Tragedy and farce of SA’s red-tape explosion

KARL Marx famously wrote that history repeats itself, first as tragedy and then as farce. Few in SA’s business community are natural disciples of Marx, but given SA’s tortuous business environment, one might find bemused agreement.

The tragedy is well known. About 7-million South Africans are either unemployed or discouraged from seeking work. Millions more suffer from poverty.

That this situation must be turned around is agreed, with the need for “jobs” looming large. To achieve this, SA needs more job creators. It needs more businesses and better growth prospects for those that already exist.

And herein lies the farce. Worldwide best practice holds that business fares best in a clear, navigable regulatory framework. In this respect, SA seems perversely intent on discouraging business. Red tape is not a peripheral concern. According to our SME Growth Index, the average small enterprise is spending about 4% of its turnover on compliance with regulatory demands. Among the manufacturing firms in the index, this proportion represents, on average, R400,000 a year.

Nor is red tape a new concern. It has been on the agenda since the 1980s. In his “Rubicon” speech, then president PW Botha said there were “too many rules and regulations in our country serving as stumbling blocks in the way of entrepreneurs”. A decade and a political transition later, the Reconstruction and Development White Paper was promising “favourable amendments to legislative and regulatory conditions”. Nearly 20 years later, the Presidential Business Working Group was warning about the regulatory burden. After about 30 years of acknowledging the regulatory burden as excessive, perhaps it is more accurate to say that it is impossible to distinguish between tragedy and farce.

If anything, red-tape costs are rising. In 2004, we studied the cost of red tape to SA’s economy, which were about 6.5% of gross domestic product, or R79bn a year. Extrapolating from the information gathered for last year’s SME Growth Index, it seems the burden has risen and, for some firms, nearly doubled.

Composite numbers obscure individual stories. These detail the difficulties firms face in dealing with the scale of official demands and the associated problems of inefficient and sometimes inept administration. Sometimes firms’ complaints are generic: “compliance as a whole is a huge issue — just too much”. Others could point to committing the equivalent of up to 48% of their turnovers to compliance costs.

More specific problems abound. The South African Revenue Service (SARS) has a formidable reputation for collecting taxes. But inefficiencies in dealing with taxpayers’ needs stall business growth. A key problem is the issuing of tax-clearance certificates. As foundational documents for many transactions, problems in issuing them spell disaster. One businessman recounts how an audit turned into a yearlong ordeal resulting from tardy data capturing by SARS — “on the system”, his firm owed thousands. By the time the matter was resolved, it had set him back R50,000 in direct and opportunity costs, as well as the loss of a contract.

The Companies and Intellectual Properties Commission poses similar problems. The extent of the problem is clear from comments on the Hellopeter website. As one entry says: “How are we supposed to build the economy and create jobs if we can’t open our businesses?”

And so it goes on in far too many areas where business interacts with officialdom. This is not to demand complete deregulation. Rather, SA needs more prudent, more effective regulation, with economic costs proportionate to their perceived social benefits.

The greatest tragedy and farce is that red tape is the barrier to business success that is the most amenable to influence. Little is so within the control of government as decisions about what laws and regulations to impose. The demands of foreign consumers cannot be controlled by SA’s policy makers; the requirements for registering a business can.

Marx went on to say that people do not make history “under self-selected circumstances, but under circumstances existing already”. He might have added that sometimes people choose to create the circumstances that impede the making of history — as red tape is doing to the history-making potential of flourishing entrepreneurship in SA.

Darroll is CE and Corrigan research director at SBP, specialists in business environment research.