Competition Commission ZA: Informal Sector Regulatory Review Finds Red Tape

• The Competition Commission's Rural Township Economy Project report highlights significant regulatory barriers and procurement challenges for informal businesses in South Africa.
• Deputy Minister Zuko Godlimpi urged local businesses to collaborate on bulk procurement to compete with foreign-owned spaza shops.
• The report found that complex municipal permits, licenses, zoning rules, and by-laws create costly red tape, hindering economic participation and formalization.
• Failure to secure permits and comply with regulations prevents informal businesses from accessing formal economy benefits like government support and online platforms.
• The CompCom has launched a regulatory review to identify and eliminate government and municipal regulations that act as barriers to competition and SME growth.

The report concluded that ultimately, red tape can operate as a material barrier to effective participation and local economic development.

The Competition Commission (CompCom) has unveiled its Rural Township Economy Project report, shedding light on the significant challenges faced by informal businesses across South Africa's townships and rural areas. This initiative marks an increased interest from competition authorities in the informal market, which is estimated to generate approximately R900 billion in annual spending. The report's findings are intended to inform the CompCom's future work in this vital economic segment.

Deputy Minister of Trade, Industry and Competition, Zuko Godlimpi, addressed the report's inaugural launch, emphasizing the need for local businesses to collaborate on procurement. He suggested that by pooling resources to buy in bulk from wholesalers, local enterprises could better compete with foreign-owned spaza stores. Godlimpi noted that foreign owners often operate around 20 spaza shops simultaneously, enabling them to procure goods as a single entity, thereby gaining significant bargaining power and securing better prices.

A key finding of the CompCom's report is the prevalence of considerable red tape and regulatory barriers that impede township businesses from accessing essential municipal permits. The study, which surveyed 600 businesses and engaged with 1,000 township consumers, identified complex, onerous, and costly regulatory burdens. These challenges are primarily associated with obtaining permits, licenses, navigating zoning rules, complying with municipal by-laws, and dealing with service disruptions.

Following incidents of food-borne illnesses, spaza shops are now mandated to register with municipalities for a trading permit and secure a certificate of acceptability from local environmental health practitioners to ensure food safety standards. However, the report concluded that such regulatory hurdles ultimately act as a material barrier to effective economic participation and local economic development. CompCom Chief Economist James Hodge highlighted that the failure to secure necessary permits, registrations, or tax compliance effectively keeps these businesses out of the formal economy, preventing them from accessing online platforms, government support, or formal channels like shopping malls.

In response to these findings, the Competition Commission has initiated a comprehensive regulatory review aimed at identifying and removing government and municipal regulations that stifle competition within these markets. This cross-market review, launched in April 2026, specifically targets regulations that act as barriers to competition and hinder the growth of small and medium enterprises (SMEs).

The report also underscored severe procurement challenges faced by independent and informal firms, which often purchase goods at higher prices from a limited local selection compared to mainstream retailers. These businesses are frequently not integrated into larger, more formal corporate procurement channels, resulting in higher costs, smaller order sizes, and weak bargaining positions. The Commission has indicated that it will focus on addressing this significant procurement gap. Furthermore, the report noted that a lack of municipal service delivery, including water and power cuts, disproportionately affects smaller and less formal businesses, exacerbating their operational difficulties, a point echoed by Citi economist Gina Schoeman regarding struggling municipal infrastructure.

Lawyers and compliance officers should track the Competition Commission's regulatory review, as its findings on barriers to informal businesses could lead to significant reforms in municipal permitting, licensing, and zoning laws, impacting compliance strategies for clients operating in the township and rural economies.

Source: Reporting based on the Competition Commission's recent findings.