The Department of Trade and Industry says the government remains committed to cutting red tape to assist small businesses, but business owners and experts are unconvinced and say little has changed in recent years.
In a survey in November last year by small business financier’s Business Partners, when asked what the government could do to improve support to the sector most business owners (22%) said the government should reduce red tape, while 19% said tax breaks would help boost the sector and just three percent called for better access to finance.
Last year’s SME growth index survey by small business researchers SBP found that small firms spent an average of four percent of their turnover on meeting the cost of red tape – and up to five percent for firms employing fewer than 21 people.
Slightly more than half of the 500 small businesses surveyed for SBP’s SME Growth Index reported an increase in the red tape burden, and slightly less than half indicated that the level of red tape had remained the same.
As if to confirm this, South Africa’s ranking on the World Bank’s latest Doing Business report, released in October last year, remained unchanged over last year, at 41 out of 189 countries.
This, while a number of the country’s emerging market peers moved up the rankings, including Malaysia which moved from 12th to sixth position.
Speaking to Mail & Guardian, Lionel October, the director general of the Department of Trade and Industry, dismissed any perceptions that red tape had increased, pointing out that his department had not imposed any new regulations in either 2013 or 2012.
'Businesses complain more about other things'
He said in the department’s interactions with the business sector, business owners had complained more about market access and profitability than about red tape.
Last year the Minister of Trade and Industry Rob Davies argued that the government had taken several steps to reduce red tape that small businesses face.
He said this included reducing the number of times a year that small businesses have to submit VAT forms, the introduction of turnover tax in 2009; simplifying accounting procedures for small firms with new Companies Act and continuous improvements made at the Companies Intellectual Property Commission (CIPC) on business registration.
In July last year the department, in partnership with the Department of Co-operative Governance and Traditional Affairs, embarked on a red-tape reduction campaign.
October said his department intends to initially use the campaign to get departments and municipalities to pay suppliers within the government’s stipulated 30 days on invoicing.
The department also wants to bring down the processing time to access its various incentives, and has identified other areas of red tape that need to be tackled.
These include: poor communication by the municipality of relevant business information to businesses, poor enforcement of informal trading by-laws, too few qualified local service providers to help business owners access local tenders and land not being accessible for development.
Preparations for workshops in each province, made up of provincial departments of economic development, enterprise development agencies and municipalities are under way.
Responding to the outcry last year on the Business Licensing Bill, October said the bill had not yet come before Parliament and added that the consultation process around the bill is continuing.
'Changes don't filter down'
But Mike Herrington of the UCT Graduate School of Business and the Global Entrepreneurship Monitor (Gem) report’s executive director said though at the top level of the government moves were being initiated to reduce red tape, this didn’t filter down to ordinary public servants who are responsible for implementing these changes.
A number of years ago, driven by The Presidency, the government mandated that certain new laws and amendments to present laws must undergo regulatory impact assessments (RIAs) to determine the impact new regulations might have on small businesses.
RIAs were first introduced in the 1990s in a number of Organisation for Economic Co-operation and Development (OECD) countries.
The Presidency has since been helping departments to identify what new legislation should undergo RIAs.
Last year Sizwe Sidloyi, the Presidency’s chief director of cabinet operations, said departments had identified 25 bills to focus on, from a list of 145 bills that departments had planned to introduce to Parliament this year.
'Rias aren't being used'
However Neil Rankin, associate professor of economics at Stellenbosch University, said though RIAs are in principle a good idea, a lack of political will often resulted in too few public officials using them or in the government failing to adopt any of the recommendations that stemmed from these assessments.
Rankin, who in 2010 helped draft the RIA on draft amendments to the labour laws, said the assessments came down to “blending evidence with political will”.
He said a problem is that new legislation introduced to simplify old laws often amounted to increased red tape because business owners had to take time to get acquainted with new procedures.
Promising signs in company registrations process
Despite this there are promising signs that it is becoming easier to register a business in South Africa.
Since August last year those that open a business bank account at FNB have also been able to file for a company registration, an offering that the commission is now seeking to extend to other major banks.
CIPC commissioner Astrid Ludin claims the offering is a world first. She said negotiations with Standard Bank and Absa for similar offerings are “progressing well”. Investec and Nedbank are also in talks with the commission to offer the service.
Sanjeev Orie, head of products at FNB Business Banking, said applicants who have been able to provide the necessary identification and documentation and pay the prescribed R125 fee to the CIPC have “literally” had their bank accounts opened and their new business registered within a few hours.
The government is also looking to further simplify the process to register a business.
Currently one has to register at the CIPC and then separately approach the SA Revenue Service (Sars) to register for income tax, VAT and PAYE and then the Department of Labour to register for Unemployment Insurance (UIF) and Workmen’s Compensation.
This lengthens the process to register and start a business – which stands at 19 days, despite having halved from 38 days in 2004.
Yet this is still behind New Zealand where it takes just one day to open a business and comparable countries like Chile and Malaysia – where it takes six days to open a business.
A Sars spokesman Marika Muller confirmed this month that a single form for registration of all tax types is on track to be implemented in the current 2013/14 financial year. However this would not include the registration for UIF and Workmen’s Compensation.
Ludin said moves to introduce a single registration window have started with the development work to synch the CIPC’s database and that of Sars expected to get under way this year.
As of late last year about 88% of all company registrations are conducted online – up from 60% in March last year, she said.
About 85% of registrations done online are being completed within a day, claims Ludin, adding that this is despite the commission’s service standard of a three day turnaround period.
The commission, she said, also has plans to introduce self-service terminals, initially to about 12 pilot sites.
She contends that most of those countries which allow businesses to register in a single day or in just two days – such as Rwanda, New Zealand and Singapore – are small jurisdictions, often dependent on foreign investment.
But larger countries simplifying registrations
Yet despite this, larger jurisdictions such as Chile are driving ahead to attract foreign investment and make the country more business friendly. In January last year the South American country passed a law to allow businesses to be registered in one day.
Despite this, Ludin also points out that service is improving. The call answer rate at the CIPC has increased from just 22% to 28% of all calls being answered in March last year, to 55% in November last year, she said.
Rather than use a dedicated call centre, calls are handled by staff at the commission themselves.
Ludin says this will be more effective as staff understand registration and filing problems better than a call centre agent and have direct access to the IT system – which cuts down on the time taken to respond to queries.
Business owners will welcome the move to make it easier to register a business. But any inroads the government makes here risk being quickly undone by impending new legislation, such as the Business Licensing Bill. The threat of new red tape is not about to go away any time soon.
This article appeared in Mail & Guardian on January 31, 2014.
Stephen Timm is a