Economic tides hurt small traders
Between the colourful houses of the Bo-Kaap in Cape Town, a small spice shop has been serving customers for the past 70 years. The spices are imported from India and, although the shop once expected two shipments of goods every six weeks, it can now only afford 10 shipments a year.
“The last time I imported, the rand was 11.75 to the US dollar.
Look at the big difference now.
That alone is going to put pressure, plus there’s the duty. A 10% duty at R11.75 is a lot less than a duty at R16,” says Abdul Wahab Ahmed, the director of the Atlas Trading Company spice shop.
Most of the spices are imported, except for coriander, which is a locally produced spice.
Last week, the rand took a nosedive after President Jacob Zuma dismissed finance minister Nhlanhla Nene, replacing him with ANC MP Des van Rooyen. Four days later, Pravin Gordhan was put at the helm.
“Three ministers in four days. It was a shock when Van Rooyen came in,” Ahmed says, sitting at his desk in his office.
The rand briefly broke R16 to the dollar following Van Rooyen’s appointment but, on Sunday night, after the presidency issued a statement that Gordhan would take over, the rand recovered by almost 80c.
For small importing businesses, the uncertainty is daunting, particularly when shipments have to be paid as soon as the bill is handed over, with no forward cover.
A six-tonne shipment of goods costs the Atlas Trading Company between $30 000 to $40 000.
“I’m very concerned for the future because the big conglomerates can still manage, but for small businesses, because once you import you need to work on an overdraft, and the banks are becoming stricter. If you can’t give them a guarantee, then small businesses will close,” says Ahmed.
In October, Francois Groepe, the deputy governor of the South African Reserve Bank, spoke of the importance of small businesses to the economy, saying they make up 60% of the country’s employment. Citing information released by the ministry of trade and industry, Groepe said these businesses are also responsible for 52% to 57% of gross domestic product.
“Small business, furthermore, forms part of the backbone of a thriving society,” Groepe said.
The competition for jobs is one of the most important battles in a country where one in four people are unemployed and 63.1% of young people are jobless.
The evidence that small businesses can ease the burden is clear in small markets, where business owners train people with skills to produce crafts for sale.
Tafadzwa Zongororo is one such owner, selling wooden figurines of carefully sculpted animals to tourists and locals in markets in Hout Bay and at the V&A Waterfront in Cape Town. Zongororo’s brother is talented with woodwork and learnt the craft from their grandfather. He is passing it on to others who are keen to learn.
“Others, they go to school. But my brother doesn’t go to school. He’s just learning from my grandfather. It’s in the bloodstream,” Zongororo says, as music from the Bay Harbour Market blares in the background.
Zongororo is a Zimbabwean who has lived in South Africa for the past four years, working in markets for three of those. The wood used for his figurines – jacaranda – is soft and light, but it is imported from Zimbabwe, where the brothers have to pay $300 for a tonne. In the course of the year, they use about three-and-a-half tonnes. Added to this cost is the rental they must pay for a space at the markets – R4 000 at the Bay Harbour Market and R12 000 at the V&A Waterfront market, plus tax on their sales. To make ends meet, they rely on tourists who can pay in dollars.
“If you look at everything, it’s not the same as it was two years ago. Everything’s up, everything’s changed. It’s totally different.
“Back when the rand was stable, we took more profits but, nowadays, if we manage to catch the foreign currency then we will only be in a good space,” Zongororo says, as he watches customers take an interest in his goods.
For Zongororo, who lives in the Imizamo Yethu township in Hout Bay, the economic woes are as much personal as they are business. When the rand takes a hit, it is the poor who struggle most with the rising cost of living.
“It’s not only about the rand; it’s about the cost of the living. Everything is going up, even where we stay. It changes everything,” he says. “If the rand goes down, the cost of the food goes up and you are forced to raise your prices.”
The change in finance ministers in the past week has created a wave of confusion in the country, and for foreign investors. For small businesses, the pressure is greater because, as Thabi Leoka, an independent economist, says, it’s getting tougher to sell goods to local customers.
“Small businesses are already struggling due to lower domestic demand. So the weak rand is an extra blow to their operations, especially for those industries that import products,” Leoka says.
Although Gordhan’s redeployment as finance minister has somewhat settled the rand, the currency’s strength is not guaranteed. According to Leoka, South Africa is “particularly vulnerable” because of the country’s current account and fiscal deficits. He predicts the rand will weaken further when the United States Federal Reserve increases rates and investors move funds to less risky assets.
Small businesses, meanwhile, have had to come up with solutions. Zongororo is searching for more markets where he can sell his goods, and Ahmed has opted to buy spices from large shipments that arrive in Durban.
The Bo-Kaap businessperson is holding on to his business to carry on the legacy his father and uncle started, but it’s the political decisions made at the top that could determine whether his spice shop survives to be passed down to his younger son.
“I am happy Gordhan is finance minister, but the only thing I hope for is that he does what he’s supposed to do and not follow ANC policy.
“When Zuma said, ‘the ANC comes first’, that was a shock to us. If the ANC comes first, what about the rest of the country?” Ahmed asks.