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5 Deregulation

This chapter focuses on the policy and other issues that arise when a licensing system is dismantled. Problems associated with deregulation are explored. Particular attention is given to the effects of deregulation upon the establishment of new businesses, the growth of existing businesses, and competition between businesses.

5.1 Botswana

5.1.1 Public policy issues

There has not yet been any significant deregulation of licensing in Botswana.

„Almost all regulations are discriminatory in their impact: compliance is more difficult and relatively more costly for the poor, the uneducated, those in a rural environment, small businessmen and citizens than it is for the wealthy, the well educated, urban dwellers, large enterprises and non-citizens. The case for deregulation is that it should both increase the number of economic opportunities and improve their distribution." [quoted from the 1982 Report of the Presidential Commission on Economic Opportunities, para. 9. 03].

The SMME Task Force noted the discriminatory effect of licensing regulations and considered the major benefit of a licensing system to be that

„it includes the threat that licences may be withdrawn from those who do not observe the standards expected. An alternative form of licensing to the system currently used in Botswana is known as ‘negative licensing’. Under this system, a person may carry on the relevant trade or business subject to

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the power of a regulatory agency to prohibit him or her from trading if there is evidence that he or she is unfit to trade or carrying on business in an unacceptable way, in accordance with stated criteria. The benefit of this system is that it combines easy access to the market for new entrepreneurs with a power of deterrence against rogue elements. This type of system would not be adequate to regulate trades which require a high level of trust or technical skill, such as selling alcoholic drinks, or running a pharmacy. It would also not be adequate to control businesses which are potentially noisy or a nuisance to neighbours such as bars, and discotheques. However, the Task Force believes that negative licensing would provide a more appropriate framework for regulating the type of activities currently subject to the Trade and Liquor Act, and which are owned by citizens.

It is therefore recommended that within these parameters, businesses which are wholly owned by citizens should be exempt from the current licensing regulations and subject instead to a system of ‘negative licensing’ (which should include a simple registration procedure)" [Quoted from the Task Force Report, para 5.37-8]

5.1.2 The effect of deregulation upon SMEs and other interest groups

This issue has no relevance to Botswana.

5.2 Mauritius

5.2.1 Public policy issues

There has not yet been any significant deregulation of business licensing laws in Mauritius. However, two other forms of licensing have been dismantled in recent years. Import

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licensing was abolished in 1991 (with the exception of a few items of national and security interest), and foreign exchange controls were fully removed in 1994 (so that henceforth, approvals were no longer required from the Bank of Mauritius). The removal of these two sets of controls was part of a gradual liberalisation process, commenced by the government in the mid-1980s. These two measures were of particular significance because Mauritius depends heavily on international trade and imported raw materials.

5.2.2 The effect of deregulation upon SMEs and other interest groups

These two deregulation measures have benefited the economy at large by stimulating economic activity, and have been welcomed by business owners able to take advantage of the reduction in bureaucracy.

5.3 Namibia

5.3.1 Public policy issues

In Namibia, most licensing laws were abolished in 1995. The Trades and Occupational Repeal Act, No 10 of 1995, removed the general need for all enterprises to obtain a licence. Some business activities still require a licence, although this requirement is currently under review (see above at 1.3). At the present moment, hardly any interest group lobbying for SMME promotion in Namibia has called for further deregulation.

5.3.2 The effect of deregulation upon SMEs and other interest groups

Initially, the dismantling of licensing system provoked an outcry in the SMME community, because the licensing system

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was not only considered a burden but also a protection against larger (and possibly foreign) enterprises. Especially in the north of the country, one frequently hears that the abolition of licensing regulations has led to the collapse of many micro-trading businesses. Such traders have been forced to close because of the arrival of big businesses such as Game or Shoprite.

A beneficial effect of the removal of licensing laws is that it is now much easier for anyone to start a business. Deregulation has also decriminalised those small entrepreneurs who were previously in breach of the licensing law.

5.4 South Africa

5.4.1 Public policy issues

The 1980s represented a period of deregulation in which the policy climate surrounding small-scale industry began to shift from outright repression to tolerance and, in some instances, initiatives for the limited promotion of black businesses. Beginning in 1980, under the leadership of the newly founded Small Business Development Corporation new efforts to stimulate small-scale black manufactures were gradually put in place as part of a wider growth strategy. In 1987 the government issued a White Paper on "Privatization and Deregulation in the Republic of South Africa", which underlined the need to encourage entrepreneurship and stressed that "the approach to regulation must therefore emphasize the promotion of economic activities and be less directed towards their control" (Riley, 1993, p. 6-7).

This period also saw the abolition of a number of apartheid laws, initially the Influx Control Act in 1986 and subsequently the Group Areas Act, the Black Land Act, the Development

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Trust and Land Act, and the Population Registration Act in 1991. Much of the legal framework that the government had used for decades to control and restrict black business activity was thus removed (Riley, 1993, p. 7). A less repressive approach to street vending was also introduced in some municipalities, and - for the first time - the kombi taxi was encouraged as an acceptable mode of transport. Some health and labour regulations that negatively affected micro enterprises were also removed. These developments considerably enhanced prospects for the start-up, survival and growth of micro-enterprises, especially in cities (Rogerson, 1994, p. 20). By the end of the 1980s, restrictions on urban-based black businesses - which had permitted blacks to operate in only fifty-two types of trades, businesses and professions from 1976 onwards and twenty-five before then - were removed (Riley, 1993, p. 6).

Perhaps the most radical and progressive development in the country's regulatory environment came in 1991 with the enactment of the Businesses Act, which repealed licensing laws relating to many different types of businesses. The Act also denied municipalities the right to declare certain areas off-limits to street trading, a practice common in many South African towns. The enactment of this legislation transformed the small business environment in most areas of the country and enabled small businesses, relieved of licensing requirements, to respond rapidly to perceived consumer demand.

5.4.2 The effect of deregulation upon SMEs and other interest groups

Although these changes represented a much-needed and long-awaited relief to the majority of the country's small firms, which hitherto had operated in very hostile conditions, not

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everyone supported the developments. Strong opposition to the changes came from three different quarters: labour, consumer groups and established business. Labour's opposition was based on the expressed fear that small businesses would show labour laws and promote poor working conditions, thus reversing the gains already made by organised labour in these areas. Consumer groups feared that consumers would be exploited by small businesses through the sale of sub-standard goods and services. Established business expressed concerns about unfair business practices.

The deregulations of the 1980s had positive results for certain business operations. Some infant enterprises, such as those engaged in liquor selling or the taxi business, benefited especially from deregulation and were presented with opportunities for limited advancement through the route of formalization (Khosa, 1990, 1992).

However certain general and specific problems remained. For instance, a study of Soweto's liquor industry concluded that "deregulation alone is not sufficient to improve the livelihood of the shebeen community" (Matshego in Rogerson, 1994, p. 20). For those enterprises engaged in street trading, deregulation had the effect of expanding the number rather than the size of businesses. The result was business replication of survival businesses rather than growth through intensification or internal developments in expanding businesses (Rogerson in Rogerson, 1994, p. 20).

Deregulation also produced uneven results because local authorities were able to determine how fast and how far they wished to proceed down this path. The effect of restricting the right of municipalities to declare certain areas off-limits to street trading was mitigated by another provision in the Businesses Act which enabled municipal authorities to apply to

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the provincial administrator for permission to close certain areas to street trading. The impact of deregulation thus varied according to locality. Metropolitan centres introduced the most relaxed legislative climates whereas only limited changes took place in politically conservative local areas, which included many of South Africa's secondary and small towns (Rogerson and Hart in Rogerson, 1994, p. 20-21). Deregulation also provoked intense competition in certain industries, leading to strong rivalry and outbreaks of violence, such as in the taxi industry (Simkins, 1993, in Rogerson, 1994, p. 20).

As a result of the changes, the regulatory environment is no longer considered by small businesses to be a major problem area. For instance, Riley's study found that "government policy" was ranked as a major constraint only in the third place at business start-up phase, in the sixth place during the growth phase and in the fourth place at the time of the survey (Riley, 1993, p. 24). Riley notes that: ".... when asked to name spontaneously the most important constraint faced at the start-up of their business, only 12 percent of respondents .... mentioned factors related to regulation. Regulatory problems figure even less prominently in the day-to-day operations of their business: only 7 percent of the respondents cited regulatory factors as their most important problem" (p. 28).

A later study conducted in 1997 (involving a range of businesses in manufacturing, building construction, and services such as hairdressing, printing and publishing, cleaning, electrical repairs, and upholstery and auto trimming), policy and regulatory matters did not feature at all as matters of concern to respondents. Instead, access to markets and raw materials, competition, and business premises ranked highly in their priority list (Sheets and Bukula, 1997).

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5.5 Tanzania

5.5.1 Public policy issues

There has not yet been any significant deregulation of licensing laws in Tanzania.

5.5.2 The effect of deregulation upon SMEs and other interest groups

This issue has no relevance to Tanzania.

5.6 Zambia

5.6.1 Public policy issues

Zambia has not significantly deregulated any business licensing laws. Most of the substantive business licensing laws have changed very little, if at all, since British colonial rule. However, there have been a few reforms to licensing procedures.

5.6.2 The effect of deregulation upon SMEs and other interest groups

This issue has no relevance to Zambia.

5.7 Zimbabwe

5.7.1 Public policy issues

Many licensing laws have been removed in the context of the Enhanced Structural Adjustment Programme introduced in 1991. At the national level, trade was liberalised, import licences were removed, currency allocations eliminated and

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exchange controls relaxed. These reforms encouraged a proliferation of new businesses, both formal and informal, especially in the commercial and services sectors. As the economy became open to outside competition and the operation of market forces, increased levels of imports brought pressure on the Zimbabwe dollar and the balance of payments. Second-hand clothing was imported in large quantities, and the continued existence of the local clothing industry was seriously threatened. As demand for locally produced goods declined, many manufacturing companies closed or laid off their employees. However, in the face of a declining formal sector, the informal sector expanded and flea markets become a common feature of urban economies.

5.7.2 The effect of deregulation upon SMEs and other interest groups

The primary objective of deregulation was to remove restrictions which inhibited the development of business. The effects of deregulation have been felt in two areas especially: the establishment of new businesses and the competitiveness of the economy.

Statutory Instrument 216 of 1994 permitted the use of residential premises for business activities such as guest-houses, shops and offices, warehousing, travel bureaux (as well as industrial processes which use machinery that operate without detriment to the amenity of the area). As a result, the number of new businesses operating from residential areas has increased greatly.

The relaxation of foreign exchange controls has permitted the advent of the bureaux de change which now freely compete with commercial banks in handling and managing foreign exchange transactions. Deregulation also eliminated the

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monopolies exercised by the Grain Marketing Board and the Cold Storage Commission, which encouraged the establishment of competing small businesses in grain purchasing and animal slaughtering.

Deregulation has clearly increased competitiveness. This phenomenon is illustrated by developments in the motor industry. There is now keen competition between dealers of locally assembled vehicles and those of imported vehicles. Competition is also fierce in other sectors such as urban passenger transport. When the monopoly enjoyed the Zimbabwe United Passenger Company was removed, it faced fierce competition from smaller and faster commuter omnibuses.

5.8 Conclusion

Only three countries in the region have experience of licensing deregulation on a significant scale: Namibia, South Africa and Zimbabwe. The experience of these three countries is quite similar:

  • In Namibia, the dismantling of the licensing system provoked an initial outcry in the SMME community. Although the licensing system was perceived as burdensome, it also in some respects protected SMMEs against larger enterprises. However, a beneficial effect of the removal of licensing laws is that it is now much easier for anyone to start a business. Deregulation has also decriminalised those small entrepreneurs who were previously in breach of the licensing law;
  • In South Africa, the abolition of many licensing laws has generally been welcomed by groups involved in SMME promotion, and the number of new businesses has grown significantly. Initial opposition to the changes came from three quarters: labour, consumer groups and established

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    business. However, deregulation has also produced uneven results in South Africa because local authorities have been able to determine how fast and how far they wish to proceed down the path of deregulation;

  • In Zimbabwe, the effects of deregulation have been mainly felt in two areas: the establishment of new businesses and the competitiveness of the economy. The number of new businesses operating from residential areas has increased greatly, and deregulation has increased economic competitiveness.

© Friedrich Ebert Stiftung | technical support | net edition fes-library | November 2000

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