Red Tape Impact Assessment Bill: Department Response; Process of establishing the National Small Business Council: update

Meeting report

Opening remarks
The Chairperson welcomed the members and the delegation from the Department, and advised that the Committee will first adopt its outstanding minutes dated 8 February 2017. Thereafter, the Department of Small Business Development (DSBD) will proceed to make its presentation on its perspective on the Red Tape Impact Assessment Bill and Members will engage the Department and ask clarity seeking questions. The Department will also present a progress report on the process of establishing the National Small Business Council.

Consideration of outstanding minutes
The Chairperson tabled the document for consideration.

Members went to through the document page-by-page. They were satisfied with its content and approved the minutes without any amendments.

The Chairperson handed over to the Department.

Briefing by DSBD on its perspective on the Proposed Red Tape Impact Assessment Bill
Ms Elize Koekemoer, Acting Deputy Director-General took the Committee through the Department’s perspective on the Bill highlighting that the Bill seeks to provide for the assessment of regulatory measures developed by the executive, legislatures and self-regulatory bodies in order to determine and reduce red tape for businesses. It further seeks to provide for the establishment of Red Tape Impact Assessment (RIA) Units.

With regards to the global challenge in light of red tape, there are indications that unduly strict regulations often harm SMMEs and co-operatives specifically emerging enterprises within the different sectors. The government recognises this issues, as highlighted in the National Development Plan (NDP), that the policy and regulatory environment needs to be coordinated and simplified in order to grow the economy. The unfavourable regulatory environment with its high costs and risks of doing business does not only affect SMMEs and Co-operatives but also discourage investment, trade and economic growth; impedes innovation and potential job creation. Governments all over the world encounter challenges with regards to designing regulatory systems that are beneficial to the business community and society at large. On the other hand it is also recognised that regulations that are adequately designed promote economic growth and welfare by addressing market failures and enhance competitiveness (OECD, 2015). The World Bank stipulates that the gap between best practices and countries' actual practices in business regulation suggests that these firms in 90 economies could have saved $ 180 billion in 2012, if more efficient sets of business regulations were effected.

Red tape continues to be a challenge in South Africa even in business registration. It takes 43 days in SA to register a business, even though the country has moved from a manual registration to an online registration system. Red tape is still prevalent. Amongst some of the under-developed countries in Africa, such as Rwanda it takes only 4 days to register a business, whilst it takes 13 days in Burkina Faso, and 26 days in Uganda as the World Bank reports. The most costly and frustrating red tape issues in SA include correspondence with SARS, which is the highest amongst other regulatory institutions, labour issues, BEE, mandatory regulation and municipal regulations. All of these institutions and regulations contribute significantly towards red tape in the country. Some costs are not avoidable, and are in fact necessary for businesses to adhere to.

Some of the Department’s initiatives to reduce rad tape include creating an enabling environment for competitive SMMEs and co-operatives. In fulfilment of this goal, the DSBD within the 2016/17 financial year will conclude a study, done in partnership with the Department of Planning, Monitoring and Evaluation (DPME), on legislative and regulatory protocols impeding SMMEs and co-operatives within the national sphere of government. The study will highlight priorities for reform and develop an efficient and effective framework to address relevant national laws and regulations. The DSBD is also conducting the assessment of the existing red tape reduction guidelines which was introduced as a practical implementation framework to reduce municipal red tape for the enhancement of SMMEs and Co-operatives. Priority procedures for amendment will be addressed in 2017/2018 financial year. In the 2017/2018 financial year the research focus will be on legislative and protocols impeding SMMEs and co-operatives. In addition to that there is 30-Day Payment Hotline that is operated by Seda in partnership with DPME. A 2016 Report revealed a significant turnaround in resolving the payments to SMMEs. Over the period July 2013 to October 2016 the service facilitated payments of invoices to the value of R82.8m out of R 353.4m.

Other government interventions include the Socio-Economic Impact Assessment System (SEIAS) which is managed by DPME that became compulsory from 1 April 2015 before any bill or policy is considered by Cabinet. Additionally, SARS has introduced special SMME units. The impact is an additional 18 000 tax compliant SMMEs. InvestSA established a specialised Unit with officials seconded from regulatory departments to ease the environment for local and foreign investors.

The Department’s comments on some of the Chapters and Sections on the proposed Bill consist of the following:

-The Bill is limited to red tape reduction and does not include requirements in terms of compliance Parliamentary Protocols and the Intergovernmental Relations Framework Act.

-In Chapter 1 the Bill refers to “Minister” and is defined as “the Minister responsible for Small Business Development”, yet the Bill does not make reference to or include the definition of Small Business and Co-operatives as outlined in the National Small Business Act,1996 as amended or Co-operatives Act of 2005 as amended. This is imperative as the Bill proposes the Minister responsible for Small Business Development as the overseer of the legislation.

-“Organs of State” refers to national sphere of government that is developing or administering a regulatory measure, however there are also provincial and local government structures that develop and administer regulatory measures leading to provincial acts and regulations and municipal by-laws.

-The Bill defines red tape as “information to be submitted or maintained and the procedures required to gain administrative approval or to comply with prescribed requirements….”, i.e. limiting red tape to (a) the need to submit information and (b) to comply with certain procedures. The definition of red tape is thus limiting and does not cover the full scope of red tape and its negative implications to especially SMMEs

-In Chapter 2 the Bill requires the Minister to establish a unit in the Department to be known as the Red Tape Impact Assessment Unit. Reference is also made to a Regulatory Impact Assessment (RIA) unit as well as the establishment of provincial RIA units. This will require substantial additional human and financial resources to ensure compliance with the stated functions.

-The establishment of the proposed red tape impact assessments unit and or RIA units will duplicate work currently being performed by the DPME Socio Economic Impact Assessment Systems (SEIAS) process, the SEIAS Interdepartmental Steering Committee and DSBD programmes aimed at reducing red tape. The capacity has already been created within government to control and reduce the economic impact of regulatory measures through. In addition to SEIAS the DSBD already has programmes aimed at reducing red tape on all spheres of government; and
-In Chapter 2, section 8, the RIA Units will prepare detailed reports on red tape that also cover information on the total indirect costs, substantive costs per regulatory measure or procedure and overall costs for the period. The direct and indirect costs for red tape will differ from case to case and it will not be possible to do accurate calculations of the costs. The importance is not do determine the costs but to ensure that all unnecessary cost burdens are reduced and eliminated.
-In Chapter 4, the Bill provides for all legislation to be vetted by DSBD to consider and advise on its impact on small business. It furthermore requires that all past (existing) legislation and secondary legislation (regulations) must be reviewed within a period of two years. Between 1994 and 2014 more than 1 200 Acts were promulgated. Each Act is founded on a policy and has accompanying regulations where most areas of red tape can be found. The target may be difficult to achieve within the two year period as proposed by the Bill.
-Different time frames are proposed within the Bill, the memorandum refers to five years whilst chapter 5 clause 15(2)(c) refers to two years for activities. This clause states that after two years at least one piece of identified legislation must be repealed or replaced. The processes required for each time frame should be more clearly set out. The objective of reaching 25% of existing legislation within five years will be more difficult to achieve if after two years, only one piece of legislation must be fully addressed.

In conclusion the Department believes that the Bill is referred to as the Red Tape Impact Assessment Bill, but in the body of the Bill it is called the Red Tape Reduction Bill, thus, this is confusing. The definition provided for Red Tape is limiting and needs to be enhanced to cover the full scope of red tape. It promotes a silo approach rather than a focus on the entire ecosystem. As such the Bill is limited to assessing the cost of red tape. The existence of numerous legislation and related regulation developed and administered within the three spheres of government requires the Bill to consider administrative simplification. The Bill needs to consider international trends including facilitating compliance as an important element or tool, especially regarding support of compliance to SMMEs and Co-operatives. Assistance to businesses in overcoming red tape challenges is not adequately outlined within the Bill and intensive stakeholder consultative processes is still required including Business Chambers. [See Document for more].

Ms Koekemoer thanked the members for the opportunity to present the Department’s perspective on the Bill.

Discussion
The Chairperson stated that the Committee will not debate the Bill in its current form but members are only allowed to ask questions of clarification based on the Department’s perspective of the Bill and what has been presented to the Committee today. Further and in depth discussion and deliberations will be held by the Committee and the Department in due time. She handed over to members to comment and ask clarity seeking questions based on the presentation.

Mr H Kruger (DA) asked if the DSBD understands what the Bill contains, and the standard cost model that is built in the Bill. Secondly, he asked if the DSBD understands the mapping exercise contained in the Bill and how it works as well as how long it can take. Thirdly, did the DSBD understand the ‘one-in-one-out’ principle mentioned in the Bill.

Furthermore, he asked about the DSBD’s values, vision and missions on the national small business upliftment strategy and to explain it, in order to find out whether red tape reduction is the mandate of the DSBD or the Presidency.

Mr S Mncwabe (NFP) pointed out to page 23, bullet 7.6 and asked for clarity about what is meant by “the Bill needs to consider international trends”, and what are these international trends referred to in the bullet point. Secondly, he commented that consultation regarding process undertaken by the Department regarding the Bill is not reflected in the presentation which makes it appear to be unsteady.

Rev. K Meshoe (ACDP) stated that in 2003 the number of days to register a business at CIPRO or CIPC was reduced from 56 to 43, whilst other countries managed to reduce those days by half. He asked whether this translates to the amount of red tape in SA. Secondly, why has it taken the Department (or the relevant government or regulatory body) so long to move from the manual to the online business registration system?

Thirdly, we were told that it takes less than 73 hours to register a business in Rwanda, so why is there no reference in terms of how Rwanda achieved to cut such a significant number of days to register a business. Another important issue that contributes to red tape is labour regulations, so what is the relevance of labour issues when registering a business, and do the countries that have less time to register a business also consider labour issues during the process of business registration or it is just something that SA is doing.

Rev. Meshoe was enthusiastically interested to know why the Department ignored what has been successful in Rwanda, by not making use of that as a case study or a point of reference to find out how Rwanda achieved to cut its red tape in business registration.

On page 17, on bullet point 5.6 the Department outlines the ‘DSBD programmes that aimed at reducing red tape’, he asked how long have these programmes been in place and when are they expected to reduce red tape and some of them have been in place for a long time but have produced no results in terms of red tape reduction. Lastly, why would it take so long to complete the research on definition on SMMEs in the Small Business Act.

Mr X Mabasa (ANC) referred to slide 13, bullet point 4.7 and asked whether it would not be prudent to add the cooperatives as well in that paragraph. On slide 15 he asked for clarity on bullet point 5.2 as outlined as follows.

On slide 17, the Department speaks of the ‘’..RIA units will duplicate work currently being performed by the DPME Socio Economic Impact Assessment Systems (SEIAS)...’’, he asked for clarity about that statement and about the duplications the Department speaks of. He highlighted that it seems the Department has made a comparisons between SEIAS and the Bill or RIA, he then asked if this is the case as outlined in the presentation on slide18.

Mr N Capa (ANC) said with regards to the 43 days reduction that SA is currently sitting at in terms of registering a business, if there is any indication whether the number can be reduced further and how long will that process take, if the Department decides to undertake it. Secondly, are there any issues stemming from human factor errors that may affect the delays in the processes of registering a business such as bribery and extortion. On 7.9, he asked for clarity in terms of the understanding of the DSBD in terms of its contribution regarding fast-tracking the revised definition in the National Small Business Act and its effectiveness in terms of eliminating delays. Lastly, he noted that the DSBD has not said anything about consultation process it undertook in its perusal or consideration of the Bill.

Mr T Chance (DA) asked whether the Department believes the definitions of the small business is tedious, because the Bill covers all businesses and the Committee does not need to know the definition of small businesses in order for the Bill to proceed. Otherwise, the definition of small businesses to him is irrelevant.

Ms Edith Vries, Director General, DSBD, said that with regards to the definition of small businesses it was said that the Bill (Red Tape Impact Assessment Bill) is silent on the definition of small businesses. The Department’s mandate is to be the custodian for small businesses and that definition includes all the businesses including those that may not necessarily be deemed small businesses according to the mandate of the Department, so the Department seeks to narrow it down to the definition based on its mandate. With regards the consultations, the Department has not been able to conduct the consultation process in relation to the Bill, because the Bill definitely has different impacts on different players in the economy, and businesses themselves go through life cycles, but it is important to highlight that the consultation has not yet been done with the community that it seeks to deal with.

Ms Koekemoer addressed the question about the Department's understanding of the cost model and mapping in the Bill. Those are not foreign terminologies or practises, it is used differently by different countries and in SA we use a similar cost model with the municipality regulations. It is much more complex in the practical level than what it appears on paper. In terms of the mapping it is similar as well as, but also depends on the business context and the size, and the Department has done this before, so it is not something that is new – the Department is familiar with this and it is currently being done on the provincial level.

The Bill needs to consider the international trends, it is important because the Bill can not be reviewed in isolation so looking at other countries’ references and studies will play a pivotal role in the process. We need to look at the best practises and case studies of other countries. With regards to the time, cost and fast tracking the definitions process, the study was only commissioned in October and the Department is still new, so it is currently focusing on the things that are important for now. It is something that the Department plans to complete before the financial year ends.

In order for the Department to reduce the registration of businesses from 56 to 43 days, it needs to do more in the regulatory space and fast track the process of the definition of small businesses. It is undeniable that SA has been very slow when it came to red tape reduction.

In terms of labour regulatory processes and/or issues, that depends on the labour laws of each country, and these vary across different countries so, with that being said it is important that one ensures that the employees are registered for UIF, and the Department of Labour and other statutory requirements for employees and produce a labour report to the Department of Labour. This is an important piece of legislation that also seeks to look out for employees as well and to ensure that they are protected.

With regards to the duplications between SEIAS and RIA, when SEIAS was commissioned its objective was cost implications and reducing red tape but it is fairly obvious that SEIAS is not perfect, it needs to be improved and strengthened, if that’s the way the Department wants to take. In terms of comparing SEIAS and the Bill, the comparison is not detailed in the slide but a more detailed comparison can be done in order to assist in the decision making processes.

Mr Kruger advised that apples need to be compared with apples, and the comparison provided by the Department in slide 18 between SEIAS and RIA is inadequate - a more detailed comparison needs to be furnished to the Committee so that informed decision can be made based on the right information.

Ms Vries explained that the information on slide 18 was inserted to highlight that there was something similar to RIA that the Department had initially planned to cover as well as some of the aspects that the Bill intends to cover.

Mr Kruger emphasised that there is a difference between red tape and regulatory assessments or regulatory systems, so there must be a difference, most certainly and the Bill is not about regulatory measures but red tape impact assessment and that is why there is mapping exercises included. It is important that the Department understands this, and not confuse it with regulatory impact assessments.

The Chairperson stated that the Department in its presentation did not say much about whether it adopts the Bill or not or if it left that to the Committee's discretion. Additionally, it only points out the limitations of the Bill. Red tape is an issue for everyone and it needs to be reduced because it is affecting businesses and economic growth, employment and poverty, so this needs to be made clear. So how to reduce red tape is what the Committee with the Department will be debating moving forward.

Ms Vries replied that this is the first year that the DSBD has a research unit, and that is going to help contribute towards researching more case scenarios that the Department can explore and make use of, the point raised by Rev Meshoe regarding learning more about how other countries such as Rwanda have managed to cut red tape so significantly has been well received and it is something that the Department is going to do moving forward, especially now that it has a research unit, the processes will be much smoother.

Briefing by the Department on Small Business Advisory Council
Ms Vries took the Committee through the progress that the Department has made since the advertisement was put out in August 2015. Furthermore, the submissions to the Minister were provided thereafter, and the panel members were appointed in February 2016. The panel only met in August for interviews of the candidates and the short-listing of the 18 candidates, the panel still needs to go through the vetting processes and other relevant processes. The Department is currently considering the appointment to be based on the perusal and consideration of the CVs alone, as it is working closely with an external recruitment company to ensure that the process is smooth and excellent.

She advised that 60% of the candidates who applied came from Gauteng and the majority of them were men. The Minister takes the responsibility of 50/50 representation in the Department and its stakeholders very seriously, therefore, due to that and other various reasons the process has been moving very slow, because the female representation needs to be adequate. In trying to balance out the numbers of gender representation the Department has consulted with various stakeholders such as the Institute of Business Advisor to assist in nominating eligible candidates or make recommendations. It is quite apparent that there has been a number of issues that have contributed towards the delay. It is safe to say that the Department is now working hard towards the council to be in place and commence its activities by 15 May 2017.

Going forward the short-listed candidates will be screened in the next two weeks in preparation for Cabinet consideration. The Cabinet memorandum will be drafted in parallel with the screening of candidates and will be sent to the Minister for consideration, after that process and when the Cabinet has approved the appointment, the Council will then commence with its activities in the new financial year.

Discussion
The Chairperson advised that the advisory council is crucial in advising the Department in terms of bringing up the needs of the public and it is a very important structure, that will provide advice to the Minister and bring up issues that are affecting small businesses so that the Committee and Department does not respond to the perceived needs but the felt needs of small businesses. Even with the Red Tape Impact Assessment Bill, the Advisory Council would have played a significant role and provide inputs on it but the process of the appointment has been of a tortoise pace.

Mr Chance said it has been a long delay, he asked if the DG is satisfied with the candidates who applied in response to the advert and whether some have not yet pulled out during the long waiting period. Furthermore, he asked whether the Department can consider putting out another advert due to the possibility of potentially losing out on the best suited candidates who have been waiting and eventually got discouraged and pulled out of the process.

Mr Capa asked whether it would be possible to fast track the process, because it is a long overdue process and the Council should have been appointed a long time ago. The Department needs to understand that this is important.

The Chairperson asked the DG what the original milestone date was for the appointment of the panel. In addition, she highlighted that the lack of Gantt Chart for the project in question translates to poor planning. Secondly, is there a requirement by law that the panel could only be made up of officials in the Department or senior officials from the economic cluster. If so, this would then justify why the process is taking long and that there was only junior officials in the Department available to interview the candidates.

Mr T Mulaudzi (EFF) noted that the majority of people who applied came from Gauteng, and asked if the panel can be biased towards people coming from the rural areas so that we do not have an advisory council consisting of people from Gauteng only, who might not pay as much attention to the felt needs of rural small businesses.

Ms Vries responded that there is a suitably qualified pool of candidates at the moment. The delays in the process were by default and it should not have happened. The Department does not necessarily make use of the Gantt Chart in the Department but there is a process of project planning that is used which is effective. There is no requirement by the law that the panel should only consist of senior officials from the economic cluster. The Council can not only consist of people from Gauteng, so the Department is making sure that there is geographical spread across other provinces in the country. The issue of vetting and security checking must happen outside the Department, and it takes about a month maximum to get the results back, which is another factor that contributes towards the delays.

Mr Chance asked the DG to give the Committee the assurance that the members of the Advisory Council will not be members of other structures within the Department.

Mr Mabasa advised that in the process of the Department trying to get a gender balanced council, it must bear in mind to consider people with disabilities.

The Chairperson shared some concerns about the delays, and the time differences in between the activities. In addition to that, she asked about what the advert said in terms of content, because now it seems that a lot of things are coming up and the dates keep on being pushed back and now there is a gender issue, but what did the advert say with regards to gender. She lamented that this is a reflection of poor planning.

Ms Vries replied that she is in the process of strengthening the capacity in her office to ensure that the Department delivers on the set targets and goals. The preferences for gender and geographical representation and the consideration of people with disabilities was not stipulated in the advert. However, if the Committee requires that the Department send out the advert again to invite people with disabilities, and other provinces to apply, the DSBD will do so but that will delay the process further.

The Chairperson noted that will not be necessary, because it is too late now in the process. She advised the Department to strengthen its planning processes and deliver on time on the important activities such as the matter in question. She thanked the Department for the presentation, and hopes that it will deliver on the set date for the Council to commence its activities.

The meeting was adjourned.