ASSESSMENT OF THE ADMINISTRATIVE BURDENS
IMPOSED BY REGULATIONS AND THEIR IMPACT ON
BUSINESSES OPERATING IN THE KWAZULU-NATAL
PROVINCE
Full Report
The Department of Economic Development and Tourism
KwaZulu-Natal Province
Pietermaritzburg
Regulatory Impact Analysis
Aug 2011
Executive Summary
Administrative or regulatory burdens are recognized as one of biggest impediment to business
growth and development not only in South Africa but thorough out the world. Regulations
impose considerable opportunity and indirect cost to business by suppressing productivity and
diverting resources away from productive activities. Businesses spend significant amounts of
time and resources on regulatory activities such as filling out forms, applying for permits and
licenses, reporting business information, notifying changes etc. The cumulative effect and costs
imposed on the economy as a whole reduces business efficiency, competitiveness and more
importantly prospects for job creation.
Following its economic recovery summit, KwaZulu-Natal resolved to find measures that reduce
the cost of doing business in the province and provide for a business friendly regulatory
environment. Subsequently, the province undertook to carry a study to assess the impact of
regulations on businesses based in KwaZulu-Natal. Through this assessment the province seeks
to create an enabling business environment in which obstacles to business development and
performance (productivity and competitiveness) are minimised or removed. These will enable
businesses to generate employment thereby propelling the provincial economy towards faster
economic recovery.
Empirical evidence from the study suggests that regulations create significant efficiency costs not
only for businesses in KwaZulu-Natal but the whole of South Africa. In 2004, alone South African
business spend an estimated R79 billion or 6.5 percent of GDP to comply with regulations.
Although the study sought to investigate the impact of compliance costs or administrative
burdens on business in KZN it has also become increasingly evident from the literature review,
focus group discussions and the short survey that businesses are in fact concerned about
broader economic and business environment.
The results of this study further reveal that there is a widespread disparity in the understanding
of what exactly constitutes regulatory burden and the subsequent effect on businesses. In view
of the fact that regulatory cost are classified into various sub categories, this study focuses
mainly on administrative burdens as they are often identified as a priority in business surveys on
red tape. A common understanding of what constitute regulatory burden and how they affect
businesses is necessary to streamline and target regulatory reforms in a manner that improves
the enabling environment.
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International lessons show that regulatory simplification requires robust institutional and
legislative framework underpinned by strong political oversight. Institutions and legislation
provide the framework within which relevant regulations are defined and therefore put on the
agenda for reform or simplification.
Up to so far South Africa has been using piecemeal and fragmented interventions towards
administrative simplification. Efforts aimed at reducing regulatory costs are neither coordinated
nor following any systematic program of implementation with clear objectives and targets. In
addition, none of these interventions are “big ticket” items and therefore go largely unnoticed by
business in terms of their impact. Part of problem explaining this phenomenon is related to
lacking a shared understanding on what exactly constitutes regulatory costs. In many instances,
interventions are introduced in response to pressure from interest groups rather than empirical
evidence. With this approach everything and anything that pressure groups feel strongly about is
likely to be labelled regulatory costs and therefore reformed.
While the results achieved to date are undoubtedly helpful, business perceptions about the
impact remain largely sceptical. Business perceptions are important to the credibility of
government programs, that is, whether administrative simplification efforts are regarded as
genuine or the most appropriate areas of concern are targeted.
In this study, the manufacturing, tourism (part of service sector), mining, power and water
sectors have been found to bear the heaviest mean burden of compliance costs, followed fairly
closely by the transport sector. By implication, efforts to minimise regulatory burden must
therefore be targeted at this sectors. While this may be true, the study recognises that reforms
must be targeted at sectors with higher job creation potential such as agriculture, tourism and
clothing and textile. These sectors feature prominently on broader national and provincial
economic growth strategies owing to their labour intensity and capacity to absorb majority of
the unskilled and rural labour force.
The findings show that businesses are largely burdened by national general and sector specific
regulations (I.e. Tax, Labour laws, etc) over which provincial government has little control.
Provincial and municipal regulations are few in number and impose little information obligations
when compared to national legislations. By further implication, the extent to which provincial
government can introduce administrative simplification interventions is limited to policies within
provincial jurisdiction or recommending changes to national government and local government.
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On its own and given complexities of the intergovernmental system, KZN may not be able to
influence national government without support from other provinces.
Over and above regulations, the focus group discussion and survey results demonstrate that
business concerns are not only limited to administrative simplification but a general
improvement in the whole business environment. In the clothing and textile sector for example,
the long standing issue about cheap imports from Asia seems to be a major problem threatening
domestic industries. This is compounded further by unsupportive local procurement practices
which tend to disregard policies for local economic development. In the same vein, certain
government redress policies such as land reform are seen to be counter-productive in the
agriculture sector since mills are running below capacity as a result of poor crop production.
Due to the limited authority that the province can exercise over majority of national regulations
considered to be cumbersome the study make the following recommendations as practical
remedial actions amenable for implementation by the province.
•
Setting up a Business Environment Improvement Unit responsible for conducting regular
impact assessments and improving the business environment;
•
Provincial cabinet cluster responsible for finance and economic development must
oversee the work of proposed organisational unit, approve new regulatory proposals
and most importantly drive regulatory simplification interventions;
•
Set up a KZN Central Business Permit Portal or an interactive e-regulation tool that
provides a single place for business owners to obtain licenses, permits and registrations
required to run their businesses;
•
Introduce new legislation (KZN Business Regulations Relief Act) that compels
government departments and other organs of state to explicitly carry out Regulatory
Impact Analysis on newly promulgated legislations and by laws;
•
Incentivise state institutions that demonstrate commitment towards reducing regulatory
burden or improving the general business environment.
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Table of Contents
Full Report .................................................................................................................. 1
I.
Background.................................................................................................... 10
II.
Introduction................................................................................................... 10
III.
Methodology ................................................................................................. 12
IV.
Outline of the report ...................................................................................... 15
Chapter 1 CONTEXTUAL AND ECONOMIC PERSPECTIVE ON ADMISTRATIVE BURDENS 16
1
Economic and policy context to regulatory costs ............................................ 16
1.1
Current state of affairs in South Africa: administrative burdens ...................... 19
1.1.1 How large is the problem? ............................................................................. 19
1.1.2 Government policy on administrative burden ................................................ 20
1.2
Progress made on administrative simplification ............................................. 22
1.3
International experience ................................................................................ 24
1.3.1 Case studies ................................................................................................... 24
1.3.2 International best practices in administrative simplification ........................... 28
2
Provincial focus: business and SMMEs in KwaZulu-Natal ................................ 30
2.1
Economic environment in a regional context .................................................. 30
2.1.1 Contribution of KZN economy to GDP and employment ................................. 31
2.2
Provincial economic/ business development policies and priority sectors ....... 32
2.3
KwaZulu-Natal priority business sectors by type and size................................ 36
2.3.1 Sectoral composition of businesses in KZN ..................................................... 36
3
Taxonomy of legislation and regulations affecting business in KwaZulu-Natal . 42
3.1
National regulations ...................................................................................... 42
3.2
Provincial and local regulations ...................................................................... 43
3.3
Sector-specific business regulations ............................................................... 45
3.4
Overview of regulations deemed cumbersome from KZN-DEDT perspective ... 47
3.5
Overview of regulations deemed cumbersome from businesses perspective .. 48
4
Conclusion ..................................................................................................... 51
5
Recommendations on KZN priority list of sectors............................................ 52
Chapter 2 SECTOR-SPECIFIC INFORMATION OBLIGATONS AND RELATED COSTS ......... 54
I.
Introduction................................................................................................... 54
1.
Cross-cutting regulations................................................................................ 56
1.1. Business registration and licensing ................................................................. 56
1.1.1. Companies Act ............................................................................................... 56
1.1.2. Close Corporation Act .................................................................................... 57
1.1.3. Business Act................................................................................................... 57
1.1.4 Land Use Management Act ............................................................................ 58
2.
Sector-specific regulations ............................................................................. 60
2.1. Tourism sector ............................................................................................... 60
2.1.1. Tourism Act ................................................................................................... 61
2.1.2. Miscellaneous sector-specific regulations ....................................................... 62
2.2. Agriculture sector .......................................................................................... 64
2.2.1. National Forests Act of 1998 .......................................................................... 64
2.2.2. National Water Act of 1998 ............................................................................ 64
2.2.3. National Environmental Management Act ...................................................... 65
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2.2.4. Conservation of Agricultural Resources Act .................................................... 65
2.3. Clothing and textile sector ............................................................................. 66
3.
Conclusion ..................................................................................................... 67
Chapter 3 RESULTS FROM FOCUS GROUP DISCUSSION AND QUESTIONNAIRE ............ 69
i.
Introduction................................................................................................... 69
ii.
Participants ................................................................................................... 70
1.
Main findings ................................................................................................. 70
2.
General issues of concern............................................................................... 70
2.1. Policy coordination ........................................................................................ 70
2.2. Procurement regulations................................................................................ 71
2.3. International competition .............................................................................. 71
2.4. Incentive support for business ....................................................................... 72
2.5. Value chain .................................................................................................... 72
3.
Sector-specific findings .................................................................................. 72
3.1. Tourism sector ............................................................................................... 72
3.2. Clothing and textile sector ............................................................................. 73
3.3. Agriculture sector .......................................................................................... 73
4.
Result from the questionnaire........................................................................ 74
Chapter 4 OVERALL ASSESMENT, CONCLUSION AND RECOMMENDATIONS ............... 79
4.1
Conclusion ..................................................................................................... 79
4.2
Recommendations ......................................................................................... 81
4.3. Recommendations for KwaZulu-Natal sectors ................................................ 85
REFERENCES ............................................................................................................. 87
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List of Figures
Figure 1: Report sheet and data structure of SCM model ...........Error! Bookmark not
defined.
Figure 2: Schematic presentation of regulatory cost affecting business ............. Error!
Bookmark not defined.
Figure 3: Provincial contributions to GDP ..................... Error! Bookmark not defined.
Figure 4: Employment rate per province ...................... Error! Bookmark not defined.
Figure 5: High-level industrial composition of provincial GDP. ...Error! Bookmark not
defined.
Figure 6: Output trend per sub-sector in KZN 2003 - 2009..........Error! Bookmark not
defined.
Figure 7: Employment distribution by KZN sectors....... Error! Bookmark not defined.
Figure 8: Employment trend per sub-sector in KZN 2003 - 2009.Error! Bookmark not
defined.
Figure 9: Regulations with high information obligation and .........................................
adminastritive burdens ............................................................................... 49
Figure 10: Breakdown of recurring compliance costs. ................................................ 49
Figure 11: Registration and licensing redtape: legislative process workflow ....... Error!
Bookmark not defined.
Figure 12: Land Use and Business Act information obligations and related activities
Error! Bookmark not defined.
Figure 13: Most troublesome regulations (tourism sector) ..........Error! Bookmark not
defined.
Figure 14: Tourism Act information obligations and related activities Error! Bookmark
not defined.
Figure 15: Factors constraining business growth and development... Error! Bookmark
not defined.
Figure 16: Number of regulations applicable to business .............Error! Bookmark not
defined.
Figure 17: Severity and frequency of common regulations ..........Error! Bookmark not
defined.
List of Tables
Table 1:
Table 2:
Table 3:
Table 4:
Table 5:
Table 6:
Table 7:
Table 8:
Table 9:
Estimated regulatory compliance costs as percentage of GDP in selected
countries ...................................................................................................... 20
International Best Practice: Key experiences in reducing administrative
burden ......................................................................................................... 28
Priority sectors of the economy per key economic policy .......................... 35
Distribution of economically active business in KZN by Standard Industrial
Classification ................................................................................................ 40
Distribution of Ithala loans by sector .......................................................... 40
KZN speciality sectors - specialisation index ............................................... 41
Cross-cutting national regulations .............................................................. 43
Provincial and local regulations affecting businesses ................................. 44
Sample of sector-specific legislations and regulations ............................... 45
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Table 10:
Table 11:
Table 12:
Table 13:
Table 14:
Table 15:
Table 16:
Table 17:
Table 18:
Table 19:
Table 20:
Aug 2011
DEDT’s list of potentially cumbersome regulations .................................... 47
Recurring regulatory costs by regulations and size of businesses .............. 50
Three key sectors to be subjected to rigorous RIA scrutiny ....................... 53
Companies Act information obligations...................................................... 57
Close corporation Act information obligations ........................................... 57
Provincial and local government information obligations .......................... 59
Contribution of tourism to GDP and employment...................................... 61
Sector-specific information obligations in the tourism sector ................... 63
Sector-specific information obligations in the agriculture sector .............. 66
Import and export information obligations ................................................ 67
Tourism sector burdensome regulations .................................................... 78
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Acronyms and Abbreviations
ABC
ASATA
ASGISA
BEE
BUSA
CCRD
COGTA
DEDT
DoT
DPLG
DTI
DWA
GDP
IEA
IO
IPAP
KZN
LED
MSA
NEDLAC
NEMA
NIPF
NQF
NSBO
NSDP
PAYE
PGDP
RIA
SABS
SADC
SAMRO
SANAS
SANRAL
SAPS
SARS
SATSA
SBP
SCM
SETA
Activity Based Costing
Association of South African Travel Agents
Accelerated and Shared Growth Initiative of South Africa
Black Economic Empowerment
Business Unity South Africa
Consumer and Corporate Regulation Division
Department of Cooperative Governance and Traditional Affairs
Department of Economic Development and Tourism (KZN)
Department of Transport
Department of Provincial and Local Government
Department of Trade and Industry
Department of Water Affairs
Gross Domestic Product
Environmental Impact Assessment
Information Obligation
Industrial Policy Action Plan
KwaZulu-Natal
Local Economic Development
Municipal System Act
National Economic Development and Labour Council
National Environmental Management Act
National Industrial Policy Framework
National Qualifications Framework
National Small Business Office
National Spatial Development Plan/ Programme
Pay As You Earn
Provincial Growth and Development Plan
Regulatory Impact Assessment
South African Bureau of Standards
Southern African Development Community
South African Music Rights Organisation
South African National Accreditation System
South African National Roads Agency Limited
South African Police Service
South African Revenue Service
Southern Africa Tourism Services Association
Strategic Business Partnership
Standard Cost Model
Sector Education and Training Authority
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SFRA
SIC
SMMEs
TBCSA
TGCSA
THETA
TKZN
tiKZN
UIF
VAT
WTO
Aug 2011
Stream Flow Reduction Activity
Standard Industrial Classification
Small, Medium, Micro Enterprises
Tourism Business Council of South Africa
Tourism Grading Council of South Africa
Tourism, Hospitality and Sport Education Training Authority
Tourism KwaZulu-Natal
Trade and investment KwaZulu-Natal
Unemployment Insurance Fund
Value Added Tax
World Trade Organisation
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I. Background
This report owes its existence to an assessment of administrative burdens imposed by
legislation and regulation and their impact on businesses operating within the province of
KwaZulu-Natal. The utility of this assessment is threefold:
• To investigate specific compliance costs and pinpoint areas for reform
• To test premises and provide empirical support for reforms
• To monitor and evaluate reform progress.
Recommendations emanating from the assessment will enable the provincial government to
work towards creating a business environment in which obstacles to performance are
removed, enabling provincial businesses, particularly medium to large, to create
employment and therefore help the province reverse the growing trend of job losses and
negative economic growth. Whilst the regulations under focus may impact on all types and
sizes of business, this particular analysis is primarily focused on medium to large sized
businesses, that is, with at least 100 permanent equivalent staff and/or annual turnover in
excess of R5 million1.
II. Introduction
Since the advent of democracy, South African businesses in general have experienced
exponential growth underpinned by substantive government support, regulatory reforms
(mainly tax-related), a stable macro-economic environment and robust economic growth.
Despite the positive growth, the magnitude of support and reforms carried out has proved
insufficient to deal with the scale of the challenges faced by the country at large. Business
continues to experience challenges which hamper opportunity for further development,
expansion and, most importantly, absorption of the unemployed masses. Foremost among
these challenges is the burden of regulatory compliance. Other hurdles include factors as
diverse as access to finance, skills, trade barriers, international competitiveness, and the
quality of government support services.
Operating any form of business involves compliance with multitudes of regulations imposed
by various spheres and agencies of government. Government relies on these regulations to
1
National Small Business Act of 1996 as amended in 2003 and 2004.
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meet policy objectives that serve and advance public interest, as well as to instil market and
institutional confidence while supporting a fair and competitive market economy. Although
government has good intentions, more often than not the administration of these
regulations results in unintended consequence and unnecessary costs to business.
Regulations generate an unnecessary administrative burden on business because they are
cumbersome, complex, time-consuming and divert resources that might otherwise have
been used productively. Businesses spend significant amounts of time and resources on
activities such as filling out forms, applying for permits and licences, reporting business
information, and notifying changes2. The cumulative effect and costs imposed on the economy
as a whole are significant. For instance, in 2004, the Strategic Business Partnership for Growth
in Africa (SBP) estimated that South African business was spending in excess of R79 billion,
or 6.5% of GDP, to comply with government regulations. A national survey by Grant
Thornton in 2008/9 enlisted regulatory costs and red tape as the greatest constraints on
business expansion3. Similarly, the World Bank’s Doing Business report and the World
Economic forum’s Global Competitiveness report highlight regulatory compliance cost as one
of the areas that adversely affect small businesses.
Closer to home, Business Unity South Africa (BUSA) recently (2010) noted with concern that
business continues to incur significant and increasing costs, for two reasons: firstly lack of
streamlining or regulatory requirements and, secondly, unintended consequences of
legislation that has not been subjected to cost-benefit analysis. This problem is however not
peculiar to South Africa, with international studies indicating that regulatory compliance
costs are also hefty elsewhere in the world.
In an effort to improve and provide a business-friendly environment, there have been
growing calls and interest from both government and organised businesses to minimise
regulatory compliance costs. In his maiden State of the Nation address, President Zuma
announced that government would reduce the regulatory burden on businesses,
acknowledging that “The matter of being stifled by regulations has been raised by the sector
several times.”4 Although he was specifically referring to small businesses, this is in fact
applicable to all businesses. Also, the minister of Finance, Pravin Gordhan, mentioned
2
OECD, 2003. From Red Tape to Smart Tape: Administrative simplification in OECD countries.
Grant Thornton, 2009.
4
The presidency, 2009.
3
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through the 2010 Budget Review that government would promote job creation and
entrepreneurial activity by cutting red tape and the administrative burden on small
businesses5. The minister proposed the introduction of a systematic impact assessment for
new regulations and a review of existing legislation to reduce administrative burdens for
businesses, thus answering directly BUSA’s criticism of the unintended consequences of
legislation that has not been subjected to cost-benefit analyses.
Perhaps more pertinent to this report, the KwaZulu-Natal provincial government recognised
in its 2010 Economic Recovery Plan the need to reduce the regulatory burden incurred by
businesses and SMMEs. Subsequently, the province undertook to carry out an assessment of
regulatory burdens imposed by legislation and regulation and their impact on medium to
large sized businesses based in KwaZulu-Natal. Through this assessment the province seeks
to create an enabling business environment in which obstacles to business development and
performance (productivity and competitiveness) are minimised or removed. These will
enable businesses to generate employment, thereby propelling the provincial economy
towards faster economic recovery.
Compelling evidence in a study of 10 developing countries indicates that an improvement in
business regulatory environment is the single most important element in an economic
growth strategy. In 2004, the World Bank study found that many developing nations can
improve their annual economic growth rates by as much as 1,4% by making the regulatory
environment more conducive to business.
To this end, this report forms part of the broader plan to promote an enabling environment
for business in KZN. Fundamentally, the report lays out the framework for selecting a priority
list of laws, regulations, and critical KZN business sectors. It also proposes numerous
interventions that can be introduced to improve regulatory simplicity.
III.Methodology
This study uses a combination of qualitative and quantitative methodological approaches,
commencing with a literature review that outlines the main concepts and issues related to
regulatory impact assessment, best practices in regulatory reform, and sectors of the
economy that are overburdened by regulations. Results from the literature review are
5
National Treasury, 2010. Budget Review.
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corroborated with evidence from the focus group discussion as well as a small sample of
survey respondents from a business population in the tourism, agriculture and clothing and
textile sector. Respondents have been selected on a random basis from a KZN database of
businesses available at Trade and Investment KZN (tiKZN), and through information sourced
from affected sector clusters.
The KwaZulu-Natal Regulatory Impact Assessment (RIA) follows the legislation unit
approach, by which selected business laws or regulations are subjected to a detailed
examination entailing the detection and analysis of all information obligations (IOs) and
related administrative activities. Through a multi-stage process of consultation and
discussion with various stakeholders – firms, accountants, lawyers, employers’ bodies and
enforcement agencies – the amount of time and resources taken to carry out each activity is
determined. This forms the basis for quantifying administrative burdens.
An internationally renowned methodology known as the Standard Cost Model (SCM) is
followed to quantify administrative costs. Essentially, SCM measures information obligations
arising from regulation, thus placing a ‘price tag’ on the time spent to fulfil them. To
estimate the cost of each information obligation a number of specific administrative
activities are taken into account, with a number of cost parameters collected, including:
Price: hourly tariff of internal wage costs plus overhead or external service provider
Time: amount of time required to complete the activity
Quantity: size of business population affected and the frequency that the activity
must be completed each year.
Combining these cost parameters gives the total administrative cost per sector as:
Where
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The figure below depicts a framework for reporting information obligations and estimating
the costs.
REGULATION 1
INFORMATION OBLIGATION 1
ACTIVITY 1
INFORMATION OBLIGATION 2
ACTIVITY 2
INFORMATION OBLIGATION N
ACTIVITY N
PRICE
• Tariff (internal & external)
• Time (internal & external)
QUANTITY
• Number of enterprises
affected
• Frequency
REGULATION… N
INFORMATION OBLIGATION 1
INFORMATION OBLIGATION 2
INFORMATION OBLIGATION N
ACTIVITY 1
PRICE
• Tariff (internal & external)
• Time (internal & external)
ACTIVITY 2
ACTIVITY N
QUANTITY
• Number of enterprises
affected
• Frequency
Figure 1: Report sheet and data structure of SCM model. Source: SCM network, 2008.
Although measuring or quantifying administrative burdens is a complex exercise, it is equally
critical to note that administrative burden simplifications and interventions are limited to
streamlining information requirements and do not affect the basic design of the underlying
legislation. This suggests that simplification measures to reduce administrative costs are
developed more easily than measures aimed at estimating administration costs or changing
the scope of the underlying legislation. Given their nature, and in light of available
international evidence on administrative cost reduction programmes, these reduction
measures should be relatively straightforward to decide and implement6. Of course, the
success of any regulatory reform needs to be underpinned by three basic fundamentals,
namely regulatory policy7, appropriate tools and stable institutions8.
6
Commission of European Communities, 2006. Measuring administrative costs and reducing
administrative burdens in the European Union.
7
Regulatory policy may be broadly defined as an explicit, dynamic, continuous and consistent “wholeof-government” policy to pursue high-quality regulation. Regulatory policy does not refer to the
specific regulations within any particular sector, but to the way policymakers draft, update, apply and
enforce regulations and foster public understanding of these processes
8
OECD, 2006. Implementing Administrative Simplification in OECD countries. Experiences and
challenges.
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IV. Outline of the report
The rest of the report is structured as follows:
• Chapter 1 is a literature review providing conceptual and contextual overview to
regulatory / administrative burdens and their impact on business. In the same section we
uncover the current state of affairs in South Africa and evaluate international best
practices with regard to business regulations or, to be specific, administrative burdens.
The section also places the economy of KwaZulu-Natal in the spotlight, with a focus on
government economic policy objectives and analysis of KZN businesses by sector, size,
contribution to GDP and employment. The result of this analysis gives us a glimpse of
priority sectors on which to focus impact assessment. This section is based on the
premise that not all businesses are affected by regulation in the same way – sectoral
considerations, the size of the firm, how long it has been in operation, whether it is in the
formal or informal sector - all play a role9. Moreover, the sectoral considerations have
been driven by key priority sectors as pointed out both at national and provincial level.
The key question we seek to answer is whether the level and cost of regulation is
appropriate, particularly for businesses, or is over-regulation clogging up the statute
books?
• Chapter 2 is a compilation of an inventory of transfer obligations emanating from various
regulations in the three priority sectors, namely, tourism, agriculture and clothing and
textile.
• Chapter 3 summaries the results from the focus group discussions and survey
questionnaire. A sample of interviews from businesses in each sector provides initial
estimates of resources and time spent in compliance with regulations. Using the same
results from the questionnaire data is extrapolated to a provincial level in order to
estimate administrative costs using the standard cost model (SCM).
•
Chapter 4 draws conclusions and makes recommendations for policy on, and regulatory
reform of selected sectors.
9
Hudson, 2003.
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Chapter 1 CONTEXTUAL AND ECONOMIC PERSPECTIVE ON ADMISTRATIVE
BURDENS
1
Economic and policy context to regulatory costs
Loosely defined, regulations are regarded as a diverse set of instruments with which
governments set requirements for businesses and citizens. They are meant to support public
policies on factors such as taxation, competition, labour relations, health and safety, and
environmental protection. When appropriately designed and implemented, regulations
create benefits for economic participants by providing the framework for market relations,
competition and a low-cost business environment10. The actual benefits of regulations are
implicitly engrained in the economy, and determine the interaction between business,
society and government. With this in mind it is clear that the benefits of regulation seem to
be obvious, and are usually far better articulated than their unintended consequences and
costs.
An unintended consequence may arise in the form of change in market structure caused by
differential impact of regulations on different businesses. These in turn entrench suboptimal institutional forms, such as domination of the business sector by informal
enterprises or keeping businesses below the VAT threshold. Regulations further impose
miscellaneous costs which have a direct bearing on the operations of businesses. Although
bigger businesses have a much larger capacity and threshold than small businesses to carry
these burdens, country-specific regulations may render businesses uncompetitive in the
global market.
At a micro level, regulatory costs affect business efficiency, leading to macro economic
problems, such as a nation’s reduced competitiveness and capacity to create jobs. In
addition to these costs, regulations further impose significant opportunity or indirect costs
by stifling productivity and enterprise innovation if they become excessive in number and
complexity. In other words, regulatory costs may divert resources that otherwise would
have been used elsewhere in the business for productive investment. Direct regulatory costs
are classified into three categories, namely psychic costs, financial costs and compliance
10
Office of Revenue Commissioners, 2008. Key administrative burdens faced by small and medium
sized business customers, available at www.revenue.ie/en/tax/it/leaflets/admin-burden-report.pdf
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costs.11 Financial costs emanate from concrete and direct obligations to transfer a sum of
money to government or public authority, e.g., tax payments. Compliance costs relate to
costs that businesses incur in order to comply with legislation and regulations, other than via
financial transactions with the government. Essentially, compliance costs are purely from
red tape; they are incremental costs incurred by business in the course of complying with
regulations12, and include:
• The value of time spent by business on understanding regulations, applying them,
interacting with authorities and compiling required information.
• Payment made for professional services, such as accountants and lawyers.
Compliance costs can be further disaggregated into three:
Substantive compliance costs are incurred by business in order to comply with content
obligation placed on a production process by legislation and regulations. For example, the
Occupational Health and Safety Act requires all workers to be furnished with protective
clothing.
Business as usual costs are cost of activities that business would continue to carry out even
if regulatory requirements were removed. For example, there is an administrative cost
associated with keeping records in relation to the handling of complaints. Not all of this cost
can be considered incremental since, in the absence of regulation, firms would still need to
keep records of matters that could become the subject of litigation. Only that part of the
cost which can be attributed solely to the rules is considered incremental and, therefore, an
administrative burden13.
Administrative burdens are the cost incurred by an enterprise in meeting legal obligations
imposed by government legislation and regulations to provide information on their activities
to public authorities14. A piece of legislation may contain a requirement for submitting
information (e.g., keeping taxation records, submitting monthly VAT returns to SARS or
annual employment equity returns to the Department of labour). Each specific requirement
11
Legislative Burden Department, Ministry of Finance, The Netherlands, 2003.
Smulders, 2006.
13
Department of Trade and Finance, 2007. Estimate of Victoria’s Administrative Burdens.
14
Commission of European Communities, 2006. Measuring Administrative costs and reducing
administrative burdens in the European Union.
12
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in the legislation is defined as ‘information obligation’ (IO). Figure 2 (below) presents a
schematic explanation of the abovementioned regulatory costs.
Total regulatory
costs
Opportunity or
Indirect costs
Financial costs
Taxes
Fines
Admin charges
Dues
Premiums
Psychic costs
Compliance costs
Administrative
burdens
Structural
burdens
Substantive
compliance costs
Once-off
burdens
Figure 2: Schematic presentation of regulatory cost affecting business. Source: OECD.
For the purpose of this study, the focus and analysis is limited to identification and
measurement of administrative burdens as they are often identified as a priority in business
surveys on red tape and consultations on legislative or regulatory simplification. Particular
emphasis is placed on structural administrative burdens, which recur periodically (for
example, monthly VAT returns), rather than once-off administrative burdens which only
occur when there are changes to existing legislation or a new regulation is introduced.
Delineation of these costs from financial books is evidently difficult since most businesses do
not apply Activity Based Costing (ABC).
It is for this reason that most assessments of this nature use legislation or regulations as
their unit of analysis. Following this approach, selected business laws or regulations are
subjected to a detailed examination that entails the disentangling and analysis of all IOs and
related administrative activities. Through a multi-stage process of consultation and
discussion with various respondents, - firms, accountants, lawyers, employers’ bodies and
enforcement agencies - the time taken to carry out each activity and the level within the
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firm (seniority / qualification) at which the activity is carried out are determined. This forms
the basis for quantifying administrative burdens.
1.1
Current state of affairs in South Africa: administrative burdens
1.1.1 How large is the problem?
The full scope of legislations and regulations governing businesses in South Africa is most
probably unknown to many business owners, as may be the case in other parts of the world.
In fact, hardly any person can claim to know all business regulations and how they have
changed over time. However, to plead ignorance of a comprehensive list of business
regulations, or deny the existence of administrative burdens would be absurd. By way of
illustration, a new business with an annual turnover of more than the VAT threshold (R300
000) is expected to comply with at least nine separate registration requirements. Thereafter
the business will face a myriad of other regulations specific to its operations and sector of
the economy. Additionally, businesses are required to comply with provincial and municipal
regulations, for example, any business that seeks to do business with the public sector in
KwaZulu-Natal has to be registered in the Provincial Database, and furthermore a business
that wants to do business with a specific municipality will have to register on that council’s
database.
The latter constitute major difficulties for any businesses wishing to be conversant with the
entire spectrum of business regulations. For instance, although regulatory powers and
responsibilities are conferred by mostly national legislations, the detailed interpretation of
these powers into specific rules and requirements (Information Obligation) takes the form of
ministerial orders, departmental guidance and other instruments issued by national,
provincial and local governments, including their agencies. Coordination of these regulations
and activities is evidently problematic for businesses as they spend much of their time
learning, complying and keeping up to date with rather institutionally scattered regulations.
One of the world’s largest pioneering surveys (1 795 businesses) to focus on business
regulations, conducted in 2004, found a recurring amount equivalent to 6,5% of GDP (R79
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billion rand) was incurred by South African businesses on compliance costs alone15. Similar
costs for business in other developing and developed countries range between 1% and 5%
(see Table 1, below). Although the survey was conducted in 2004, ceteris paribus, current
indications are that regulatory costs may since have escalated, and certainly remain a
primary hindrance to business growth and development. As recently as September 2010,
Business Unity South Africa (BUSA) attested to this assertion, noting with concern that South
African business continues to incur significant and increasing regulatory compliance costs.
According to the SBP report, recurring regulatory compliance costs can range from a high of
R32 thousand for a business with annual turnover of less than a million, to just over R2, 3
million for business with turnover in excess of R1 billion16. The aggregate figures presented
herein are significant, firstly, in comparison with other developed countries and, secondly,
for South Africa as a developing country. Quite evidently the problem of regulatory
compliance costs is enormous.
Table 1: Estimated regulatory compliance costs as percentage of GDP in selected countries
Australia
3, 0%
Belgium
1, 8%
Iceland
1.3%
Norway
2, 8%
Finland
1, 0%
Jamaica
3, 0 %
South Africa
6, 5%
1.1.2
Government policy interventions on administrative burden
The growing importance of the regulatory impact on businesses by government has been
noted in a number of statements by political leaders throughout the post-1994 dispensation.
For instance, in his 2005 Budget speech the former Minister of Finance, Trevor Manuel made
the following remarks:
15
SBP, 2004. Counting the cost of red tape for business in South Africa. Headline report,
Johannesburg, South Africa.
16
SBP, 2004. Counting the cost of red tape for business in South Africa. Headline report,
Johannesburg, South Africa.
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… we have directed attention this year at the costs and complexity for small businesses
of the tax code, because there is compelling evidence that simplified arrangements can
assist significantly in creating an environment conducive to enterprise development.
Five years later, a commitment was made by Minister of Finance, Mr Pravin Gordhan
through the 2010 Budget Review, that government would promote job creation and
entrepreneurial activity by cutting red tape and the administrative burden on small
businesses17. The minister proposed a number of interventions, including:
• Introduction of a systematic regulatory impact assessment for new regulations
• A review of existing legislation to reduce administrative burdens on small businesses.
Policy-wise, efforts aimed at easing the regulatory and compliance burden facing businesses
in South Africa were initiated in 1995 by the DTI in the White Paper on small enterprises,
which stated:
Inappropriate or unduly restrictive legislation and regulatory conditions are often
viewed as critical constraints on the access of small enterprises into the business sector
and as obstacles to their growth.
The policy objectives ingrained in the White Paper have been operationalised through two
key policy documents, namely the Integrated Strategy on the Promotion of Entrepreneurship
and Small Business under the ambit of the DTI, and the Accelerated and Shared growth
Initiative of South Africa (AsgiSA) spearheaded by the Presidency. The general thrust of these
two policies was to unlock the growth potential of business and the economy in general
through numerous interventions, among which easing regulatory and compliance burdens
on enterprises features prominently. AsgiSA contemplated the following remedial actions for
easing regulatory burdens on businesses:
• Tasking the DTI and DPLG (now COGTA) with making recommendations on how to
improve the regulatory environment for business in municipalities.
• Reviewing labour laws and their impact on business by the Minister of Labour.
• Sector departments reviewing the impact of their laws and regulations on businesses.
17
National Treasury, 2010. Budget Review.
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• Conducting ongoing research and drawing experiences from small business support
agencies, business organisations and independent experts.
• Invoking Section 18 (1) of the National Small Business Amendment Act, 26 of 2003,
which empowers the Minister of Trade and Industry to publish guidelines for national,
provincial and local government to promote small business, including for regulatory
impact monitoring.
• Establishing the Regulatory Impact Assessment Unit in the Presidency.
Additionally, the DTI has numerous business units which support the development and
growth of businesses in South Africa. One component, the Consumer and Corporate
Regulation Division (CCRD), focuses on regulation and legislative issues. Two of the initiatives
under this unit are18:
• Business Regulatory Compliance Advice: Assists businesses in their compliance with
legislation and regulations administered by the DTI (consumer and competition law,
commercial law and regulated industries). Provides businesses with copies of legislation
or regulations, highlighting relevant provisions and providing written clarification on
how the DTI would approach and interpret certain provisions of these laws.
• Businesses and consumers can make inputs into the development of regulations by
submissions to the CCRD. The DTI, whose role is primarily to support development and
growth of businesses in South Africa, acts as custodian for business development and
support.
More recently, and as indicated above, a process has been initiated to establish a system of
regulatory impact assessment by the National Treasury and the Presidency. This culminated
in an approval by Cabinet to introduce an RIA through a two-year pilot project.
1.2
Progress made on administrative simplification
Under the auspices of the then Ntsika Enterprise Promotion Agency, a national small
business regulatory review and an impact assessment of the Basic Conditions of
Employment Act were carried out.
18
South African Foundation, 2003. Designing a regulatory impact assessment for South Africa.
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In 2004, the DTI commissioned a study on administrative burdens imposed on small
enterprises by value added tax (VAT) and Regional Services Council (RCS) levies19. The
purpose of the study was to gather quantitative evidence for use in advocating regulatory
changes and removal of regulations considered harmful to businesses. As a result of the
study, RSC levies have since been abolished. More recently, the Companies Act, No. 71 of
2008 has been amended, exempting selected businesses from having their financial
statements audited or reviewed, depending on their size, workforce and nature of their
activities.
On the taxation and tax compliance front, South Africa is making phenomenal progress. The
South African Revenue Service (SARS) established a working group on tax compliance to
advise on measures to reduce the compliance burden for small enterprises. Both the
National Treasury and SARS carried out a series of studies to gather detailed information
about the problem and how best to design a simplified tax regime for small business in
particular. This has resulted in the introduction of numerous reforms:
• SARS established the National Small Business Office (NSBO), which helps maximise
compliance among small business, prepare tax guides and also explore ways to reduce
the compliance burden faced by businesses20.
• The number of forms required to register for all taxes were reduced to one and the
frequency with which VAT returns are made was changed from once every two months
to once every four months, for some businesses.
• Recently SARS introduced a new tax system called Turnover Tax for businesses with a
turnover of up to R1 million a year, replacing income tax, provisional tax, and capital
gains tax, secondary tax on companies and VAT.
• Under the new tax regime the threshold for mandatory VAT registration has been
increased from R300 000 to R1 million. With Turnover Tax, qualifying small businesses
will only need to submit two interim returns and a final return for assessment. This
represents a huge saving in time and costs relating to the current provisional tax,
income tax and VAT system, which requires businesses to submit an average of 10
returns a year. While tax compliance costs reached as high as 5% of turnover under the
19
20
RSC levies have since been abolished in 2007.
SARS, 2010. http://www.sars.gov.za/home.asp?pid=169
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old system, the new simplified regime is expected to keep compliance costs below 2%
of turnover for most small businesses.
• According to new Companies Act, private companies are no longer compelled to have
audited financial statements, although there is requirement for the books to be drawn
up by suitably qualified professional accountants.
These interventions are purported to have reduced the compliance burden and made tax
returns simple enough for more small business owners to comply with, removing the
necessity to outsource to expensive tax consultants. In this way small businesses will find it
much easier to calculate their tax payments. In the past, most small businesses struggled to
fill out complicated tax forms and calculate taxable profits; the new regime allows for a
simple calculation based primarily on annual turnover21. Whilst much effort has been
directed to small businesses, because of their limited capacity to absorb administrative
burdens, these costs are also a concern for medium to big businesses which have to be
internationally competitive.
International experience
1.3
This section examines the experiences of other countries that may be relevant to
South Africa.
1.3.1
Case studies
United States of America
At federal level, the United States of America (USA) has the longest experience of RlAs and is
also more aggressive than many countries in controlling regulation. The country has a
handful of pieces of legislation and high-level government institutions whose objectives are
strictly to minimise compliance cost for businesses:
• The Regulatory Flexibility Act, passed in 1980, requires regulators and all government
agencies to explicitly evaluate the effect of regulation on small businesses.
21
Coolidge, 2008. In Practice: Business Taxation
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• The Small Business Regulatory Enforcement Fairness Act (1996) requires agencies to
simplify language, provide more accessible information on reporting and compliance
requirements and publish compliance guides for important new acts. It also has the
necessary 'teeth' as it allows small businesses to seek judicial review of compliance with
the Regulatory Flexibility Act.
• The Small Business Paperwork Relief Act (2001) requires that all proposed regulations be
analysed for the paperwork they require, and that such paperwork be reduced to a
minimum.
A high political priority is also accorded to RIA for small businesses through the Small
Business Administration Office of Advocacy, which reports directly to the President.
According to the latter Act any regulation which creates new paperwork must be cleared by
the Office of Management and Budget (OMB). On an annual basis the OMB is required to
conduct a cost-benefit analysis of federal regulations and make recommendations for
reform.
United Kingdom
Institutionally, the United Kingdom (UK) has one of the finest models for addressing
regulatory burdens on business. At cabinet level there is a main coordinating body known as
the Regulatory Impact Unit. One of the policy actions aimed at decreasing regulatory burden
was the formation of the “Better Regulation Task Force” in July 1997, replacing the former
Conservative government’s “Deregulation Task Force”. The role of the Task Force is to make
recommendations to government on how to improve regulations and to provide general
advice to government departments on creating regulations with the lowest possible
administrative burden.
Another policy initiative, also explicitly aimed at creating a less burdensome regulatory
environment, was the passing of the Regulatory Reform Act in 2001. This Act enables
ministers, subject to parliamentary scrutiny, to change or repeal laws in order to remove or
reduce cumbersome regulatory burdens. Since August 1998, regulatory impact assessments
(RIAs) have been a standard requirement for any legislation to be presented to parliament
which could potentially impact on business.
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European Union
The European Union (EU) has been the leader in making interventions to reduce the
administrative burden of regulations. Member states that have embarked on reducing the
administrative cost of regulations have included Belgium, the Czech Republic, Denmark,
Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Poland, Spain, Sweden,
and the United Kingdom. The European Commission has embarked upon a strategy with the
member states to reduce the administrative burden on companies from existing regulation
by 25% by 2012, focusing on large-scale measurement of administrative burdens in 2007-08,
to be followed by simplification proposals. Efforts at cutting red tape focus primarily on
making regulations smarter, in an effort to enhance productivity and improve efficiency,
rather than on efforts to deregulate economies. It is estimated that implementation of a
reduction in the administrative burden of a quarter could lead to an increase of 1.4 % in the
EU’s GDP.
Australia and New Zealand
Similarly to their counterparts in Europe, Australia and New Zealand require that all policy
proposals submitted to cabinet or that have cost implications for business have to be
accompanied by Regulatory Impact Statements. Both countries have dedicated regulatory
impact institutions, namely the Office of Regulation Review (ORR) in the Case of Australia,
and the Business Compliance Cost Unit (BCCU) in the case of New Zealand, under the
auspices of the Productivity Commission and the Ministry of Economic Development
respectively.
Perhaps the experience of Victoria’s regional government in Australia offers worthwhile
lessons. The region introduced successful regulatory reform initiatives aimed at relieving
businesses of regulatory stress. The intervention is based on the standard cost model and
has been implemented on a three-phase basis, namely:
Setting targets for cutting the existing administrative burden of regulation by 15% over
three years and 25% over five years (over the period 2007 – 2011); Interventions in
reducing regulatory burden have been achieved in a wide range of areas that include:
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o Ensuring the administrative burden of any new regulation is met by an ‘offsetting
simplification’ in the same or related area.
o Undertaking a programme of reviews to identify the necessary actions to reduce
compliance burdens. These include two whole-of-government reviews and 18
regulatory reform initiatives.
In support of this process, an Incentive Fund has been established to enable government
departments to conduct reviews and implement administrative burden reduction initiatives,
such as the simplification of licensing arrangements, implementing best-practice regulatory
arrangements, improving information technology solutions and removing outdated
regulations. These initiatives have been welcomed by the Australian business community,
with the Business Council of Australia recognising the Victorian government as ‘best
performer’ in its scorecard of regional governments for regulatory reform.
Africa
Efforts at enhancing the regulatory environment and reducing the administrative burden
associated with regulations have been made in Kenya, Tanzania and Uganda. Administrative
reform has been based on reducing the number and extent of regulations, easing the system
of taxation and undertaking standard cost model exercises.
Despite the admirable regulatory and institutional framework on RIA in developed countries,
results are not always reflected on the ground, as much of the implementation lies with the
diverse lines of state departments. Secondly, there are problems with RIA being conducted
which lead to suboptimal outcomes. The main problems that appear to be common across
the countries are22:
• RIA is not started until late in the decision-making process
• RIA is not sufficiently detailed for major regulation
• There is too little consideration of alternatives to regulation
• Not all relevant effects are examined effect
• RIA assessments are mostly ex post rather than ex ante
• There is little inter-departmental or inter-sphere cooperation.
22
Van Humbeeck, 2007. Best Practice in Regulatory Impact Analysis: A review of the Flemish Region
in Belgium, working Paper, Social economic Council of Flanders.
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1.3.2
Aug 2011
International best practices in administrative simplification
It is clear that measures are needed to highlight the significance, profile, quality, and policy
impact of RIA in South Africa. The analysis of international experience and developments
generates a series of ideas and suggestions that seem particularly relevant to South Africa.
On the other hand, it is also clear that not all measures can be implemented at the same
time, so a phased approach to link RIA in South Africa with international best practices is
preferable. The reform process should follow the following sequence:
1. Ensure all new legislation is subject to RIA and forms part of stakeholder
consultations
2. Promote political leadership for RIA
3. Remove negative perceptions around RIA
4. Introduce a regulatory agenda underlined by change of culture
5. Reinforce the transparency of the RIA system
6. Better target RIA efforts
7. Strengthen the responsibility of departments and build RIA capacity
8. Give parliament and provincial legislatures a more prominent role in this regard
9. Develop RIA institutions at national and provincial level.
Table 2 (below) shows international best practices with recommendation for
implementation based on experience of each.
Table 2: International Best Practice: Key experiences in reducing administrative burden
Regulatory quality
When introducing new legislation and regulations, ensure they meet
programmes
rigorous quality standards
Regulatory Impact
Examine new legislation or regulations before they are introduced
Assessment (RIA)
to try to minimise any new administrative burdens.
Determine likely effect of any new regulation before it is
implemented.
Ongoing
The Standard Cost Model (SCM) is the primary practical
measurement
measurement tool that government at all levels can use to assess
exercises
the regulatory burden of existing legislation. It enables government
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to :
measure administrative costs in a high level of detail
achieve consistent results across policy areas
set numerical targets for reducing administrative burden
measure, monitor and evaluate progress towards reaching
these targets.
Administrative
Once measurement of regulations has been undertaken, introduce
improvements
administrative measures to reduce administrative burdens
associated with the particular regulations.
One-stop shops
Offer a single point, either online or at a central physical office,
where businesses and citizens can obtain all necessary information
and / or process different transactions.
“Whole-of-
Provide e-government or physical services through which business
government”
and citizens can access the full range of government services, rather
services
than only those of particular departments. This requires maximum
coordination and cooperation between government departments.
Use of technology
E-government access points assist in cutting red tape by enabling
citizens to access government services online.
Amendments across
Address the administrative burden associated with regulations at all
all spheres of
levels of government - national, provincial and local.
government
Codification
Group existing regulations on a particular sector into a single, simple
and concise regulatory framework.
Process re-
Simplify administrative processes and the content of the
engineering
administrative forms required for licensing and procedural matters,
for example, the application processes for obtaining a driver’s
licence.
Impact on SMMEs
Special procedural measures to assess and minimise the impact of
regulation on SMMEs is a critical component of ensuring that
government targets for growth and employment are met.
Reducing compliance
Introducing measures to reduce the burden of compliance
requirements
procedures related to regulations, for example, by reducing the
thresholds for small and medium enterprises to register and comply
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with VAT legislation.
Risk-based approach
Emphasis on increased penalties for non-compliance with
administrative compliance procedures.
Political oversight
Plays a key role in reducing administrative obligations.
Effective
Communicate the results of efforts of government at cutting red
communication
tape with key stakeholders and affected parties.
Allocate effective
Allocate sufficient and effective resources to address identified
resources
administrative burdens associated with regulations.
Key findings: Economic and policy context of regulatory costs
The conclusion drawn from these theoretical framework is that when considering the
impact of compliance costs on businesses, a distinction must be made between those
activities that a business would undertake in the absence of regulations (such as keeping
pay records for the purposes of product costing) and those that are carried out solely as a
result of the regulation (e.g., preparing records for the purposes of calculating
employees’ tax and social security deductions).
Measuring administrative costs is not a goal in itself. The aim is to reduce red tape for
businesses in Kwazulu-Natal.
RIA is a long-term and continuous process which requires political championing and a
significant cultural shift throughout the government policymaking apparatus.
The institutional and regulatory framework for RIA in South Africa is ostensibly nonexistent or extremely poor.
Policy responses to administrative burdens are seemingly haphazard, and not based on
any systematic programme of regulatory reform or culture.
2
Provincial focus: business and SMMEs in KwaZulu-Natal
This section focuses on small, medium and micro businesses in the province of KZN.
2.1
Economic environment in a regional context
KwaZulu-Natal is South Africa’s largest province by population, and the second largest
contributor to the country’s economy after Gauteng. It has a very important place in the
cultural and political life of South Africa. Structurally, the provincial economy is
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Regulatory Impact Analysis
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characterised by two economies: one rural, primarily agricultural and relatively
underdeveloped; the other urban and industrial, but not very competitive. Despite having a
significant and fairly dynamic industrial economy centred on Durban/eThekwini and its
North Coast (particularly Richards Bay), KZN still has a significant proportion of urban and
rural inhabitants living in poverty, many of whom are dependent on subsistence agriculture
for their livelihoods. Unemployment is high, as is the case throughout the country.
2.1.1
Contribution of KZN economy to GDP and employment
Figure 3 (below) demonstrates the significance of KZN’s economy to the whole of South
Africa. The province is second only to Gauteng in contributing to the national output, and
the KZN economy has been among the fastest growing between 2001 and 2007, during
which period its share increased by 2% to 17%.
7%
14%
8%
7%
2%
5%
34%
17%
Western Cape
Eastern Cape
Northern Cape
Free State
KwaZulu-Natal
North West
Gauteng
Mpumalanga
Limpopo
6%
Figure 3: Provincial contributions to GDP. Source: Statistics South Africa, 2009.
While the province’s economic performance has improved steadily over time, its economic
gains were recently depleted by the 2008/09 global financial crises. The province
experienced the greatest negative impact, with its output declining by 6.7% compared to a
national decline of 6.4%. Unemployment increased from just under 690 000 in the fourth
quarter of 2008, to 733 000 during the first quarter of 2009.
Nevertheless, following concerted interventions by the provincial leadership in conjunction
with its social partners, the situation has since started showing signs of improvement. Late in
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2009 the Department of Economic Development and Tourism (DEDT), coupled with
organised labour and business, convened a summit on provincial economic recovery aimed
at tackling the provincial crisis. The summit accepted the principles and provisions set out in
the Framework for South Africa’s Response to the International Economic Crisis (The
Framework Response), agreed to at the National Economic Development and Labour
Council (NEDLAC) in February 2009. The summit concluded with cross-cutting and sectorfocused resolutions, and an outline of a joint Action Plan focussed on cushioning the local
economy against the economic downturn by promoting a path of labour-absorbing
industrialisation, with an emphasis on tradable labour-absorbing goods and services and
economic linkage to catalyze job creation. Sector-specific recommendations highlighted the
need to find measures to reduce the cost of undertaking business within KwaZulu-Natal and
to ensure that the regulatory environment provides for an efficient and effective
environment.
Figure 4: Employment rate per province. Source: Statistics South Africa, 2009.
2.2
Provincial economic/ business development policies and priority sectors
A number of key institutions – including the DTI, National Treasury, Department of Economic
Development and the National Planning commission – are tasked with promoting and
coordinating economic development in South Africa. Similar institutions at the KZN
provincial level include the DEDT, Ithala, Trade and Investment KZN (tiKZN) and Tourism
KwaZulu-Natal (TKZN). The powers, functions, and policy strategies vested in these
institutions collectively represent the instruments available to the province for achieving its
economic development objectives.
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The role of the DEDT is to develop an overarching policy framework for the province’s
economic development that prioritises particular sectors and geographical areas. Its
significance to KZN’s economic development lies in its ability to craft business development
strategies that focus on the specific needs of the province, with a macro view of the
provincial economy and its potential synergies across space, as it is not narrowly focussed on
a particular locality (as is the case with local government). To determine the strategic
direction of the province, the DEDT needs to consolidate various strategic policy documents
from other spheres of government in order to maximise the range of policy instruments
available to meet well-defined objectives. The institutional framework within which this
cooperation is forged currently constitutes a critical challenge as the policy landscape across
spheres differs and changes rapidly over time23.
For instance, there are numerous overarching economic development policies which overlap
across the three spheres of government. At national level such policies include the National
Spatial Development Framework (NSDP), the National Industrial Policy Framework (NIPF),
the Accelerated and Shared Growth initiative of South Africa (ASGISA), the Integrated small
business development strategy, the Industrial Policy Action Plan and, more recently, the
New Growth Path. Provincial specific policies relevant to economic development are
Provincial Growth and Development Plans (PGDPs), Provincial Spatial Economic
Development Strategy Development, the KwaZulu-Natal Industrial Development Strategy
and, more recently, the Roadmap to KwaZulu-Natal’s Economic Recovery. Locally,
municipalities have their own Local Economic Development (LED) strategies.
Within this broad range of economic policies that are driving growth and development in
South Africa and KZN, the national Industrial Policy Action Plan (known as IPAP 2), the New
Growth Path 2010, together with the Provincial Spatial Economic Development Strategy, the
Industrial Development Strategy (currently under review), and the Roadmap to KwaZuluNatal’s Economic Recovery, are recognised as critical policy documents for this project.
These documents provide an understanding of government’s priority focus for supporting
the development of key economic sectors or businesses and for identifying cross-cutting
interventions to support broader industrial development within the medium-term
expenditure framework. On the basis of the focus areas identified within these documents,
23
Altman, 2002. KwaZulu-Natal economic review. Human Sciences Research Council, Pretoria, South
Africa.
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an initial ranking and prioritisation of areas requiring a review of business regulations and
legislation will be identified.
According to the abovementioned economic policy documents the following sectors
(outlined in Table 3) feature prominently as high impact industries with potential for
employment creation and as candidates for planned government support. However, one
noticeable limitation to these policies is the manner in which all sectors or industries are
treated as equally important to the economy. They do not provide a systematic approach
with which to discern at least three topmost priority sectors. For example, the clothing,
textile, leather and footwear industry is only regarded as a priority in the Roadmap to KZN’s
Economic Recovery, and finds little prominence within the Provincial Spatial Economic
Development Strategy. In 2008, the DTI’s Annual Review of Small Business in South Africa
found that tourism, ICT and the manufacturing sub-sectors (general and automotive
manufacturing) were of key importance to economy of KwaZulu-Natal.
There follows, a systematic approach to determining priority sectors, looking at the
contribution each makes to GDP, employment and potential for future growth.
“That government is best which governs least” – Paine, Jefferson, Thoreau
35
Table 3: Priority sectors of the economy per key economic policy
IPAP 2 – 2010 (National)
New Growth Path - 2010 (National)
KZN Spatial Economic Development Roadmap to KZN’s Economic Recovery
Strategy – 2007
- 2010
Green and energy-saving industries
Agriculture value chain
Agriculture & agri-industry
Clothing, textiles, leather and
footwear
Agro processing including Food
processing, beverages,
aquaculture, horticulture,
medicines, aromatics and
flavourings
Automotives and components,
medium and heavy commercial
vehicles sector
Mining value chain
Industry - heavy & light industry and
manufacturing
Tourism, creative industries, arts, craft
and film
Manufacturing as per IPAP 2
Tourism
Agribusiness
Clothing and textiles, footwear and
leather Industries
Tourism and high-level services
Service sector
Forestry, pulp and paper
Bio-fuels sector
Green economy: Renewable energy
Bulk water and electrification
programme
Business process outsourcing and
off-shoring, telecommunications,
broadband, and knowledge process
outsourcing
Jewellery production
Forestry, paper, pulp and furniture
industries
Information and communication
technology (ICT)
Business process servicing
Automotive assembly components,
capital equipment and metals
Plastics, chemicals, rubber and
pharmaceuticals
Marine, transport and logistics
2.3
2.3.1
KwaZulu-Natal priority business sectors by type and size
Sectoral composition of businesses in KZN
The sectoral composition of the province’s output is illustrated in Figure 5. The key outstanding
feature is that KZN has a much larger manufacturing sector, given its proximity to the coastal area.
Finance, real estate, and business services are also prominent as the second best contributor to
provincial GDP, followed by wholesale and trade, government services and transport respectively.
From Figure 5 it can be implied that the aforementioned sectors are critical to the success of the KZN
economy and any form of policy of support intervention should be targeted at businesses in these
sectors. However, it is important to note that the magnitude of one sector’s contribution to GDP
alone is too limited a measure of its overall importance. For instance, while the contribution of the
agricultural sector appears trivial it nevertheless provides valuable industrial inputs into other
sectors that play a substantial role in the manufacturing sector, i.e., food, clothing and textile.
Figure 6 provides a much better picture of GDP composition, by disaggregating the services and
manufacturing sectors into sub-sectors over a seven year period ending 2009. The petroleum and
chemical industry accounts for the largest portion of manufacturing at 21%, followed closely by
metal, machinery and equipment at 18%, and the food and beverages industry at 16%. The textile
sector, one of the key priority sectors within government policy, is volatile with around 8%
contribution to total manufacturing output. This latter figure is the result of a long-term contraction
since 1995, when South African markets were liberalised. Between 2004 and 2007 the sector
contracted at an average annual rate of 1%. This industry has historically been the epicentre of
South Africa’s economy, owing to its ability to absorb large numbers of low-skilled people,
particularly women.
Historically, the primary sectors, including mining and agriculture, have also been key drivers of
employment and growth. As a result these sectors, especially agriculture, continue to feature
prominently within government growth and development strategies, in recognition of their labour
intensity attributes. The contribution of agriculture to total KZN output is 4.4% and has remained
stagnant around this rate over a seven-year period, as Figure 6 shows. Despite being relatively small,
the sector contributes around one third of South Africa’s food output and 37% of national food
exports. According to the KZN Department of Agriculture, the sector has untapped growth potential,
to the tune of 366% of present production, which can be unlocked through increased investment.
Regulatory Impact Analysis
Aug 2011
4.4
13
Agriculture, f orestry and
f ishing
1.8
Mining and quarrying
Manuf acturing
18.4
5.9
Electricity and w ater
Construction
2.5
17.2
3.5
Wholesale & retail trade;
hotels & restaurants
Transport and
communication
Finance, real estate and
business services
12.8
11.4
Community, social and
other personal services
General government
services
Figure 5: High level industrial composition of provincial GDP. Source: Statistics South Africa,
2010b 1.
Figure 6: Output trend per sub-sector in KZN 2003 – 2009. Source: Department of Economic
Development and Tourism, 2010.
The largest industries in KwaZulu-Natal’s tertiary or services sector are wholesale and retail
trade, government services, transport and tourism. In fact, when combined, the services
sector contributes more than 50% of KZN’s total output. While other sectors have been
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Regulatory Impact Analysis
Aug 2011
growing at a moderate rate, the services sector has shown robust growth, as demonstrated
by the steep line for wholesale and trade in Figure 5. Note that while the tourism sector is
undeniably one of KZN’s largest services-related industries, it is not an industry in a
traditional sense in that it includes activities associated not only with tourists but also with
non-tourists. Accordingly, Figures 5 and 6 alone do not provide compelling substantiation of
what would be the key sectors of the KZN economy on which to focus regulatory reforms
(administrative burdens). Employment figures may offer a much better approach.
The sectoral composition of the demand for labour partly reflects the significance of various
industries to the KZN economy. As depicted in Figure 7, a large proportion of the KZN labour
force is employed in the wholesale and trade sector (23%), followed by community services
(22%) and manufacturing (17%) sectors. Agriculture only employs about 6% of the total
labour force. The rather disproportionate contribution of manufacturing to employment
relative to its output demonstrates that large contribution to GDP does not necessarily
translate into more jobs. Sectors that dominate in terms of employment tend to be those
with minimal technological intensity and less demand for highly skilled individuals.
Figure 7: Employment distribution by KZN sectors. Source: Statistics South Africa, 2010a.
Figure 8 (below) shows how various sub-sectors have performed over time with regard to
employment. As expected, the wholesale and retail sector shows exceptional performance,
growing at an annual average of 6%. While other sectors have been relatively stable or
moderate in terms of employment, the textile and agriculture industries have been shedding
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Aug 2011
jobs at an alarming rate. In the seven-year period under observation, both the sectors’
employment contributions declined by more than half. The main reasons for this
phenomenon in the case of agriculture are mechanisation and automation, and in the case
of the textile industry, sensitivities to competition, inputs costs and currency fluctuations.
Figure 8: Employment trend per sub-sector in KZN 2003 – 2009. Source: Department of
Economic Development and Tourism, 2010.
Pursuant to ascertaining KZN’s priority business sectors, Table 4 disaggregates the total
number of KZN enterprises in terms of the Standard Industrial Classification (SIC). As can be
seen businesses in KZN are largely concentrated within three industrial sectors: Finance
(38%), Wholesale and Retail Trade; (23%) and Manufacturing (13%). Within the mediumsized businesses, four industrial sectors /sub-sectors are particularly prominent:
Manufacturing (24%), Construction (18%), Finance (17%) and Retail and Motor Trade and
Repair Services (14%). Just as pointed out earlier, businesses in KZN are concentrated in
finance and yet the sector ranks fourth in terms of contribution to employment. Table 4
further shows that very small enterprises assume relatively high percentages in each
industrial sector (45-64%), but even more so in sectors such as agriculture, and community,
social and personal services. The dominance of agricultural activities within the micro
business category reflects the dependence of most people in KZN on subsistence agriculture.
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Table 4: Distribution of economically active business in KZN by Standard Industrial
Classification
Standard Industrial
Classification (SIC)
Micro
SMME size category
Very small
small
351
729
67
16
4942
884
88
10
2800
412
SMME
Medium Total SMME All business as%of all
181
1982
2300
86%
21
140
151
93%
595
8559
8830
97%
3
141
141
100%
449
5473
5595
98%
Agriculture, forestry and fishing
Mining and quarrying
Manufacturing
Electricity and water
Construction
Wholesale and retail trade; repair of
vehicles, personal and household
goods
721
36
2138
40
1812
3973
8812
2051
560
15396
15832
97%
Wholesale trade, cormercial agents
Reatil and motor trade and repair
services
Catering accomodation
885
2202
588
121
3796
3900
97%
2399
689
5101
1509
1411
52
343
96
9254
2346
9527
2405
97%
98%
879
11190
3345
27
1513
11372
1894
169
440
2277
922
35
102
404
124
5
2934
25243
6285
236
3079
25664
6408
241
95%
98%
98%
98%
Transport, storage and communication
Finance
Community services
Unspecified
Source: the DTI, 2008.
Table 5 (below) uses the number of loans granted to business in various sectors by Ithala
Development Finance Corporation as proxy for growth potential and viable industries as
perceived by entrepreneurs. As expected the number of loans granted to the finance and
services sector coincides with the relatively large number of business in the province as
depicted in Table 4 (above). The textile industry ranks second as the sector for which most
loans are applied or granted for. By implication, Table 5 suggests that businesses in KZN find
the services sector as having high growth potential. However, this could also be an indication
of the relative ease with which the sector’s entry and operational requirements can be met.
With respect to manufacturing, Table 5 (below) contrasts with earlier tests where the sector
features prominently as the key.
Table 5: Distribution of Ithala loans by sector
Sector
Services
Textile
Catering
Poultry
Agriculture
Building
Manufacturing
Other
Crafts
Total
Number of
loans
84
80
67
66
63
53
50
14
11
488
Source: the DTI, 2008
“That government is best which governs least” – Paine, Jefferson, Thoreau
41
Regulatory Impact Analysis
Aug 2011
The limitations embedded in the previous approaches are best dealt with through the
specialisation index (in the case of cities) or location quotient index (in the case of region)
which quantify the spatial or regional importance of an industry or sector. Typically, the
indices measure the specialisation of a region in an industry in terms of employment in the
industry in the region relative to the share of the employment in the industry nationally. The
specialisation index is given as follows:
LOQ = empij /empj
empit /empt
Where empij is employment in sector i (Manufacturing) in region j (KwaZulu-Natal), empj is
total employment in region j, empit is national employment in sector i and empt is total
employment. If the value of the index exceeds one it indicates that the region is more
specialised in a given sector than the national average, and, conversely, if the value is less
than one the sector is less represented in the region than it is nationally. The conclusions
drawn from this index pertain to whether a certain industry in a region is a priority or
whether a certain industry should be prioritised to promote growth and development. As
illustrated in Table 6 (below), manufacturing, construction and transport sectors have a
specialisation index of more than one, suggesting that KZN has a comparative advantage in
these areas.
Table 6: KZN speciality sectors - specialisation index
Sector
Agriculture
Minining
Manufacturing
Utilities
Construction
Trade
Transport
Finance
Community and Social Services
Index
0.94
0.14
1.27
0.38
1.22
0.97
1.07
0.87
0.97
Source: Compiled from Stats SA, 2010a.
Regional concentration of industries is usually attributed to some form of external
economies of natural advantage rather than pure randomness. For example, in the case of
manufacturing, KZN enjoys a comparative advantage over industry elsewhere in South Africa
in terms of access to basic production inputs such as water and coal, as well as proximity to
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42
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Aug 2011
ports for exports24. A point worth noting about manufacturing is that it is an inherently
heterogeneous industry with numerous sub-sectors, most of which are extremely capitalintensive, driven by factor conditions and sensitive to costs. Sectors with these attributes
tend to have limited impact on job retention and sustainable job creation.
Key findings : provincial focus: business and SMME in KwaZulu-Natal
Evidence on what exactly constitute KZN’s priority sectors is mixed or not
straightforward.
Manufacturing, finance and services, the trade sector and construction sectors are the
most important in the KZN provincial economy.25 These contribute the most to GDP,
employ more than 60% of the KZN workforce, have the highest number of economically
active businesses and represent priority areas for which entrepreneurs constantly require
support.
In the same way, national and provincial economic policy regards sectors such as
clothing, textiles, leather and footwear (forming part of manufacturing); tourism,
creative industries, arts, craft and film (forming part of services and trade) and
agribusiness as key to the recovery and sustainability of KZN’s economy.
3
3.1
Taxonomy of legislation and regulations affecting business in KwaZulu-Natal
National regulations
Business in South Africa, as pointed out earlier in the report, is regulated by a plethora of
legislation, guidelines and standards concurrently imposed by national, provincial and local
government as well as industry. Most regulations are nationally imposed, cutting across the
whole spectrum of sectors and businesses of different types and sizes. Nationally imposed
business regulations generally hinge on business registration, taxation, labour relations and
health and safety. Administrative burdens associated with these regulations are mostly
structural, occurring at regular intervals. Table 7 (below) presents a sample of key national
regulations likely to impose structural administrative burdens on businesses.
24
Luus and Krugell, 2005. Economic specialisation and diversity of South African cities. North West
University.
25
These must be read with the understanding of the cooperatives scheme which was already at play
during this period, and which may account for the high level of businesses such as textile and poultry,
which are prevalent in poverty alleviation initiatives.
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43
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Aug 2011
Table 7: Cross-cutting national regulations
General start-up: nine registration requirements, five different offices
Reserve a company name
Register name and articles of association
Register for: VAT; skills levy, indicating the relevant SETA; PAYE; Income tax
Register with Unemployment Insurance Fund;
Register as employer for Workman’s Compensation
People and workplace
Industrial Relations Act
Basic Conditions of Employment Act
Occupational Health and Safety
Compensation for Occupational Injuries and Diseases Act
HIV/AIDS and Employer
Skills Development Act and Levy
Unemployment Insurance Act
Employment Equity Act
Broad Based Black Economic Empowerment Act
Taxation
Standard Income Tax on Employees (SITE)
Income Tax
Secondary Tax on companies
PAYE
Provisional Tax
Capital Gains Tax
Value Added Tax
Stamp Duties Act
Customs and Excise
Regional services council levy (abolished)
Miscellaneous
License fees
Price controls
Competition Act
Companies Act
Consumer Affairs Act
Promotion of Access to Information Act
Trademarks, registered design, patents, merchandise marks, copyright
Environmental policy and legislation
National Environmental Management Act
Environment Conservation Act
Atmospheric Pollution Prevention Act
National Water Act
Tourism levies and requirements
Source: SBP, 2004.
3.2
Provincial and local regulations
Typically, sub-national governments create and administer their own business regulations
within parameters determined by national government, or enforce regulations on behalf of
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Regulatory Impact Analysis
Aug 2011
other spheres. They have wide-ranging powers to administer certain provisions of national
government legislation as well as to regulate through their own bylaws. Provinces and
municipalities have a direct impact on businesses through their policies on development and
planning, zoning and business licensing. However, unlike national regulations, provincial and
municipal regulations are limited in number and predominantly impose once off
administrative costs and substantive compliance costs.
Once off compliance costs from municipal regulations may arise as a result of delays or
complexities in administering regulations over which different spheres of government have a
concurrent responsibility. For example, there are critical problems of delay within land use
management systems, with relatively simple applications often taking years to process.
Contributing to this is the length of time associated with the land use approval process,
which is often held up by objections and appeals (in terms of planning ordinances as well as
the Municipal Systems Act). These legal processes can extend the average time from
application to approval of business licences from a minimum of two days (if the zoning is
correct and the business complies) to almost 18 months26.
Furthermore development applications may under certain conditions be required to submit
an Environmental Impact Assessment (EIA) application, and Heritage Impact Assessment
(HIA) (which may be administered by the province rather than a municipality). These
applications are not necessarily processed in parallel, but most often follow sequentially.
Table 8 (below) shows a list of regulations for which provinces and local government are
responsible. Provinces have a small number of regulations for which they are directly
responsible, however, this does not suggest that the extent to which provinces can intervene
(reduce regulatory burden) is limited, given the constitutional requirement for cooperation
and inter-functionality between the three spheres of government.
Table 8: Provincial and local regulations affecting businesses
Provincial regulations
Local regulations
Development and planning ordinances / Act
Land use management
Liquor Act
Zoning schemes
Gambling Act
Trading bylaws
26
Pahwa et al., 2006. Impact of Municipal Regulations on SMMEs. AFReC.
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Traffic regulations
Noise and pollution policy
Procurement or supply chain policies
Business licensing
Property rates policy, user charges and credit
control policies
Procurement or supply chain policies
Source: Own Compilation.
3.3
Sector-specific business regulations
In addition to cross-cutting legislation, each sector is regulated by a specific set of
regulations emanating from both government and industry associations. For example, there
are labelling requirements for foods, pharmaceuticals, and construction; use regulations
affecting automotive sectors; and prudential regulations for banks and other financial
institutions.
According to the SBP report, tourism, manufacturing, mining, power and water sectors bear
the heaviest mean burden of compliance costs, followed fairly closely by transport. These
variations are affected by the different average size of operations. Taking average firm size
per sector into account, tourism and manufacturing; mining, power, and water; and the
service sector are still relatively heavily regulated. The report found it difficult to generalise
about differences in the percentage breakdowns of average costs, but additional regulations
(largely sector-specific) contribute above average proportions to the total in manufacturing,
mining, power and water, and especially in tourism. Labour and empowerment issues, taken
together, assume relatively large proportions in transport, manufacturing, mining, power,
and finance. Local government regulations are a small proportion of the total in all sectors.
They are, however, relatively high in trade and services. Table 9 shows a list of regulations
only applicable to businesses within certain sectors of the economy.
Table 9: Sample of sector-specific legislations and regulations
Sectors
Tourism, creative industries, arts, craft
and film
Key Legislations/Regulations For The Sector
Tour Guiding
Registration as a tour guide with the Department of
Tourism and Environmental Affairs
Site Guide Regulations
Tour Operators
Licensing and certification to transport fare paying
passengers
Public drivers’ permits
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Regulatory Impact Analysis
Aug 2011
Roadworthy certification in relation to transportation
regulations and Road Transportation Act
Owner of Accommodation Establishment
Local authority bylaws
Health, and safety standards
Zoning bylaws to operate accommodation establishment
Liquor licensing
Grading applications
TV license applications
Owner /Developer of Local Attractions
Local authority planning regulations
Bylaws and zoning applications
South African Music Rights Organisation (SAMRO)
Visa requirements
Cultural Institutions Act
Regulations of South African Heritage Resource Agents
National Heritage Resources Act, 1999
Tourism Act, 1993
2. Agribusiness
Land Restitution and Reform Laws Amendment Act
Abattoir Hygiene Act 121 Of 1992
Agricultural Pests Act, 1983 (Act no. 36 of 1983)
Agricultural Products Standards Act, 1990 (Act no. 119 of 1990)
Agricultural Debt Management Repeal Act, [No. 15 of 2008]
Animal Disease Act, 1984 (Act no. 35 of 1984)
Genetically Modified Organisms Act, 1997 (Act no.15 of 1997)
Animal Health Act, 2002
Liquor Products Act, 1989 (Act no.60 of 1989)
Livestock Improvement Amendment Act, [No. 60 of 1997]
Meat Safety Act, 2000 (Act no. 40 of 2000)
Plant Breeder’s Right Act, 1976 (Act no.15 of 1976)
Plant Improvement Act, 1976 (Act no. 53 of 1976)
Marketing of Agricultural Products Amendment Act, [No. 52 of
2001
3. Clothing and textiles
SA Import regulations
SARS regulations governing imports
Customs regulations
SACU regulations
Forestry, pulp, paper and furniture
industries
National Forests Act, 1998
National Veld and Forest Fire Act, 1998
National Water Act, 1998
Water Services Act, 1997
Business process outsourcing and offshoring, telecommunications broadband,
and knowledge process outsourcing
Broadcasting Act, 1999 (Act No. 4 of1999)
Electronic Communications Act, 2005
The Electronic Communications and Transactions Act No. 25 of 2002
(ECTA)
Postal Services Act, 1998
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ICT - Information and communication
technology
Telecommunications Amendment Act 2001
Automotive assembly components,
capital equipment and metals
Safety regulations
Environmental regulations – particularly as regards CO2
emissions
Plastics, chemicals, rubber and
pharmaceuticals
National Water Act 36 of 1998
Atmospheric Pollution Prevention Act 45 of 1965
Environmental Conservation Act 73 of 1989
Promotion of Access to Information Act 2 of 2000
National Road Traffic Act 93 of 1996
National Environmental Management Act 107 of 1998
National Environmental Management Act (NEMA) EIA 2010
regulations
Hazardous Substances Act of 1973
Occupational Health and Safety Act (and Regulations for
Hazardous Chemical Substances)
The Worker Safety Act 1995.
Occupational Health and Safety Act
Marine transport and logistics
Administrative Adjudication of Road Traffic Offences Act, 1998
National Land Transport Act, 2009
National Road Traffic Act, 1996
Road Traffic Management Corporation Act, 1999
Road Traffic Fund Act, 1996
The Promotion of Access to Information Act No. 2 of 2002 (PAIA)
The Electronic Communications and Transactions Act No. 25 of 2002
(ECTA)
The Regulation of Interception of Communications and Provision of
Communication-related Information Act No. 70 of 2002 (RICA)
Source: Own compilation
3.4
Overview of regulations deemed cumbersome from KZN-DEDT perspective
The initial discussions around this research singled out the following legislation and
regulations for emphasis:
Table 10: DEDT’s list of potentially cumbersome regulations
Legislation / regulation
Relevant recurring Information Obligations
Companies Act
Lodgement of annual returns with CIPRO
Competition Law
Not relevant, only applies in cases where
business files a merger or acquisition
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Regulatory Impact Analysis
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application
with
the
Competition
Commission
Business Act
Currently under review
Import / export taxes
Stock control returns to SARS
Customs and Excise audits
Input / output taxes
VAT returns to SARS
Procurement legislation
Requirement for registration on government
database
South African Bureau of standards (SABS) Mainly concerned with content obligations
and the South African National Accreditation on safety, health and quality management
System (SANAS) Standards/ ISO 9001
3.5
(voluntary and compulsory)
Overview of regulations deemed cumbersome from businesses perspective
By contrast, when asked to name recurring regulations found to be the most timeconsuming, costly and cumbersome, in the SBP study, most businesses listed VAT, Labour
laws and SARS tax administration to be the problematic. In a similar study conducted in KZN,
compliance with VAT was found to be the 8Th most restrictive regulation impinging on
business development27. Compliance with UIF, PAYE and skill development legislation was
also found to be burdensome. Many small enterprises see the Skills Development Levy as
‘just another tax.’ Being unable to claim the levy for financial or administrative reasons,
many businesses have not produced a training plan that can be recognised by their SETAs
and consequently pay their levy without claiming it back28. Socially desirable regulations
such as health and safety, minimum wages and BEE are not considered to have very high
compliance costs. Interestingly, environmental issues, which are the key competence area of
provinces and local government, do not feature at all on the list.
27
Clover & Darroch, 2005.
Hudson, 2003.
“That government is best which governs least” – Paine, Jefferson, Thoreau
28
49
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Figure 9: Regulations with high information obligation and administrative burdens. Source:
SBP, 2006.
In terms of costs, SBP estimate that the average recurring regulatory cost is R105 174 per
business per annum, of which the largest component is attributed to tax regulations (27%),
followed by sector-specific regulations and labour regulations, which account for 21% and
17% respectively (see Figure 10, below). Employment equity regulations account for at least
12% of total compliance cost to businesses, while regulations related to local government
are regarded as the least burdensome, constituting only 6% of total compliance costs.
Figure 10: Breakdown of recurring compliance costs. Source: SBP report, 2006.
Table 11 (below) gives a breakdown of recurring regulatory costs by regulation category for
different sizes of business. Tax compliance costs constitute a considerable proportion of the
total administrative cost for small businesses: 34,7% for those with a turnover of less than
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Regulatory Impact Analysis
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R1 million, compared to 11,5% for those with a turnover of more than R 1 billion. Tax
compliance costs are also large for medium sized business (more than 5 million in turnover),
accounting for more than 34% of total recurring regulatory costs. By contrast, labour
regulations are somewhat more important for smaller businesses: 14,7% of the total,
compared to 9,1% for medium sized business. The situation is however different for much
larger businesses, with turnover of between R500 million and R1 billion per annum, where
labour regulations make up 24,3% of total recurring compliance costs.
Except in a few cases, the ratio of compliance costs to turnover drops fairly smoothly as
business size or turnover increases. This pattern reflects the notion that there are economies
of scale in regulatory compliance. Certain basic costs, such as those for licensing or
registration, are fixed and borne by all businesses, but are spread over more turnover for the
larger firms. In addition, large firms are better placed to absorb these costs, given their
higher turnover, and they typically manage compliance costs by employing in-house
specialists.
Table 11: Recurring regulatory costs by regulations and size of businesses
R1m -<R5 R5m - < R10 m - < R25m - <
m
R10m
R25m
R100m
R100m <R500 m
R500m <R1bn
Type of regulations
< R 1m
>R1bn
Ongoing registartion
16.1
11.9
7.9
12.1
5.5
9.8
1.2
6.7
Tax compliance
Labour/ personnel
Employment
equity/empowerment
34.7
14.7
45.6
9.1
34.9
9.1
32.8
15.2
31.6
23.7
12.1
14.1
22.8
24.3
11.5
16.2
7.1
7.4
12.6
10.3
22.1
14.9
9.7
14.6
Additional regulations
6.1
6.5
9.1
5.8
11
22.4
10.8
38.2
Statistical returns
Local government
requirments
9.2
9.7
8.5
11.4
9.5
12.2
17.2
6.6
Recurring costs
12
9.8
11.8
3.9
6.3
4.3
22.2
2.9
R 32 482 R 54 766 R 66 311 R 159 913 R 286 109 R 675 286 R 891 894 R 2 314 727
Source: 1
Key Findings: Taxonomy of legislation and regulations affecting business in KwaZulu-
Natal
Tax compliance burden and costs are high on the list of regulations constraining growth
and development of business both in South Africa and KwaZulu-Natal. In particular, VAT
appears to be the most cumbersome regulation, despite numerous simplification reforms
undertaken.
Labour laws are also problematic, especially for large businesses with more than R25
million turnover per annum.
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Regulatory Impact Analysis
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The tourism, manufacturing, mining, power and water sectors experience the greatest
administrative burden, owing to a long list of regulations imposed on them. Not only are
these sectors required to comply with generic regulations but they are also expected to
comply with inter-sector legislation from transport, health and safety, conservation and
miscellaneous industry codes.
4
Conclusion
A successful impact assessment of regulations on businesses is dependent on the efficacy of
the instruments used to carry it out. Moreover, attempts to estimate impact of the
administrative burden on businesses should be based on a comprehensive understanding of
the regulations in totality. The range of regulations impacting on businesses is spread over
many institutions and across various business sectors, thus making it difficult for anyone to
comprehend with a reasonable degree of confidence the extent to which they are affected.
Substantive evidence, although sometimes anecdotal, suggests that indeed businesses of all
types and sizes, in one way or another, experience heavy administrative burdens, especially
from government-imposed regulations. The same evidence also implies that businesses from
various sectors and of different sizes are affected differently by diverse regulations. By
further implication this evidence implicitly prescribes that efforts aimed at reducing the
administrative burden on business cannot be holistic. In other words, a combination of
important sectors, businesses of particular size and certain regulations, presumably the most
problematic, need to be prioritised in the RIA process.
A better part of this report had sought to identify business sectors of importance to the KZN
economy and regulations that stand out as most problematic. Different methods and
formulations have been used in order to extract sectors that can be considered of high
enough priority to include in this study, however it is apparent that each sector contributes
differently yet significantly, and therefore no one sector can be confidently singled out as
the most important and hence requiring of further interrogation. For example, while
agriculture contributes the least to the provincial economy both in terms of GDP and
employment, its output serves as input in other sectors and, most importantly, it provides a
livelihood for the majority of KZN’s rural population.
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Notwithstanding this evidence, the conclusion is that manufacturing, finance and services,
transport and construction are the main sectors of the KZN economy. However, when it
comes to regulations, the sectors that hold the heaviest mean burden of compliance costs
are manufacturing, tourism (part of service sector), mining, power and water, followed fairly
closely by transport. This is not surprising, given the mechanical intensity and high risk of
health hazards in the sectors and therefore concerns for health and safety.
Be that as it may, health and safety regulations feature very little as regulations that impinge
on businesses in general and sectors found to be heavily regulated. Instead, cross-cutting
regulations such as VAT, PAYE, labour laws and sector codes rank high on the list of most
cumbersome regulations. Largely, these are a direct responsibility of national government.
In comparison, regulations for which provinces and local government are responsible for
impose the lowest administration burden. Hence, calls for regulatory reforms or
minimisation need to be carried out with full cooperation between the relevant spheres of
government.
The priority for the DEDT – in collaboration with other spheres, departments and business is thus to lead to a proposal for regulatory reforms and co-operatively to identify national
and provincial competencies and roles, and the respective powers of various agencies and
bodies. This role definition will need to be translated into a delineation of responsibilities in
concrete programmes and activities that aim at reducing the administrative burden within a
given target and set period.
5
Recommendations on KZN priority list of sectors
With all constraints taken into consideration, it is recommended that further regulatory
impact scrutiny is carried out on the three sectors outlined in Table 12 (below), on the
following grounds:
• All three sectors, feature prominently on broader national economic policies to grow the
economy
• They are among the sectors purported to be of significance to the KZN economy
• They are labour intensive and hence have the capacity to absorb a majority of the
unskilled and rural labour force
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• Lastly, the tourism sub-sector represents one of the sectors in which businesses bear the
heaviest burden of compliance costs.
Table 12: Three key sectors to be subjected to rigorous RIA scrutiny
SECTORS
KEY LEGISLATIONS/REGULATIONS FOR THE
SECTOR
1. Tourism
KZN Tourism Amendment Act
White Paper on the development and promotion
of tourism in KZN.
Procedure for registration and deregistration of
tourism operators and tourism establishments
(filling in the application form).
Responsible tourism guidelines.
Tourism sector code.
Code of conduct for KZN tourism operators.
Culture institutions act, 1998.
Cultural laws amendment act, 2001.
White Paper on the Development and Promotion
of Tourism in SA.
Tourism Act, 1993.
Tourism BEE Charter.
National heritage Resources Act, 25 0f 1999.
2. Agribusiness
KZN Conservation Management Act
Road Traffic Act (transportation of hazardous
material).
Trade Administration Act.
Animal Disease Act
Conservation of Agricultural Resources Act.
Environmental Conservation Act.
National Water Act, 36 of 1998.
Nature Conservation Act.
Agricultural Pest Act, 36 0f 1983.
Plant Improvement Act, 53of 1976.
Meat Safety Act, 15 of 1973.
Competition Act
Land Reform, Land Use, Expropriation Bill.
Mountain Catchment Areas Act, 63 of 70.
White Paper on Environmental Management
Policy.
White Paper on Sustainable Coastal Development
in SA, 2000.
ECA EIA regulations (authorization to undertake
identified activities).
Permits and regulation.
Tax
3. Clothing and
textile
SACU regulation.
African Growth and
Opportunities Act
(AGOA)
“That government is best which governs least” – Paine, Jefferson, Thoreau
CROSSCUTTING
LEGISLATIONS/REGULA
TIONS
Skills Development Act
Pan South African
Board Act, 1995
Tax
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Chapter 2 SECTOR-SPECIFIC INFORMATION OBLIGATONS AND RELATED COSTS
I.
Introduction
The preceding chapter had two main objectives: first, to lay out the theoretical and policy
background and qualify the extent to which regulatory burdens affect business in South
Africa; second, to provide the framework for selecting a list of priority laws, regulations, and
critical KZN business sectors that have been subjected to a detailed impact assessment in
this exercise. The findings emanating from Chapter 1 show that regulations feature
prominently as one of the foremost impediments to business growth and development,
despite ongoing regulatory reforms.
As far as businesses are concerned, the most cumbersome regulations relate largely to
taxation and labour laws. These cut across the entire spectrum of economic sectors,
although several other sector-specific regulations raise moderate discontentment.
Manifestly, the tourism, manufacturing, mining, power and water sectors experience the
greatest administrative burdens, as evidenced by the long list of regulations imposed on
them. The logic following immediately from this finding prescribes that regulatory
simplification reforms must be targeted at the sectors mentioned.
However, successive investigations point to the insignificance of the mining, power and
water sectors as the main drivers of economic activity or contributors to employment,
particularly in KZN. Hence, the employment effect of regulatory simplification in these
sectors may in all likelihood turn out to be marginal. In contrast, the manufacturing sector is
reasonably large and contributes significantly to employment, albeit this contribution has
been declining over time in relative proportion to other sectors. The declining share of the
sector is attributed to structural shifts in the economy, declining global competitiveness and
growing capital intensity. Likewise, regulatory reforms targeted at the manufacturing sector
may prove to be an inappropriate intervention or at the very least result in sub-optimal
outcomes.
The low skills level adds to the difficulty in that South Africa, KZN in particular, has a large
unskilled and unemployed population. Narrowly focused interventions targeted at highly
skilled and capital intensive sectors are less effective in the reduction of an unemployed and
unskilled labour force. Regulatory reform interventions must therefore be targeted at
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sectors with a high rate of unskilled labour absorptive capacity. Sectors befitting this
classification include tourism, clothing and textile and agriculture.
Against the backdrop of findings from the initial study summarised herein, this chapter will
compile an inventory and estimate of the costs of selected information transfer obligations
for KZN-based businesses within the tourism, clothing and textile, and agricultural sectors.
The rest of the paper is structured as follows: Section 1 gives an overview of information
transfer obligations arising from the cross-cutting regulations. These include tax laws with
specific focus on VAT and labour laws in general. Section 2 analyses a set of information
transfer obligations arising from selected sector-specific regulations in the three chosen
sectors. Box 1 (below) gives typical examples of information obligations.
Box 1 Examples of information obligations
Returns and reports
Application for permission or exemption
Application for authorisation
Notification of activities
Entry in register
Cooperation with audits or inspectors
Statutory labelling for the sake of third parties
Framing complaints and appeals
Source: SCM network, 2008.
Note that each information obligation comprises numerous administrative activities which
may not be outlined in this report due to space. However, there are standard administrative
activities which businesses undergo in compliance with most regulations. Box 2 outlines
these activities.
Box 2: Standard administrative activates
1.
2.
3.
4.
5.
6.
7.
Familiarisation with the information obligation
Information retrieval
Assessment
Calculation and presentation of figures
Settlement and payments
Internal and external meetings
Inspection by public authorities
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8. Training, updating on statutory requirements
9. Copying, distribution and filling
10. Reporting and submitting of information
Source: SCM network, 2008.
1. Cross-cutting regulations
The number of cross-cutting regulations is diverse and straddles various types of
classification categories. Classification is particularly pertinent in analysing which types of
information obligations characterise the legislation of the individual departments or spheres
of government. Information obligations are classified according to whether they are
compulsory or voluntary, once-off or recurrent, national or local and general regulation
requirements. For the purpose of this work, only two cross-cutting regulations related to
business registration and licensing are analysed. The reason for covering these legislations
has to do with the relative ease with which provincial government can influence required
reforms.
1.1.
Business registration and licensing
Businesses of all sizes and types, irrespective of sector, are subject to registration and
licensing regulations by the Department of Trade and Industry (DTI) and Local municipalities,
mainly through the Companies Act, Close Corporations Act, 64 of 1984, Land Use
Management Act, and Business Act, 71 of 1991.
1.1.1. Companies Act
The Companies Act governs the registration, incorporation and the general governance or
operations of the companies from a corporate governance point of view and is managed by
the DTI through the CIPRO Office. The Companies Act imposes a significant number of
information transfer obligations on businesses, most of which can be classified as ‘business
as usual’ costs rather than purely administrative burdens. In other words, regulatory
requirements imposed by the Companies Act are such that even in its absence certain
activities would still be carried out for the purpose of prudential cooperate governance,
financial accountability and integrity, i.e., record keeping, having audited financial
statements and annual meetings.
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Table 13: Companies Act information obligations
Information obligations
AB FB
Lodging founding documents:
Frequency
x
Once-off
Keeping records
x
continual
Submitting annual returns
x
Annual
memorandum and articles of
association
Other
1.1.2. Close Corporation Act
Similar to the Companies Act, the Close Corporation Act governs the registration,
management, operation and winding up of businesses registered as Close Corporations and
is managed by the DTI through CIPRO office. Table 14 (below) lists information transfer
obligations arising from the Act.
Table 14: Close corporation Act information obligations
Information obligations
AB
FB Frequency
Lodging founding documents:
x
Once-off
Preparation of financial statements
x
continual
Submitting annual returns
x
Annual
memorandum and/ articles of
association
Other
1.1.3. Business Act
The Business Act regulates the conduct and operation of business by giving municipalities
the right to introduce bylaws in respect to licensing (certificate of acceptability) and matters
connected therewith. Business licences are required for legal operation of certain types of
business, particularly sale or provision of perishables, liquor, health facilities and hawking. A
number of line functions with the province and municipalities have an input into the
granting of business licences, including town planning (zoning and building regulations),
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environmental health, community safety and disaster management. The business licensing
process is carried out in conjunction with a number of related national legislations, such as
the Health Act, Foodstuffs, Cosmetics and Disinfectants Act, National Heritage Resource Act,
National Conservation Management Act, and the Land Use Management Act.
1.1.4
Land Use Management Act
Rights associated with the use of land for any purpose require permission from concerned
municipalities in accordance with the Land Use Management Act, Provincial Land Use Act
(KZN Development and Planning Act in the case of KwaZulu-Natal) and miscellaneous local
zoning bylaws or ordinances. Land use rights are a point of reference for municipal officials
responsible for business licences and this affects business directly. In fact, the first step to
obtaining a business licence is subject to obtaining land use rights, that is, whether a
business falls within the appropriate zone. In addition, apart from planning approval, a
development application may under certain conditions be required to submit Environmental
Impact Assessment and Heritage Impact Assessment administered by provinces rather than
municipalities. These applications are not processed in parallel but most often follow
sequentially.
The cumulative effects on Administrative burdens arising from these procedures are not only
costly and drawn out but also administratively cumbersome. Estimates from studies in 2006
indicate that the cost of obtaining land use rights and a business licence can range from
R650 to approximately R70 00029 depending on the municipality30. The cost is made up of
application fees, capital contribution to bulk services, professional fees for consultants and
time as cost factor for awaiting approvals. It is however worth mentioning that the actual fee
for a business licence is relatively low in comparison to the total administrative burden
associated with licensing for land use.
The average time for completion of a business licence from application to final approval
could range from a minimum of two days (if zoning is correct and business complies) to
almost 18 months, depending on the availability of correct documentation and legal
processes, such as appeals. In other cases the distance between municipal offices and
29
The high costs are generally associated with metropolitan municipalities, while smaller
municipalities reflect cheaper fees.
30
Pahwa et al., 2006. Impact of municipal regulations on SMMEs. Development Policy Research Unit,
University of Cape Town.
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licensing authorities delays the process, since each authority works with original
documentation and the process workflow is not efficiently streamlined. Figure 11 (below)
depicts the license processing workflow across various spheres of government. The figure
shows that when it comes to licensing and land use regulations the issue is not so much
about whether regulations are cumbersome but rather the time it takes to have applications
approved.
Environmental
Impact
Assessment
Heritage Impact
Assessment
Legal processes
1. Land use rights
2. Health and
Environment
3. Safety
4. Disaster
Other sector specific
regulations
Local government
Red Tape / inefficiencies
1. Company
name
registrations
2.
Incorporation
of founding
statements
Provincial
Government
Red Tape / inefficiencies
National
Government
Legal processes
Appeal
Approved
Appeal
Approved
Figure 11: Registration and licensing red tape: legislative process workflow. Source: Own
compilation.
Table 15 and Figure 12 (below) outline the main information transfer obligations required in
terms of the Land Use Management Act and the Business Act. In the main, both pieces of
legislation require businesses to supply certain information before having their applications
approved. Figure 11 provides a detailed overview of administrative activities associated with
application procedure for land use and business licensing.
Table 15: Provincial and local government information obligations
Information obligations
AB
FB Frequency
Application for land use
x
Once-off
Application and renewal of Business
x
Monthly/
licence
Annual
Other
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Land Use Regulations
Aug 2011
Business Act
Application for land use
Application business licence
INFORMATION OBLIGATION N
INFORMATION OBLIGATION 2
Preparation of motivation
Submission to council
Advertising in two local news papers for
2 days
Placing an advertisement on the site for
21 days’ motivation
Complete an Application form:
•
•
•
•
•
•
•
Company registration certificate
Copy of menu
Copy of 10 document of
directors
Copy of liquor licence
Copy of SARS certificate
Copy of approved building plan
Zoning certificate
Submitted parties submit objections
Meet business licence officer
Council makes the decision
Inspection by various municipal units
Aggrieved party or applicant launches
an appeal
Figure 12: Land Use and Business Act information obligations and related activities.
2. Sector-specific regulations
A number of regulations are in place for specific sectors.
2.1.
Tourism sector
The tourism sector is seen as South Africa’s newly discovered equivalent to gold. The sector
has several pro-poor features: including ability to create opportunities for small businesses,
breeding of a unique informal sector; creation of economic links with the agriculture, light
manufacturing and services sectors; and provision of employment for the majority of
unemployed and unskilled labour31. The sector is growing more rapidly than others, with
visible signs of new operators and service providers in the markets.
In 2009, the contribution of the tourism sector to GDP totalled R189 billion, equivalent to
7,4% of GDP. In terms of employment, it continues to outperform other sectors, particularly
31
SBP report, 2006. Counting the cost of red tape for tourism in South Africa. Con Mark Trust.
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with respect to labour intensity. In 2009 the sector contributed an estimated 389 100 direct
jobs and 530 700 indirect jobs to the economy (see Table 16 below).
Table 16: Contribution of tourism to GDP and employment
2008
2009
% change
Contribution to GDP (direct and indirect)
R184 b
R189 b
2.7%
Contribution to GDP (direct and indirect)
R70 b
R71 b
2.0%
Direct employment
421 800
389 100
-7.8%
Indirect employment
571 600
530 700
-7.2%
Total employment
993 400
919 800
-7.4%
Source: SA Tourism Annual Report, 2009/10.
Because of its diverse and multidimensional nature, the tourism sector is subject to
regulations from a wide range of authorities spanning environmental protection, coastal
management, health and consumer protection, trade, development, education and training,
transport, TV licensing, public liability insurance, liquor sales, foreign currencies, building and
planning permission, visa requirements and many more. The Department of Tourism is
primarily responsible for developing regulations specific to the sector in conjunction with a
number of other statutory authorities.
The Department of Tourism set out the policy framework for responsible tourism and
promotion of the sector; the Department of Environmental Affairs is responsible for
environmental and conservation issues; the Department of Arts and Culture regulates issues
pertaining to heritage; while the Departments of Home Affairs and of Transport regulate visa
and transportation issues respectively. Provincial and local government regulates issues
pertaining to licensing, planning and land use, as discussed in the previous section.
2.1.1. Tourism Act
In the main, the Tourism Act, 1993, is the only compulsory national tourism sector-specific
legislation that strictly applies to tourism businesses. It requires that all tourism
establishments and operators be registered with the relevant tourism authorities
established under the Act. In the case of KZN, the KwaZulu-Natal Tourism Authority
Amendment Act of 2002 is in force. The Act also lays out the process for registration as a
tour guide, conditional upon formal proof of competence, which in turn requires the tour
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guide to have a vehicle permit in accordance with the Road Traffic Management Act and a
certain level of training accredited by the Tourism, Hospitality and Sport Education Training
Authority (THETA).
2.1.2. Miscellaneous sector-specific regulations
The tourism sector is also subject to several non-obligatory and yet important regulations,
which include membership of the grading scheme under the Tourism Grading Council of
South Africa (TGCSA); administering and paying over 1% voluntary tourism bed levy on
tourists to the Tourism Business Council of South Africa (TBCSA) to fund international
marketing; and where necessary maintaining membership of industrial associations, such as
the Southern Africa Tourism Services Association (SATSA) and Association of South African
Travel Agents (ASATA). Although membership of industrial associations is voluntary, it is
interesting to note that one of the requirements to be registered by a tourism authority is
membership of SATSA, thus indirectly making it compulsory. Also interesting to note is that
in a nationwide survey conducted by the SBP (2006), specifically focusing on red tape in the
tourism sector, respondents listed numerous non-tourism regulations (outlined in Figure 13
below) as most troublesome sector-specific regulations. A more likely explanation for these
responses is that tourism businesses tend to engage in highly regulated activities which are
not necessarily sector-specific but do entail significant regulatory costs.
Figure 13: Most troublesome regulations (tourism sector). Source: SBP, 2006.
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Regulatory Impact Analysis
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There is however great variability in the extent to which regulations affect different
components of the tourism sector. For instance, hotels will find certain regulations heavier
than would tour guides or travel agents, an example being public liability requirements.
Table 17 (below) lists the most generic tourism-specific information transfer regulations.
Figure 14 then outlines administrative activities associated with registration with the tourism
authority.
Table 17: Sector-specific information obligations in the tourism sector
Information obligations
AB
FB Frequency
Registration with tourism authority
x
Once-off
Registration with industry association
x
Annual
Application for liquor license
x
Once off
Application for TV license
x
Annual
Application for professional drivers’
x
permit
Application for grading
Public liability insurance
x
Once-off
x
continual
Other
Tourism Act
Registration with
tourism authority
INFORMATION OBLIGATION 2
Complete an Application form:
•
•
•
•
•
•
•
Signed code of conduct
Proof of payment
Proof of business license
Proof of public liability
Logo and trademark
Proof of membership of tourism
association
Tax clearance
Figure 14: Tourism Act information obligations and related activities.
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Regulatory Impact Analysis
2.2.
Aug 2011
Agriculture sector
Similar to that of tourism, the agricultural sector is diverse, consisting of numerous subsectors such as forestry, agro-processing, field crops and horticulture. The agriculture and
forestry related activities generate 77% of the primary sector outputs in KZN, while the
agriculture, forestry and fishing sector, although the smallest contributor to the provincial
economy (4.7%), is the leading contributor to the national output in this sector (a solid 26%),
followed by the Western Cape at 23%. As with the tourism sector, the agriculture industry is
pro-poor with high potential to absorb an idling rural labour force. In 2009, the sector
created approximately 119 895 jobs in KZN. The KwaZulu-Natal Department of Agriculture
claims that this contribution can still grow exponentially if the total potential of the sector is
unlocked. Seemingly the sector has an untapped growth potential of about 366%32.
One way to unlock this exceptional growth potential is through regulatory simplification.
Similarly, the agricultural sector is subject to regulations from a plethora of regulatory
authorities including the Department of Agriculture, Department of Forestry and fisheries,
Department of Health, Department of environmental affairs, South African Bureau of
standards (SABS) and the South African National Accreditation System (SANAS) amongst
others. Each regulatory authority is responsible for a distinct area of regulation relevant to
its competence. The key pieces of legislation affecting business in the forestry include the
following.
2.2.1. National Forests Act of 1998
The National Forests Act aims to protect and promote all of South Africa’ s forest resources
through a set of criteria, indicators and standards that are reported on a regular basis
through a State of the Forest Report. It further regulates licensing procedures for the use of
state forests for agriculture, grazing, hunting, fishing and mining, and activities in respect of
protected trees and products, as well as the construction and maintenance of roads.
2.2.2. National Water Act of 1998
32
KwaZulu-Natal Department of Economic Development. 2008. KZN Economic Review 2008.
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The National Water Act aims to protect, conserve and sustainably manage national water
resources. Under the Act any water, except that sourced from municipalities, needs to be
licensed by the Department of Water Affairs (DWA). Water use is allocated and prioritised in
each of the 19 national water management areas. Activities deemed to impact adversely on
free water flow are given special treatment through a Stream Flow Reduction Activity (SFRA)
process. The forestry sector is considered an SFRA by the DWA and therefore all
afforestation requires the issue of an SFRA water use licence by the DWA. The industry views
this classification as an excessive regulatory burden since they use only 10% of the total
water in irrigation agriculture33.
2.2.3. National Environmental Management Act
The National Environmental Management Act (NEMA) imposes certain administrative
burdens for the forestry sector, the most important of which is the activity related to
environmental impact assessment (EIA) regulations, where any change of land use from one
form to the other requires authorisation from the relevant authority and is subject to the
result of the EIA.
2.2.4. Conservation of Agricultural Resources Act
The aim of the Conservation of Agricultural Resources Act is to regulate both the growth and
control of weeds, invader plants and ‘bush encroachment species,’ and to promote soil
conservation. According to the Act, afforestation authorisation from the Department of
Agriculture is required for any tillage of land that has not previously been cultivated. In
addition, the common commercial forestry species namely pines, eucalypts and acacias, all
being exotics, are designated by Schedule 2 of the Act as weeds and so any cultivation of
them requires authorisation.
A brief summary of other regulations applicable to the agro-processing sub-sector shows
that they mostly impose substantive compliance costs rather than administrative burdens.
These costs are incurred by businesses in order to comply with content obligation that
legislation and regulations require of a production process. Examples are:
The Foodstuffs, Cosmetics and Disinfectants Act, 1974
The Health Act, 1977
33
Institute for Economic Research on Innovation, 2008. A sectoral analysis of wood, paper and pulp
industries in South Africa.
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The Liquor Product Act, 1989
The Agriculture Products Standard Act, 1990
The Standards Act, 1993
The Meat Safety Act, 2000
Table 18: Sector-specific information obligations in the agriculture sector
Information obligations
AB FB
Frequency
Application for use of water
x
Once-off
Application for an abattoir licence
x
Once off
x
Continual
Licensing for the use of state forest
Carrying out of environmental impact
assessment
Authorisation for tillage on new land
Authorisation for cultivation certain
forestry species
Inspection and marking of agriculture
products
Adherence to standards
x
Continual
Keeping records
x
Continual
Provision of information during
x
Continual
inspections
Others
2.3.
Clothing and textile sector
The KwaZulu-Natal Clothing and textile industry is a significant contributor to total national
output in the sector, second only to the Western Cape34. Although the sector has
experienced a dramatic decline in output and employment it remains one of South Africa’s
breadbaskets for low to medium skilled labour, contributing just over 59 682 jobs to the KZN
economy in 200935.
34
KZN economic review, 2008. Department of Economic Development KwaZulu-Natal.
KZN economic database, 2010. Department of Economic development and Tourism
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35
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Unlike other sectors previously reviewed, clothing and textile do not seem to have any
significant sector-specific regulations, but are mainly affected by cross-cutting regulations
related to import and export regulations, exchange controls and miscellaneous labour issues,
such as minimum wages, a skills levy and training.
2.3.1. International Trade Administration Act
The International Trade Administration Act regulates issues pertaining to the importation
and exportation of goods to and from South Africa. The act applies to all sectors of the
economy but also empowers the Minister of Trade and Industry to impose certain
restrictions on the importation or exportation of certain goods. Perhaps more specific to the
issue under discussion, the Act requires that every person or business obtain an import and
export control permit and rebate permit or certificate in accordance also with the Customs
and Excise Act. However, owing to South Africa being a signatory to World Trade
Organisation (WTO), import permits are required only for specific categories of goods and
are obtainable from the DTI.
Import and export businesses are also subject to exchange control regulations, administered
by the South African Reserve Bank. Every business is required in terms of the Exchange
Control Act to have an exchange approval prior to international transaction.
Table 19: Import and export information obligations
Information obligations
AB
FB
Frequency
Application for import or export permit
x
annual
Approval for exchange control
x
Annual
Custom compliance assessments
x
continual
Provision of information to
x
Adhoc
International Trade Administration
Commission
Others
3. Conclusion
This section of the reports clearly demonstrates that each sector of the economy has its own
regulatory peculiarities. The tourism and agriculture sectors in particular face many
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regulations which by implication impose more information obligations. These findings bear
testimony to the fact that businesses are not only concerned about one piece of regulation,
but rather a combination of information obligations arising from various cross-cutting and
sector-specific statutes that compound their administrative burdens.
In the subsequent section, the information obligations identified will be validated against the
result from the focus group and a small sample of interviews from at least five businesses in
each sector. Information gathered from these activities will include the time and resources
spent by business when complying with a set of information transfer obligations. This will
enable for data extrapolation and an estimation of the cost of information obligation in each
sector.
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Chapter 3 RESULTS FROM FOCUS GROUP DISCUSSION AND QUESTIONNAIRE
i.
Introduction
On the 6th of April 2011 a focus group discussion was conducted with various stakeholders
from the business community around KwaZulu-Natal as part of the research to gain more
insight into the impact of regulation on business. The main purposes of the investigation
were (1) to assimilate how businesses perceive regulations in the course of their operations;
(2) to get first hand information regarding the impact of regulation on business; (3) to
identify various regulations which are perceived problematic; and (4) to suggest possible
solutions to remedy the problem.
The discussion began with an introduction to the purpose of the meeting, progress on the
project and the expectations about individual participation from the KZN DEDT official and
the moderator. The moderator stated that everyone’s opinion and experience were
important and reassured participants regarding the confidentiality of their contribution.
To kick start the discussion participants were asked to give a general overview of their
perception and experience in dealing with regulations and to indicate voluntary initiatives
undertaken to address regulatory programmes. The moderator used a fairly simple
discussion guide and allowed the discussion to drift away from the focal point, especially
where the issues were related to business performance.
In closing, it is important to note that focus groups are a valuable method for obtaining indepth qualitative information and rich detail on the topic of interest. However, it is equally
imperative to realise that while results cannot always be generalised across the entire
population they can nonetheless give deep insight into how people think or perceive a
particular subject. For this reason, information obtained from the discussion is not used to
generalise per se but rather to validate the results obtained from secondary sources and the
survey questionnaire.
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ii. Participants
The focus group was attended by representative from chambers of business, industry
associations and clusters, as well as policy practitioners. Even though the main goal of this
exercise was to discern policy interventions tailored to fit each one of the targeted sectors,
the main findings appeared as common across the three sectors. For this reason the main
findings are presented jointly and where differences across groups are evident this is
indicated.
1. Main findings
When participants were asked about their general experience of regulation on business one
point became abundantly clear. Businesses are not only concerned about traditional
administrative or regulatory burdens outlined in section 1 and 2 of this report. In addition,
there is widespread concern over the general policy environment within which businesses
operates. The question attracted diverse comments relating to protection from international
competition, preferential and local procurement or lack thereof, policy coordination within
government and between government and business, incentive framework, and value chain
problems. In general, most participants acknowledged that regulations are necessary and
useful but in many instances enforcement is poor and fragmented, and inefficient
enforcement causes more regulatory burden than the content of the regulation itself.
2. General issues of concern
The participants highlighted a number of general issues with which they were concerned.
2.1. Policy coordination
The issue of coordination from government and cohesion within various sectors sparked
intense comments. The general perception is that various stakeholders go about their
business with little regard for what happens in the broader economy. This in turn creates
inefficiencies with the provincial economy and contributes to the collapse of many
businesses. According to participants, KwaZulu-Natal has a substantial capacity to produce
cotton which can be used by many of the province’s clothing and textile businesses.
However, owing to policy deficiencies, these businesses have to import cotton, thereby
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diminishing further prospects of developing a cotton industry in the province. This policy
deficiency reflects an inability to match business to an opportunity, especially where the
value chain straddles industries, in this case agriculture and the clothing and textile sectors.
Another element singled out as a potential threat to business and therefore job creation is
the issue of land reform and how it is implemented. According to the participants current
implementation is not in sync with the development ethos of the KZN economic recovery
programme. Anecdotes suggest that numerous sugar mills in the province are increasingly
becoming redundant or underutilised as a result of poor production from sugar cane
plantation farms under claim. This is a classic example of poor coordination, when policies
with good intentions are poorly implemented, much to the detriment of job creation.
Registration duplications and variations in rules and standards among various spheres and
organs of the states featured as another impediment to business growth and development,
and are a clear manifestation of poor coordination between different spheres. This is
particularly the case in the tourism sector, in which businesses have to register with both the
province and municipalities.
2.2. Procurement regulations
Procurement regulations were considered restrictive, especially during prioritisation of local
sourcing. The current Public Finance Management Act regulations on procurement do not
provide leeway for government to use procurement to drive local economic development.
Participants expressed dismay that government sometimes procures goods that are easily
available within KZN from other provinces. In other cases national departments select one
service provider for the entire country.
In the case of agriculture procurement, regulations do not take into account the sector’s
seasonal and surprise output swings, which may not always be sold in the normal public
procurement system.
2.3. International competition
Participants mostly from the clothing and textile sector mentioned lack of protection from
cheap Asian imports as the greatest deterrent to business growth and development. The
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lack of law enforcement by the South African Police Service (SAPS) and South African
Revenue Services (SARS) poses a challenge to many of the domestic producers. It appears
that illegal practices such as under-invoicing, dumping and disregard for Southern African
Development Community (SADC) trade protocols are continuing abated. Even where these
practices are detected, companies simply pay fines while local industries suffer indefinitely.
Participants proposed that a higher import tariff be considered for clothing and textile.
Other remedial inputs suggested introduction of export or production subsidies.
2.4. Incentive support for business
While not so much of a regulation problem, as with other previously mentioned factors the
issue of incentives featured prominently among participants as a potential area of concern
for businesses. Key among the concerns is how incentives are designed and targeted. There
was much dissatisfaction that requirements to qualify for incentives are stringent. For
example, companies that apply for incentives are required to be paying minimum wages in
accordance with relevant labour laws. Evidently, certain business within the agriculture and
the clothing and textile sectors are unable to meet prescribed minimum wages because of
low profit margins and other costs pressures.
2.5. Value chain
Participants expressed concern over the lack of integrated support across the spectrum of
inter-sectoral value chains, with an over-concentration of value in the upstream businesses
at the expense of smaller manufactures lower down. In certain instances value chains are
becoming increasingly complex, therefore requiring greater interaction among actors and
stronger forms of governance than simple price-based markets.
3. Sector-specific findings
This section outlines findings relating to particular sectors.
3.1. Tourism sector
Amongst a plethora of regulations affecting the tourism sector only a handful have been
singled out as problematic by the focus group. In particular, the issue of grading, obtaining
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licences for tour operators and signage were strongly raised. These results correspond
wholly with the findings of the desk research.
Interestingly, grading was only seen as a problem to the extent that numerous non-graded
tourism establishments are able to charge lower rates, thus pushing out of the market those
graded establishments which have to maintain their grading status at a cost.
Participants confirmed that the process of obtaining licences or carrier permits for tour
operators is laborious and drawn out, and can take anything from between six months to a
year. In order for a business to obtain a license it must be in possession of a car, but in cases
in which the car is bought on hire purchase and there is a delay in issuing the licence, the
business may remain inactive whilst having to continue with the monthly instalments, thus
increasing the operational cost.
With respect to signage, there are concerns that the South African National Roads Agency
Limited (SANRAL) is restrictive on placing it next to the highways, thus limiting exposure of
businesses to passing traffic.
3.2. Clothing and textile sector
Just as we have uncovered in the desk research that the clothing and textile sector has few
sector-specific regulations, so it was evident by the small number of concerns raised in the
focus group. Participants acknowledged the importance of the sector to the KZN economy,
particularly as a labour-intensive industry. The main areas of concern related to generic
issues on competitiveness and high input costs from labour and municipal service charges.
Participants noted with concern the lack of import duties to protect the industry.
3.3. Agriculture sector
In the agriculture sector, three main issues were identified as significantly problematic.
These include the process and turnaround time for obtaining a water use licence, as
stipulated by the Water Act, as well as quality standards and administered prices. According
to the focus group participants, the process of obtaining a water use licence can take as long
as ten years. Water use regulations prohibit new and emerging farmers from accessing
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irrigation water, a problem compounded by requirements for Environmental Impact
Assessment (EIA), which takes too long to complete and gain approval.
Food safety standards and regulations were seen as implicit blockages for small producers
wishing to access the market. Large retailers tend to prescribe high quality standards
unreachable by most emerging farmers. In the same vein, where farmers are able to meet
the standards, retailers dictate the prices through exploitation of their inherent market
dominance.
The issue of high input and transport costs, especially in the forestry sub-sector, evoked
worrying comments from the discussion. It appears that certain State Owned Enterprises
have a tendency to increase tariffs indiscriminately without considering the effect on low
value, high energy intensive agriculture sectors. For example, and according to anecdotal
evidence, Transnet wanted to increase the cost of loading a vessel by 266% in 2010. The
view held by participants was that tariff increases should not be applied on a blanket basis
but should instead differentiate between low value and high value businesses.
4. Result from the questionnaire
The results of this section are based on a snapshot survey conducted among different
businesses in the target sectors across KwaZulu-Natal province. Questionnaires were sent
electronically and administered through interviews to more than 30 businesses in each
sector, however the target research sample was 5 per sector, which amounted to 15. The
admissible responses totalled 16 (1 more than the initial sample target). It should however
be stressed that while the survey was not intended to be statistically significant, and the low
response rate means that no generalisation or extrapolations can be deduced from the data,
nevertheless, questionnaires returned offer valuable input essential to validating results
from the previous chapters.
At the outset, the survey sought to draw out general questions regarding perceptions on the
business environment in KZN. The main aim of this question was to contextualise the issue
of regulations and assess whether business had more pertinent concerns other than just
regulations. The first question asked was: What is the general perception about the business
environment in KZN? The question generated widespread answers, differentiated by
business conditions with each sector. Generally, respondents from the clothing and textile
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sector felt that the business environment is stagnant, while agriculture and tourism
respondents thought there is potential for growth. The results from the clothing and textile
businesses are not surprising, given the immense international pressure under which the
sector is being placed.
Respondents were asked to select and name factors they consider to be the greatest
constraint to business growth and development in KZN (see Figure 15, below). Overall, most
of the respondents cited labour issues as the main deterrent, followed by operational costs,
government regulations and strength of the rand. The high number of respondents who
selected high operational costs as an impediment for growth corresponds well with the
focus group figures regarding high administered prices and municipal services charges for
business, especially in the textile and agriculture sector. Over and above that, all
respondents from the clothing and textile sector selected cheap imports as the greatest
constraint to their businesses.
Figure 15: Factors constraining business growth and development. Source: Survey results.
The third and fourth questions sought to establish whether businesses perceived or
considered regulations to be restrictive and how they impact on their operations. As
expected, a large majority of respondents reported that regulations are a constraint and
affect their businesses negatively. In addition, there was an attempt to determine the
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number of regulations that businesses have to comply with at a given time, as well as
whether the number has increased or decreased over time. It is significant that in a bid to
avoid terminology confusion no distinction was made between regulation or information
obligation. The main purpose of the latter question was to detect if businesses took notice of
regulatory simplification interventions undertaken by government over the years as outlined
in Chapter 1.
Figure 16: Number of regulations applicable to business. Source: Survey results.
At least 44% of the respondents have to comply with at least five to 10 regulations at any
given time. At least 25% of the respondents claimed to be complying with less than five
regulations, while 19% purport to be affected by more than 10 regulations at any given time.
Furthermore, a majority of the respondents (70%) had noticed an increase in the number of
regulations over the past five years, which suggests that regulatory simplification efforts
undertaken by government at large go unnoticed by businesses, or at least the impact
thereof is minimal. The pattern of responses is somewhat surprising, given disparities in
responses where businesses within the same sector report to be complying with a different
amount of legislation. This result could affirm the claim that regulatory compliance is being
poorly enforced.
When asked whether regulations impose burden on the businesses, 85% of the respondents
answered in the affirmative. The burden is classified as spending money and time on
understanding and complying with regulations, and 70% of the respondents confirmed that
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it is indeed both aspects of regulation that tend to be burdensome. Furthermore, 80% stated
that in order to cope and comply with regulations they use a combination of in-house and
outsourced service providers.
In order to determine the extent to which various regulations are perceived as burdensome
we analysed responses related to severity and frequency of compliance with a list of
common regulations (tax laws, VAT, labour laws, municipal regulations, business licensing
and compulsory affiliations). Respondents were asked to add other regulations to the list,
especially those that apply specifically to their sectors. The results of these questions are
summarised below. Just as Chapter 1 revealed, tax laws and VAT were highlighted as the
most severe or burdensome regulations. More specifically, the following information
obligations were singled out: PAYE/ SDL/ UIF forms, provisional tax returns, and IRP5
reconciliation. One particular area of regulation that was identified, perhaps for the first
time, was corporate governance practices.
Figure 17 : Severity and frequency of common regulations. Source: Survey results.
As far as sector specific regulations are concerned, respondents from the tourism sector
identified regulations outlined in Table 20 (below). It also appears from the respondents that
sector-specific regulations are more burdensome than common or general ones. Businesses
reported that they have to comply with Department of Transport (DoT) permits and cross
border permits at least twice a year. The results reaffirm the findings made in the previous
chapters regarding proliferation of regulations in the tourism sector.
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Table 20: Tourism sector burdensome regulations
Impact (burden)
1 (low)
2
3
4
5 (High)
DoT permits
PDP application process
THETA
Passenger liability insurance
General public liability insurance
Professional indemnity insurance
Financial bonding
The question regarding the amount of time and money spent by businesses proved difficult
to answer for many respondents. It was very clear that they are not able to apportion or
disaggregate cost and time spent per specific regulation, even though they seem
psychologically burdened by the regulations. In many instances respondents reported
estimates of monthly salary for individuals responsible for finances and bookkeeping.
Against the background of the findings in preceding chapters, the next chapter draws
conclusions from the findings, and makes recommendations for the way forward, whether
for each sector or jointly.
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Chapter 4 OVERALL ASSESMENT, CONCLUSION AND RECOMMENDATIONS
4.1 Conclusion
The empirical evidence suggests that regulations create significant efficiency costs not only
for businesses in KwaZulu-Natal but also for the whole of South Africa. Although this study
was interested in investigating the impact of compliance costs or administrative burdens on
business in KZN it has become increasingly clear from the literature review, focus group
discussions and the survey that businesses are concerned about broader regulatory costs as
well as the general business environment.
The results of this study reveal that there are widespread variations in the understanding of
what constitutes regulatory costs and the subsequent effect on businesses. In view of the
fact that regulatory costs are classified into various sub-categories, this study focuses on
administrative burdens as they are often identified as a priority in business surveys on red
tape. A common understanding of what regulatory costs are and how they affect businesses
will streamline and target regulatory reforms in a manner that improves the enabling
environment.
International lessons show that regulatory simplification requires a robust institutional and
legislative framework, underpinned by strong political oversight. Institutions and legislation
provide the framework within which relevant regulations are defined and therefore put on
the agenda for reform or simplification.
To date, South Africa has been using piecemeal and fragmented interventions towards
administrative simplification. Efforts aimed at reducing regulatory costs are neither
coordinated nor following any systematic programme of implementation with clear
objectives or targets. In addition, none of these interventions are “big ticket” items and
therefore go largely unnoticed by business in terms of their impact. Part of the problem in
explaining this phenomenon is related to the lack of a shared understanding as to what
exactly constitutes regulatory costs. In many instances, interventions are introduced in
response to pressure from interest groups rather than empirical evidence. With this
approach everything and anything about which pressure groups feel strongly is likely to be
labelled ‘regulatory costs’ and therefore reformed.
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While the results achieved to date are undoubtedly helpful, business perceptions of the
impact remain largely sceptical. Business perceptions are important to the credibility of
government programmes, that is, whether administrative simplification efforts are regarded
as genuine or the most appropriate areas of concern are targeted.
In this study, the manufacturing, tourism (part of the service sector), mining, power and
water sectors have been found to bear the heaviest mean burden of compliance costs,
followed closely by the transport sector. By implication, efforts to minimise the regulatory
burden must therefore be targeted at these sectors. While this may be true, the study
recognises that reforms must be targeted at sectors with higher job creation potential, such
as agriculture, tourism, and clothing and textile. These sectors feature prominently on
broader national and provincial economic growth strategies owing to their labour intensity
and capacity to absorb a majority of the unskilled and rural labour force.
The findings show that businesses are largely burdened by national general and sectorspecific regulations over which provincial government has little control. Provincial and
municipal regulations are few in number and impose few information obligations when
compared to national legislations.
By further implication, the extent to which provincial government can introduce
administrative simplification interventions is limited to policies within provincial jurisdiction
or recommending changes to national government and local government. On its own, and
given the complexities of the intergovernmental system, KZN may be unable to influence
national government without support from other provinces.
Over and above regulations, the focus group discussion and survey results demonstrate that
business needs are not limited to administrative simplification but extend to a general
improvement in the whole business environment. In the clothing and textile sector, for
example, the long standing issue of cheap imports from Asia is a major problem threatening
domestic industries. This is compounded by unsupportive local procurement practices which
tend to disregard policies on local economic development. In the same vein, certain
government redress policies, such as land reform, are seen to be counter-productive in the
agriculture sector, since mills are running below capacity as a result of poor crop production.
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4.2 Recommendations
A number of recommendations are made, arising from the findings of this report.
•
It is recommended that an RIA and BEI organisational unit be established within the
KZN DET. The unit would form part of the existing departmental structure by falling
directly under the Regulation Services division. It would be responsible for the
following functions:
o
To ensure that thorough impact assessments are carried out for each new
regulation / policy / piece of legislation, and to explore non-regulatory solutions
with options analysis for each new regulation / policy / piece of legislation.
o
To create a link between different levels of government through an
intergovernmental regulatory reduction committee, where policymakers can
discuss laws that are no longer needed, recognise culture change and consider
net costs to business of new regulations.
o
To conduct impact assessment of existing regulations / policy / legislation in
conjunction with an external independent body that will provide an external
scrutiny of the impact assessment of new regulatory proposals brought forward
by departments and municipalities
o
To develop and publish of a formal programme of interventions to address key
regulatory concerns based on good quality evidence
o
To build a regulatory impact evaluation culture and capacity across various
government departments and municipalities within KZN
o
To test ideas with stakeholders
o
To establish baselines for existing regulatory requirements and set practical
targets for reducing them in the province
o
To monitor the effects of simplification interventions and licensing bottlenecks
across various licensing authorities against established targets through public
quarterly reports
o
To conduct annual business surveys and a formal consultative process or
feedback mechanism with key stakeholders (business representatives); to
continuously learn more of their key “burden” issues and possible responses; as
well as to communicate forthcoming changes to regulations
o
To set up and update a website on which regulatory guidelines on new acts can
be published and the general public and other business owners who may not be
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part of the external independent body could suggest regulations they think
should be removed or changed
o
To create regulatory compliance campaigns targeted at businesses and
individual consumers
o
To manage and administer the KZN Business Regulations Relief Act as proposed
below
o
To advocate and provide inputs into national regulations based on their possible
impact on the province
Explanatory note to recommendation 4.2.1
The RIA and BEI unit, as the name suggests, would be responsible for conducting regular
impact assessments and improving the business environment. We recommend the unit form
part of the existing business units within DEDT so as to avoid institutional proliferation and
unnecessary rivalry. International lessons, discussed in Chapter 1, with regard to the location
of regulation improvement units are varied. The unit is often located in the presidency,
cabinet or the department responsible for economic development. The main function of
these structures is to perform an advisory role, and as such they are not given any special
powers except where legislation requires that Regulatory Impact Assessment (RIA) be
undertaken. In the case of KZN, we propose a somewhat watered down approach, with the
unit located under the DEDT’s Regulation Services Unit. It would carry out RIA across all the
sectors of the provincial economy.
High Level Inter-ministerial Committee – The Reducing Regulation Committee
It is also recommended that the provincial cabinet cluster responsible for finance and
economic development oversee the work of proposed organisational unit, approve new
regulatory proposals and, most importantly, drive regulatory simplification interventions.
Central Business Permit Portal
•
A single location must be developed for application for and issuing of business licences.
To achieve this it is recommended that the KZN DEDT, in conjunction with other
licensing authorities, establish a province wide Business Permit Portal or an interactive
e-regulation tool that provides a single place for business owners to obtain licenses,
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permits and registrations required to run their businesses. The portal will function as
external service provider to which municipalities are party. Prior to the portal being
established, there must be a service level agreement signed between the portal and
licensing authorities in recognition of the overlapping constitutional mandates.
o
The portal will be a central repository for all applications and reporting forms
from various agencies, departments and municipalities.
o
It will standardise and digitise municipal and departmental forms as well as
facilitate Web-based reporting.
o
It will serve as a middleman between licensing authorities and business.
o
It will collect and disburse licensing fees on behalf of signatory or participant
authorities.
Explanatory note to recommendation 4.2.3
Section (80) of the Municipal System Act (MSA) provides for provision of services through
service delivery agreements with a national or provincial organ of state. Under this
institutional arrangement the function would still fall under municipalities, with the
difference that it would be delegated. The model proposed here is similar to a PrincipalAgent type arrangement where the municipalities are the principal and the portal is the
agent. It is not different from the current system, in which municipalities administer motor
license fees on behalf of provinces. The portal would operate on a voluntary and signatory
basis following explanation of its importance to municipalities. Once established the portal
could have offices in each municipality.
Legislate carrying out of Regulatory Impact Analysis
•
New legislation (Business Regulations Relief Act) that compels government departments
and other organs of state to explicitly carry out RIA on newly promulgated legislation
and bylaws must be introduced. Legislation should advocate a “One I One Out” rule,
which simply states that no new regulation that imposes costs on business can be
introduced without a concurrent removal or relaxation of existing regulation with
equivalent costs.
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•
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In addition, the Act should require licensing authorities to provide more accessible
information on reporting and compliance requirements, and publish compliance
guidelines for important new acts.
•
The Act must also encourage effective participation of business in the government
regulatory process.
•
It would create a more cooperative regulatory environment.
•
It would provide businesses, especially small, with a meaningful opportunity for redress
of excessive regulatory activities.
•
It should enable the MEC responsible for economic development, subject to scrutiny by
the relevant cabinet cluster, to change or repeal laws in order to reduce cumbersome
regulations.
Incentives - Annual Best Business Environment Awards
•
It is recommended that the annual Vuna Municipality Awards further recognise
municipalities which demonstrate commitment towards reducing the regulatory burden
or improving the general business environment. This award should ideally be presented
in collaboration with chambers of business and industry, whose responsibilities would
include nominating prospective winners and contributing to the business environment
improvement scorecard.
•
The KZN DEDT should, in collaboration with different stakeholders, develop indicators
or scorecards for ranking of municipalities in terms of business environment
improvement.
•
The indicators against which municipalities are measured must include, but not be
limited to, internal bylaw simplification initiatives; business perceptions of the
environment; the time it takes between application and approval of licences; the
number of licences required; the cost of obtaining all licenses/permits; time taken for
business to be connected to municipal service; the number of times businesses have to
endure inspection by local authorities; communication of regulations, i.e. measuring
whether businesses are consulted and where their interests are represented in policies;
and year-on-year regulation improvement rate.
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Recommendations for KwaZulu-Natal sectors
Tourism scope extension
•
The sector has to comply with a variety of regulations and licensing and permit issues
from various departments and authorities. It is recommended that a licensing/permit
unit be established within TKZN following multi-stakeholder consultation. The aim is to
have a central point where all licensing takes place, for example, the DoT can second a
person/s to be placed at TKZN in order to deal with vehicle licensing and issuing of
permits for tour operators. This will offer convenience for the sector and probably avoid
long lead times which threaten the viability and sustainability of both new and
established businesses.
•
There is also a need for rationalising and streamlining intergovernmental regulations
governing business in the tourism sector. Both provincial and municipal rules concerning
registration, environmental standards and business licensing must be consistent
throughout the province, and this can be dealt with through this unit.
•
Since the greatest problem for the sector is not the number of regulations per se, but
the lack of consistent enforcement, this unit at TKZN can also be responsible for ensuring
consistency in the application and enforcement of different regulations, thus eliminating
unfair competition amongst those complying and those not complying.
Agriculture
•
The DEDT must open dialogue with the national Department of Agriculture with the aim
of introducing standards or minimum waiting timelines/workflow processes for
application and issuing of water use licences, especially where the applicant is an
emerging farmer or land reform beneficiary.
•
The Department of Agriculture, in collaboration with agricultural agencies and other
stakeholders, must introduce subsidies for small prospective farmers in order to carry
out Environmental Impact Assessments. This will help minimise initial capital outlay and
encourage commercial farming instead of informal subsistence farming.
Clothing and textile sector
•
It is recommended that the DEDT, in collaboration with the KZN clothing and textile
cluster, vigorously build business alliance with domestic retailers and create value chain
alignments as sustainable solutions to keep the sector alive.
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•
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The DEDT must consider putting forward a proposal to the DTI regarding possible
introduction of production or export subsidies in the sector.
•
Another factor that renders the sector uncompetitive is the issue of minimum wages.
Since the sector is held in high regard for its ability to employ many people, especially of
lower level in terms of the National Qualifications Framework (NQF), the KZN DEDT must
open a dialogue with the Department of Labour and the DTI with the aim of introducing
‘wage subsidies’ or export subsidies, which will counterbalance the negative effects of
minimum wages. This will ensure that employees still enjoy minimum wages without
impacting negatively on the sustainability of their jobs, thus retaining many jobs in the
sector.
•
Dialogue must be pursued vigorously with the DTI and SARS regarding the possibility of
imposing more import taxes on the clothing sector, for it is the opening of markets for
cheap imports that have contributed to the collapse of the sector.
Explanatory note to clothing and textile sector recommendations
It must however be noted that the latter three recommendations can be seen to be
contentious as they may to lead to price / market distortions as well as violation of
international conventions on fair trade. They should therefore be pursued only after
thorough investigation of options.
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