Ease of Doing Business Bill [B6-2021]: public hearings

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Meeting Summary

Video: Portfolio Committee on Public Service and Administration, 23 June 2021

The Committee met for oral submissions on the Ease of Doing Business Bill [B6-2021] which is a Private Member’s Bill tabled by Mr Henro Kruger, seeking to reduce red tape for small business and to establish a Regulatory Impact Assessment unit in the Presidency that specializes in and looks after small business. Submissions were heard from the Small Business Institute (SBI), South African Small and Medium Enterprises Association (SASMEA), Sakeliga and the Free Market Foundation (FMF). The Exporters Club of Cape Town did not manage to present. All the organisations agreed that this unit should be established within the Presidency and that reducing red tape will result in business growth because it is currently hindering growth.

Members asked about the average compliance costs for a small business; who would manage the proposals; how the organisations assisted small business and what had been the reaction of the Portfolio Committee on Small Business Development to the Bill. Members were worried that the establishment of the RIA unit will undermine the mandates of other departments. They noted that the organisations did not comment on the Covid relief fund government made available to small businesses. The Committee will meet again to decide on the desirability of the Bill.

Meeting report

The Chairperson asked that Mr H Kruger (DA) introduce each presenter of an oral submission which Mr Kruger did for each of the four submissions.

Small Business Institute (SBI) submission
Mr  John Dludlu, SBI Chief Executive Officer, explained that the SBI is a non-profit organisation that exists to positively influence the environment for small business in the formal and informal sector in South Africa. SBI broadly supports the Bill and considers it a step in the right direction.

The Committee received a document, ‘Tackling the “Disabling Environment" to boost Economic Growth, Small Business and Jobs’ that speaks about red tape and easing doing business, which is the core focus of the Bill. Its mandate is representing SBI members and the broader SME ecosystem on a transformation journey. SBI is working on four campaigns which include:
• Lobby government to implement Section 18 of the Small Enterprise Act. Section 18 makes every government minister a minister of small business by stating that government departments and agencies in contemplating new policy, legislation and regulations, must do an impact assessment on small business. This has not been done since the Act came into effect in 1996.
• Encourage big business and state-owned enterprises to pay SMEs on time. This is a silent killer of SMEs. This kills job creation and growth.

In its broad support the Bill, SBI understands the need for the location of the Regulatory Impact Assessment (RIA) unit in the Presidency. However, this effort must ensure duplication is avoided due to Section 18 which resides in the Department of Small Business Development. If there is another Unit that seeks to do the same thing but is located elsewhere, then it will end up in unnecessary turf wars. SBI as the big voice for small business would like to have an explicit and core focus on SMMEs which are the backbone of the economy.  SBI prefers an RIA approach for regulatory impact assessments over the Socio Economic Impact Assessment System (SEIAS). It believed that there would be better outcomes with RIA.

RIA provides transparency, early engagement on drafting policies, feedback, lobbying and avoids delays as opposed to the SEIAS approach, which is selective on consultation. SBI would like to propose a red tape challenge, where we provide SMMEs with time and space to say what their pinpoints are. The wheel should not be reinvented. SBI would like to urge the Department for Small Business Development that the National Small Business Council is set-up as quickly as possible. This is envisaged to be an advisory council to the Minister of Small Business Development. This should help to institutionalise dialogue and be sensitive and responsive to the small business ecosystem. SBI would like the Committee to urge government and the executive about the implementation of Section 18 in the Small Business Act. This would be a progressive step. We are a segment of the economy that is very important, who are sometimes unheard and in approaching setting up the Authority, we should be mindful and invest energy in ensuring we get it right. It is difficult to build new institutions.

South African Small and Medium Enterprises Association (SASMEA) submission
Mr Howard Johnson, SASMEA board member,  stated that SASMEA fully supported the Bill. SASMEA works with sectors in the development of sustainable SMME. Its objectives have been highlighted in the Bill as it is trying to achieve the reduction of red tape which is a huge challenge for many SASMEA members. This Bill will make it easier for organisations to have access to markets, funding and to cut through the red tape. SASMEA supports the idea of having one department representing SMEs. It was noted that government departments can act in silos, which sometimes become difficult to straddle. SASMEA would like to have a voice that is committed. One objective of SASMEA is to form an industry council. This has not been achieved yet. One of the objectives is looking for movement in implementation of the Act.

Mr Johnson also raised surety and blacklisting. In cases where businesses have been running for years and then something goes bad in the markets or globally and affects their markets. Their business is affected through no fault of their own and they are forced to close down or downsize – because those sureties come into effect. How do we protect SMEs?

Sakeliga submission
Mr Piet le Roux, Sakeliga CEO, said the Bill is important and would make a difference. The making of good regulations and good policy are the core of all political activities. Political objectives need to be taken into consideration when Parliament or political parties are proposing these policies are in the public interest. Determination of the costs of policy implementation is easier than figuring out if the policy will give the desirable results. There is a limited understanding of the actual regulatory impact of new policy objectives. There is little information on the cost benefit of new policy formulation.

This Bill suggests establishing a Regulatory Impact Assessment (RIA) unit in the Presidency to monitor specifically a narrow set of constraints to policy formulation. Sakeliga believes that this is a good idea as it will provide Parliament, public and businesses with an assessment of what the actual regulatory impact will be as compliance comes with a cost. The Regulatory Impact Assessment unit is important. South Africa will not be unique in implementing this. This is of great assistance to policy makers to determine the exact wording and extent of the policies. The Unit separates the objective cost element from the policy considerations. It is important to have a realistic understanding of that cost. If Parliament thinks that the regulatory part of the Bill is too costly, then it should be relooked at. The cost can play a role in determining the phasing in of regulation or whether it goes through or not. It can determine what clauses are adopted or not.

Overall, it gives a lot more flexibility for Parliament to adjust policy goals to the requirements and cost implications in practice. Constitutionalism requires that the policy making takes serious effort to understand all the reasonably obtainable information that can be used in policy formulation. The introduction of the RIA unit will strengthen the constitutionalism of the South African legal order as it will provide easier ways for Parliament to access and understand implications of legislation for business and the private sector.

Free Market Foundation (FMF) submission
Mr Chris Hattingh, FMF Deputy Director, stated that the FMF is in favour of the Bill. The FMF is an independent public benefit organisation founded in 1975 to promote and foster an open society, the rule of law, personal liberty, and economic and press freedom. The work of the FMF is devoted to economic freedom as the empirically best policy for bringing about economic growth, wealth creation, employment, poverty reduction and greater human welfare. He highlighted the economic disadvantages of the black business community as a result of Apartheid which are still experienced in contemporary society. The effect of the cost of compliance on small enterprises was discussed. Parliament must pay special attention to executive powers and the effect of legislation and subordinate legislation in the form of regulations. Regulation making powers by the executive must be eliminated or forced back into limited boxes. The current socioeconomic impact assessments are universally defective being partially in favour of the policy. The Ease of Doing Business Bill will lead to a regulatory assessment framework.

Discussion
The Chairperson thanked all the presenters from the various organisations. The Committee was reminded that a decision on the Bill was not to be decided in the meeting. Members were asked to raise their concerns.

Ms C Motsepe (EFF) thanked the organisations for their input. She asked for the average compliance costs for a small business to be permitted to start business and what are these specifically other than licencing. Where do the bankrupt businesspeople report their plight? Does the FMF document these statistics? If so, what does it do with these statistics to highlight their plight to the relevant government structures, and what is government's response? What recourse does small business have when they are not paid on time by big business – does SBI represent their needs and interests? Must small business be affiliated to the SBI and what happens if they are not?

Ms M Ntuli (ANC) stated that the Committee, just like these organisations are fighting for the people of South Africa, in particular, these silent killers which are invisible for small and developing business. The Committee is happy that the business fraternity is looking out for their own. The Committee hopes that Mr Kruger and the contributions of these organisations will make a difference in small business to develop smoothly.

Ms R Lesoma (ANC) emphasised that the Committee is cooperative. She asked about the response to the Bill's rationale by the Small Business Portfolio Committee that provides oversight of that Ministry. She asked if the organisations are suggesting that government must stop doing its own assessment by the Department of Planning, Monitoring and Evaluation (DPME) which is housed in the Presidency. What will happen to those government employees, considering that a new unit must be established? She wanted to confirm what the organisations meant by establishing a new unit and asked if they want government to restructure its departments to accommodate their view and rationale. The present administration has a good economic IQ with regards to the establishment of Ministry and Portfolio Committee that deals with small business. The Constitution states that the President appoints the Minister, which means all the Ministers have to execute their responsibilities as mandated through the Constitution. She said to Mr Kruger that the Deputy President is charged with taking care of government business for the legislature. She asked if everything must be housed in the Presidency.

Responses
Mr Kruger replied that if the Committee reads through the Bill, they will note that the Bill is not intended to change government or the working of government. The Bill is proposing that one unit be established in the Presidency so that it can monitor and identify and work on the cost of red tape. There is no intention to undermine government as it is at the moment. The Bill is in favour of reducing the cost of red tape, administration costs and compliance costs. Small businesses are hindered by red tape. The position of small businesses declines every year despite the same government interventions. The Bill seeks to reduce red tape on small businesses, and it will benefit big businesses and civil society. The idea is to establish a unit in the Presidency to manage this.

Mr le Roux replied that this RIA unit will complement and be under the direction of government. The unit to be established can just as well be currently existing. The details are not as important as the decision-making progress for Parliament and government. Cost experts need to be involved and the unit should not be politically prescribed. The unit informs policy makers and offers objective and easy to access standardised cost estimates in man hours and adds this information to the decision-making process; it does not take away from the decision-making process.

Ms Lesoma stated that it is fundamental to inform the Committee how the Bill will be managed. She had asked the question about the response of the Portfolio Committee on Small Business deliberately. The organisations present did not appreciate that during Covid-19 the economic stimulus government set aside was to benefit small business in the main but the financial institutions were not transformative as one would assume them to be. None of the organisations spoke to that effort made by government. However, she believes it is a step in the right direction.

Mr Dludlu replied about the average cost of compliance saying this is in the document given to the Committee. A typical SME owner spends up to nine working days a month complying with a variety of legislation, by-laws and policies. That is a long time. The preference of SBI is that SME owners spend time at work with customers and suppliers instead of running around ensuring compliance. SBI exists to help them in this.

SBI has a two-fold system for businesses that are not being paid on time. The system is to name and shame. There is a technological platform that can be used by SMEs to report anonymously a business which has not paid them. Such businesses are then publicly shamed. It was disappointing that SBI could not get SOEs and state departments to be a part of the campaign. Hopefully in the next phase of the campaign, big businesses will sign up to commit to paying SMEs on time, which is thirty days according to government policy. SBI assist non- affiliated SMEs as well. During Covid, both non-members and members were assisted. Membership for SBI is free of charge. However, the organisation does not have enough resources. SBI assisted as many as we could.

Mr Johnson replied that SASMEA is dedicated to developing the ecosystem between SMEs, government, and big business. There is a need for a point of contact in government that understand SMEs and the environment in which they operate and the red tape that hinders SME growth.  SMEs voices need to be amplified and heard. Success can only be measured when the socio-economic conditions in entire communities can be transformed. The growth of SMEs will lead to sustainable jobs and alleviate poverty. 

Closing remarks
The Chairperson thanked the presenters for availing themselves. The decision on the Bill will be made in another meeting.

Ms Lesoma asked when the Committee will conclude its view on the Bill.

The Chairperson replied that the Committee will deal with the matter outside of this platform and he will consult with the Committee Secretary on a date.

Meeting adjourned.

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