Instead of reducing red tape, small business development makes more legislation

Cutting red tape and making it easier to do open and operate a business in South Africa is always identified as a priority at all talk shops about getting the local economy to grow.

Which means the department of small business development should be doing just that. The only problem is that it is not, instead making more legislation that creates even more red tape.

Stella Tembisa Ndabeni-Abrahams, minister of small business development, published the Business Licensing Bill on 26 September 2025 in the Government Gazette for comment. The Bill proposes a reform of the country’s business licensing regime and aims to create a uniform licensing system that promotes economic unity, equal opportunity and social inclusion.

The Bill will replace the Businesses Act, which has been criticised for lacking clear guidelines, failing to regulate foreign-owned businesses and not reflecting cooperative governance principles.

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Department could not get Bill past State Law Adviser at first

However, looking at the institutional outcomes in the 2023-24 annual report of the department of small business development, it seems that the department battled to put the legislation together.

According to Outcome Five, that required the department to ensure reduced regulatory burdens for small enterprises, the department was supposed to consult the public on the Businesses Amendment Bill and proposed changes to the overall departmental mandate and medium-term goal of reducing regulatory burdens for small enterprises.

Through this legislation, the department aims to provide a simple and enabling framework for procedures for the application of licensing of business by setting national norms and standards and repeal the Businesses Act.

The department planned to conduct public consultations to amend the Businesses Amendment Bill and the proposed inputs and amendments and be submitted to minister for introduction to Parliament.

However, the Businesses Amendment Bill was not submitted to the minister for introduction to parliament because the Office of the Chief State Law Adviser indicated that the department can only submit the Bill to the Cabinet after attending to and re-drafting a number of clauses.

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Streamlining trade or stifling enterprise?

Now the Bill is out for comment and the experts are asking if it is streamlining trade or stifling enterprise.

Doron Joffe and Sanjay Kassen, joint heads of department of corporate commercial at law firm ENS Africa, say the Bill is a draft law stemming from the department of trade, industry and competition that aims to achieve a registry of all businesses operating in the country in the formal and informal sectors.

If this Bill becomes law, businesses will have to register with and obtain a licence from their local municipality. This Bill is meant to replace the Businesses Act which requires businesses that serve food, operate health facilities such as massage parlours, or entertainment venues to be licensed with local authorities.

Joffe and Kassen say the key features of the Bill include the comprehensive framework for business licensing, setting out principles, procedures and minimum requirements for applying as well as issuing and enforcing licences.

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Who will the Bill apply to?

“It applies to all businesses whether they are owned by citizens or foreign owned, provided that non-citizens comply with immigration and refugee laws. It also seeks to harmonise provincial legislation and municipal by-laws for consistency across all spheres of government.”

The Bill empowers the minister responsible for small business development to designate certain business activities that require a licence but the minister must follow a public consultation process first. The Bill also allows exemptions for specific industries or businesses, such as low-risk businesses, non-profits and start-ups.

According to Joffe and Kassen, the Bill is guided by three key principles, namely redress, efficiency and good administration. Preferential measures for small enterprises can include licensing authorities adopting measures to support small businesses, such as simplified application and renewal processes, reduced or waived fees and exclusive trading zones.

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Many objections to flaws in the Bill

The Mises Institute of South Africa formally objected about the use of the constitution to justify the Bill because it is invalid as the constitution does not authorise the state to require peaceful individuals to have permission to engage in voluntary exchange.

The Bill is also unconstitutional as it claims that the power of inspectors may lead to an increase in corrupt practices as there are no regulations on this power given to inspectors.

“Nothing, absolutely nothing, will escape the clutches of the bureaucracy which the Bill will require. The country will be deluged by wall-to-wall apartheid-style bureaucrats, who will control everyone who supplies anything,” Leon Louw said.

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Hawkers might have enormous problems if the Bill becomes law

“Section 25 of the Bill seems to validate this view as hawkers could face an astonishing punishment for doing business. If you are found guilty of the offence, which is trading without a licence, you would be liable to a fine of an unspecified amount or imprisonment for up to 10 years or both.

“According to section 42 any number of onerous requirements could be added under the authority of this blanket provision and the justification for this Bill.”

However, Lionel October, director general of the department, says the Bill will merely extend and standardise the issuing of licences according to the Helen Suzman Foundation.

Louw is quoted as saying this process already exists but is not implemented uniformly. It is claimed that the process of registration would be simple, fast and cheap.

“As soon as people hear regulation, they automatically think that socialism is coming in. It is a complete overreaction. Every successful economy has a set of well-managed, simple regulations.”

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No, says DTIC, there are advantages to the Bill

October says the advantages of this Bill are that:

• by registering, informal sector traders would also be able to get onto a database which would allow them to gain access to government support programmes
• registration of informal businesses would help the department to target support for these businesses
• the Bill would also help government to crack down on traders selling items such as pirated DVDs
• businesses such as bars, taverns or restaurants already in possession of the necessary licence needed to operate, would be exempt
• the granting of licences will ensure greater security to operate a business.

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Busa believes the Bill will unintentionally impede economic growth

Business Unity SA (Busa) believes that there is merit in what to the Bill tries to achieve to promote an environment conducive to business expansion and ensuring compliance.

However, Busa also considers it as yet another piece of legislation that overwhelms small businesses with yet another piece of legislation to comply with in an already extensive regulatory framework.

Busa believes that the current draft of the Bill will unintentionally impede the growth and development of SMEs and further harm a sector with an already high business failure rate. This is also worrying considering that most economists see SMEs as being the engines of growth in developing economies.

The Bill also contradicts the National Development Plan (NDP), which sees 90% of all jobs by 2030 derived from the small enterprises sector.

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Business sector’s concerns

The business sector is worried about:

• the onerous compliance burden, diverting time and resources away from the core business of companies
• the Bill will spur on illegal business activity as operators seek to avoid complying, which can lead to increased bribery and corruption
• this Bill will heighten the risk profile of businesses, which already have to contend with challenges of access to finance
• the accumulation of regulatory requirements raises costs of doing business
• the Bill will impose an increased administrative burden on the authorities that already lack capacity
• the Bill does not give clarity of application to businesses with a national footprint
• the Bill speaks of automatically revoking a licence if non-compliance is found and a business owner can only appeal once the business has been closed. This does not provide a fair process for a business to plead its case before the licence is revoked. This appears to be an unjust administrative action that undermines the provisions of section 33 of the Constitution.