Counting the cost of red tape for business in South Africa

This report assesses the cost of regulations for businesses in South Africa. It uses the results of a regulatory cost survey to examine which regulations are most costly to and troublesome for firms across a range of turnover and employment size bands.

Findings of the survey include:

• regulatory compliance costs, followed by black economic empowerment (BEE) issues and labour and taxation issues are mentioned as factors inhibiting business growth
• a lack in confidence and a lack of demand in the economy as well as labour laws and government regulations in general are seen to be constraints on increased employment
• the impact of state-induced constraints is greatest in transport, services, and tourism and least in retailing and wholesaling
• these constraints are, in the perception of respondents, greatest for the largest enterprises, and least significant for micro enterprises
• a large minority of 35 per cent did not think it possible to avoid regulation, while the majority did think it possible, and believed that reducing employment or curtailing business growth would be the most common way to avoid complying with regulations
• when asked to name the three regulations found to be most time-consuming, 19% of respondents cited VAT and other tax-related issues which ultimately emerged as the most problematic regulations. Labour laws were mentioned in 12 per cent of the responses, and SETA and RSC levies in 11 per cent
• 76 per cent of respondents thought regulatory costs had increased over the past two years, and 80 per cent thought they had increased over the past ten years
• average total recurring compliance costs per firm, excluding initial registration, were R 105 174 for all sizes and sectors
• the incidence of compliance costs is sensitive to firm size in another very important way: while big firms have the largest costs absolutely, in relation to their size small firms bear the heaviest burden
• while businesses in the informal sector are well aware of the advantages of formalisation, they do not consider registration as the regulatory costs weigh heavily against the advantages.

While recognising the importance and benefits of effective regulation, the report suggests considering the creation of a Regulatory Impact Analysis capacity in government to advise on the costs and benefits of proposed new regulations. In addition to that it recommends a systematic review of the costs and benefits of the existing regulatory environment.