Over the past week, the Economic Freedom Fighters visited restaurants ‘to check employment ratio of South Africans and foreign nationals’, scouring employee lists to gather their information. The Patriotic Alliance descended on shops – specifically those run by ‘illegal foreigners’ ̶ searching for expired goods. Action SA head, Herman Mashaba, called for an investigation into unregistered schools ‘operating illegally by foreign nationals in our country. And worse still, employing undocumented immigrants.’

And in the ANC’s January 8th Statement was a call to the government ‘to finalise legislation providing for certain occupations and businesses to be set aside for South Africans.’ 

Given the state of the country, this might all seem like political theatre. This might be unpleasant, but many of us would regard it as peripheral to the overall direction of the country. 

This would be a mistake. The attitude towards ‘foreign traders’ is emblematic of much of what ails the country.

Suspicion of foreigners (or for that matter of ethnically distinct communities) who manage a degree of economic success is a global phenomenon, especially under conditions of stress. The notion that their achievements can be attributed to some malfeasance or dishonesty can be a perversely reassuring one for their critics. Local populations, in this line of reasoning, have not failed to recognise or seize opportunities, they have been deprived of them. The success of the foreigner or the outsider does not serve as an inspiration to the local would-be entrepreneur, but is taken as evidence that the decks are systemically stacked against them.

This in turn is grist to the mill for populist politicians. Hostility to entrepreneurial groups has been deliberately encouraged in people as diverse as the Chinese in Vietnam, Indians in East Africa and Koreans in some large American cities.  

In South Africa, the actions of the EFF, PA and Action SA, and the demands of the ANC fit squarely into this tradition. Indeed, they are a well-worn part of South Africa’s political culture. A profound ambivalence, if not hostility, towards foreigners among us bubbles regularly to the surface, infused often with a sense of grievance and envy.

Foreigners in this respect are invariably those from Africa beyond our borders, or from Asia – typically the  Ethiopians, Somalis and Pakistanis.

Someone who put this attitude succinctly into words, back in 2015, was then Small Business Development Minister Lindiwe Sisulu, who these days is in the public eye as the heir presumptive of the Radical Economic Transformation faction of the ANC: ‘Foreigners need to understand that they are here as a courtesy and our priority is to the people of this country first and foremost’.  She went on to harangue foreign entrepreneurs for not ensuring the competitiveness of their South African counterparts. ‘They cannot barricade themselves in and not share their practices with local business owners’ she said.

Former cabinet minister and all-round magnet for controversy Nomvula Mokonyane warned darkly of the insidious nature of the foreign encroachment, pledging to protect the honour and integrity of the nation. ‘Our townships cannot be a site of subtle takeover and build-up for other situations we have seen in other countries’, she wrote on social media. ‘I am ready to state my view formally in defence of our communities.’

Indeed, a veritable governance discourse has grown around the ‘foreign shop’. The title of a 2018 report by Vanya Gastrow, published by the Southern African Migration Project, put this into curt academese: Problematizing the Foreign Shop

Based on extensive fieldwork, this report discerned four broad rhetorical attacks on foreign traders, or justifications for restricting their activities. Firstly, their presence takes away opportunities from South Africans. Secondly, their operations are often in some way illegal. Thirdly, their presence has encouraged crime in the form of business robberies. And fourthly, by reducing their presence, xenophobia would be contained – an intriguing idea, which seems to imply that a pathology may be combated by concession to its demands.

The report, however, goes on to argue that these claims are largely unsubstantiated, or exaggerated. The claim that foreign-owned shops take business away from local businesspeople, for example, is described as ‘highly selective’, ignoring the numerous linkages that these businesses have with the wider economy and overall economic wellbeing. The extent to which they offer competition to local businesspeople is but one factor among many.

This theme has been explored by the IRR, in a report in 2017 authored by renowned journalist Rian Malan entitled South Africa’s Immigrants – Building a New Economy. The report argues that there is in fact strong evidence that immigrant entrepreneurs have had a displacing effect on local competitors, but this is not a zero-sum game. 

Inasmuch as foreign entrepreneurs have been able to offer attractive prices and desirable business practices – such as offering credit to select customers, or selling items in small quantities – they have proven to be stiff competition not only to local entrepreneurs, but also to large retail chains that have expanded rapidly in South Africa’s townships.

Nor has the commercial competition necessarily meant that business opportunities have been arithmetically removed. Rather they have been altered. Where South African entrepreneurs have felt themselves unable to compete with foreign counterparts, some have turned to niche marketing, or to renting space. Malan interviewed one South African township entrepreneur who expressed decidedly mixed views about the presence of foreign businesses. Yet he’d responded pragmatically:

Some years ago, foreigners started approaching Mr D with lucrative offers for his premises. He said, wait a while. First, he got himself a liquor license. Then he hired a Mozambican contractor to add a second storey to his premises (rooms for rent) and at the same time divide his shop in three. ‘Then I said to the foreigners, come, I am ready’. Some Bangladeshis took over his spaza operation, paying an undisclosed amount for his stock and goodwill and signing a lease that left him with a nice monthly income. They were also eager, as he’d anticipated, to rent his upstairs rooms, and he still has his liquor store and a tiny space where he sells hardware. So, he’s sitting pretty. In fact, he’s doing so well that he recently bought a second small shopping complex, where he’s planning to make a similar arrangement.

So, what is it that makes ‘foreign shops’ successful? What are the practices that they are implored to share as a condition for their toleration in South Africa? There are no secrets here. Like many migrant communities, those in South Africa are driven to seek out success wherever they can find it, and in whatever form it is to be had, often with pitiably humble beginnings. Somalis, for example, are looking for a better life, having experienced violent instability in their homeland. They have few resources, but strong social capital.  Funds are pooled, honesty expected in intra-group business and rewards very sparingly taken. Obsessive searches for bargains and special offers from wholesalers (and information shared within their networks) make for an attractive proposition for local consumers.

Yes, there are claims of collusion among foreign businesspeople to undermine local entrepreneurs, and human nature being what it is, there is probably truth to this. ‘For the most part, though’, says Malan, ‘they succeed because of their adherence to the old-fashioned virtues of thrift, hard work, discipline and sobriety.’

On one level, there is nothing particular that would prevent South Africans from emulating these practices; in reality, expectations of South African entrepreneurs and their dependants, as well as the frequently tendentious nature of social trust in South African society, make this unlikely. 

But very little is to be gained by seeking to stigmatise or exclude those who have brought an entrepreneurial aptitude to our economy. It is highly unlikely that this will open up opportunities for deserving locals. It seldom does, anywhere in the world, as doing so misidentifies the problems that have militated against their success in the first place. Rather, this is a route to rising prices and endless bickering over governmental and political patronage.

In fact, seeking to exclude entrepreneurs of any stripe would be to compound one of the most persistent problems confronting South Africa’s economy: the overall dearth of entrepreneurial talent. The Global Entrepreneurship report on South Africa for 2017/2018 shows that while the broad population has a positive view of entrepreneurs and their work, the country lags in actualising it. In 2017, the new business ownership rate among adults in South Africa stood at 3.8% – as opposed to 6.6% in the African region as a whole. The established business ownership rate (these being operations that have existed and traded for some 42 months) was at a paltry 2.2%, against 11.9% for the region.

South Africa desperately needs more entrepreneurs, and lacks the luxury of dispensing with any that currently exist. To remove those from abroad, whether through intimidation, legislation or administration will impose considerable costs on the country as a whole. Indeed, a report by the Organisation for Economic Cooperation and Development on the impact of immigration to South Africa (admittedly a larger issue than foreign business) had this to say: ‘The impact of immigration on gross domestic product (GDP) per capita is positive, and the estimates from an econometric model show that immigrant workers may raise the South African income per capita by up to 5%.’

But this is, unfortunately, all of a piece with much of what has been circulating as putative solutions to South Africa’s malaise: economic compacts, empowerment demands, localisation, protectionist impulses – all intended to squeeze benefits from a rapidly shrinking pool, even while the vast potential of the African Continental Free Trade Area stands before us. 

Sadly, targeting foreigners is a strategy with many takers in South Africa, and enough self-interested demand for such measures to give them a decent chance of success. But like so much else that animates our politics and governance, there will be a steep price to pay for it.

[Photo by KOLA SULAIMON/AFP via Getty Images]

Terence Corrigan is the Project Manager at the Institute, where he specialises in work on property rights, as well as land and mining policy. A native of KwaZulu-Natal, he is a graduate of the University of KwaZulu-Natal (Pietermaritzburg). He has held various positions at the IRR, South African Institute of International Affairs, SBP (formerly the Small Business Project) and the Gauteng Legislature – as well as having taught English in Taiwan. He is a regular commentator in the South African media and his interests include African governance, land and agrarian issues, political culture and political thought, corporate governance, enterprise and business policy.