The Competition Commission’s '2026 Rural and Township Economy Report' finds that township and rural households continue to face severe economic constraints, while businesses face barriers that prevent many from scaling, formalising or integrating more fully into broader value chains.

The report finds that 53% of respondents in rural towns, 47% in large townships and 39% in metro townships earn an income of below R3 500 a month, with substantial numbers falling below the poverty line, which paints a picture of dire economic hardship faced by residents in these areas.

Township and rural economies occupy a central place in South Africa’s efforts to address poverty, unemployment and inequality, and in the broader pursuit of inclusive growth, the commission says.

Local businesses face constraints in sourcing, selling and regulatory compliance, while consumers often have to travel beyond their immediate communities to access a wider range of goods and services.

Targeted improvements in local supply chains, routes to market and regulatory processes could support business growth, improve consumer choice and reduce the costs of participating in local markets, the commission notes.

Income levels are important in competition assessment because they influence what consumers can afford, where they can shop, how far they are able to travel, the extent to which they can switch between suppliers and the degree to which price, convenience, quality and product range affect buying decisions.

In township and rural areas, low household incomes should be understood as part of a broader set of structural conditions, including high poverty and unemployment, spatial separation from economic centres, transport constraints and historically limited access to mainstream economic opportunities.

These conditions affect both sides of the market by shaping consumer demand and switching behaviour, while also influencing the scale, formality and growth prospects of local businesses, it says.

Business activity in rural and township economies is still dominated by independent, informal, micro and small enterprises, with a high prevalence of historically disadvantaged ownership. This means that the township and rural economy is not merely a residual or peripheral sphere of activity, but rather one in which local entrepreneurship plays a major role in livelihoods, access to goods and services, and economic inclusion.

Simultaneously, the predominance of smaller and less integrated firms also reflects the historical and continuing barriers that prevent many businesses from scaling, formalising, or integrating more fully into broader value chains.

Businesses in township and rural areas face a combination of market barriers and regulatory barriers that constrain entry, expansion and effective participation. Two especially significant problem areas are procurement and route to market.

Procurement structures differ materially by business type in township and rural markets, and these differences shape firms’ competitive position.

Procurement channels affect the prices businesses pay for inputs, the reliability of supply, the product range they can offer and their ability to compete on price, range and consistency.

Businesses that procure through larger and more efficient channels are generally better placed to secure favourable supply terms and stable stock, while those sourcing through smaller or more fragmented channels may face higher costs and less secure access to inputs.

Procurement patterns by business type show that 65% of township national chains procure largely through large formal retailers or wholesalers, while independent and informal businesses are more reliant on smaller formal suppliers and medium-sized wholesalers or intermediary channels.

In rural towns, 41% of independent businesses rely most heavily on small formal suppliers, while national chains and franchises make greater use of larger formal supply channels and corporate distribution arrangements than smaller business types.

The report identifies procurement difficulties in various sectors. The most common issue across sectors is higher input or inventory costs linked to smaller order sizes and weaker bargaining power, while a lack of local supplier availability and stock shortages are also significant in several sectors, such as agriculture, hospitality and food services.

The implication is that businesses in various rural and township sectors face higher procurement costs, although the exact form it takes differs by sector, the commission says.

REGULATORY BARRIERS
Meanwhile, the report finds that regulatory barriers, or red tape, are widespread and economically significant. The main regulatory barriers affecting township and rural businesses identified by the study include complex, onerous and costly regulatory burdens and challenges associated with permits, licences, zoning rules, municipal by-laws and service disruptions in the main.

These burdens affect firms unevenly, falling most heavily on smaller and less formal businesses that have fewer resources to navigate complex compliance systems.

“The effect is not simply administrative inconvenience. In practice, these barriers can delay entry, prevent relocation into more formal premises, limit investment, and discourage business expansion. They may also reinforce informality by raising the cost of compliance relative to the expected gains from formalisation.

“Businesses that cannot comply with these regulations also find it difficult to obtain funding, as funders would generally fund businesses that are compliant with municipal regulations, tax laws and other laws,” the commission points out.

When compliance burdens discourage formalisation or constrain expansion into mainstream economies, including high-footfall nodes such as formal retail space, households may have fewer options nearby and may travel farther to access better-stocked outlets, with travel costs acting as an additional implicit price that shapes effective competition in local markets, it says.

Township and rural economies are characterised by significant market and regulatory barriers.

An integral part of the fight against poverty is lowering the cost of living. Barriers facing rural and township businesses have direct consequences for consumers, the commission says.

When local businesses struggle to source goods at competitive prices, access formal retail and digital channels, or expand, consumers may be left with fewer nearby choices, weaker product availability, and higher effective prices.

Creating a more enabling environment for rural and township businesses is central to tackling poverty, unemployment and inequality.

“While many in the formal sector see the collective value of the so-called Kasi Economy, inequalities will only reduce if residents in these rural towns and townships actively participate in that economy and are able to expand beyond its borders to participate in the formal malls and online purchases of middle-class South Africa,” says Competition Commissioner Doris Tshepe.

Unlocking the potential of township and rural economies requires improving the conditions under which smaller firms can procure, reach customers, comply with regulation and compete on fair terms. Addressing these barriers is important for spatial transformation, local enterprise development and consumer welfare.

Addressing the barriers will require coordinated action by business, local government, regulators and key role-players. The commission will pursue a combination of competition advocacy, stakeholder engagement and inter-agency cooperation, targeted further research and screening or enforcement action.

These interventions will focus on barriers that limit the ability of township and rural businesses to enter markets, expand and compete effectively, with the aim of improving market access and reducing red tape to stimulate local economic participation and improve outcomes for consumers, says Tshepe.