“Poverty is unnecessary. People are capable of getting themselves out of poverty. All they need are opportunities. They are not waiting for charity or handouts. Charity is good but it is not good enough. If you turn it into a business proposition, then it’s very powerful, because it can run on its own steam” (Muhammad Yunus, Nobel Prize of Economics 2006).
The Role of the State in Innovation and Growth
The role that the State can play in innovation and growth has often been underestimated. A conducive regulatory regime and flexible responses to new technologies and processes (e.g. digital consent replacing wet signatures) have been the driving force behind some of the most significant technological breakthroughs of our time and most of the life-changing innovations in ICT, biotech, health and green technology would not exist without this.
Confronting Barriers to Compliance
Prior to the Covid-19 lockdown and alcohol bans, I was confronted by a statement from a shebeen (illicit bar or club) owner who observed that it was impossible for him to comply with the requirements for obtaining a liquor licence (notoriously difficult in South Africa) but that he was selling a legally produced product that was legal for people to consume.
Constraints on Small Businesses
In this series, I will examine how a variety of legislative/regulatory provisions constrain the ability of small businesses and public benefit entities to respond effectively to the needs of communities and prevent them from sharing in an inclusive economy and innovation-led economic growth. The role of established incumbent businesses in influencing regulatory obstacles for potential competitors must also not be underestimated.
Red Tape
Ease (or not) of getting things done. The Ease of Doing Business Index ranks countries against each other based on how the regulatory environment is conducive to business operations and protection of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses. This index provides quantitative indicators on a variety of regulations applicable for starting a business, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders and enforcing contracts.
Mandatory regulations included health and safety regulations, licencing regulations, sectoral, quality assurances, Financial Advisory and Intermediaries Services Act (FAIS) and Financial Intelligence Centre Act (FICA) regulations and so on. In relation to both the generic and more specific types of red tape, Panellists identified not only the volume of work that this imposes on them, but also the problems of inefficient institutions tasked with processing it.
The effect of red tape on small firms in South Africa is monitored by the Small Business Project’s (SBP), which reported in 2013 that small business enterprises spent an aggregate 4% of turnover on red tape and that the entire business environment was viewed as overregulated and difficult to operate in.
Red tape applies across the spectrum of businesses and not just informal survivalist businesses as illustrated by the examples below.
In the mining industry, too much of government’s approach is weighted by ideology, and enforced by an uninformed and incapacitated bureaucracy. There is little differentiation in the treatment accorded between large and small firms (between say, a major platinum mine and a stone quarry). As a result mining products, such as talc, are more expensive to mine and sell in South Africa than they are to import. Tito Mboweni (former Governor of the Reserve Bank of South Africa) has been quoted as saying they (the regulator) were “regulating the industry to death.” Thus a potentially large generator of jobs and resources endowments worth around ZAR 3 trillion (±US$ 200bn) is lying fallow (Small Business Project, 2013).
