The existence of many hair salons, often foreign-owned, in Grahamstown shows that South African small business is not over-regulated.
The existence of many hair salons, often foreign-owned, in Grahamstown shows that South African small business is not over-regulated.
More evidence of this is the many other small businesses, such as the retailers selling everything from cell phones to oranges, or the second-hand clothing stores, or spaza shops in and around the city.
Some small retail outlets are also owned by foreign nationals, such as people from Pakistan or China.
Out of sight of most of the news media, because they are in the township, are the other foreign shops run by Somalis.
Rhodes Journalism and Media Studies School students have produced an excellent documentary on the dangers Somali shop-owners face from armed robbers who consider them a legitimate or easy target, and the resentment they elicit from South African spaza shop owners who believe they avoid tax and source their goods illegally.
There is suspicion that the other foreigners also evade Value Added Tax and import taxes and sell cheap and sometimes substandard or counterfeit goods.
These small businesses, it seems to me, are what the South African government wants to target through its proposed Licensing of Businesses legislation, a draft of which was published for comment in March by the Department of Trade and Industry and withdrawn this week to be redrafted, after widespread condemnation.
A clue in the draft bill is the provision to cancel a business licence of anyone who employs an “illegal foreigner” or contravenes the Immigration Act.
According to the SA Press Association, Trade and Industry Minister Rob Davies promised the bill would be redone, but he told reporters its focus on stamping out South Africa’s “significant illicit economy” would remain.
He is quoted as saying, “We have a significant illicit economy in this country which is damaging to the prospects of small business operators, particularly those in townships."
“This is the economy of illegal imports and trade in sub-standard products. This is the economy of people [who]don’t pay VAT and all that, and they then compete unfairly with people [who]do observe all these requirements.”
Another term for the “illicit economy” is the “informal economy”.
Bringing more people into the formal economy is a legitimate aim, and regulation of some sort is necessary.
Had I not read the bill itself carefully I might have dismissed the criticisms of it as coming from that section of our society that fundamentally believes the ANC government can do nothing right.
What rings alarm bells for me is something Davies said when announcing the redrafting of the bill.
He admitted that existing laws and regulations dealt with some of the problems the new business licensing law aimed to solve.
He said, according to the Sapa report, the Department of Trade and Industry was finding that it was impossible to shut down these illicit small businesses under the existing laws.
His exact words were, according to Sapa, “You raid somewhere, two weeks later something else pops up”.
Davies hopes a register of transgressor businesses will enable the authorities to keep these illicit businesses shut, and he specifically mentioned big transgressors.
The question is, if existing laws are not working, does passing a new law help rather than asking why the existing laws do not work properly?
If existing illicit businesses can evade present laws so thoroughly, how is registration going to stop them?
Will such businesses not simply bribe the various inspectors who are supposed to implement the law? The bill provides for additional inspectors by allowing the appointment of "any person designated by the minister as such".
Who will police them?
This brings me to the other big flaw in the bill, the reliance on municipalities for enforcement.
Makana municipality literally cannot even collect a dog tax. It is struggling to provide the services it is ordained to provide.
I can’t begin to imagine how it would go about licensing businesses, finding non-compliant businesses, and then closing down those businesses that do not comply.
More importantly, the powers given to inspectors fill me with alarm.
I am not saying that Makana is particularly corrupt, but there are enough stories of corruption even in the national police to make us pause.
One section of the now withdrawn bill, for instance, provided for the inspectors to confiscate goods and issue a receipt for the impounded goods.
This will provide easy targets.
Not only foreign-owned businesses are vulnerable.
South African hawkers and other poor “entrepreneurs” do not have the resources to take on the authorities to enforce their rights. Many aspects of the draft bill were unconstitutional, as the Law Review Project has pointed out.
However, we really need to ask whether we need at all a new law, the rationale of which is to add another layer of business regulation because present regulation isn’t working, and whose effect will likely increase xenophobia and facilitate predatory corruption.
