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South Africa faces a stagnating economy, collapsing municipalities, and an unemployment catastrophe with more people unemployed today than a year ago. At a moment when the country needs bold reforms to unleash entrepreneurship and expand opportunity, government has instead proposed the Business Licensing Bill – legislation that, if passed, would greatly damage the country’s growth prospects.

According to Ann Bernstein, executive director of the Centre for Development and Enterprise (CDE): “Instead of freeing up the economy, government is proposing a licensing regime of extraordinary scope. It potentially expands government control over almost every type of business and creates wide-ranging powers for inspectors to search premises, seize goods and impose penalties. This is a licence for corruption, not a pathway to growth.”

A detailed submission by CDE warns that the Bill, as drafted, would restrict economic activity, centralise power in national government, and expose small and informal firms to harassment and abuse. It would also make it harder for foreign nationals to operate legally.

“This Bill will stifle small business growth and undermine South Africa’s competitiveness. It is irrational, unconstitutional and damaging. It should be withdrawn,” said Bernstein.

A Bill with no rational basis

Under South Africa’s existing 1991 Business Act, licensing applies only to a narrowly defined set of activities such as restaurants, mobile food vendors, cinemas and certain health-related or entertainment venues – categories grounded in concerns about public health or potential public nuisances.

CDE argues that this is the appropriate approach: only businesses that pose genuine risks or serious inconvenience to others should be subject to licensing. By contrast, the new Bill adopts an almost completely open-ended scope, creating the possibility that virtually any form of economic activity could be designated as requiring a licence.

The Bill allows the Minister of Small Business Development to require licences for anycommercial activity linked to the functional areas in Schedules 4 and 5 of the Constitution – a list that includes matters such as tourism, trade, urban and rural development as well as language policy, disaster management, and administration of indigenous forests.

Although the Bill provides for exemptions for particular sectors and businesses, the conditions are so onerous that it may well be harder to obtain an exemption than a licence. The Bill requires the Minister to consult up to five Cabinet colleagues before granting any sector-level exemption, further centralising control and slowing decisions.

“This cannot possibly form the basis for national licensing. It is regulation without logic, coherence or legitimate public purpose,” said Bernstein. 

The Bill obliges all provinces to enact business licensing laws and forces every municipality in the country to amend their by-laws. This represents, in CDE’s view, a significant and unconstitutional intrusion into municipal executive authority.

Severe constitutional concerns

CDE argues that the Bill unjustifiably limits two fundamental constitutional rights:

• The right to choose one's trade, occupation or profession freely (Section 22)

The proposed scope of this Bill is a limitation on this right, and the Bill provides no adequate justifcation for such broad interference 

• The right to privacy (Section 14)

The Bill empowers "authorised officers" to enter business premises and private dwellings without a warrant under vague conditions. These powers mirror those used in the Criminal Procedure Act for officers of the law investigating murder, grand corruption or drug dealing. 

Bernstein said: “Giving municipal inspectors the power to enter private property and confiscate goods without a warrant is extraordinary. How can this possibly be appropriate for people failing to apply for a business licence? It violates the Constitution and invites abuse.” 

A heavy blow to small and informal businesses

CDE warns that the Bill will hurt the very firms South Africa needs to support:

• Small, new and informal businesses would face new costs and barriers

• Inspectors could issue compliance notices, impose escalating fines and confiscate goods-even for activities that are perfectly legal except for lacking a licence. 

“These provisions are draconian. They will discourage entrepreneurship and weaken livelihoods that are already under immense pressure,” said Bernstein.

Provisions that unfairly target foreign nationals

The drafters of the Bill seem to intend its provisions to limit the scope for foreign nationals to participate in the economy. Indeed, one heading in the Bill reflects an intention (wholly unconstitutional) to designate some areas in which only citizens would be eligible for licences. It is also overwhelmingly likely that the heavy-handed powers granted to municipal inspectors will be disproportionately used against non-citizens, whatever their status in the country.

“This Bill is xenophobic and undermines human rights and the rule of law to the detriment of the economy. South Africa needs more entrepreneurship, not less,” said Bernstein.

The Bill should be withdrawn

CDE concludes that the Bill is incoherent, unworkable and unconstitutional. It undermines local government autonomy, creates opportunities for corruption, and adds new obstacles to small business development and economic growth at a time when South Africa can least afford it.

“South Africa needs urgent pro-growth reform, not heavier regulation and deeper centralisation,” said Bernstein.

“This Bill should be withdrawn in its entirety and replaced with a consultative process focused on a licensing regime that encourages many more firms and reduces regulation that will only facilitate more corruption.”

CDE's full submission can be read here. 

Issued by Centre for Development and Enterprise