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Counting the cost of red tape for business in South Africa

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. Presentation structure. Background Key survey results Project outcomes Survey methodology Mistakes Good ideas Project methodology. Background.

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Counting the cost of red tape for business in South Africa

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  1. 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

  2. Presentation structure • Background • Key survey results • Project outcomes • Survey methodology • Mistakes • Good ideas • Project methodology

  3. 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

  4. 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

  5. Factors inhibiting business growth Factors inhibiting business growth No wish to expand Not inhibited other <1% each Cheap Imports Corruption Confidence Discrimination Employee quality Rand strength State competence Crime Unfair competition Operating costs Skills constraints Capital cost/access Labour problems State Interface, Regulations Weakness in economy/demand 0 5 10 15 20 25 30 35 40 45 Percentage of Respondents

  6. Compliance costs as a percentage of turnover Annual Regulatory Compliance Cost as a Percentage of Turnover 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% < R1 m R1m-R5m R5m- R10m- R25m- R100m- R500m- R1bn + R10m R25m R100m R500m R1bn Annual Turnover

  7. Total regulatory compliance costs for South Africa, 2004 • 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)

  8. International comparisons • Regulatory costs as % of GDP: • SA = 6.5% of GDP • Sweden = 2.2% • Australia = 3% • Bulgaria= 5%

  9. Useful detail

  10. Useful detail

  11. 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)

  12. 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)

  13. 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

  14. 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)

  15. 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

  16. Insert cartoon

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