When policy uncertainty is high or there is an excessive regulatory burden, there is reduced investment and economic growth. South Africa’s policy and regulatory environment is often cited as a stumbling block to the country’s economic performance. Weak economic growth impedes South Africa’s ability to meet the goals set out in the National Development Plan and effectively deal with unemployment, poverty and inequality.
Regulatory challenges negatively affect business across the economy. Each sector has a particular set of regulatory challenges, which are often taken up by individual industry associations or companies. A detailed review was undertaken by BUSA and Business Leadership South Africa to identify the regulatory challenges and policy uncertainty impeding investment in South Africa.
The review identified the following themes:
- Delays in government providing clear policy and legislative guidelines to business. Many sectors have undergone major legislative and regulatory changes in recent years, with goal posts and effective dates often shifting. Government’s delay in providing certainty – on policy, legislation and regulations – reduces the ability of business to plan, comply with the law and invest for the long term. Dealing with constant changes results in regulatory fatigue and compromises a company’s ability to concentrate on its core business and be productive, competitive and innovative.
- The amount of policy and regulatory reform. Businesses often face a raft of policy and regulatory changes at the same time, from single or multiple government departments. Government sometimes attempts to introduce leading benchmarks – even ahead of the international curve – when it has limited capacity to translate policy objectives into effective regulations that it is able to implement.
- Duplication and lack of alignment of regulations and legislation. A lack of policy alignment between government departments and agencies results in duplication, and at times even contradiction, between new and existing laws.
- Government frequently tries to compensate for its inability to enforce laws with tougher legislative amendments or sanctions. However, this does not address the fundamental reasons for the lack of implementation and enforcement of existing legislation, and only serves to complicate the regulatory environment and increase policy uncertainty.
- Poor drafting and ambiguity. Government often does not provide clear and consistent definitions in its policies and regulations. This leaves the motivation, purpose, applicability, scope and practicality of legislation open to interpretation and dispute. It also makes it more difficult to implement. As a result, laws may not pass constitutional muster or may be subject to legal challenge, leaving key decisions in the hands of the courts.
- Government often forges ahead with legislative interventions, despite evidence and warnings from business and other stakeholders of possible negative ramifications.
Business believes that good regulation:
- Is necessary.
- Aligns with existing policies and regulations.
- Has clear objectives and purpose.
- Maximises efficiency and competitiveness and reduces the cost of doing business.
- Can be met with reasonable effort in a reasonable time frame.
- Should avoid a proliferation of new laws and consider the principle of removing an old law when a new one is introduced.
- Should be designed to be “future-fit” and suitable for businesses from all sectors and of all sizes and degrees of formality.
- Provides certainty, predictability and stability.
BUSA has identified concerns about the social, economic and business impact of legislation and regulation in the following areas: investment and corporate governance; finance and tax; consumer goods; liquid fuels; gas and petroleum; mining; the environment; the labour market; skills development; and social security.
In February 2007 Cabinet decided on the need for a consistent assessment of the socioeconomic impact of policy initiatives, legislation and regulations. The decision followed a study commissioned by the Presidency and the National Treasury on the failure, in some cases, to understand the full cost of regulations and their impact on the economy. However, the Socio-Economic Impact Assessment (SEIA) process has not been as effective as envisaged.
Small and medium enterprises are South Africa’s best hope of a transformed economy and sustainable growth and employment. However, they often bear disproportionate administrative costs from an uncertain and demanding regulatory regime that does not consider the size and complexity of their operations and their capacity to implement complicated and ambiguous legislation.
Policy uncertainty in South Africa could be greatly reduced if the process of formulating policy is improved and proposals are assessed in terms of their impact on the objectives of the National Development Plan.
BUSA regards the National Economic Development and Labour Council (Nedlac) as a key institution, where evidence is considered and tested and new policy and law negotiated and finalised before it is submitted to Parliament. As the business social partner in Nedlac, BUSA has a key role to play in influencing policy and legislation that affect business and the larger socioeconomic interests of the country.
A rigorous, transparent socioeconomic impact assessment mechanism – if effectively implemented with involvement of stakeholders such as business – would have the following benefits:
- Facilitate better-informed and fairer legislation.
- Allow for thorough testing of the impact of legislation before it is implemented.
- Enable an early warning system of unintended consequences.
- Reduce the problems and costs of implementation.
- Promote transparency, rationality and coherence in policies, rules and procedures.
- Strengthen confidence and trust in government and its institutions.
- Accelerate transformation, economic growth and employment.
The way forward
A more effective SEIA process will reduce the chances of proposed policies or legislation having a negative effect on the country’s economy. BUSA proposes that the process be strengthened in the following ways:
- It must ensure that the cost of legislation does not outweigh the benefits. Currently, SEIAs tend to be used to justify the need for legislation.
- The SEIA should consider alignment with existing policies, the potential to duplicate current legislation and the capacity of the state to implement and enforce existing and proposed laws.
- The SEIA must consider the constitutionality of proposed legislation.
- It must evaluate alternative policies, legislation and regulation and how to better implement and enforce existing laws.
- The SEIA should be contributed to by and shared with stakeholders. SEIAs are intended to provide for smarter law making and to prevent delays in implementing legislation due to litigation or a lack of buy-in from affected stakeholders. The regulated parties should be consulted and their recommendations taken seriously.
- The SEIA should be undertaken by external parties or at least reviewed by independent subject matter experts – not the sponsoring department, as is the current practice.
- Government departments should be able to demonstrate how the negative impact of their proposals will be mitigated.
- Government departments must be able to demonstrate how the negative impact of their proposals will be mitigated.
- With all due respect to the role of government, Nedlac should be further strengthened and become the central institution for developing policies and legislation that impact the socioeconomic development of the country.
Businesses take policy and regulatory affairs very seriously. They invest significant time and resources in meeting their obligations and being active stakeholders, either on their own or through business groupings. However, it is the responsibility of government to maintain stable policy and coherent, practical legislation, which are crucial for investment, economic growth and transformation.
BUSA. A Review of the Regulatory Challenges and Policy Uncertainty Impeding Investment and Employment in South Africa. Final report. 16 March 2017.
BUSA. Engagement on SEIAS. 10 October 2017.