Migration Policy Series
School of International Policy and Governance
More than 60% of the world’s refugees now live in urban areas, according to the UNHCR. The social and economic impacts of refugee movements are therefore increasingly being felt in the towns and cities of host nations. The notion of “refugee economies” has been adopted to highlight the strong involvement of refugees in the many overlapping processes of production, consumption, exchange and entrepreneurship. As urban refugees increasingly become the norm in the urbanizing Global South, more research on the specifically urban economic impacts of protracted refugee situations is therefore urgently needed. Identifying the economic advantages and benefits associated with the presence of refugees is a key precondition for making governments more responsive to refugee needs and removing the barriers they face.
South Africa has adopted a “self-settlement” approach to refugees. The country imposes no restrictions on freedom of movement and the geographical locations where refugees can reside. They are not confined to refugee camps or physically separated from citizens, which means they have direct interaction with South Africans. The self-settlement model emphasizes self-sufficiency on the part of refugees in the process of resettlement, with little assistance from state authorities. Many urban refugees are unable, for various reasons, to access formal employment in the cities and turn to the informal economy for their livelihoods. Because urban informality is generally invisible to policy-makers, scorned by politicians, and seen as a site of desperation rather than opportunity, its economic significance is often minimized.
The primary aim of this report is to examine what we call “refugee entrepreneurial economies” in urban South Africa. Within the informal sector, refugee enclaves have often been viewed as stagnant pools of desperation, providing narrow opportunities and limited scope for advancement. But this is a misleading characterization. It is important to recognize the dynamism and growing complexity of South African refugee economies and to reshape our ideas about their positive economic impacts. In this report, we seek to broaden the image of refugees and their economic impacts beyond a narrow focus on their marginal status and vulnerability. They are viewed as dynamic agents with skills and capabilities who can play an integral role in transforming local settings and contributing to economic development. The report also addresses the question of whether geographical location makes a difference to the nature of refugee entrepreneurial economies by contrasting refugee enterprise in a major South African city (Cape Town) with that in several smaller towns in a different part of the country (Limpopo province).
Cape Town was chosen as one of two study sites because there is a significant concentration of refugees in the city. In 2015, SAMP conducted surveys of migrant entrepreneurs in Cape Town and Johannesburg and found that in Cape Town, one-third of the respondents were refugees. In recent years, refugee entrepreneurs have also been establishing businesses in smaller urban areas around the country. In contrast to Cape Town, very little research exists on refugee livelihoods and entrepreneurship in Limpopo, which was chosen as the second site for this study. The study focused only on informal sector business owners who hold refugee (Section 24) permits under the Refugees Act. Holders of asylum-seeker (Section 22) permits were not included as many of these migrants are unlikely to be refugees, as conventionally defined. In Cape Town, 504 refugees were interviewed in 12 different areas of the city using a survey instrument first developed by SAMP for the Growing Informal Cities Project. A similar number were interviewed in Limpopo in the towns of Polokwane, Musina, Louis Trichardt, Thohoyandou, Burgersfort and Tzaneen. In each of the two study sites, a “control group” of 500 South Africans was interviewed (1,000 in total). The survey was complemented with 50 in-depth interviews with business owners in each research location and three focus groups with refugees in each location.
The first section of the report compares refugee business owners in Cape Town and small-town Limpopo to ascertain if there are any significant differences in their respective socio-demographic and migration profiles:
- Male refugee entrepreneurs clearly dominate in both areas, with only 20-25% of business owners being women;
- The entrepreneurs in both locations tend to be relatively young with 80% in Cape Town and 77% in Limpopo under the age of 40. Very few entrepreneurs in either location were over the age of 50.
- There are marked idfferences in the countries of origin of refugee entrepreneurs. In Cape Town, the most numerous group was from Somalia. While there were some Somali-owned businesses in Limpopo and Ethiopian-owned businesses in Cape Town, the largest group in Limpopo towns was from Ethiopia. Some national groups were well represented in both places, including from the DRC and Zimbabwe. In both Cape Town and Limpopo, there were small numbers of refugees from the same countries, notably Burundi, Cameroon, Congo Brazzaville, Eritrea, Rwanda and Sudan.
- The majority of refugee business owners (over 90%0 arrived in South Africa after 2000. Limpopo has a slightly greater proportion of recent arrivals than Cape Town. In Limpopo, there is a clear time lag between year of migration to South Africa and year of arrival in the province. As many as 64% of the refugee entrepreneurs in Limpopo had lived in another South African town or city first (compared to only 27% in Cape Town).
- The major reason for relocation from large cities to small-town Limpopo is the pattern of violence against non-South African informal businesses. Experience of violent crime and fears over personal safety were recurrent motives for moving to Limpopo, which appears to be a safer haven and less inhospitable business environment than South Africa’s large cities. But while relocation to Limpopo may lessen the chances of victimization, it does not eliminate them. Many of the refugees interviewed in Limpopo told stories of being robbed and having their business premises destroyed. Police misconduct emerged as a greater problem for refugees in Limpopo.
Despite being located in very different parts of South Africa, and nearly 2,000 km apart, the Cape Town and Limpopo refugee entrepreneurs engaged in a similarly wide range of economic activities. The vast majority in both locations are in the retail sector (75-79%), followed by services (25-28%) and manufacturing (4%-8%). The kinds of goods being sold and services offered are very similar as well. Among the sampled Limpopo refugee entrepreneurs, the most common items sold are clothing/footwear, confectionary, soft drinks, and toiletries/cosmetics. In Cape Town, the most common items sold are cigarettes, clothing/ footwear, personal accessories, and confectionary and beverages.
Given the common perception among South African policy-makers that refugees and other migrants are driving South Africans out of business, it is of interest to see if they are selling the same kinds of goods. While no product category is the exclusive domain of either group, South Africans dominate the sale of fresh and cooked food and refugees are more likely to be selling footwear, personal accessories, electronics and household products.
With regard to the business operations of refugees in the two locations, the main findings were as follows:
- The primary sources of business start-up capital in both areas were personal savings. Around 20% of both groups used loans from relatives, 12-14% loans from non-relatives and 12% gifts from relatives. Very few were able to access funding from banks, NGOs or the UNHCR. The main difference worth noting was that more entrepreneurs in Limpopo were able to access goods on credit with which to start their businesses.
- The most common strategies include bulk purchasing, extended hours of operation, keeping business records, negotiating prices with suppliers, allowing customers to buy goods on credit, and competitive prices. Refugees consult other entrepreneurs, suppliers and the media for information about the price of goods. There was very little difference in the frequency of use of business strategies by the two groups of refugees. Living in a large city does seem to provide more opportunity for buying in bulk, negotiating with suppliers and getting information on prices from other entrepreneurs. Almost a third of the Limpopo refugees travel to Johannesburg to purchase supplies, while most Cape Town refugees obtain their goods in the city.
- Although refugees in Limpopo are able to start a business with a smaller capital outlay than those in Cape Town, their enterprises are not as profitable. The Limpopo refugees earned less on average than their Cape Town counterparts: ZAR7,246 versus ZAR11,315 per month.
- In both Cape Town and Limpopo there are clear indications of increased business value with significant upward movement out of the lowest value category of less than ZAR5,000. The proportion of businesses in the ZAR50,000-plus value category increased from 27% to 47% in Cape Town and in Limpopo from 15% to 42%, suggesting that higher-value businesses may actually be performing better in Limpopo than in Cape Town.
The establishment and growth of refugee businesses has economic spin-offs for a variety of South African stakeholders. The first beneficiaries are formal sector suppliers including wholesalers, supermarkets, fresh produce markets, retailers and manufacturers. Around two-thirds of the sampled refugees in both Cape Town and Limpopo purchase supplies from wholesalers, who are easily the largest beneficiaries of their patronage. Refugees in Cape Town are also more likely to patronize supermarkets and factories while those in Limpopo are more likely to patronize small shops. The average monthly spend at wholesalers was very similar in both Cape Town and Limpopo (ZAR35,000).
The second major beneficiary of the activities of refugee entrepreneurs is the South African treasury. While most businesses operate in the informal sector and are too small to pay income tax, they pay VAT on most goods purchased from formal sector suppliers and do not claim rebates.
Third, as these refugees noted, they pay heavy rents to South African property owners. While over half of both groups of refugees paid rent to a private South African owner, this was more common in Limpopo (almost 66%). The average monthly rentals were very similar: ZAR4,838 in Cape Town and ZAR4,555 in Limpopo.
Fourth, the municipal government has a direct financial interest in its dealings with refugees. Particularly in Cape Town, refugees pay into municipal coffers through rent for business sites. This amounted to 22% of the refugee entrepreneurs compared with only 4% in Limpopo. These rents were higher in Cape Town, an average of ZAR879 per month compared to only ZAR311 per month in Limpopo. Also, as many as 28% of Limpopo-based refugees (and 21% of those in Cape Town) pay an annual licence fee to the municipality. The cost of a business licence is much higher in Cape Town at ZAR1,959 per year compared to ZAR752 per year in Limpopo.
Fifth, refugee businesses in the informal economy create jobs. Around half (52%) of the Cape Town refugee entrepreneurs and just under half (45%) of the Limpopo entrepreneurs employ people in their businesses. The Cape Town and Limpopo entrepreneurs were equally likely to employ South Africans (around 50% of the total number of jobs created). While the Limpopo entrepreneurs favoured female employees (51% versus 45% of total employees), both groups preferred to hire South African women than men (with 65-70% of South African employees in both sites being female).
Finally, it is clear from the accounts of refugees in both Cape Town and Limpopo that one of the primary beneficiaries of their activities in the informal economy is the South African consumer who can access goods and services much more cheaply than from formal sector suppliers. These include necessities such as cheaper food for the food insecure, luxuries such as household and personal products, and services such as panel-beating.
Crush, J., Tawodzera, G., McCordic, C., Ramachandran, S. (2017). Refugee Entrepreneurial Economies in Urban South Africa (rep. i-40). Waterloo, ON: Southern African Migration Programme. SAMP Migration Policy Series No. 76.