Minister of Small Business Development, Stella Tembisa Ndabeni, briefing media on Global SME Ministerial Meeting in May 2025. The IMF economists said the proposed Business Licensing Bill of 2025 presents an opportunity to modernise the current system, which is highly decentralised and often inconsistently applied across municipalities.
Image: GCIS
The International Monetary Fund (IMF) said on Wednesday that simplifying South Africa’s regulatory framework for small businesses could unlock entrepreneurship, stimulate investment and create much-needed jobs, though critics warn that proposed new licensing rules could have the opposite effect.
In a new analysis, IMF economists said excessive and fragmented regulations remain a major obstacle to business growth in South Africa, particularly for small and medium-sized enterprises (SMEs) that are responsible for most job creation.
“Operating a business in South Africa—especially dealing with product-market regulations such as required licensing and permitting—is significantly more burdensome, fragmented, and costly than in peer economies,” said Tidiane Kinda, the IMF’s senior resident representative for South Africa, and Nasha Mavee, the IMF’s local economist, in the report.
The economists warned that the country’s regulatory burden is undermining growth and employment at a time when unemployment remains extremely high.
South Africa’s economy showed resilience in 2025, rising by 1.1% from 0.4% a year before, but growth remained too weak to significantly reduce unemployment, which exceeds 30% overall and is about 60% among young people.
According to the IMF’s analysis of South African firm-level data, companies that spend more time dealing with regulatory requirements tend to experience weaker business performance.
The study found that a one percentage-point increase in management time spent on regulatory compliance is associated with about a 1% decline in job growth. For small firms with fewer than 20 employees, the impact is even more severe, with regulatory burdens having nearly double the effect on productivity compared with larger firms.
“These constraints deter investment and stifle innovation,” Kinda and Mavee said, adding that smaller companies often lack the resources to navigate complex administrative systems.
To address these challenges, the IMF said comprehensive reforms are needed to streamline the country’s licensing and permitting system. One of the key proposals is the introduction of a simplified and coherent national framework for business licensing.
The economists said the proposed Business Licensing Bill of 2025 presents an opportunity to modernise the current system, which is highly decentralised and often inconsistently applied across municipalities.
Key reforms suggested include the creation of a single digital platform where businesses could apply for licences and track approvals, clearer division of responsibilities between national, provincial and municipal authorities, and stronger administrative capacity at the local government level.
They also recommend risk-based licensing rules that differentiate between high-risk and low-risk business activities, allowing small, low-risk enterprises to operate with minimal regulatory requirements while maintaining public safety standards.
In addition, the IMF said special licensing arrangements for micro-enterprises and informal traders could help lower regulatory and financial barriers and encourage entrepreneurship.
It said this could lift annual growth from around 2% to about 3%, helping create jobs and reduce unemployment.
However, not all stakeholders believe the proposed Business Licensing Bill will achieve these goals. Free market advocacy group Free SA has raised concerns that the draft legislation may increase regulatory complexity rather than reduce it.
Free SA spokesperson Gideon Joubert said the organisation welcomed the IMF’s recognition that red tape is a major obstacle to economic growth and job creation. But Joubert warned that the Business Licensing Bill appears to move in the opposite direction.
“Instead of simplifying the regulatory environment, the draft Bill risks expanding licensing requirements and increasing discretionary powers for officials at municipal level,” he said.
“That could add further complexity and uncertainty for businesses that are already struggling with an overregulated system.”
According to Free SA, the country’s problem is not a lack of regulation but the volume and inconsistent application of existing rules.
Opposition to the bill has emerged from a range of stakeholders who fear it could unintentionally raise barriers to entry for small businesses rather than remove them.
“If the government is serious about economic growth and job creation, reforms should focus on removing unnecessary licensing requirements, standardising rules across municipalities, and limiting bureaucratic discretion,” Joubert said.
“Put simply: South Africa does not need more licences. It needs fewer barriers between entrepreneurs and the ability to start a business.”
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