When the president talks of eliminating red tape, as he did in the state of the nation address last month, what is it that comes to your mind? Do we have a list of the bureaucratic nonsense that needlessly costs companies time and money?
The president appointed Sipho Nkosi, former Exxaro Resources CEO and now chair of the Small Business Institute to tackle red tape. Here are a few suggestions for him.
There used to be an indirect list of things to tackle because the presidency was targeting the World Bank’s Ease of Doing Business rankings. Those were abruptly shelved in 2021 after it emerged that countries were gaming the numbers amid “ethical concerns” about the behaviour of officials and consultants. The World Bank has said it will replace the Doing Business report within the next two years.
Those rankings measured 10 issues, from the time taken to open a new business to the time and recovery rate for bankruptcy proceedings. However, these were applied globally (in theory) so were not responsive to the pain facing companies at national level.
For example, the World Bank rankings were blind to the impact of exchange control. When it comes to red tape, there is surely no greater source of it facing SA businesses, particularly those which either buy or sell across borders. Every single such transaction requires forms to fill out (though banks are better than others at managing these). Any time you receive payment from a foreign client you must fill out a form or you don’t get access to the money.
Any time you need to make a payment to a foreign client, forms, invoices, and contracts must be provided. Oh, and there are hefty fees for each bit of this charged by your bank. You are forced to work through an oligopoly of “authorised dealers” so don’t even think of using a global fintech that does foreign exchange for next to nothing in other countries. It still astounds me that the Competition Commission’s investigation into foreign exchange services in SA that has dragged on for years has never made the obvious point that the SA market is fundamentally uncompetitive because of regulations that block entry. But I digress.
Let’s talk about the red tape that besets any company that employs people. Have you ever tried to register with the Compensation Fund? In theory if you employ anyone — from a domestic worker in your home to a highly paid office worker — you need to be paying insurance premiums to the Compensation Fund. I suspect there are a great many employers who do no such thing, and I don’t blame them given how hard it is. This is not the Unemployment Insurance Fund (UIF) but an entirely separate insurance scheme under the department of employment & labour to cover workers for disability and death arising from the workplace. But registering takes months of frustration especially if you want a certificate proving you’ve done it, which the occasional client wants to see. I have no idea what would happen if you (or your employee) tried to claim, but my confidence is low.
Why on earth is the Compensation Fund separate from UIF? And why are premiums not paid to Sars like UIF premiums are? It is in theory a legal requirement, so it’s not like companies have any discretion. (By the way, Sars is the one exception — barring its wobble during state capture — which operates efficiently).
Then let’s talk about the Companies and Intellectual Property Commission (CIPC). This is a mixed bag — registration is quite easy, no doubt in part because this is the element that the World Bank was tracking. The government’s Bizportal is a good idea that notionally makes it easy to register your company simultaneously with most taxes, but it is often down. The problem is once you are registered. You are required to submit an annual return to prove you still exist and whether anything has changed, plus a fee, but the complexity of this form forces you to use an accountant to do it. A simple change of directors’ details can also take a long time before it reflects in records.
Then there is BEE. This has been made much easier for small businesses since 2015 as they need only sign an affidavit which can be obtained online for free. For slightly larger businesses, though, it is still extremely time consuming. The BEE Codes plus interpretation notes now rival the Exchange Control Manual in length and complexity.
Drawing up a full scorecard is difficult, time consuming and expensive. There is of course tension between public policy objectives and the extent of red tape that ties up business. Some information is necessary even if it is expensive for a business to provide (how much is spent, for example, on skills development of black female employees is quite a hard question for most businesses to answer). A straightforward digital portal with streamlined information requirements leading to BEE certification would go a long way to relieve businesses of red tape.
These are just a handful of the areas in which the presidency could make a difference. Cutting such costs would help improve the profitability of businesses which have been in the doldrums since 2008. Low profits mean a low incentive for businesses to open or invest. The president is on the right track and the closing of the World Bank rankings could help by focusing attention on what businesses actually find painful, rather than what would get you points in a ranking.