SECTION of DOCUMENT:
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1. State Regulation of Business Activity
This section reveals the greatest differences between the regulatory systems of the countries surveyed.
1.1 Policy Background
All countries currently have broadly similar economic policies, which emphasise the role of the private sector in driving economic development. In all countries, emphasis is placed upon encouraging the development of SMMEs. In Malawi and Namibia, the right to engage in economic activity has been given constitutional protection.
Since Independence in 1966, Botswana has had a mixed economy, in which government-owned parastatal enterprises play a significant role. Very recently (in 1998), the government produced its first SMME policy paper, based largely upon the recommendations of a specially appointed Task Force with majority representation from the private sector. Legislation to implement this policy has yet to be introduced.
From the late 1980s onwards, the Government of Malawi has attempted to liberalise the economy. Prior to that period, the Government was an active player in the economy, and many laws have been repealed in order to create a conducive environment in which the private sector can drive the economy. Section 29 of the Constitution of Malawi provides that Every person shall have the right freely to engage in economic activity, to work and to pursue a livelihood anywhere in Malawi.
In Namibia, Article 21 of the Constitution enshrines the right to occupation, trade and business as part of the constitutionally guaranteed fundamental rights and freedoms. Article 21 of the Constitution grants this right to "all persons", not distinguishing between Namibians and non-Namibians. In other instances the Constitution refers to "all citizens".
South Africa operates in a traditionally free market economy, although it is characterised by a domination of the economy by a
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limited number of large organisations. Recent surveys have suggested, for example, that one company alone ultimately holds the shares of almost two thirds of South African shareholding on the Johannesburg Stock Exchange. The present government, while recognising a need to adhere to free market principles of minimal intervention, is concerned that these large organisations have limited capacity to contribute all that is needed for the growth of the economy, and has a stated aim to promote small businesses. This is also in line with the government's policy of redressing imbalances of the past and promoting opportunities for entrepreneurs. Evidence of the policy position of the government is to be seen in legislation such as the National Small Business Act, 1996. This Act provided for the establishment of the National Small Business Council and the Ntsika Enterprise Promotion Agency, both designed to promote the interests of small business in South Africa. The position of government has also been set out in the White Paper on the National Strategy for the Development and Promotion of Small Business of 1995.
The Ntsika Enterprise Promotion Agency is currently conducting a comprehensive review of the legislative environment affecting small business in South Africa. The study is examining areas from the perspective of company issues, tax issues, access to finance and the like.
In Tanzania, the economy is being slowly liberalised following a period of 30 years when the economy was centrally controlled by the government. During this period, the only economic activity, which was left to the individual, was farming and whatever was harvested was sold to cooperatives at controlled prices.
Zambia became a Third Republic in 1991 following the holding of multiparty elections, which saw the end of Dr Kaunda's UNIP one party rule. During UNIP's rule from independence to 1991, the Government felt that it was important not only to have complete political power but also to have complete control of the economy. In that way, it was perceived that Zambia would be master in its own house. The Government accordingly followed a form of African socialism known as "Humanism". In pursuance of the
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principles of this doctrine, the Government nationalised much of the economy ranging from giant companies in the mining sector to small businesses such as dry-cleaning and driving schools. Over the years, the UNIP Government consolidated its hold on the economy by becoming involved in virtually all business activities including retail trading through various parastatal companies. The country's economy was truly state-dominated. However, the nationalised businesses soon lost vigour and enterprise and had to be heavily subsidised by the Government to keep them going. Rigorous prices and exchange controls also militated against private enterprise.
The change of Government in 1991 brought with it a change in economic policies. The new Government believes that it is not the business of government to run business. Deliberate efforts have therefore been made to break up state monopolies in virtually all sectors of the economy, and to set the stage for private initiative in the running of business with the facilitation of Government.
1.2 State Monopolies
In most countries, attempts have been made to reduce the role played by state monopolies. Malawi, Namibia, Tanzania and Zambia have gone the furthest in this respect. In Botswana and Zimbabwe, the process of privatisation has not yet really begun.
Since Independence, the government has been firmly committed to the concept of a mixed economy, in which certain key public services are provided by the state through parastatal corporations. In recent years, the government has encouraged public debate about privatisation, and approximately 12 months ago, a Task Force recommended the introduction of a privatisation policy. However, it remains unclear whether or when government will commit itself to implementation of such a policy.
There are at present a comparatively large number of parastatals in Botswana, some of which have responsibility for commercial
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operations such as:
In Malawi, until quite recently, the government actively participated in many commercial activities through parastatal enterprises that directly competed with the private sector. Examples of such parastatals include the Smallholder Coffee Authority, the Smallholder Sugar Authority, the Kasungu Flue Cured Tobacco Authority, the Malawi Dairy Industries, and the Cold Storage Company. However, in 1996, as part of an economic liberalisation policy, the Public Enterprises (Privatisation) Act (No. 7 of 1996) was enacted in order to promote increased
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efficiency in the economy, and to encourage citizen participation in business activities. The Act established the Privatisation Commission as a statutory body to plan, manage, and implement the privatisation of public enterprises in Malawi. The exercise is reported to be fairly well advanced, and the very few" state monopolies which remain are in line to be privatised".
In post-independent Namibia, many state monopolies have been abolished. Article 98 of the Namibian Constitution states:
(1) The economic order of Namibia shall be based on the principles of a mixed economy with the objective of securing growth, prosperity and life of human dignity for all Namibians."
Article 100 of the Constitution requires the "Sovereign Ownership of Natural Resources", and gives the state monopoly rights over:
The parastatals which remain have responsibility for the following activities:
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hostile to 'newcomers');
1.2.4 South Africa
The government is committed to the principles of a free market economy, and state monopolies exist only in certain industries, such as postal communications and rail transport. There are also parastatal bodies such as Telkom and Eskom, which are being commercialised if not privatised.
The only business activities at present reserved exclusively for the state are:
Special licences may also be granted on the advice of the Tanzania Investment Centre.
From 1970 onwards, the government of President Kaunda assumed control over a large part of the economy. Parastatal companies were established to control many commercial and industrial sectors, and in agriculture, statutory boards and corporations were created, often with monopoly powers. The activities which only government was permitted to undertake included integrated the manufacture of iron and steel, fertilisers, arms and ammunition; utilities such as public air transport, railways, power, water, and telecommunications; the operation of wholesale outlets for building materials; development financing and banking. The state also enjoyed, through its parastatal companies, a monopoly in
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many areas of commerce and industry. In the financial sector, the Zambia National Building Society and the Zambia State Insurance Corporation Limited were not permitted to face any competition from the private sector. The State Lotteries Board and the Zambia National Provident Fund Board were the only bodies in Zambia entrusted with the business of conducting a national lottery and providing some form of social security to employees when they retired. In the industrial sector, companies such as Zambia Sugar Company Limited, Chilanga Cement Limited, Nitrogen Chemicals of Zambia Limited, Refined Oil Products Limited, Premium Oils Industries Limited, to mention a few, enjoyed monopoly in their respective business undertakings. The communications sector was monopolised by the Posts and Telecommunications Limited, Zambia Airways Corporation Limited and Zambia Railways Limited. The mining sector was dominated by the Zambia Consolidated Coppermines Limited, which had a monopoly in the mining of copper, cobalt and other minerals apart from emeralds and other precious and semi precious stones. Maamba Collieries Limited enjoyed a monopoly in the excavation and sale of coal.
The change of Government in 1991 brought with it a change in economic policies. The new Government believes that it is not the business of government to run business. Deliberate efforts have therefore been made to break up state monopolies in virtually all sectors of the economy, and to set the stage for private initiative in the running of business with the facilitation of Government. The Competition and Fair Trading Act was introduced in 1994 to encourage competition in the economy by prohibiting anti-competitive trade practices. The Act seeks to prevent monopolies and the concentration of economic power as well as to protect consumers. The Zambia Competition Commission has been established under the Act to monitor and control and prohibit anti-competitive behaviour and unfair trade practices.
State monopolies in Zimbabwe include activities, which in other countries are firmly in the private sector such as fuel procurement and the export/import of maize and wheat. Other state monopolies
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1.3 Framework of Business Registration
All countries surveyed have a broadly similar business registration framework:
1.4 Licensing system
The licensing rules showed the greatest variation of any issue
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studied in the report. South Africa and Zimbabwe have reformed their licensing laws and virtually abolished business licensing except for a limited number of business occupations (such as selling alcoholic liquor and business occupations affecting public safety). In other countries such as Botswana, Swaziland and Tanzania, the licensing laws have changed little in over thirty years, and licenses are still required to conduct a very wide range of business activities.
In all countries, the penalties for carrying on a business without a licence appear to be similar: the unlicensed business owner may be fined, and his/her stock or equipment is liable to be confiscated.
1.4.1 Types of licences required
The main pieces of legislation governing business licensing in Botswana are the Trade and Liquor Act [Cap. 43:02, amended by Act No 15 of 1993], the Industrial Development Act of 1988, and the Mines and Minerals Act of 1976. However, many other statutes also provide that certain specified business activities may only be conducted by licensed operators including activities as diverse as diamond cutting [Cap. 66:04], the provision of security guards [Cap. 21:07], the provision of road transport services [Cap. 69:03], and tourism enterprises such as travel agents [No. 22 of 1992]. Certain professions such as attorneys and public accountants may not be conducted without a practising certificate obtained from the appropriate authority.
In terms of the Trade and Liquor Act, a licence to conduct specified business operations must be obtained from either the national or local licensing authority. The Act is extremely wide, and effectively requires that any type of retail activity must have a licence. Aspects of the licensing regime were strongly criticised by the recent SMME Task Force, which recommended a radical reform of the rules, and the introduction of a system of negative licensing for citizen-owned businesses. Government has responded to this criticism by proposing that the rules will be relaxed for certain categories of hawkers and vendors, pending a
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further review of the Trade and Liquor Act.
A licence is needed from the National Licensing Authority for the following types of business:
Licences for other business activities are issued by the Local Licensing Authorities:
Licences to carry on some of these activities can only be issued to citizens of Botswana, or to companies wholly-owned by citizens of Botswana (see 1.6, below).
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In terms of the Industrial Development Act, any manufacturing business is required to obtain an Industrial Licence if it:
Mining activities are governed by the Mines and Minerals Act [Cap. 66:01] which states that all rights of ownership in minerals are vested in the Republic of Botswana. The Act permits companies to apply for three main types of mining concession: a reconnaissance permit, a prospecting licence and a mining lease. A reconnaissance permit or prospecting permit will only be granted to companies that have established a domicile (for service of legal summons and execution) in Botswana. A mining lease will only be granted to companies incorporated in Botswana.
The licensing system in Malawi appears to be in effect a business registration system. Although the rules require that virtually every type of business must obtain a licence, there are few formalities to be complied with. The Businesses Licensing Act (Cap.46:01) provides that no person (whether an individual, or a company) may sell any goods by way of business or carry on a business without registering and securing a licence. The term business is defined to include any trade, industry or occupation and sale includes exchange, barter, or offering or exposing for sale. The licensing authority for the purpose of the Act is the District Commissioners office, which issues the licence upon being satisfied that the form has been properly completed.
The Industrial Licensing Act (Cap.51:01) requires every person manufacturing a product specified in the Schedule to the Act to be in possession of an industrial licence. The Schedule lists the following products:
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Since the Act was passed, no one has applied for a licence because there are no enterprises in Malawi, which manufacture the listed products.
The Trades and Occupational Repeal Act, 10 of 1995, abolished the general need for all enterprises to obtain a licence. Some business activities still require licences (although this is under review). The following list is not complete:
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The business activities which require a licence are defined in Schedule 1 to the Businesses Act, 1991:
Trading licences are regulated by the Trading Licences Order No. 20/1975 as amended. A list of licences are stated in a Legal Notice which lists 77 business activities that require licences - some activities are subdivided into further sub-categories (for example, there are 34 sub-categories of dealers license).
There are also other trading licences required by the various statutes that govern on specific businesses and professions such as medicine, engineering, law, accounting and auditing.
Also, in terms of the Liquor Licences Amendment Act of 1981, application for a liquor licence must be made to the Liquor Licensing Board for the following licences:
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Also, the Road Transportation Act No. 37 of 1963 provides for the granting renewal and amendments of road transport permit for the conveyance of goods and passengers.
Any business conducted in Tanzania is required to obtain a licence, because of a catch-all provision" in Schedule C (see below).
Schedule A" licences are issued by the Ministry of Industry and Commerce:
SCHEDULE B" licences are issued by the regional Trade Office:
SCHEDULE C" licences are issued by the district licensing officer, town municipal or city council:
The following categories of business require licences:
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This list suggests that many service business do not require a license in Zambia.
Anyone engaged in the business of supplying or selling of liquor should hold a liquor license. An agents license is required where the sale or letting for hire of any particular good is effected by an agent on behalf of a principal, whether it be in a shop, store, or other fixed place of business.
Trades or businesses for which such licenses are not required include letting for hire of:
1.4.2 Licence application procedures
It is difficult to generalise about this matter. Procedures vary greatly from country to country, and even different licences issued within the same country are often accompanied by vastly different procedures.
However, procedures for liquor licences appear to be generally
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uniform throughout the region. By way of example, the procedure of Swaziland is described in some detail (see below).
Complaints about delays in issuing licences appear to be loudest in Tanzania, where applications may remain unprocessed for two years or longer.
Applications for the various Trade and Liquor Licences must be made on the correct form, which requires information about matters such as the applicants proposed source of funding, details of any premises to be used (including whether the premises have been inspected by the Health Inspector), etc. The procedure requires that the application must be advertised in the Government Gazette, and in a local newspaper. A frequent complaint by business owners is that they will not be granted a licence unless they have already signed a lease for the business premises (this procedure requires the tenant to commit himself to a lease before he knows whether the licence application will be successful).
Applications for Industrial Licences are considered by the National Industrial Licensing Authority (NILA). Following complaints, the Authoritys procedures were streamlined in 1992, in order to improve efficiency. The NILA Board now meets twice a month to consider applications, which are no longer advertised in the Gazette for objections to be made. Under this new procedure, the owner should know the result of his/her application within 14 days from submitting the forms. Under the new procedure, the Board no longer makes commercial judgements on applications. But the Board must be satisfied that planning, zoning and health regulations are being followed.
Applications should be made (in duplicate) on Form AIL (1), copies of which can be obtained from the Licensing and Protection Division of the Department of Industrial Affairs at the Ministry of Commerce and Industry. The application procedure requires that:
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Application procedures vary greatly. Complaints about delays and unnecessary bureaucracy in issuing transportation licences have led to a review of the presently applicable legislation. A decentralised licensing regime is proposed.
General conditions associated with the licensing of businesses are contained in the Businesses Act, 1991. This contains provisions relating to the appointment of licensing authorities, the manner in which licences are granted and matters to be taken into account when granting licences (e.g. conditions relating to the premises upon which the business is to be run).
The costs and procedures of application, as well as the time periods involved, vary according to the different types of licence. For example, an application for a hawker's licence may be relatively straightforward, whereas an application for a liquor licence is a far more complex affair, requiring professional assistance.
Here again, costs and procedures vary according to the different types of licence. The consultants report described the procedure for obtaining a liquor licence in some detail. This is worth summarising because a similar procedure appears to be followed in all countries before this type of licence is issued:
In practice, approximately 60% of businesses in Tanzania do not obtain the necessary licence because of the bureaucratic system for processing applications (most of these are informal sector businesses). An indication of the bureaucracy was provided in November 1998, when the Tanzania Investment Promotion Agency complained publicly that Hyundai had decided not to invest in Tanzania because its licence application remained unprocessed two years after it had been submitted.
The licensing procedure in Tanzania also requires the application forms to be sent to the Income Tax Authority for tax assessment (In Tanzania, the consultant reports that income tax must be paid in advance before starting a business).
The licensing authorities under the Trades Licensing Act are local authorities (city councils, municipalities, township councils and district councils). A person who intends to apply to a licensing authority for a trading (wholesale) licence or a trading (retail) licence must give notice of such intention. The notice must be in a prescribed form and must be published in the government gazette
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and in two issues of a newspaper circulating in the district where it is intended to sell the goods under such licence at least fourteen days before the application. The licensing authorities may in certain cases exempt applicants from complying with this requirement where the applicants are already holders of the relevant licences.
When a notice of intention to apply for licence is published, any person who wishes to object to the issue of such a licence must within twenty one days from the last publication of the notice of intention give his objection in a prescribed from to the licensing authority and to the applicant named in the notice. Grounds of the objection must be stated clearly.
An application for a licence must be made in the prescribed form to the licensing authority for the area in which the applicant intends to carry on the activity to be licensed. The application must be accompanied by the prescribed fees. On receipt of the application, a licensing authority has power to take evidence on oath or affirmation, to summon any person to give evidence in respect of such application or to produce any book or plan relating thereto. It can also make any investigation as may be necessary.
The license application procedure is that:
1.4.3 Criteria applied in issue of licences
The licensing laws of the countries surveyed usually do not specify the criteria, which the licensing authority should apply in deciding whether to issue a licence. However, the rules normally indicate the grounds on which a licence may be refused.
For example, in Botswana, the Trade and Liquor Act provides that a licence should not be issued where:
Similarly, in Zambia, a licensing authority may refuse to issue a licence if it is satisfied that:-
The licensing authority is obliged to give reasons for the refusal of any application for a licence.
In addition to the above grounds for refusal of a licence, a
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licensing authority shall refuse to issue a licence to any person who:
1.4.4 Cost of licences
In those countries, which have more extensive licensing regimes, the cost of the different types of licence varies considerably. For example, in Botswana the cost of licences under the Trade and liquor Act varies from P10 to P200. In Tanzania there is a similarly wide range of fees.
In Zimbabwe, where few occupations require licences, the fee for obtaining a licence to operate a vending machine varies according to the location of the business - the fee in an urban area is $100, and in an rural area - $50.
The entrepreneurs costs increase where professional assistance is required to obtain a licence. Again, there is no general pattern discernible. Some licensing procedures such as hawking and vending licences are uniformly straightforward, whilst others (for example, those associated with the sale of liquor) are more technical and may require professional advice or representation.
1.4.5 Transfer and withdrawal of licences
Rules regarding these issues are fairly uniform. Licences typically expire at the end of the year in which they were issued and must therefore be renewed annually.
The general principle applied in most countries is that a licence is issued to a specific applicant and cannot therefore be transferred to
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another person without the consent of the licensing authority. An application for transfer of a licence is generally treated in the same way as an application for a new licence, although a temporary licence may be granted to allow the business to continue while the application is being considered.
In Malawi, where the issue of a licence under the Businesses Licensing Act is regarded as a formality requiring only the correct completion of an application form, rules on transfer are slightly more liberal, and permitted in circumstances such as:
Similar rules apply in Zambia, where licences issued under the Trades Licensing Act are generally not transferable. However, in the case of death of a licence holder, the Licensing Authority may on request by the widow or widower or legal personal representative transfer the licence to such widow, widower or legal representative. Also in the case of bankruptcy of a licence holder, the Licensing Authority may transfer the licence to the appointed trustee or assignee on request. Where the licence holder is a company, the licence may be transferred to the liquidator on request by the liquidator and in any case where a licence holder becomes subject to any legal disability, the licence may be transferred to any person lawfully appointed to administer his affairs if so requested by such person.
Rules regarding the withdrawal of licences are also fairly
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uniform. Typical provisions are those of:
1.4.6 Any special regulations regarding foreign ownership
Most countries surveyed have liberal rules regarding foreign ownership, and have not designated any sectors or activities as being reserved only for citizens. However, Botswana, Tanzania and Zimbabwe are exceptions to this general rule.
Botswana has had a fairly elaborate reserved activities policy since 1984. The following economic activities are reserved exclusively for citizens and companies which are wholly-owned by citizens:
In Tanzania, the following business activities are reserved for citizens:
In Zimbabwe, the following activities are reserved for citizens or joint ventures in which foreign shareholding is limited to 25% (which may be raised to 30% in certain cases):
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Foreign participation in service sector activities other than those listed above is generally limited to 70%.
1.4.7 Occupational health and safety laws
These laws were studied in outline, primarily in order to see whether small and micro enterprises are governed by the same rules as the very large enterprise. All countries covered in the survey have uniform occupational health and safety laws, which apply to businesses of all sizes, whether very large or very small. Exceptionally, in Namibia, a workplace with four or fewer persons is exempted from the registration requirements contained in the Factory Machinery and Building Work Ordinance.
In Botswana, the Factories Act [Cap. 44:01] is concerned with protecting the health, safety and welfare of persons working in places which fall within the definition of a factory". To this end, the Act imposes fairly strict standards in relation to matters such as the construction and maintenance of premises and equipment, the
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fencing of dangerous machinery, the provision and wearing of protective clothing, and so on. These standards are supported by criminal sanctions and enforced by a factories inspectorate. The Act also requires that new factories be registered before they are occupied or used.
In Malawi, the recently introduced Occupational Safety, Health and Welfare Act (No. 21 of 1997) regulates the safety, health and welfare of persons at work, and provides for the inspection of certain plant and machinery. In Namibia, the principal health and safety laws are to be found in the Public Health Act and the General Health Regulations. Additionally local authorities may have their own health regulations. Any workplace with more than 4 persons must be registered in accordance with the Factory Machinery and Building Work Ordinance of 1952 at the Ministry of Labour. This office will provide with a certificate of registration.
In South Africa, all businesses are required to observe the provisions applicable to the industry within which they operate. Certain aspects of this are universal, such as meeting the requirements of the Occupational Health and Safety Act, 1993, the Basic Conditions of Employment Act, 1997 and the Labour Relations Act, 1995. Others are industry specific, such as bargaining council agreements. The latter can sometimes be disadvantageous to small businesses, as they may not be represented on such councils but are still required to observe the terms of agreement negotiated between labour and business on such councils.
In Tanzania, the occupational health and safety laws are currently being examined with a view to their reform.
© Friedrich Ebert Stiftung | technical support | net edition fes-library | November 2000