Spaza shop registration drive ‘opens the door to bribes’

Government’s insistence that spaza shops across the country register their businesses – ostensibly to raise food safety standards following a number of deaths from tainted food – could end up stifling entrepreneurship among the poor.

There are reckoned to be between 150 000 and 200 000 spaza shops in SA, posing a massive administrative challenge for metros and municipalities. Gauteng Finance and Economic Development MEC Lebogang Maile says this amounts to the largest registration drive since the democratic elections in 1994.

John de Wit, co-founder of the Small Enterprise Foundation (SEF), which supports roughly 180 000 micro entrepreneurs with loans and training, says: “We are concerned about these registration requirements and are very afraid that this will be throwing low income entrepreneurs into the hands of authorities looking for bribes.

“Bribes for registration and further bribes from enforcement agencies,” he adds.

“Further, requirements for registration and the related bureaucracy and corruption that will go with it, will be a further disincentive to entrepreneurship.”

ALSO READ: Over 15 000 Gauteng spaza shops deemed non-compliant, 7 000 foreign nationals apply

Incentive

A similar registration drive was attempted during Covid, when small-scale entrepreneurs were offered government loans on easy terms provided they registered their businesses with the local municipality.

On that occasion, just 12% of entrepreneurs surveyed by the SEF took the bait.

The vast majority decided they would rather remain under the formal sector radar than fall under scrutiny from an alphabet soup of agencies – such as the South African Revenue Service (Sars) and the Companies and Intellectual Property Commission (CIPC).

It is clear that roping these informal operators into the formal sector is a long-standing goal of a government eager to collect more taxes.

The food safety issue provided the ideal opportunity to push through these plans.

This time, as was the case during Covid, government is bringing the carrot of funding to the party in the form of a R500 million spaza shop support fund, soon to be launched.

Research by Accenture in 2023 put the number of spaza shops in SA at more than 150 000, generating sales of R178 billion market value and accounting for 30-40% of food spending.

Some 80% of South Africans visit spaza shops daily, says the research.

A 2021 South African Township Marketing report suggested the number of spazas was as high as 200 000, employing 2.6 million people and contributing 5.2% to GDP.

ALSO READ: Less than 25% of all municipalities able to process spaza shop registrations digitally

Killing the goose

A new report by the Centre for Development and Enterprise (CDE) calls for government to get out of the way of small business and hand over the reins to the private sector.

Government’s own research characterises the small business sector as having low survival rates and stagnant growth.

CDE research shows nearly R6 billion a year was transferred to the small business sector through direct financial support, grants and loans.

“However, there is little publicly available information on who receives financial support, on what basis the funds are allocated, how recipients use the funds or how many firms thrive or fail,” says the CDE.

“What we do know is that government efforts have often favoured a well-connected few, imposed additional costs on essential services, and been hampered by regulatory obstacles such as onerous labour laws and rigid empowerment requirements,” it adds.

“These interventions, rather than fostering a dynamic small business sector, have largely made it more difficult for enterprises to survive and expand.”

CDE executive director Anne Bernstein says SA “should introduce an ‘SME test’ for all regulations to ensure that small businesses are not disproportionately burdened”.

“This has been tried in many OECD countries, resulting in policies that encourage, rather than stifle, entrepreneurship.”

ALSO READ: City of Tshwane warns spaza shops owners to register before deadline

Evans Maphenduka, executive coordinator for the Development Microfinance Association (DMA), an umbrella body for several microfinance organisations, says while he supports the registration drive, there is a danger that those who fail to register could be forced out of business.

“It is our hope that all the Spaza shop owners were able to meet the [28] February registration deadline. We hope that the processing of the applications will be completed soon without unnecessary bureaucracy that may prejudice the operations of the spaza shops.

“Many elderly women, especially those in the rural areas, depend on the income from their spaza shops to supplement the meagre social grants,’ he adds.

“Any interruptions to the business operations, and additional costs of compliance that may result from the registrations will most likely force many out of business.

ALSO READ: Spaza shop registration: Applicants hampered by land-use regulations

Risk of overregulation

“We sincerely hope that the government will not place any unnecessary compliance burdens such as reporting, payment of annual fees or taxes on a population that has no capacity and skills to do so,” says Maphenduka.

“Closing down spaza shops for whatever reason will be like selling out the livelihoods of our desperate populations to big businesses that are only interested in profits and have no other care for the poor.”

The success of government’s registration drive remains to be tallied, and those figures will only be available later this month.

The latest published figures for December 2024 show nearly 43 000 applications from spaza shops had been received by 17 December 2024. The deadline for registration was then extended to 28 February 2025.

Maile says 17 617 spaza shops had registered by the end of February while Tshwane had 4 222, with 192 approved.

ALSO READ: Government extends spaza shop registration deadline

Daunting list of documents

The list of documents required for registration is daunting.

The City of Ekurhuleni spells out what is needed to formalise a spaza shop:

• Completed business licence application form;
• Appropriate zoning certificate or written consent approval;
• Certificate of Acceptability (health standards);
• Approved building plan and occupancy certificate;
• Certified copy of the title deed or letter from the landlord if not owned;
• Identity document (for South African residents);
• Work permit or letter from the Department of Home Affairs (for non-South African residents);
• Registration with the Companies and Intellectual Property Commission (CIPC);
• Latest municipal account statement for the business address; and
• Tax clearance certificate from Sars.

Then there is the question of foreign spaza shop operators.

Of the registration applications received by December 2024, 93% were reportedly for shops operated by foreigners.

The high number of spaza shops run by foreign nationals in the townships has sparked tensions, though government says it’s not just about immigration – it’s illegal for anyone, local or foreign, to operate without proper permits under the Immigration Act.

ALSO READ: Spaza shop registrations: Paperwork uncertainty clogging deadline day

Plus, unregistered shops often dodge taxes and health inspections, making it hard to control what’s sold.

Spaza registration allows officials to check that shops meet food safety laws, such as proper storage of food and on-site sanitary conditions, while preventing expired goods from being sold.

The aim is to weed out illegal setups and no doubt get a sense of who runs these shops and what sales they achieve.

Sars will certainly be interested in collecting from thousands of presumably new taxpayers.

The Small Business Department in SA should be closed, says the CDE – it’s been in existence since 2014, and small business funding takes place in many departments.

Research commissioned CDE found at least R6 billion was spent by government on small business support programmes with very little to show for this.

By contrast the SEF, which lends to the poorest of the poor, has a bad debt ratio of about 1% – better than the banks.

This article was republished from Moneyweb. Read the original here.