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South Africa’s informal ‘township economy’ is booming. All told, it contributes approximately R300 billion to the national gross domestic product (GDP), however traders ranging from neighbourhood spaza shops to food hawkers, hairdressing salons and larger businesses are operating on a largely cash basis and are often unbanked.
For years, the businesses that form the backbone of commerce in townships have operated from garages, street-facing rooms in houses, and even shipping containers as they bring essential groceries and commodities to their neighbourhoods, says Naledzani Mosomane, Head of Enterprise Development at Standard Bank South Africa. Also lagging has been e-commerce, primarily because digitally based business-to-business suppliers have difficulty communicating with independent traders and operating in environments where cash is used for most transactions.
“While providing an essential service through outlets across townships, these businesses face several operational challenges. As they are largely cash-based, they are vulnerable from a security point of view. Restocking shelves usually means closing the business and travelling to buy stock for cash. Operating margins are also low as these businesses do not benefit from bulk-buying options available to formal, shopfront retailers.” Most seriously, says Mosomane, “as ‘cash is still king ‘, businesses are precluded from the benefits of the formal banking sector and having the financial records and credit ratings that can make it possible to obtain loans and expand their businesses.”
To tackle this elusive market, she says, Standard Bank launched an ambitious trader ecosystem centred on the new MyMo Biz solution currently being tested in townships in Gauteng and the Western Cape. Besides offering a dedicated, low-cost account as an entry point into traditional banking, MyMo Biz also addresses many of the difficulties faced by small businesses. At the same time, the lack of a business-to-business, order-to-delivery, service catering for township businesses has now been addressed through this new, ground-breaking partnership.
“Forced absences from a spaza shop to buy stock mean lost revenue. To reduce these losses the bank partnered with an e-commerce company called ‘Yebo Fresh’. With distribution hubs in both the Western Cape and Gauteng, the company offers traders a range of high-demand goods including electronic goods. Orders are delivered to business outlets, and if the value of the stock is R1 000 or more, there is no delivery cost attached to the service.”
Importantly, the businesses benefit from the company’s buying power with manufacturers and they get cheaper stock, thus increasing their operating margins. Deliveries are paid for through the digital MyMO Biz account, for which the trader pays a nominal service fee of R7 a month.
"The businesses are linked in further through a point-of-sale electronic device offered at a nominal cost. This means their customers also benefit because they pay low debit and credit card transaction fees,” says Mosomane.
Besides offering convenient payment options, the device can also broaden a spaza shop’s offerings by allowing it to sell airtime and electricity. The device even enables the spaza shop to facilitate withdrawals and cash Instant Money vouchers for its customers. This allows businesses to reduce the amount of cash they have on hand, which automatically reduces the risk that goes with cash. One great benefit offered to traders is the opportunity to use the account as a springboard from which to apply for finance to improve the business once a financial transactions track record has been established.
- There are about 100 000 spaza shops across the country.
- Collectively, these businesses generate more than R200 billion annually.
- More than 50 000 takeaway food outlets have estimated revenues of R90 billion a year.
- Other businesses contribute a further R45 billion to the national GDP.
- The spin-off is a growing rental market where homeowners and businesspeople rent out spaza space. This alone is believed to be worth about R45 billion.
“We are excited about the potential our partnership with Standard Bank offers. We believe that this will create an environment that will uplift township businesses, stimulate job creation, and promote economic development in communities nationwide,” says Jessica Boonstra, CEO of Yebo Fresh.
This post and content is sponsored, written and produced by Standard Bank.
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