February 18, 2022
Cutting red tape to improve the small business environment in South Africa

On February 10, South Africa’s small business ecosystem listened with bated breath as His Excellency President Cyril Ramaphosa delivered the 2022 State of the Nation address. This annual address is of crucial importance for the country. In it, the President reflected on the general state of South Africa during the pandemic and government’s plan of action to address a plethora of social, economic, and political matters from both a local and global context.

The President spoke about job creation and expressed his concern about the country’s alarming unemployment rate in South Africa, estimated at 34.4% in late 2021. However, it was encouraging to hear that the government was reviewing the Business Act and other legislation that affects small, medium, and micro enterprises to diminish the regulatory burden on informal businesses.  He said, “There are too many regulations in this country that are unduly complicated, costly and difficult to comply with. This prevents companies from growing and creating jobs. We are therefore working to improve the business environment for companies of all sizes through a dedicated capacity in the Presidency to reduce red tape.”

As the leading voice of the small and growing businesses (SGB) ecosystem, ANDE is ecstatic to hear that cutting red tape is a key priority for the government. This is an especially encouraging message to hear after I had the honor and privilege to join other key stakeholders in the ecosystem in October last year in addressing the President on measures that could be taken to support the growth of entrepreneurs and expand job creation in South Africa.

It is undebatable that government red tape and overregulation has long limited potential investors and stifled the growth of the South African economy.  It has resulted in increasing costs of compliance and doing business, reducing healthy market competition, impeding new entrants into these markets, and creating broader structural biases in favor of larger firms.

On the flip side, encouraging the creation and promotion of an enabling environment for small businesses in South Africa is fundamental to developing a competitive and vibrant economy. The burning question now is what interventions the Presidency will implement, and when. There are numerous interventions which the administration can prioritize. Based on ANDE’s experience in the country, the following could serve as a starting point:

  1. Administrative simplification: This should be high on both South Africa’s political and policy agenda. The administrative simplification strategy should try and address the burden introduced by new regulations and existing burdensome regulations. Further, it would be prudent for the administration to develop a tool which reviews and reduces administrative and regulatory procedures.
  2. Regulatory impact assessment: There is much evidence that regulatory impact assessments address and ultimately prevent new burdensome regulation.
  3. Trade facilitation measures: the African Continental Free Trade Area presents an opportunity for the administration to come up with trade facilitation measures which harmonize and simplify the current various burdensome customs documentation and procedures and address the costs and complexities small businesses face at South Africa’s ports of entry. In short, the government should slash the costs and time needed to export and import goods.

The burden of red tape is, of course, felt disproportionately by small businesses. We applaud the President for articulating a bold stance to move the needle on this serious issue. Now more than ever, there is a strong need for more action oriented public-private dialogues, partnerships, advocacy, and knowledge sharing to continue to reduce red tape and ensure the success of these small businesses that are the lifeblood of our economy. ANDE looks forward to being a part of this collective effort.