Counting the cost of red tape for business in South Africa Reflections on the study for GTZ BIC Reform Seminar May 2006

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 growth Weakness in economy/demand State Interface, Regulations Labour problems Capital cost/access Skills constraints Operating 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 turnover Annual Regulatory Compliance Cost as a Percentage of Turnover 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% < R1 mR1m-R5mR5m- R10m R10m- R25m R25m- R100m R100m- R500m R500m- R1bn R1bn + Annual Turnover

Total compliance costs were R79 billion = US$11 billion in % of GDP 2.8% of total sales in % of the total wage bill in % 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 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 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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