How SA can stop spinning its wheels

It is no secret that the country was in serious trouble before the arrival of Covid-19. The shock of the pandemic was an accelerator for an already deteriorating economy. As the National Planning Commission December 2020 report reviewing progress with the National Development Plan (NDP) succinctly put it: “Covid19 revealed in great clarity the structural limitations on creating growth and employment and the significant state capacity constraints.”

We all agree on what needs to happen: structural reforms that have long been acknowledged can lift the country out of its economic stagnation and raise the quality of life for all South Africans. Yet in spite of all the high-level commitments made by the administration in each and every presidential address since the RDP’s promise for “favourable amendments to legislative and regulatory conditions” to ease the path of business growth for job creation (especially for small business), the government adds layer upon layer of contradictory laws and regulations to the statute book each year.

And for decades more bureaucracy has proliferated in an attempt to sidestep the dysfunction of the existing bureaucracy. In so doing it has been achieving the precise opposite of its own intention and paving the way for corruption.

Reforming the deeply embedded ways of doing that are throttling our economy will require all of the government to act in concert to create an environment for growth.

It is a concern that the president imagines a small ad hoc team comprising Operation Vulindlela has any prospect of success, even with all the will in the world.

The fundamental question SA needs to answer before it reverses falling employment and rising poverty and inequality is a simple one: is the public or private sector responsible for growth and job creation? The government, over all these years, has suggested it should fall to the private sector, particularly small businesses, which were most recently targeted by the NDP to provide 90% of new jobs by 2030.

And yet crowding around and pushing this clear direction to the side are myriad contradictory policies and actions. The two most harmful results are policy uncertainty deterring investment and the red tape affecting the ability of business to do business and add value to the economy; it also constrains the business of government. Overregulation encourages informal businesses to stay informal, and other businesses, unable to bear the burden, to close.

Red tape is more than just form-filling and administrative burden. Red tape happens when government administrators lose sight of the rules, regulations and procedural functions and misapply them. It can result in a mismatch between the regulatory intention and administrative processes to implement them.

Red tape also follows arbitrary decision-making built into laws and regulations at the outset of drafting. It is a symptom of failing regulatory governance, broken systems and deteriorating administrative capacity, resulting in service nondelivery.

Harvard University researchers have developed a new way to measure trends in governance in the context of state capability and competence, or what they call the “big stuck” or “capability trap”. SA, according to their findings, falls within the category of “rapid deterioration” in state capability, alongside 12 other countries of the 102 they investigated.

RED TAPE

Our country is overregulated and undergoverned. Regulations cannot — and should not — eliminate every conceivable risk. It is equally important to monitor and assess the effects of regulations, including the cost of compliance and administration they impose, and the efficiency and effectiveness of the ways in which they are implemented.

For years the Small Business Institute has reminded both small business ministers that section 18, which would require the evaluation of laws and regulations to consider their effect on small and medium enterprises (SMEs), has yet to be gazetted.

In addition, regulatory impact assessments (practised in more than 75 countries), which required transparent public stakeholder engagement, also with government departments, were scrapped in SA. Impact assessments were to accompany draft bills to parliament to allow public scrutiny and ensure transparency. Instead, the socioeconomic impact assessments that replaced them retrofit policy decisions already made rather than seek to assess alternatives to legislative and regulatory proposals, including the “do no harm” option.

All businesses play a key role in a country’s development. And their profits help hire and train people and pay taxes to enable the government to afford welfare grants, education, health and basic services. Competition among private firms, SMEs in particular, drives innovation and competition. Businesses are critical partners in poverty reduction.

Recommendations include: ● Implement transparent and methodical regulatory impact assessment methods (section 18) to improve the quality of evidence-based policies, laws and regulations;

● Parliament should strengthen oversight and invoke joint rule 159, a mechanism to improve parliamentary capacity to assess the impact of draft legislation presented by the executive and to beef up parliamentary oversight; and

● The government and business must, in partnership, support and conduct a Reduce Red Tape Challenge. A crowdsourced red tape reduction challenge similar to those held in Mexico and the UK would be ideal. Let our small firms tell you what costs too much, takes too much time or doesn’t adequately protect stakeholders. Let them help the government help them to just get on with running their businesses, as opposed to developing compliance programmes.

The quality of legislation, markets and institutions can be decisive for a firm’s performance and for the performance of the economy as a whole. The handcuffs on businesses that limit their dynamism must be unlocked.

RED TAPE IS MORE THAN JUST FORM-FILLING AND AN ADMINISTRATIVE BURDEN