A Public Protector investigation has uncovered what appears to be a hidden ownership network operating inside Gauteng’s spaza shop sector, with evidence of business fronting, false declarations and suspected fraud that allowed shops to trade under the names of South African citizens while being operated by other people.
The findings, shared in a Section 7(9) notice by Public Protector Kholeka Gcaleka on Friday, show clear examples where the person listed on the licence or Certificate of Acceptability (CoA) is not the one actually running the business. The investigation further uncovered applications linked to shops that did not exist at the addresses provided.
The Public Protector says the evidence extends beyond isolated incidents.
Concealment of true operators of businesses
“As demonstrated in evidence, DSBD [Department of Small Business Development] has already identified specific instances of business fronting, beneficiary mismatch, fraud, or misrepresentations where the details of the licence holder differed from the operators of the spaza shops, constituting a direct attempt at fronting to bypass the requirement,” the notice states.
Business fronting occurs when the person presented to authorities as the owner of a business is merely a nominee while another person exercises effective control. The investigation suggests the practice can conceal the true operators of businesses, frustrate licensing controls, undermine immigration enforcement and expose government funding programmes to abuse.
The strongest example identified by investigators is Dana Tuckshop in Naledi, Soweto, where six children died after consuming suspected contaminated food in October 2024.
“I also observe that although a local citizen is a registered owner of Dana Tuckshop at Naledi, under whose name the CoA was issued, the shop itself was operated by a foreign national without a licence, as confirmed by CoJ and by the community of Naledi,” Gcaleka states.
Contravention of Immigration Act
She says the arrangement raises concerns under section 42(1) of the Immigration Act, which prohibits unlawfully aiding or abetting a foreign national to conduct business in South Africa.
The investigation concludes that the Naledi case reflects a broader governance failure rather than a single irregularity.
“Considering the verified specific incidents of business fronting, beneficiary mismatch, fraud or misrepresentations where the details of the licence holder differed from the operators of the spaza shops, it can be concluded that some local citizens may be aiding and abetting foreigners to operate spaza shops in contravention of the Immigration Act, thus participating in corruption and/or fraud,” the Public Protector says.
Problems for licensing system
The report paints a picture of a licensing system struggling to identify who is actually operating businesses.
Across Gauteng, only 28% of identifiable spaza shops are licensed, while 72% operate outside the licensing system.
“This can also be interpreted to indicate that for each licensed/permitted spaza shop in the province, there are almost 3 (three) unlicensed spaza shops that are operational,” the report states.
The position is particularly severe in the province’s three metropolitan municipalities.
Ekurhuleni has 3 694 operational spaza shops, but only 169 are licensed, giving it a compliance rate of just 5%. Johannesburg has 4 043 shops, of which only 558 are licensed, a compliance rate of 14%. Tshwane has almost 5 000 operational shops but only 1 522 licences, leaving compliance at 30%.
Foreign nationals dominating sector
The investigation also found that foreign nationals account for the majority of operators across Gauteng’s three metros.
“There are approximately twelve thousand seven hundred and thirty-seven (12 737) operational spaza shops within three Gauteng metros.
About seven thousand and seventy-one (7 071) of the total spaza shops are operated by foreign nationals, which equates to fifty-six percent (56%) of spaza in the hands of foreign nationals, which further reinforces the finding that a spaza shop industry in the country is rapidly being dominated and/or taken over by foreign nationals,” the notice states.
The Public Protector says the hidden ownership arrangements are flourishing because of wider institutional failures.
“A picture emerging from aggregated and empirical evidence before me reveals an ineffective system of enforcement of prescripts regulating compliance with food safety and hygiene standards,” Gcaleka says.
‘Serious systemic operational deficiencies’
She adds that “these serious systemic operational deficiencies, as well as fragmented governance structures, increase non-compliance… and further create an opportunity for exploitation by unscrupulous, corrupt informal traders and criminal networks, thus resulting in malpractices such as business fronting, illegal import of unregistered products, smuggling of prohibited or banned chemical substances, promotion of illicit trade and an influx of [undocumented] immigrants.”
The Public Protector intends to recommend that the verified cases identified by the Department of Small Business Development be referred to National Police Commissioner General Fannie Masemola for assessment and criminal investigation.
The proposed referral covers allegations of corruption, fraud, false declarations, contraventions of the Immigration Act, unlawfully assisting foreign nationals to conduct business, harbouring persons contrary to the law and other criminal offences linked to the operation of spaza shops and informal businesses.
- A Public Protector investigation in Gauteng revealed a hidden network in the spaza shop sector involving business fronting, false declarations, and suspected fraud, with shops operating under South African names but controlled by others, often foreign nationals.
- Many spaza shops operate without proper licensing, with only 28% licensed in Gauteng and significant non-compliance in Ekurhuleni (5%), Johannesburg (14%), and Tshwane (30%).
- Foreign nationals run 56% of spaza shops in Gauteng’s three metro areas, highlighting a growing dominance in the sector, often through arrangements that breach the Immigration Act.
- The investigation highlighted serious systemic governance and enforcement failures, enabling corruption, illegal trade, food safety risks, and the participation of undocumented immigrants in the informal sector.
- The Public Protector plans to recommend criminal investigations into the identified cases involving fraud, corruption, false declarations, and violations of immigration law to the National Police Commissioner.
