Counting the cost of red tape for business in South Africa

Reflections on the 2004-5 study for GTZ BIC Reform Seminar 22-25 May 2006

blcfBUS INESSLINK AGESchalle nge fund

Presentation structure

• Background• Key survey results• Project outcomes• Survey methodology

• Mistakes• Good ideas

• Project methodology

Background• Project emerged from SBP’s ‘regulatory

best practice’ agenda • Mounting evidence that regulatory reform

makes a major contribution to growth and development

• But: – What precisely to reform?– How to get regulatory reform onto national

agenda?

• Largely inspired by OECD studies• Funded by BLCF & ComMark (DFID) and

FNS

Key results• Three key results

•Firms think regulatory compliance costs are a major barrier

•Regulatory costs are regressive•The BIG number

• Examples of useful detail– Costs by type of regulation– Costs by sector

Factors inhibiting business growthFactors inhibiting business growth

0 5 10 15 20 25 30 35 40 45

Weakness in economy/demand

State Interface, Regulations

Labour problems

Capital cost/access

Skills constraintsOperating costs

Unfair competition

Crime

State competence

Rand strength Employee quality

Discrimination

Confidence

Corruption

Cheap Imports

other <1% each Not inhibited

No wish to expand

Percentage of Respondents

Compliance costs as a percentage of turnoverAnnual Regulatory Compliance Cost as a

Percentage of Turnover

0%1%2%3%4%5%6%7%8%9%

< R1 m R1m-R5m R5m-R10m

R10m-R25m

R25m-R100m

R100m-R500m

R500m-R1bn

R1bn +

Annual Turnover

• Total compliance costs were R79 billion = US$11 billion in 2004

• 6.5% of GDP

• 2.8% of total sales in 2003

• 16% of the total wage bill in 2003

• 28% of tax revenue (2002/2003)

Total regulatory compliance costs for South Africa, 2004

International comparisons

• Regulatory costs as % of GDP:

–SA = 6.5% of GDP– Sweden = 2.2%– Australia = 3%– Bulgaria= 5%

Useful detailBreakdown of Recurring Compliance Costs

Employment Equity/BEE 12%

Labour and Employment 17%

Additional/Sector Regulations 21%

Tax Compliance 26%

Local Government Regulations 6%

Information to Government 8%

Annual Registration 9%

Compliance Costs as a percentage of turnover: main sample and tourism

0%

2%

4%

6%

8%

10%

12%

14%

16%

<R1m R1<R5m R5<R10m R10<R25m R25<R100m R100<R500m R500m<R1bn >R1bn

Main Sample Tourism

Useful detail

Project Outcomes

• Much higher national profile for ‘red tape’ costs• Contribution to highest-level official

commitment to ‘lowering costs of doing business’

• Contribution to momentum towards introduction of Regulatory Impact Assessment

• Sectoral work: – Analysis of sector-specific regulatory burden for

Presidency (using same data)– Current project on regulatory costs for tourism: the

‘new gold.’

• Etc… (Middleburg; AmCham; Tanzania; Kenya; SARF)

Survey methodology

• Survey February-June 2004• 1794 businesses throughout South

Africa• 1140 formal sector enterprises in a

representative sample ranging from largest corporations to smallest SMEs

• 6 purposive sector surveys: agri-processing, automotive, clothing and textiles, ICT, pharmaceuticals, tourism (240 in total)

• 150 informal enterprises (different questionnaire)

Survey methodology

• Extremely simple questionnaire– What kind of firm are you?– Which regulations are most troublesome?– How much do regulations cost to comply with by

broad type of regulation, including your staff time and service provider time?

• Very challenging survey to do:– Big scale– Approach firm; explain purpose; set up interview; do

interview(s); (re-schedule); call-backs etc– Expensive – 4 times more expensive than an opinion

survey

Survey methodology• Mistakes

– T/O and employment – still not sure about this– A lot of wasted effort trying to weight the sample

although business size distribution not known– We thought regions would matter more and sectors

less – seriously wrong; sector samples too small– Needed more detail on sector-specific regulations

• Good ideas– Representative national sample– Budgeting for persistence– Separate informal sample with even simpler

questionnaire and focus on costs of non-compliance (e.g. finance and storage issues, damage from police raids, bribery)

Project methodology• Place results in relevant contexts – for instance:

– International comparisons– International thinking on types of regulatory costs

(compliance costs, administrative costs, efficiency costs, non-compliance costs)

– International thinking on managing regulatory costs (RIA, regulatory budgeting, regulatory review, competition-based approaches etc)

– Regulatory costs and development

• Brief government fully in advance of media release

• Regulatory costs are boring– Have a big headline– Be a little bit ‘populist’– Make boring a strength– Handle own media coverage

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