Consumer Protection Act a Fatal Blow for Entrepreneurs?

Consumer Protection Act a Fatal Blow for Entrepreneurs?

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As of 1 April 2011, South African consumers became some of the most protected in the world, thanks to the implementation of extremely progressive legislation which is comparative to those of developed markets.

The Consumer Protection Act (CPA) applies to the supply of all goods and services (including every role-player in the supply chain), as well as to the promotion and marketing of these goods and services. For the average South African who is weary of poor service delivery, they will be pleased to know that ‘goods’ include gas, water and electricity.

Intentions

The intention behind the legislation is to promote a culture of consumer rights and responsibilities, as well as to encourage business innovation and enhanced performance. In addition, it is hoped that regulations will improve access to, and the quality of, information that will enable consumers to make informed choices and protect them from hazards.

Companies not abiding by the CPA face penalties of a fine of up to 10% of turnover, or a fine and a prison sentence of up to 10 years where an order is not complied with.

While this legislation is a boon for consumers, concerns are being raised that it may signal the end for many small businesses and entrepreneurs however.

Too much legislation, particularly around compliance and corporate governance, kills innovation and an entrepreneurial spirit. Entrepreneurs need to be agile and able to adjust quickly to changing circumstance, but legislation such as the CPA will hinder small businesses. Exemptions should be provided for these entrepreneurial ventures as not only is it extremely difficult for someone who is getting their business off the ground to be fully informed about all of the complexities of the Act, but there is also a cost of compliance which many will not be able to afford.

As even boards of large companies are finding that they spend far more time talking about compliance than they do about strategy, one can only imagine what this change in the business landscape will do to entrepreneurs.

Far-reaching consequences

One of the areas which the CPA will affect is food, including safety, labelling and hygiene. While no-one will deny that these are all important elements in the production and packaging of foodstuffs, entrepreneurs who sell homemade goods to earn a living will in all likelihood find themselves unable to comply with the legislation.

The knock-on effect of the CPA will be enormous for small caterers. One example is that we at The Hope Factory support an entrepreneur by packaging and selling her baked goods, the income from which she uses to support her two sons who are at university. Unfortunately she cannot afford to comply with all of the aspects of the CPA – such as the food labelling requirements – therefore we have no choice but to discontinue buying her products. The ramifications of this are that her sons will not be able to finish their studies, which will have an extremely detrimental effect on their futures.

It has been proven time and again that if developing countries such as ours aim to grow their economies, that encouraging entrepreneurs is the best way forward. While it is not wrong to have the CPA therefore, it would be beneficial for entrepreneurs and small business owners – and the country – if it could be moderated to give their businesses the best possible chance of survival.

Liz Zambonini
Liz Zambonini is the CEO of The Hope Factory, an established Enterprise Development Initiative of the South African Institute of Chartered Accountants (SAICA). For more information, visit www.thehopefactory.co.za
  • Fudley Bez

    Do we need any more proof that those in power have lost the plot? There seems to be no end to all this madness till they kill the proverbial goose that lays the golden egg. We’ve had them protecting tenants to the extent of killing off landlords, protecting the workers at the expense of the employers, protecting criminals while denying the rights of the victims, protecting the secrecy of government while flouting the right to privacy of SA citizens. On-and-on. Maybe our law schools are to blame for producing over-zealous graduates who lack the wisdom to think through the consequences of the legislation they conceive.

    What the govt fails to realize is that they steadily are making criminals of all of us. You cannot remain law-abiding unless you have just laws to begin with. And just laws cannot be moderated into palatability. Why do we need them invoked into existence in the first place? Who will be the moderator?

    So the very CPA brought into existence to protect the consumer, will ultimately end up causing more harm to the consumer. Now don’t tell me they didn’t think of that?