Gavin Lewis (published in Business Report,26/6/12)

Cutting Red Tape

Red tape regulations cost the SA economy R79 billion a year. At least that was the case in 2004, when government launched a pilot project on Regulatory Impact Assessments (RIAs) for new regulations. More recently, the World Bank placed us at 34^th in "Ease of Doing Business" worldwide, but 91^st 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 2012 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 lack the departments that see to compliance on a full time basis. Estimates show compliance costs of 0.2% on average for big business, versus 8.3% for SME's.This was underscored by a SBP (Small Business Project) SME Centre Report of November 2011, which surveyed 500 SMEs in SA on the impact of regulatory requirements.

It was news like this that prompted David Cameron's new government in the UK in 2011 to issue a ruling 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 Plan, which views "unnecessary" red tape as a key obstacle to business growth in SA, even as Minister Patel comes up daily with new codicils on the hoops the private sector will have to jump through if it is to share in government's infrastructure investment programme. The NGP has called for, amongst 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 in its '"From Red Tape to Red Carpet" programme to speed up and smooth out obstacle to business in that province, with a dedicated unit established to that end, with its own website and call centre. Amongst its priorities is to slash turnaround times for all the permissions required before a new business can open its doors.

Indeed, worldwide remedies for reducing the burden of red tape abound. They include exemptions for SMEs, the elimination of duplication, the adoption of easy to access and use 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 concerted conscious, target setting exercise involving close cooperation with, for instance, local chambers of business. 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:

1. SARS compliance.

2. Dealing with Companies and Intellectual Property Commission (CIPC) to register your company in the first place.

3. BBBEE requirements.

4. Labour and CCMA requirements.

5. New legislation requirements (e.g. the new Companies Act).

6. Consumer regulation requirements.

7. Requirements regarding local procurement from government.

8. Dealing with SETAs.

9. Obtaining operating permits.

10. Rezoning requirements.

11. Local planning and development requirements

12. Slow Environmental Impact Assessments (EIAs)

13. Sectoral regulatory requirements.

14. Licensing requirements.

15. The King 3 codes of good governance, with its over 70 stipulations and requirements.

And so on.

Ironically enough, it is the public sector, state –owned companies that often have the worst compliance record.

Improved administrative efficiency in itself would go a large way towards mitigating the impact of regulations. Issues such as poor service delivery, inadequate planning and controls, skills shortages amongst officials, poor coordination 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 the OECD countries, which are equally concerned about this riding tide of red tape, several measures are being undertaken to remove the worst burdens. They include the European Commissions "Small Business Act" of 2012, the adoption of the "once only" principle requiring 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 Euro100 and three days respectively.

In South Africa dedicated red tape reduction projects should be put into place in all provinces, 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 all help. So would making use of the RIA system assessing the costs and benefits of all proposed new regulations before imposing them, across government at all three spheres, and process engineering to eliminate duplication and simplify procedures.

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