South Africa’s economy relies on a thriving small business sector; however, too few firms emerge, even fewer grow, and many go out of business.

In a country desperate for more jobs and faster growth, we should be doing everything possible to remove the obstacles to building a more dynamic business sector and many more entrepreneurs.

However, the Business Licensing Bill published by the Department of Small Business Development does the opposite. This bill is incoherent, unworkable and unconstitutional. It will damage South Africa’s economic prospects.

The bill proposes a significant expansion of state control over economic activity. Instead of enabling enterprise development, it introduces new barriers, raises compliance costs and exposes entrepreneurs to intrusive enforcement powers.

It is based on a profound misunderstanding of what South Africa’s economy needs, and threatens to push the country even further away from the dynamism that will deliver faster and more inclusive growth and job creation.

Under South Africa’s existing Business Act of 1991, licensing applies only to clearly defined activities such as restaurants, mobile food vendors, cinemas and certain health-related or entertainment venues. These categories are grounded in public health or public nuisance concerns. This is the appropriate approach: licensing should be limited to activities that pose real risks or require specialised professional competence, as is the case with regulated professions such as doctors or financial advisors.

For all other lawful commercial activity, the presumption should be that people are free to trade without seeking permission from the state. This basic principle is essential in a country desperate for more entrepreneurs, more competition and more growth.

The Business Licensing Bill abandons this logic entirely. Where most business activity was once legal unless regulated, it will now become inherently illegal unless licensed

 This bill will empower the minister of small business development to require licences for any commercial activity linked to the functional areas listed in Schedules 4 and 5 of the Constitution – a list never intended to define business sectors and which includes matters such as tourism, trade, urban and rural development, as well as language policy and disaster management. The result is an open-ended regime within which virtually any business could be compelled to obtain a licence.

Although the bill nominally provides for exemptions, the conditions are so onerous that securing an exemption could be harder than securing a licence. The minister must even consult up to five Cabinet colleagues before granting a sector-wide exemption, a level of centralisation that will slow decisions and increase uncertainty for business.

This centralised approach is carried through into a multi-layered system of coordinating structures across all three spheres of government.

The bill establishes a National Interdepartmental Coordinating Committee on business licensing and economic regulation, as well as Provincial Interdepartmental and Municipal Coordinating Committees. These bodies are intended to align licensing approaches and oversee implementation across the country. Why is this necessary?

Besides cumbersome centralisation, the bill also raises serious constitutional issues.

For one thing, imposing a licensing requirement on an undefined and potentially limitless range of businesses is a clear limitation on the constitutional right to choose one’s trade, occupation or profession freely.

Disturbing powers

Section 22 of the Constitution allows for regulation, but only where this is rational, proportionate and justified. The bill does not meet that test.

Equally disturbing are the powers granted to “authorised officers”, who may enter business premises and even private homes without a warrant. They may search, question, confiscate goods and issue compliance notices. These powers mirror those used in the Criminal Procedure Act for officers of the law investigating murder, grand corruption or drug dealing. How can this be appropriate for people failing to apply for a business licence?

The bill empowers inspectors to issue compliance notices and then impose escalating administrative fines of R500 for a first failure to comply, R5 000 for a second, and R10 000 for subsequent failures. They may even trigger criminal prosecution, with penalties of up to six months in prison for a first offence, 12 months for a second, and 24 months for further offences. This is a licence for corruption in a context where petty extortion is already rife.

Such intrusive enforcement is part of a broader pattern in the bill of undermining established constitutional boundaries, including those that protect the role of local government.

Trading regulations fall squarely within the mandate of municipalities. Yet the bill obliges provinces and municipalities to adopt uniform licensing laws and amend their by-laws accordingly. This is inconsistent with the Constitution’s allocation of powers and undermines the autonomy of municipalities to manage local economic activity.

The bill’s overreach is particularly troubling when it comes to foreign-owned businesses that operate lawfully in South Africa.

Several clauses in the bill appear to be informed by a desire to restrict the economic participation of foreign nationals. One section refers to “designated trading areas for citizens and small enterprises”. The provision itself does not create such areas on the basis of citizenship, which would be unconstitutional, but its wording reinforces the impression that the bill is intended to make life harder for foreign traders.

This intention is also reflected in the way the bill provides that licences are not issued to businesses but to natural persons who “control” them. This opens the door to a licensing regime in which citizenship becomes the key gatekeeper for economic participation.

Impact on foreign nationals

The bill allows non-citizens to obtain licences that remain valid only for as long as their visas are valid, and it empowers licensing authorities to demand criminal records from applicants, something that may be impossible for many immigrants to supply.

In practice, inspectors are likely to use their expanded powers to focus on businesses controlled by non-citizens, exposing lawful foreign traders to harassment, penalties and the risk of being driven out of business.

All of this is wrapped in the language of “economic unity” and “equal opportunity”, but the effect is the opposite: a system that makes it harder for foreign nationals to secure a lawful livelihood. This is not inclusive growth. It is a form of economic populism implemented through administrative measures.

If this bill is enacted, it will expand state power, undermine constitutional rights, expand opportunities for corruption, damage already fragile municipalities and impose new burdens on firms at a time when South Africa desperately needs growth.

The bill is not salvageable: it cannot be improved by tightening definitions, adjusting thresholds or refining implementation. It is conceptually unsound, administratively disastrous and economically illiterate.

Cabinet has allowed this bill to proceed much further than it should have – a worrying sign of how poorly economic policy is being scrutinised in our government of national unity.

Government should withdraw the Business Licensing Bill before it destroys confidence, before municipalities attempt to enforce it and before struggling entrepreneurs are told they must pay for the privilege of running a business and creating the jobs our people so desperately need.

South Africa cannot afford another layer of bureaucracy that chokes enterprise and discourages investment. We need more enterprise, more opportunity and more employment – not more government officials telling people how they may earn a living.

Ann Bernstein is executive director of the Centre for Development and Enterprise. This article is based on CDE’s submission on the Business Licensing Bill.

This article was published on News24