Red tape stranglehold on small business

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Andrew Layman, CEO of the Durban Chamber of Commerce and Industry.

The Small Business Project (www.sbp.org.za) is a private sector research organisation that investigates issues relating to business and the economy, small business in particular.

It consistently advocates the necessity for the country to have an environment conducive to the growth and development of business and, therefore, the economy.

In a recent publication, it suggests that the real demands of the unemployment crisis are not recognised. In other words, the target that five million jobs be created is not linked to what actually has to be done to achieve this. This is not a matter of wing and prayer or the discovery of some magical formula, hitherto unknown, by which jobs will be created.

The estimation by Professor Neil Rankin, quoted in the report “Current State of Legislation in South Africa”, is that this will require an additional 13 600 companies in the manufacturing sector alone. Consider that greenfields manufacturers are few and far between and that this is not the sector of choice for emerging entrepreneurs because the barriers to entry are just too impenetrable – and wonder where on earth these are going to come from.

Some may come from Chinese investment, but then we have to recognise that our unemployed are unlikely to benefit.

The Department of Trade and Industry seems to be fully aware of the importance of manufacturing and is doing a great deal to introduce programmes to promote it.

However, the spectre of labour looms large and casts these, and many others geared towards economic growth, into deep shadow.

If this were not gloomy enough, five million is no more than a third of the number of jobs that will be required in the longer term.

Economist Chris Hart suggests we would need 15 million jobs, and this would require between two and three million new, and successful, small businesses to achieve.

The aspect of success is critical; a floundering enterprise cannot employ. The capacity to do so lies only with businesses that are sustainable and grow.

It is a common, and not inaccurate, perception that the regulatory environment is burdensome.

While some may point to delays in the registration of businesses, I’m not sure that this is the major concern. It is not difficult to start a business, even despite the fact that it often can’t be done quickly.

What is particularly difficult is to grow a business.

At a certain level, not too far removed from the baseline, all sorts of regulations begin to apply. These include conditions and provisions relating to labour laws, employment equity, broad-based black economic empowerment, skills development plans, annual reports, PAIA manuals and many others.

Small businesses, by their nature, are not inclined to employ people not engaged in their core businesses. Compliance with a plethora of regulations and procedures, the completion of forms and all the other mandatory requirements are costly, excessively so if people dedicated to this work have to be employed and paid.

These are extraneous expenses that have nothing to do with input costs. They are artificial in the context of business, but no less significant than those directly germane to the business at hand.

It is not an uncommon perception that regulation and governance are two sides of the same coin; the more regulation, the better the management and governance. There is a fear of loopholes, not least because unscrupulous people exploit them.

Technocrats have a mission to close loopholes, but all that happens in consequence is over-regulation and harassment of the compliant. Those who find nefarious ways of doing things will continue to find them, no matter how “tight” the regulation is.

On a broader scale, I think our legislators are keen to earn kudos from the international community for being legislatively progressive. Our environmental legislation is internationally respected, it seems, but this is not much good if it is out of touch with practicality.

It is way ahead of those whose job it is to enforce it, and beyond the pockets of people trying to grow their businesses. At the heart of the problem is that the visionaries are departmentalised.

The economic effects of this, that and the other legislation are not considered by the passionate architects, and holistic government with broad and consistent vision seems to be an ever-retreating mirage. The Small Business Project poses the question: “A country overregulated, and undergoverned?”

* Andrew Layman is the CEO of the Durban Chamber of Commerce and Industry.