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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
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BUS INESS
LINK AGES
challe 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 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
Percentage of Respondents
35
40
45
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 R5mR10m
R10mR25m
R25m- R100m- R500m- R1bn +
R100m R500m R1bn
Annual Turnover
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)
International comparisons
• Regulatory costs as % of GDP:
–SA = 6.5% of GDP
– Sweden = 2.2%
– Australia = 3%
– Bulgaria= 5%
Useful detail
Breakdown of Recurring Compliance Costs
Tax Compliance 26%
Additional/Sector
Regulations 21%
Local Government
Regulations 6%
Information to
Government 8%
Labour and
Employment 17%
Employment
Equity/BEE 12%
Annual Registration
9%
Useful detail
Compliance Costs as a percentage of turnover: main sample and tourism
16%
14%
12%
10%
8%
6%
4%
2%
0%
<R1m
R1<R5m
R5<R10m
R10<R25m
Main Sample
R25<R100m
Tourism
R100<R500m
R500m<R1bn
>R1bn
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, noncompliance 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
Insert cartoon