South Africa’s small businesses are not failing due to a lack of enterprise or ingenuity among South Africans. Rather, they are failing because the policy environment actively suppresses them. The Free Market Foundation’s long-running Laws Affecting Small Business project exposes this with clinical precision.
Across labour, tax, licensing, justice, health, land, finance, and education, the series catalogues how well-intentioned statutes and regulations impose costs that large firms can absorb but which crush small employers, township entrepreneurs, informal traders attempting to formalise, and young people desperate for their first job.
Consider the figures confronting us today. In the second quarter of 2026, the official unemployment rate stood at 33.6 percent. Nearly 8.5 million South Africans were unemployed. Among those aged 15–24, the rate reached 62.8 percent; for the broader youth cohort of 15–34, it was 47.4 percent.
Micro, small, and medium-sized enterprises are estimated to contribute around 40 percent of GDP and support approximately 60per cent of employment. These are precisely the firms that should be absorbing the unemployed. Instead, they are constrained by red tape that increases the cost of hiring, compliance, and simply remaining operational.
Consider labour law. Legislation designed for large employers and powerful unions is applied, with little distinction, to the spaza shop owner, the small contractor, and the hair salon that employs three people. The result is predictable: above-average labour turnover in small firms, a flood of CCMA cases that small employers can ill afford, and a rational decision by many not to hire at all.
The recommendations concerning laws affecting small businesses are modest yet impactful: allow employees, after counselling if they so wish, to enter into customised contracts that waive certain statutory entitlements; restore freedom of association and disassociation for small employers; and shift the burden of proof back to the complainant in unfair dismissal cases.
This is precisely the rationale underpinning the Free Market Foundation’s Job Seekers Exemption Certificate. The JSEC would permit individuals who have been unemployed for six months or more to voluntarily obtain a certificate that suspends the application of specified labour regulations, including the national minimum wage and industry-wide collective bargaining agreements, for a limited period of 24 months.
It is not about stripping rights from workers; it is about restoring agency to those excluded from the formal economy. A young person or a long-term unemployed South African could then negotiate entry-level terms with a small employer, gain experience, build a work record, and subsequently move into full protection.
For small businesses, the risk and cost of employing an inexperienced worker are sufficiently reduced to make hiring a rational, rather than reckless, decision. In a country where youth unemployment exceeds 60 percent among the youngest cohort, this voluntary, time-limited exemption addresses the structural barrier at its root: rigid labour regulations that protect insiders while excluding those who most need a foothold.
Licensing regimes fare no better. The time and money required to obtain permissions, discretionary “fit and proper” tests, and sector-specific barriers transform entry into a privilege rather than a right. Health regulations governing restaurants, foodstuffs, crèches, and boarding houses often impose costs far exceeding any demonstrable benefit, serving solely as barriers to entry.
Tax complexity and compliance burdens fall disproportionately on those least able to afford accountants. Access to justice is costly and slow; incorporated small businesses are excluded from small-claims courts, whose jurisdictional limits remain unrealistically low. Land and tenure insecurity further discourage investment in fixed premises or expansion.
The overall effect is a dual economy: large, interconnected firms navigate the system, while the majority of potential job creators are excluded or pushed further into informality. Informal employment has increased, yet it remains precarious and limited in scale. Formal small businesses, which serve as genuine incubators of employment for the unskilled and young, shrink or stagnate under the burden of regulations designed for enterprises of a different scale.
Critics argue that deregulation leads to a race to the bottom and that exemptions undermine hard-won protections. However, this confuses the ideal with the reality faced by millions. For the long-term unemployed, the relevant choice is not between a fully regulated wage and a lower one, but between any wage and continued exclusion. Combining the broader exemptions recommended in the Laws Affecting Small Business series with instruments such as the JSEC begins to dismantle the structural barriers that keep unemployment at crisis levels.
South Africa does not need more state-led job-creation programmes that have repeatedly failed to reduce the headline figures. Instead, it requires an environment in which ordinary people can start, grow, and sustain enterprises without first having to navigate a complex obstacle course of regulations.
That means subjecting new regulations to rigorous cost-benefit analyses that consider the impact on small firms; raising the monetary jurisdiction of small claims courts and allowing companies access to them; making most licences automatic upon meeting objective criteria; and, above all, recognising that labour rules suited to large, organised workplaces are detrimental when imposed on the smallest employers, and that voluntary, time-bound exemptions for the long-term unemployed can reopen the door.
The path is clear. Entrepreneurship, not the state, will save South Africa. Projects such as The Laws Affecting Small Business provide a detailed map. What remains is the political will to implement it, beginning with targeted exemptions that allow small businesses to breathe, hire, and grow. Until then, our beautiful country will continue its march down the road to serfdom.
Zakhele Mthembu, BA Law LLB (Wits), is Policy Officer at the Free Market Foundation.
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