Regulations must be streamlined to promote business

Red tape regulations cost the economy R79 billion a year. At least that was the case in 2004, when the government launched a pilot project on regulatory impact assessments for new regulations.

More recently, the World Bank placed South Africa at 34th in “ease of doing business”, but 91st on registering property and 75th in dealing with construction permits (infrastructure development, anyone?). And a Grant Thornton survey of business leaders in Gauteng in January found that red tape was now the biggest single obstacle to doing business in the province.

For small business the impact is worse, largely because they do not have full-time compliance departments. Estimates show compliance costs of 0.2 percent on average for big business, versus 8.3 percent for small and medium-sized enterprises (SMEs). This was underscored by SBP’s SME Centre report in November last year, which surveyed the impact of regulatory requirements on 500 SMEs.

It was news like this that prompted David Cameron’s new government in the UK to issue a ruling last year that there would be a three-year moratorium on any new regulations that affected small business in that country.

Not far behind is the New Growth Path, which views “unnecessary” red tape as a key obstacle to business growth, even as Economic Development Minister Ebrahim Patel comes up with new codicils daily on the hoops the private sector will have to jump through if it is to share in government’s infrastructure programme.

The New Growth Path has called for, among other things, a move from red tape to “smart tape”, for instance in speeding up drawn-out land rezoning requirements.

In the Western Cape, progress has been made with the “From Red Tape to Red Carpet” programme to speed up and smooth out obstacles to business in that province, with a dedicated unit established to that end, with its own website and call centre. Among its priorities is to slash turnaround times for all the permissions required before a business can open its doors.

Globally remedies for reducing the burden of red tape abound. They include exemptions for SMEs, the elimination of duplication, the adoption of easily accessible and user friendly e-systems, and setting budgets for reducing the regulatory burden in business.

The point is that reducing the negative impacts of red tape does not happen in government as an afterthought, but as a conscious target-setting exercise involving close co-operation with, for instance, local business chambers. In any case, all new regulations should first be examined for their impact, and all new regulations should include an appeal process.

There will always be a need for regulations affecting business. Health and safety requirements spring to mind. Then there are regulations that are required, for instance those relating to the SA Revenue Service (Sars), but which are applied in a dilatory or apparently hostile fashion. Most annoying of all are those that simply clog up the works, or which are designed without consulting business, but which gave all sorts of unintended consequences.

A list of some of the regulations makes the point:

n Sars compliance.

n Dealing with the Companies and Intellectual Property Commission to register your company in the first place.

n Broad-based black economic empowerment requirements.

n Labour and Commission for Conciliation, Mediation and Arbitration requirements.

n New legislation requirements (such as the new Companies Act).

n Consumer regulation requirements.

n Requirements regarding local procurement from government.

n Dealing with sector education and training authorities.

n Obtaining operating permits.

n Rezoning requirements.

n Local planning and development requirements.

n Slow environmental impact assessments.

n Sectoral regulatory requirements.

n Licensing requirements.

n The King 3 codes of good governance, with its over 70 stipulations and recommendations.

And so on. Ironically enough, it is the public sector, state-owned companies that often have the worst compliance record.

Improved administrative efficiency in would go a long way towards mitigating the impact of regulations. Issues such as poor service delivery, inadequate planning and controls, skills shortages among officials, poor co-ordination across government, and slow approval systems trip up the would-be investor on all sides. Add to that poor communication, a lack of access to business information, cumbersome compliance procedures with long-term planning, and a lack of transparency on municipal tendering, and the obstacles to business-led growth mount forbiddingly high.

In Organisation for Economic Co-operation and Development countries, which are equally concerned about this tide of red tape, several measures are being taken to remove the worst burdens. They include the European Commission’s Small Business Act of 2012, the adoption of the “once only” principle dissuading public authorities from requesting the same information and documentation and certification repeatedly from business owners, and speeding up the cost and time of starting a new business to E100 (R1 056) and three days.

In South Africa, dedicated red-tape reduction projects should be put in place, as a low cost, high-impact intervention in the battle to grow businesses and create jobs. Greater use of e-government platforms, exemptions for businesses below a certain threshold, and harmonisation across authorities would help. So would making use of a system to assess the costs and benefits of proposed new regulations before imposing them, across government at all three spheres, and process engineering to eliminate duplication and simplify procedures.

To address the wastage caused by unnecessary red tape, a “whole of government” across-the-board approach is needed towards reducing it, and vigilant monitoring to ensure that it does not creep back in via a hundred local regulations that have unintended consequences. As always the best source of information of the drag effects of red tape is the business community itself.

But there is one remaining obstacle to dealing with red tape in South Africa, and that is administrative incompetence, verging on hostility towards business. As the SBP study concludes: “At a bare minimum, a concerted effort must be made by state agencies and bureaucracies to switch from an ethos of authority and punishment, to one of assistance and facilitation


Gavin Lewis is a DA MPL in Gauteng and the party spokesman for economic development.