South Africa’s R200 billion ‘kasi’ economy is booming
In the midst of South Africa’s lively urban areas and expansive townships, a thriving and energetic sector continues to make its mark —the ‘kasi’ economy, also known as the ‘hidden economy’.
This sector serves as a cornerstone of daily life for many South Africans, encompassing a wide range of businesses, including spazas, street vendors, fast-service eateries, bottle stores, and taverns.
According to StatsSA, around one-quarter of South Africa’s population live in townships.
“While these communities are faced with some of the most difficult challenges, including high unemployment, poor service delivery and low household income, South African townships represent billions of rands in spending power,” said Rogerwilco and Survey54 in their 2023 Township CX Report.
New research from Trade Intelligence underscores the strength and intricate dynamics of the ‘kasi’ economy. It estimates its size to be around R197 billion in 2023, with at least 11.1 million people regularly shopping in its roughly 150,000 stores.
“This sector is crucial, offering significant employment opportunities and playing a vital role in alleviating food insecurity [and] understanding and engaging with this sector presents new avenues for opportunity, economic growth and social development,” said retail analyst Tshegofatso Modise.
According to the Global Africa Network, the Kasi Economy is almost circular “as businesses are created by residents and supported by their fellow township citizens, with more than 70% of South African households purchasing from informal traders, which include hawkers, small and large spazas, superettes and mini and midi wholesalers.”
What has contributed to its boom?
The Rogerwilco and Survey54 research outlines that majority of township residents prefer to shop close to where they live, with 23% of survey respondents saying they spend 25% to 50% of their income in the township.
A further 25% of respondents say they spend more than 50% of their earnings in the township.
In both the Trade Intelligence and the Rogerwilco research, it shows that despite increasing consumer constraints, the informal fast-moving consumer goods (FMCG) sector is continuing to grow given its lower prices and closer point of access to many than “traditional” retailers.
“South African households face huge pressure from high food inflation, which hit 10.8% in 2023, alongside stagnant wage growth and a staggering [42.9% (Q2 2024) expanded] unemployment rate,” said Modise
“But, despite these challenges, the informal sector demonstrated remarkable resilience, achieving +6.9% sales growth in 2023 and reaching R197 billion,” she added.
“In these tough economic times, consumers are looking for the best way to stretch their rand,” said Brian Makwaiba, CEO of Vuleka, a multi-award-winning e-commerce and fintech platform that works with over 5,000 spaza shop owners.
Additionally, “technology has been one of the most significant drivers of positive change in the informal retail sector,” said Trade Intelliegence.
The group said that digital adoption is permeating all areas of informal trade from supplying and sourcing of stock to marketing, e-commerce and payment systems and younger shoppers are driving the rise of township e-commerce, with 26% of spaza shoppers order from spazas via online platforms.
“Then there is the proliferation of fintech companies offering cheaper merchant services with often free point-of-sale devices [which] has coincided with growing demand for digital payment methods in the more formalised portions of the township economy.”
Other players eyeing the sector
This market is largely supplied by formal independent traders, typically wholesalers, and, to a smaller but growing degree, directly from suppliers.
These independent chains also sell in bulk to households and other businesses, typically in the hospitality sector.
Traditional retailers are targeting this industry, which is estimated to be worth around R259 billion. It provides exposure to the fast-growing informal market without directly competing against spaza shops.
The combined value of these two markets is around R456 billion and presents a significant opportunity for formal retailers to grow outside of South Africa’s stagnant formal economy.
Modise said that stakeholders “seeking to thrive in the kasi economy should allow themselves the privilege of learning from passionate and seasoned experts.”
“These individuals, who have weathered trials of failure and success, show that while the informal sector in South Africa is challenging, the rewards for perseverance are limitless.”
Tax clampdown
With the market booming, the tax man is looking to clamp down on the sector.
The previous administration finalised the White Paper on Citizenship, Immigration, and Refugee Protection. According to the white paper, all Spaza shops need to be audited and registered to pay tax.
“We want spaza shops audited. We want the owners to come forward and the spaza shop to be registered,” said former Home Affairs minister Aaron Motsoeledi.
“If… you have the right to be in South Africa, all that is left is for you to register with the South African Revenue Service and start paying tax on that spaza shop,” he added.
Read: SARS is coming after taxpayers in South Africa hard with new ‘masterstroke’ move
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