled with incentives for formalisation.

By expanding access to training, financing and supply chains for SA entrepreneurs, the state can help rebalance ownership and foster inclusive economic growth. 

• Awam, a former lecturer at Walter Sisulu University, is a PhD • candidate at the University of the Free State, and Aphelele is a BCom student at Walter Sisulu University.