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6 Conclusions

The significance of licensing regulations is often overlooked in the literature on SMME development. This is surprising because the country reports summarised in this publication suggest that licensing and related issues have the potential to be highly controversial:

  • In Botswana, an independent SMME Task Force has recently recommended that licensing and zoning laws should be radically reformed. Some 70-75% of the country’s micro and small businesses are operating unlawfully from residential plots. In April 1999, the Ministry of Local Government began implementation of the Government’s zoning policy by sending closure notices to approximately 750 small businesses in central Gaborone. In response to public pressure and pressure from opposition parties in the National Assembly, the minister responsible subsequently stated that enforcement of the closure orders will be deferred for a two year period;
  • In Namibia and South Africa, licensing regulations were regarded as oppressive and discriminatory to SMMEs until they were largely removed in the early 1990s. In Namibia, licensing laws were regarded as an unreasonable restriction upon the freedom to choose and practice a profession, occupation, trade or business guaranteed in the Constitution;
  • In Tanzania, the licensing system has changed little and has now fallen into disrepute, largely because of bureaucratic inefficiency and corruption. Approximately 70 percent of SMMEs currently operate in disregard of the licensing rules;
  • In Zambia, the enforcement of licensing laws by local authorities against street traders has become highly politicised. The street vendors have been nick-named ‘the office of the President’ because of their success in

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    mobilising support from central government in their battles with local authorities; and

  • In Zimbabwe, most of the country’s licensing laws were abolished in the context of the Enhanced Structural Adjustment Programme. The restrictions imposed by licensing and similar laws were considered to have hampered free market operations, encouraging business inefficiency and economic stagnation.

Mauritius is the only country in which licensing laws appear to have generated little debate. In this respect, Mauritius is clearly a special case, and the policy of requiring the vast majority of business activities to have licenses or other permits is apparently dictated by the need to make optimum use of land and other resources on a small island.

In each of the surveyed countries other than Mauritius, the proponents of the licensing system are now on the defensive. As the benefits of deregulation in Namibia, South Africa and Zimbabwe become apparent, the policy makers of the other countries (Botswana, Tanzania and Zambia) are increasingly under pressure to reform their structures.

Arguments for and against licensing

In the context of SMME promotion, licensing laws can be used to protect SMMEs against competition from larger businesses. The most obvious example of this is in wholesaling. In those countries which require wholesalers to obtain a specific licence, it is generally a condition of the wholesale licence that the licensee should only act as a wholesaler, and should therefore only do business with registered traders or other business owners: sale to the general public is prohibited. This prohibition protects retailers (especially small retailers) against ‘unfair competition’.

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Two further reasons have been advanced in this publication for requiring certain businesses to obtain a license. Firstly, it is argued that a licensing is the best way to protect the public especially in those activities where there is a high degree of risk such as air transport, medicine and banking. Secondly, it is argued that there is a need to control admission to certain activities which involve the exploitation of a scarce resource, such as broadcasting on radio waves or fishing. Other benefits of licensing laws are that they provide a source of revenue for government authorities, and also provide information which enables government officials to inspect businesses and enforce other laws such as occupational health and taxes.

However, in South Africa, these arguments are disputed. Critics of licensing such as Moore and Davie argue, firstly, that "... licensing laws do not guarantee that the public will be protected, and that there will be no failure in the licensed activity". Dishonesty and accidents occur even within licensed industries. The public can be protected from the loss of moneys held by others by the requirement that conveyancers, estate agents, debt collectors, and others maintain the necessary insurance or fidelity cover rather than having to obtain a prior license „in the guise of a ‘fidelity certificate’".With regard to rationing admission to certain industries, Moore and Davie argue that those carrying on business in such industries do not require any special treatment. "They can provide a service and protect existing resources simply by relying on property rights. For example, there is no need to introduce broadcasting legislation: broadcasters are able to obtain interdicts against other broadcasters who attempt to use their frequencies". The authors also dispute whether licenses are needed as a source of tax revenue. Ordinary taxation laws are adequate to raise taxes and there is no need to impose licensing burdens on particular industries. The argument that licenses provide a source of information for the government is also disputed: there are

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probably more unlicensed liquor sellers in the country than there are licensed ones, and in any event, government departments rarely have enough inspectors to enable them to police industries proactively by visiting all the business premises on their list.

Negative licensing

An alternative system of licensing, which has not been yet been used in any of the surveyed countries, is known as ‘negative licensing’. This system attempts to preserve the most beneficial elements of regulation and combine them with flexibility of market entry.

The major benefit of a licensing system is that it includes the threat that licences may be withdrawn from those who do not observe the standards expected. However, this benefit is lost when the system is not supported by an adequately resourced mechanism to ensure that applications are properly vetted and that standards are maintained. The cost of providing an adequate monitoring mechanism is comparatively expensive in most Southern African countries where the number of businesses registering under the various licensing statutes is comparatively low. An alternative form of licensing, which is also less bureaucratic and therefore less costly, is ‘negative licensing’. Under this system, anyone may carry on the relevant trade or business subject to the power of a regulatory agency to prohibit a person from trading if there is evidence that he or she is unfit to trade 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 accountancy, medicine or the law, but it would perhaps provide a more appropriate framework for regulating

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retail activity, which is the focus of most licensing laws in countries such as Botswana, Tanzania and Zambia.

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

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