Informal Roamers to Formal Establishers: Exploring the Evolution and Economic Contribution of Somali Formal Entrepreneurship in Cape Town
Abdullahi Ali Hassan, University of Cape Town (UCT)
Somali immigrants began arriving in South Africa as refugees in the 1990s after the collapse of the Somali state in 1991 and the emergence of democracy in South Africa in 1994 (Gastrow & Amit, 2012). The Horn of Africa (Somalia, Sudan, Eritrea and Ethiopia) still remains a major refugee sending region. Namhla Matshanda contributes to this volume by investigating the push factors of Ethiopians migrating to Cape Town, South Africa. This paper explores how Somali-owned businesses in Cape Town have evolved over the past 25 years, and the particular role that formal small Somali enterprises play in trade and economic development in the city. Due to limited opportunities for formal employment, many Somalis have engaged in entrepreneurship. The paper draws on evidence from empirical studies, as well as in depth qualitative interviews with ten Somali formal business owners in Cape Town whose businesses each employed between five and a hundred people. The paper applies middleman minority theory to examine the intermediary and networking role of Somali immigrant entrepreneurs in Cape Town’s economy.
Animosity towards immigrant traders
Immigrant traders have often encountered animosity. Frantz Fanon (1963:156) identifies the phenomenon of indigeneity coupled with unfulfilled high expectations based on promises made during the struggle for independence, and lack of rational leadership as key elements behind this animosity. To illustrate his point, he draws on the Ivory Coast after independence and the experience of the Dahoman and Voltaic communities who were at the receiving end of contagious hostility and discriminatory acts from Ivorian locals. The Ivorian politicians at the time used those exclusionary acts for political gain rather than combatting them. Fanon argues that “from nationalism we have passed to ultra- nationalism, to chauvinism, and finally to racism. These foreigners are called on to leave; their shops are burned, their street stalls are wrecked, and in fact the government of the Ivory Coast commands them to go, thus giving their nationals satisfaction” (1963:156). African postcolonial politicians employed colonially inspired categories of endogeneity and non-endogeneity for political expediency (Mamdani, 2001).
These patterns can be seen in South Africa as well. Jacob Zuma, former president of the Republic of South Africa at a Cape Town rally held in February 2016 called for a radical economic change of the minority run South African economy to bring it under the black majority (Gastrow 2018). In a speech at Orange Farm, David Makhura, the Premier of The Province of Gauteng (in Nonkululeko Njilo, 2022) “Township Economy Bill [Gauteng Township Economic Development Bill (The Province of Gauteng, 2022)] was not meant for foreigners, it is only meant for South Africans”. Makhura urged local communities to take back township economies alluding to foreign owned shops operating in their areas. Using immigrants as a scapegoat to cover up the post-apartheid South African elites’ political and economic leadership failures is on the rise. Gastrow (2018) argues that these increasing tendencies provide evidence for Mamdani and Fanons’ theorisation of the African postcolonial state as often exclusionary and sometimes violent towards minorities.
Somali entrepreneurs in South Africa have experienced this sort of violence and prejudice. Somali informal traders operating in the townships of Cape Town encounter crime and xenophobic violence. Gastrow and Amit (2012:33) document diverse crime occurrences such as robbery, killings, xenophobic attacks and lootings.
In 2008, xenophobic attacks against African immigrants across the nine provinces of South Africa led to the mass displacement of immigrant communities in the country, loss of livelihoods and the death of 62 people including twentyone South Africans, eleven Mozambicans, five Zimbabweans and three Somali nationals (Human Rights Watch, 2009). Furthermore, most foreign owned shops in Cape Town’s township areas were closed during these attacks (Gastrow and Amit, 2012). In addition to xenophobia, Somali refugees in the informal grocery/spaza shop sector also experience harassment by state apparatuses. Gastrow and Amit (2012:39) mention cases in which some members of the South African Police Service (SAPS) were involved in robberies of Somali spaza shops. Gastrow and Amit (2012:40) argue that xenophobic attacks and the looting of foreign-owned spaza shops often happen when communities have problems with the state, which they wish to protest about. Violent protests and looting can sometimes be seen as a way of seeking attention from the state.
Devastatingly high unemployment, poverty and inequality, a result of centuries of colonialism and apartheid and failed ruling elites (Moeletsi Mbeki, 2009) make South Africa a space of struggle for perceived rights. Such “notions of rights and justice in post-apartheid South Africa are often linked to claims for indigenous ownership and restitutions” (Gastrow, 2018:23). Mamdani also notes that “the children of privileged immigrants, yesterday’s colonisers now recognise that it is Africans who will be entitled to enter the struggle for resources, and so now demand that they too be considered Africans” (2002:505). However, Mamdani points out that in Africa “citizenship does not entitle you to resources but it entitles you to enter the struggle for resources” (2002:505).
Thus, he suggests “visitors” and “residents” as relevant categories than citizenship and non-citizens for rights to resources. Mamdani’s suggestion of ‘residents’ as a proper category to classify African immigrants in Africa holds relevance to this study. Thus, in relation to who should have access to resources, South Africa should count African enterprising immigrants who built their lives in the country as part of stakeholders and enable them to fully participate in and contribute to the wellbeing of the economy.
On the Economic Role of Immigrant Entrepreneurship in South Africa
South African research on the economic contribution of immigrant entrepreneurship in the country has been limited to analyses of informal business activities. These studies are divided in their findings. Some researchers have described foreign owned informal business owners (particularly in the informal grocery or “spaza” market) as wealthy capitalists with money and power, who took over the informal economy from local South Africans. For example, Charman et al. (2011; 2012) suggest that foreigners, in particular Somalis, are taking over township economies at the expense of local interests.
However, several studies dispute this view and present a more favourable picture of immigrant entrepreneurship. Tawodzera, Chikwanda, Crush and Tengeh (2015:70) conducted a study in which they interviewed 518 immigrant traders and found that those immigrant entrepreneurs created 644 job opportunities in the city. The authors maintain that immigrant entrepreneurs contribute to the economy of Cape Town in diverse ways such as promoting local producers, retailers and wholesalers and creating employment. Gastrow and Amit (2013:29) also demonstrate that Somali owned spaza shops in the Western Cape have a positive impact on the local economy and the lives of local households. They (2013:33) report that Somalis often buy local products from wholesale stores, which employ hundreds, if not thousands, of South Africans. Somali owned spaza shops often provide a market for perishable foods such as bread, milk and fruit and vegetables, which often supplied by smallscale local suppliers. In local communities, spaza shops also supply daily necessities such as, bread, milk, and sugar. They also rent property from South African landlords and create employment. This view is supported by Tengeh (2015:191) who argues that immigrant run businesses, including those belonging to Somalis, often employ South Africans.
These studies contribute to understanding the role of immigrant entrepreneurship in South Africa. Yet they are limited to informality and omit immigrantrun formalised businesses including cash and carries and textile businesses. This paper enriches the dialogue by examining how many Somali refugees in Cape Town, who began as informal traders, evolved into establishers of formal businesses.
Global literature on immigrant entrepreneurship and their role in hosting cities
The global literature on immigrant entrepreneurship covers a broad range of topics. In addition to the economic contribution of immigrant entrepreneurship to hosting cities, global scholars discuss the evolution of immigrant and minority run businesses. Portes and Manning (2008:53) narrate the background and history of German-Jewish business communities in Manhattan in the late 19th century New York. Within three decades between 1840 and 1870, their level of income rose above the average income of the majority of the American public and their businesses evolved from street trading evolved into larger business enterprises. The study demonstrates that immigrant entrepreneurship offers potential for future economic growth and opportunity over time.
Urban migrants have contributed to transforming African cities by investing in local businesses. In the 1990s many Somalis who fled anarchy in Somalia settled in Nairobi and converted Eastleigh ‘Little Mogadishu’, then a residential suburb of Nairobi, into a bustling business zone. They established various business enterprises including export and import networks, erected malls, lodges, and restaurants (Lindley as cited in Pavanello, Elhawary and Pantuliano, 2010:23). Although some Kenyans in other parts of Nairobi assumed that such change did not necessarily touch their lives, the majority of the local residents of Eastleigh believed that Somali immigrant businesses boosted the local economy and created jobs (Pavanello et al., 2010:27). Although sub-contextual differences might exist, this study is a proximal case to the participants in the research.
A seminal contribution to the global literature on immigrant entrepreneurship is Edna Bonacich’s theory of “middleman minority” (1973). Bonacich describes middleman minorities as minority groups who “occupy an intermediate rather than low-status position. They tend to concentrate in certain occupations, notably trade and commerce, but also in other “middleman” lines such as agent, labour contractor, rent collector, money lender, and broker. They play the role of middleman between producer and consumer, employer and employee, owner and renter, elite and masses” (1973:584).
Bonacich (1973:584) also describes ethnic networks as a feature of middleman minorities. Immigrant enterprise networks often operated through vertical connections between companies that supplied goods to other ethnic owned enterprises. The Jewish owned textile firms in New York, for instance, supplied other Jewish owned textile distribution stores. Similarly, Indians in Great Britain played both the role of suppliers and clients in the grocery businesses they operated. Other studies such as Portes and Manning’s study on Jews, Koreans and Japanese minority groups in the U.S. (2008:56) and Zhou’s account of the Chinese immigrant entrepreneurs in Los Angeles (1998:234) show how middleman minority groups generate ethnic networks in urban economies. Middleman minorities do not only build ethnic networks within their own community, they also build broader networks that benefit businesses operated by host communities (see Hassan, 2019).
In an African context, Mamdani (1974) traced genealogies of class formation and the role of minorities in Uganda under the British colonial rule in the early 20th century. Lord Lugard, the colonial administrator saw the Indians as appropriate commercial link that have unique qualities. Lugard believed Indians had the knowhow of trading and were not a potential threat to the colonial system. And unlike the native Africans, they had no political ambition and unlike the white bourgeoise they could intermingle with the natives to work with them. The notion of class formation is thought-provoking but it is beyond the scope of this short paper. Instead, this paper relies on the concept of middlemen minorities as a framework to explore Somali entrepreneurs’ business evolution and their intermediary role in Cape Town’s economic landscape and how this contributes to the city’s economy.
The Evolution of Somali Enterprises in Cape Town
This section briefly narrates the business journeys of the ten participants in the study who mainly operate in the textile and food sectors in Cape Town. The respondents often described that they had no tangible currency in their pockets when they came to South Africa. Most of them also reminisced that at the time of their migration, they were young and had no relevant skills to compete in the South African job market. Thus, in seeking a way to survive, nine of the ten participants in the study started out in the informal sector. Informal sector means businesses whose activities are not formally recorded and registered as in the country.
Initially, the participants worked as informal traders, street vendors and hawkers in the streets of Cape Town, especially, in Bellville taxi rank and the train station in Cape Town. They then found a new market in the informal economy, in the form of grocery businesses, also known as ‘spaza shops’ or as owners of small sized textile shops. The spaza shops were located mainly in township communities such as Delft and Khayelitsha, while the majority of the clothing shops concentrated in city centres such as Bellville. Eventually they entered the formal economy by setting up registered businesses that reported to institutions such as South African Revenue Services (SARS) and the Companies and Intellectual Property Commission (CIPC). These businesses mainly comprised cash and carry and textile wholesalers which were found in different areas of the city, especially, in Bellville Central Business District (CBD) which is also dubbed ‘Little Mogadishu’.
Despite the evolution of their businesses over the years, the respondents faced major challenges such as crime, including robbery and xenophobic occurrences. Language barriers were also a major challenge as most of the participants could not understand the local languages, including English. Strategizing and risk taking was an important part in the establishment of their business ventures. The respondents also attributed the establishment of their business to informality as informal traders, partnerships, networking and trusting, modelling and over-coming language barriers (Hassan, 2019).
Mamdani’s popular class formation notion does not fully explain the evolution of Somali immigrants’ businesses in South Africa. Unlike apolitical Indian minority entrepreneurs in the 20th century assisted by colonial rule in East Africa to disenfranchise and suppress the politically agitated African majority (Mamdani, 1974), immigrant entrepreneurs in South Africa did not have access to state social and financial support. Instead, they found a market gap in racially and economically divided post-apartheid South Africa. Somalis operated in impoverished, often crime inflicted, urban areas known as townships in which the economic elites and the major South African businesses were reluctant to risk and invest. Somali businesses built on risking in these areas where they faced persistent robberies and killings, even as South African elites incite the public by accusing foreigners of taking jobs away.
Unlike their compatriots in Nairobi (Pavanello et al, 2010) who joined well established Somali community since the early 20th century (Blixen, 1937), Somalis in South Africa arrived in a completely new geography with no established relatable community, thus, limited ‘social capital’ (Pierre Bourdieu, 1986). Although some of the participants, who are Muslim, worked for South African Muslim Indian businessmen, bought stock from Indian shops on loan and slept in mosques when they could not rent a place, they still faced major barriers. The language barrier was especially daunting, as South African Indian Muslims predominantly communicate in English and most of Somalis did not have a command of English at the time.
The Economic Role of Somali Entrepreneurs in Cape Town
Previous studies by Crush et al. (2015; 2017), Gastrow and Amit, (2013) and Tengah (2015) see immigrant entrepreneurship as positive contributors in the economic ecosystem of the City of Cape Town. They highlight that informal immigrant-run businesses employ South Africans and immigrants, pay rent, and purchase goods from local suppliers. My study had similar findings. For instance, it also found that formal Somali businesses created jobs in the city. The businesses initiated by the ten participants in my study directly and formally employed a total of 282 employees. They also support the local suppliers such as Jumbo Cosmos, Makro, Giant Sweets and others including fruit markets in Epping as buyers of their goods. Additionally, businesses owned by the participants which are registered formal businesses with regulatory institutions such as Company and Intellectual Property Commission (CIPC) and South African Revenue Service (SARS) pay income tax and value added tax (VAT) to the state.
However, there were other ways in which the participants’ businesses contributed to the city’s economy. In particular, they comprised an infrastructure for townships in Cape Town. These businesses brought goods and services closer to the communities in which they operated. For example, one of the study’s respondents, Abdi (not his real name) established Smart Cash and Carry and Akram Quality Trading in 2004 in the township of Khayelitsha, one of the major informal settlements in Cape Town. Smart Choice Cash and Carry, a very busy wholesale shop that sold food groceries including rice, meat, poultry, maize and other daily household consumption goods to small grocery shops in the area. In the surrounding areas of where the shop was located, there were numerous spaza shops which were mainly run by immigrants from Somalia and Ethiopia and as well as South Africans. These shops often came to Smart Choice Cash and Carry for stocking.
Somalis also contributed to the development of urban infrastructure in Bellville. Since the first Somali cohort arrived in the late 1990s, Somalis have used Bellville, (‘Little Mogadishu’) as a geographical centre to navigate their everyday life, network and expand their businesses across the Cape Town metropolitan. They have established many shops in Bellville CBD in diverse sectors including clothing, groceries, restaurants, and lodges. They also established community centres including mosques and community primary schools. Despite diversifying to different parts of the city, Somali entrepreneurs have kept their business roots and networks in Bellville. Most of the wholesale Somali run businesses, especially cash and carry stores in Cape Town are concentrated in Durban Road, Bellville CBD.
Somalis who were desperate for business spaces in the city, rented old run-down and abandoned business premises in Bellville’s Durban Road owned by South African landlords. The new businesses that they established in these neglected centres boosted confidence in commercial property markets, especially small-scale shopping spaces. This led landlords to demolish many older buildings in the CBD and develop them into new premises with renewed lifespans. Some of the study’s respondents in Bellville said they paid R406 per square meter for business premises they occupied, a price which, according to them, was relatively high. Moreover, some of the Somali entrepreneurs also invested in commercial property in the area, after the growth of their businesses. For instance, Abdi, the owner of Smart Cash and Carry and Akram Quality Trading, also own commercial property from which he runs a poultry business in Bellville. He also co-owns other business premises.
With their diverse business networks which expand across the country, they also attract more visitors who buy goods and services from businesses in Bellville, thus, boosting the city revenues in Cape Town. Somali traders such as those in spaza shop ventures, street vendors and hawkers in different parts of the city often come to wholesale shops in Bellville to stock their shops.
Concentrating their businesses in Bellville led to the growth of ethnic business networks between Somali community members. A Somali entrepreneur’s life can revolve around ‘Little Mogadishu’, for it is a place of business and worship, a centre of the Somali community, a place to meet and network. Although Somalis are a homogenous society with a common language, culture and religion, many of them did not know each other before migrating to South Africa. For many, the years spent together in Cape Town, Bellville in particular has created a space in which relations of social capital have been formed and cemented. Being a small diasporic community in a large city in foreign country has led the Somali entrepreneurs to trust each other, organize across regional backgrounds and partner in business ventures.
But Somali formal entrepreneurs establish broader networks that reached beyond the Somali community. The respondents in the study developed close working relationships with South African businesses in the city too. The products they sell in their businesses including cash and carries in Bellville are often locally produced and supplied by local South African companies.
For example, three business meetings I attended with Taha (not his real name) of Elmi Cash and Carry illustrated how his businesses created links with other businesses in the city. At the first meeting on 12 January 2019 Taha and his assistant met with a South African man named David (not his real name) from IBP Africa about how they should strengthen their business relations. IBP Africa is a company that works as a mediator between many large South African companies such as Pioneer Foods and Lucky Star, and immigrant run businesses, mainly Somali wholesalers. The meeting related to how they could find a mutual trust and common ground for a new initiative between IBP Africa and Elmi Cash and Carry. IBP Africa offers infrastructure, large stores and trucks. It also negotiates competitive prices with companies, while Elmi Cash and Carry markets the products amongst the immigrant run businesses including spaza shops in Cape Town townships. The meeting, which covered a wide range of issues on cooperation such as pricing, loans, and trust, started at 9:18am and ended at 10:40am. At 10:58 in another office at the back of the shop, Taha and his assistant went to a meeting with Diplomats, an international company which has been operating in South Africa for the last few years. This company was already a main supplier to Elmi Cash and Carry for many years. They sold the products on loan to Elmi Cash and Carry on an agreed period of time. The company even cooperates with Elmi Cash and Carry from this particular office in which the meeting has happened. Using it as a base in Cape Town, they market their products and strategise their work in the city. The meeting was about the reconciliation of invoices and the payments of balances to be made. The evaluation of the previous week’s target sale was discussed. Negotiations for specials of certain products for Elmi Cash and Carry and the implementation of new pricing were also part of the agenda. After the meeting was concluded, Taha held a further meeting with another South African, a marketer from Golden Pride, a company that sells sugar and rice came in for a meeting. The main issue discussed was the prices of his goods. Taha told the marketer that his business had identified the same products with a better price in the market. The marketer then unbelievably responded to him. “How can that happen”? Taha said wait. “I will show you now”. He called a man and spoke to him in Somali, asked him about current prices of sugar in a Makro wholesale store. He also called a wholesale store manager and asked her about the current prices of sugar in her store. When both the man and the woman informed Taha, he finally realised that Golden Pride’s prices were not that bad - the difference was minimal.
Examining Somali entrepreneurs through the lens of “middleman minority” theory (Bonacich, 1973) can be useful in assessing their economic contributions. Bonacich (1973) examined Jewish communities in Europe and the United States (US) and Asians in East Africa to illustrate minorities as important players in the creation and processes of economies as they occupy a middle path that link the producers of goods and the general consumers. The respondents’ diverse business networks and engagements illustrate the role of Somali business owners in Cape Town as another type of “middleman minority” (one which is not static, but in a process of evolving into a fullyfledged middleman minority) that generate new economic opportunities for themselves and South African businesses in the city. Somali entrepreneurs connect producers of goods and services with the general consumers in Cape Town metropolitan and entail an integral part of the economic ecosystem of the city.
The paper shows how Somali-owned businesses in Cape Town have evolved into formalised businesses despite operating in antagonised and excluded processes, and the particular role they play in the economy of the city in an exclusionary and sometimes hostile city. It is intriguing to compare Somalis in Nairobi (Pavanello et al, 2010) with Somalis in Cape Town. For instance, Kenya is a neighbouring state to Somalia with a sizable Somali Kenyan population with common language, religion and culture with rest of Somalis. Moreover, Somali communities settled in Nairobi, Eastleigh itself since the early 20th century (Karen Blixen, 1937). But South Africa is geographically distant from Somalia. South Africa lays in the Southern tip of Africa and Somalia settles in easternmost point of the continent. In addition, South Africans and Somalis are also culturally different. And unlike Kenya there were no established Somali community members in South Africa for Somali immigrants to emulate and build on relatable experiences. Thus, it took years for Somali immigrants in South Africa to learn and adopt the ways of works in the country.
My study draws on the theory of middleman minority (Bonacich, 1973) and empirical studies on Somalis in South Africa (Crush et al., 2015; 2017; Gastrow and Amit, 2013; Tengah, 2015), to portray Somalis in Cape Town as a middleman minority in their own right. They link South African large formalised business sectors to low-income township markets. Their businesses such as cash and carries and wholesalers often distribute goods, which are locally produced through their diverse networks across the city. They also entail vital infrastructures to low income areas in Cape Town. They bring essential goods including groceries closer to the communities in which they work. These businesses develop urban economies through job creation, infrastructure development, and an improvement of access to markets. Their entrepreneurship helps to uplift vulnerable immigrant groups, while at the same time contributing to the growth and development of urban economies.