Introduction

South Africa has an extensive social security system that provides for many of its citizens, despite weaknesses and inefficiencies in the system. However, the country does not have an affordable basic social security framework that prevents its citizens from falling below a certain poverty level and that meets best practice standards, as set out by the International Labour Organization. It is estimated that 4 million South African workers have no social security coverage, which includes pensions, child grants and health, disability and employment injury and illness benefits.

Guiding principles

BUSA believes that more can and should be done to develop a comprehensive social security framework that can realistically meet the needs of the country and a productive labour market. This requires participation by the public and private sectors. An effective social security framework requires social budgeting, clear planning, good governance, integration and compliance by business and government.

The design and costs of the framework should be sustainable and contributed to by business, government and individuals. Businesses and employees should not bear a disproportionate share of the costs, as this would increase the cost of doing business, reducing the competitiveness of South African enterprises. The social security system should be funded on a contributory basis – people should pay towards the benefits they eventually receive – to ensure that it is sustainable and does not undermine necessary fiscal consolidation and stability in South Africa.

Social budgeting – the process by which society’s goals and priorities, such as those set out in the National Development Plan, are better reflected in government policymaking and budgeting – is key to creating a sustainable, comprehensive social security system that contributes to fiscal stability and the growth and development of the economy.

Challenges

Health

• South Africa spends 8.7 percent of its gross domestic product (GDP) on health, significantly more than the 5 percent recommended by the World Health Organization. However, the private sector spends 4.3 percent of this to provide for 16 percent of the population. The public sector spends 4.3 percent of this, but must provide medical services to 84 percent of the population.

Retirement

• The state old-age pension covers 3.3 million people at a cost of R68 billon a year. There is no universal contributory system for all South Africans, leaving 7 million workers partially funded or self-funded and 9 million workers unfunded. This is a massive risk to the fiscus.

To be effective, social security programmes require good governance, integration and compliance by business and government. South Africa’s existing social security framework is fragmented and suffers from duplication and gaps. To date, government has been unable to coordinate its different departments to develop a coherent, comprehensive framework of social security laws.

Analysis

National Health Insurance (NHI) and comprehensive social security are important, as are education and other social and economic development programmes necessary to address the challenges of poverty, inequality and unemployment. However, BUSA advises government to be cautious in announcing policies that commit it to significant expenditure, such as NHI and comprehensive social security, as these are not sustainable. Institutional design and credible cost-benefit analyses must be undertaken as part of any consideration of fiscal commitments.

Notwithstanding its support for universal health care, business believes it is imperative to recognise the financial implications of the present White Paper on National Health Insurance. If adopted, NHI would pose a significant risk to the debt-to-GDP ratio, making it significantly higher than any other government commitment.

The proposal to create a single, mandatory National Social Security Fund, to provide retirement and risk benefits, reduces people’s freedom of choice as to how to spend their discretionary income and provide for themselves, and implies additional taxation. If the national savings pool is reduced to pay grants, there will be significantly less funds available for investment in infrastructure, businesses, and government and corporate bonds, among other things.

The pay-as-you-go National Social Security Fund proposed by government effectively transfers risk between generations, as the money put into the fund by those working will be used to pay benefits to those in need or retiring. This proposal has not been effectively costed. Given South Africa’s structural unemployment problem and huge social demand, the proposal poses significant fiscal risks to the country, despite the stated intention of the National Social Security Fund to always hold on to 25 percent of its reserves.

Tax policy has been an effective tool for redistribution, funding extensive public services such as education and health as well as a massive social grants system. However, over the long term, business believes in transforming the economy to include lower-income, disadvantaged individuals, which would mitigate the need for social grants and free public services, and increase the tax base.

The way forward

BUSA is undertaking research aimed at developing a unified business position on a comprehensive social security framework, which it will use to engage its social partners in the National Economic Development and Labour Council and other forums. A task team has been established to deal with NHI, which, if not managed properly, represents a considerable risk to the country’s fiscal stability.

Conclusion

Business is committed to contributing to the creation of a comprehensive social security system at a pace that is affordable, sustainable and fiscally responsible. The best form of social security is a job in a growing economy. Provision of social security is dependent on government sustaining its pro-poor, pro-growth policies. A clear and comprehensive social security framework and fiscal consolidation through cost-containment measures over the medium term are needed to achieve these policies.

Sources

ASISA. Comprehensive Social Security Reform. November 2017.

BUSA. Submission to the National Treasury in Advance of the National Budget 2018.

BUSA. Triple Challenge of Inequality, Poverty and Unemployment. Presentation. 26 July 2017.

Context

Education and continuous skills development are the means for increasing productivity, social participation and thus inclusive growth for any society. This is particularly true for countries with deeply entrenched inequality and poverty, such as South Africa. Public policy recognises education as a priority, as shown by high government expenditure and the emphasis on education in the National Development Plan.

Improving the quality of basic education is crucial. However, BUSA’s focus is on the post-school education and training (PSET) system, which includes higher education institutions, technical and vocational education and training colleges (TVETs), community education and training colleges, sector education and training authorities, and the South African qualifications authority. International research emphasises the importance of employer participation in post-school skills development, which usually includes practical components.

BUSA is committed to a PSET system that is financially sustainable and aligned with business needs. Integrating the system – as envisaged at the creation of the Department of Higher Education and Training (DHET) – would improve its efficiency and effectiveness. Furthermore, PSET must be inclusive, ensuring that individuals have equal opportunities for future success regardless of their financial circumstances and racial or other characteristics. The future of work is changing and job insecurity is increasing. There is a growing need for flexibility, critical thinking and life-long learning. A sustainable PSET system will have to grapple with these needs. The current one seems ill suited to respond to changes in the world of work.

Many of South Africa’s challenges in education and skills development stem from the legacy of apartheid, which entrenched deep racialised inequalities in the provision and quality of education and training across the country. Despite acknowledging many of the problems and creating the DHET, the current system remains deeply flawed. It is fragmented, financially and socially wasteful, and poorly planned and implemented. Although the DHET is currently reviewing the proposed National Skills Development Plan, many of the goals outlined above are neglected in the draft document.

Guiding principles

• There is common ground between government, business, labour and the community on which to establish a mutually satisfactory PSET system.
• All publicly funded policies, systems, structures and programmes should be fit for purpose and cost effective. They should clearly serve their stated objectives and be reviewed from time to time to ensure that they stay abreast of changes in the economy and use resources optimally.
• Business is indispensable to a good TVET system and should be partnered with in negotiations.
• Government must permanently ring-fence sufficient funds to cover its portion of the costs of PSET institutions and programmes.
• Mechanisms must be put in place to ensure an efficient PSET system.
• Current legislation and regulations need to be clarified, harmonised and finalised before any more are introduced, as there is much policy uncertainty in practice.

Challenges

• The key concept of a single integrated PSET system is given insufficient attention in the National Skills Development Plan or other policy documents. It thus risks being lost to incremental improvements that will not address fundamental problems in the current system.
• The National Skills Development Plan consulting process has not yet resulted in significant changes to the plan based on detailed submissions.
• The regulatory framework governing skills development is fragmented across government departments: for example, lack of coordination across the Labour Relations Act, the Compensation for Occupational Diseases and Injuries Act, and the Skills Development Act. A cohesive framework could significantly strengthen enablers for business to support skills development.
• There is no clear, sustainable financial framework for TVETs in particular and PSET in general.

Although the challenges outlined here are general, TVETs are especially problematic. TVETs are geographically and financially the most accessible post-school skilling institutions for most South Africans, and should be the core of the PSET system. However, TVETs face a number of challenges, including:

• Curricula that ignore business needs. For example, they tend to focus on secondary sector skills rather than services sectors, which are more labour absorptive.
• Low learner throughput (there is a 20 percent completion rate).
• A generally weak relationship with the private sector. This is antithetical to the practical foundations of TVET colleges and, in some cases, prevents students from qualifying.
• Rigid adherence to the qualifications-based National Qualifications Framework, rather than exploring multiple paths to skilled or semi-skilled employment.
• Inappropriate geographic distribution that does not take learner densities into account.

Analysis

Improving the PSET system is a mammoth task. However, it is becoming more urgent as economic growth stagnates. The future of work requires fewer hard skills for one specific job in favour of a shift towards life-long learning, flexibility and critical thinking.

South Africa is at a turning point. Greater competitiveness and economic growth require an educated, skilled workforce, as well as policies ensuring stable and conducive macroeconomic conditions. Without these outcomes, sustainable and inclusive economic growth will be elusive.

The way forward

Business believes that the PSET system should be developed using the following guidelines to deal with specific South African challenges. We need to:

• Understand that skills on their own are unlikely to deliver economic growth, and that broader policies are required.
• Create a supportive macroeconomic environment.
• Ensure post-school institutions complement one another and avoid unnecessary duplication.
• Equip students with a focus on entrepreneurship and technology.
• Create and maintain partnerships between government and business.
• Expand the system to ensure we reach more students.

There is an urgent need to improve the TVET system to reach more students more effectively by:

• Ensuring reliable funding.
• Focusing on scalable education to reach more people.
• Investing in skills forecasting to understand and educate for the skills that will be required in future.
• Improving the quality and reputation of TVETs to attract students.
• Involving stakeholders such as students and employers in the development and implementation of TVET curricula.
• Collaborating between business and government.

Conclusion

Education and skills development are crucial for South Africa’s long-term success. There are problems with the current post school education and training system that are only going to intensify as the world of work becomes more dynamic and service-oriented. South Africa has unlimited opportunities for economic growth and social progress if government focuses on improving the quality and provision of education and skills to meet economic needs. Business is an important part of the solution and is eager to partner with government to improve the skills system.

Sources

BUSA and the Institute for Futures Research. Ensuring Success for South Africa’s Post-School Training and Education System by 2030.

BUSA and Ken Duncan. Towards a Position on the National Skills Development Plan. 3 February 2017.

Context

South Africa is an open, middle-income economy, which means that international trade is central to accelerating economic growth and employment. Maintaining existing market access and expanding to new markets is one way to catalyse job creation. Trade is facilitated by conducive conditions within a free trade area, such as good infrastructure and an enabling regulatory environment, as well as by practical regional and multilateral agreements.

Although trade has significant long-term benefits, it may require short-term trade-offs. Increased competition is never welcomed by the domestic industry, which may experience higher costs of production compared to their international rivals. On the other hand, consumers may benefit from lowered prices of goods and services. It is essential to strike a balance between the needs of the consumer and producer.

As part of the Southern African Customs Union (which includes South Africa, Botswana, Lesotho, Namibia and Swaziland) with its common external tariff, South Africa no longer enters into trade agreements with third parties as a country, but negotiates trade agreements as part of the customs union. Government, in consultation with social partners, develops and negotiates South Africa’s trade positions, and thus government is the arbiter of competing domestic interests on trade. This usually translates to accommodating both importers and exporters.

Economic policy coherence is needed for optimal economic growth. Trade policy development needs to be informed by strategic drivers such as industrialisation, an inclusive economy, and education and skills development, which empower South Africans for future work and high levels of productivity. Increasing the local skill base would also be instrumental in diversifying trade from a commodity focus into more innovative, technological areas, as recommended by the National Development Plan.

Like government, BUSA is committed to trade policies that support South Africa’s developmental goals and promote inclusive growth. In this area, BUSA and government are closely aligned. BUSA represents the common interests of its members and South African business in general in trade policy discussions with government and social partners. These discussions inform the South African positions which government negotiates with other governments on trade.

Guiding principles

BUSA is committed to engaging on a trade policy that promotes economic growth and contributes to an enabling environment for South African business. All policies should pay close attention to spillover effects, especially where domestic employment is affected. While BUSA is in favour of openness, we recognise that there are sensitive industries that need cautious treatment in any free trade area. BUSA prefers to speak of “smart trade”, rather than simply “free trade”.

Government and business are currently well aligned on trade issues and have a strong consultative relationship. Business would like to maintain this level of communication on research, trade policy and technical agreements.

Trade regimes, agreements, support structures and industry incentives are not optimally designed and implemented to enable South African businesses, of all sizes, to participate fairly and competitively across national borders. The goal should be for trade to enable the country to graduate infant industry into self-sustainable global players.

BUSA accepts that trade talks are complicated negotiations, often involving trade-offs between the interests of different economic sectors and businesses, labour organisations and other stakeholders. BUSA will represent members on the basis of their common trade interests, whereas members individually represent their specific, potentially conflicting, interests to government. Government has the responsibility to make decisions that are in the best interest of the economy, in consultation with affected stakeholders.

Challenges

Trade policy is an area where government and business have aligned objectives and a mutually beneficial partnership. However, a number of complex components and different parties with different agendas constitute trade policy. This results in complicated issues, including:

• Ease of trade is affected by many domestic policies over which traders have little to no control. For example, South Africa’s ability to trade with sub-Saharan African countries is affected by trade facilitation issues such as infrastructure in those trading partner territories.
• South African trade negotiations occur within the framework of the Southern African Customs Union, rather than as a single independent country. The negotiation positions are therefore designed to accommodate economies at different levels of development.
• Countries and trading blocs are starting to look for simpler bilateral and multilateral agreements to liberalise trade. This presents a challenge to small, open markets, like South Africa, which need access to international markets while developing their own economies. Negotiating as a bloc further complicates the negotiation process for both South Africa and third parties.
• To be effective, trade policy should be supplemented by supporting domestic policies, such as a stable and clear regulatory framework for businesses, and be informed by a strong industrial policy.
• As an organisation representing members with a broad variety of business interests, BUSA sometimes has to deal with its members’ conflicting interests.
• Members also raise specific challenges, such as the negative trade effects of visa regulations and land transport costs.

Analysis

There is strong alignment between government and business trade policy positions. The strong consultative relationship between government and business, as well as ongoing relationships with social partners through the National Economic Development and Labour Council (Nedlac), benefit South Africa’s trade policy development. As a developing economy, it is important for South Africa to maintain its forward momentum on trade.

There is a complicated relationship among BUSA members around trade. As with other strategic drivers, BUSA remains focused on areas where there are common interests among members and on policies that will benefit South Africa in the long term. Where member interests conflict, BUSA remains impartial. However, members are welcome to bring their concerns to BUSA, and if these concerns are shared by other members, BUSA will represent them to government.

The way forward

Alongside government, BUSA is committed to a trade agenda which supports South Africa’s developmental goals, such as using trade to enable inclusive economic growth. BUSA communicates the feedback on trade policy from members to government and social partners, and engages in regular discussions on trade policy with social partners at Nedlac.

Conclusion

Trade is essential for sustainable growth in a developing open economy. Trade policy development calls for a coherent approach and consultative process among stakeholders. There are strong collaborative relationships between government and business on trade policy and negotiations. However, due to the diverse nature of the players, trade policy remains a complicated area. BUSA’s continued participation in trade policy development is beneficial to both South Africa and business.

Sources

BUSA. Strategic Plan 2017-2019. March 2017.

National Planning Commission. National Development Plan 2030: Our Future – Make it Work.

Context

South Africa has a high inequality and mass unemployment. Sustainable economic and social success is impossible without improving competitiveness. This requires stable labour relations and cooperation as well as a more inclusive labour market.

In the post-apartheid era, legislation has shifted significantly in favour of greater employee protection. Unfortunately, neither substantive economic transformation nor improved education and skills development have followed – issues that prevent inclusion and hamper South Africa’s economic potential. BUSA supports fair labour legislation that is evidence-based and suitable for implementation in businesses of all sizes and in all sectors. Labour legislation should be designed to minimise the practical difficulties of implementation for small, growing and dynamic businesses, so that it does not negatively affect their competitiveness.

South Africa has a reputation for adversarial labour relations. For example, in the 2017 – 2018 Global Competitiveness Index the country is ranked last on cooperation in labour-employer relations. It is important for business to build trust over time through consistent, mutually respectful engagement with government and labour organisations. Recent landmark agreements such as the Labour Relations Stability Accord and national minimum wage agreements illustrate an improved relationship and the potential for greater collaboration across government, business and labour.

Guiding principles

BUSA is committed to fair, evidence-based labour market policies that promote employment and are cognisant of practical considerations, especially their effects on small and medium enterprises. BUSA engages proactively with labour legislation, related regulations and labour market institutions, and informs members of relevant developments. Although there will be areas where not all parties agree, labour relations should be guided by a principle of consistent dialogue in favour of genuine cooperation, collaboration and solution seeking.

The regulatory framework for labour should be harmonised between the various regulatory instruments and government departments. Alignment with constitutional principles and international standards guarantees that South African labour legislation is human-rights centred. Beyond formal legislative requirements, it is important for business to embed legislative changes in workplace culture and to model a more inclusive culture.

BUSA also represents business interests in international and regional labour relations forums such as the Southern African Development Community Private Sector Forum, Business Africa, the International Labour Organization and the International Organisation of Employers.

Challenges

• Labour dialogue with social partners includes diverse and sometimes contradictory interests and perspectives. Building trust and consensus on any issue requires time, effort and mutual respect.
• In some cases, the argument that South Africa is a unique labour market may lead to resistance towards policy based on international evidence. Business strongly rejects the notion that South Africa cannot learn from the experiences of other countries, while acknowledging that policies must also be adapted to the local context.
• BUSA members lack time and resources to engage with all labour regulations and legislation, although the labour framework has a direct impact on their operations. Ensuring that the labour regulatory framework is aligned within government and consistent with international standards would help businesses understand their obligations and ease their compliance burden.
• Once regulations have been promulgated, implementing them in workplace practices is a secondary challenge.

Analysis

Labour relations illustrate the value of BUSA’s focus on building and maintaining relationships with diverse social partners over time. Understanding the varied experiences and perspectives of social partners in labour market discussions helps to defuse an adversarial labour relations environment in favour of a cohesive vision for a productive and stable labour market. Stabilising the labour market in this way is important to attract investment and increase productivity.

In the long term, the labour market should be defined by greater economic inclusion and job creation in the context of a future world of work. This depends on strategic drivers such as economic transformation, a clear and practical regulatory framework, the success of small and medium enterprises, and improved education and skills development.

The national minimum wage negotiation in the National Economic Development and Labour Council (Nedlac) is an example of evidence-based policy developed through slow consensus building, that would not have been possible without persistent engagement to build trust and find solutions that all social partners can support. This policy illustrates genuine collaboration on a contested idea, acknowledging the difficulties facing everyone, from low-paid employees to small businesses. While the national minimum wage agreement focuses on those in the labour market and on addressing wage inequality, it also acknowledges the importance of creating jobs, which would increase inclusion and mitigate the burden of financial support for the lowest paid employees. The national minimum wage process creates possibilities for greater collaboration on similar terms in the future.

The way forward

BUSA will focus on:

• Pursuing consistent dialogue with government, labour, and other important social actors through Nedlac and other forums.
• Soliciting members on regulatory inputs and disseminating information on regulatory labour changes for their understanding and compliance.
• Continuing to represent business interests in international and regional labour relations negotiations.
• Benefiting from other strategic drivers, especially improved education and skills development, to promote employment.

Conclusion

Business is committed to a mutually respectful, reciprocal and stable labour relations environment, to create a stable and productive labour market. Consistent engagement and consensus building is essential and has yielded positive results in the national minimum wage and labour relations stability negotiations in Nedlac. In the longer term, a stable and productive labour market will depend on increasing inclusion and improving education and skills development.

Sources

BUSA. Strategic Plan 2017-2019. March 2017.

Nedlac. “Declaration: Labour Relations Stability and National Minimum Wage Agreements.” February 2017.

Nedlac. Report. November 2017.

Context

Energy is critical to a functioning economy. It supports economic growth and development and influences living standards through access and its impact on inflation and real household incomes. Energy and economic growth are interdependent, as greater economic activity tends to increase energy demand.

A stable, cost-effective energy supply is a precondition for investment and long-term economic growth. With its plentiful reserves of coal, South Africa has long benefited from cheap, non-renewable electricity as its main source of energy. However, from 2006, increasing demand coupled with inadequate electricity investment and maintenance of infrastructure led to an abrupt supply shortage and the need for loadshedding. Production and investment in the broader economy, especially in mining and manufacturing, was negatively affected by the unreliable electricity supply. Since 2006, economic growth has slowed, putting less pressure on electricity supply; but as the economy revives and the population grows, energy needs will increase.

Energy discussions are dominated by Eskom, the state-owned enterprise providing electricity. Nonetheless, the energy sector is much broader than coal-fired electricity, especially with the successful introduction of renewable energy options from a competitive private sector. South Africa is resource-rich not only in coal but also in solar and wind. These new options allow for pricing and efficiency gains, as renewable energy prices have fallen as technologies have improved. Increasing reliance on renewables would also demonstrate greater environmental responsibility in the energy sector. At the same time, it is important to assess the impact of climate change on energy supply and needs, particularly as a water-scarce country. Energy is a contested, important policy area requiring transparent, collaborative and innovative policy initiatives. South Africa needs a sustainable and evidence-based long-term energy plan.

Guiding principles

A stable, cost-effective energy supply is necessary for sustainable business operations in South Africa. As the representative of business, BUSA engages proactively and substantively with government on energy pricing and policy matters, as well as on Eskom’s functioning as the generator, transmitter and supplier of the bulk of South Africa’s electricity.

Energy policy, including the role of the private sector, should be developed in consultation with stakeholders outside government. Within government, energy policy should be consistent and coordinated across departments to ensure policy certainty. Furthermore, policy should be transparent, evidence-based and include correct assumptions and realistic energy supply and demand forecasts that are updated as underlying conditions (such as economic growth trends and cost of technology) change. Energy plans should also consider their effect on employment and the environment.

Challenges

• The Integrated Energy Plan is posited as the comprehensive long-term energy plan for South Africa. However, the draft released for comment in 2016 is flawed, as discussed in more detail below.
• It is unclear how the Integrated Energy Plan relates to other energy plans such as the Integrated Resource Plan and the Gas Utilisation Master Plan. This creates policy uncertainty as there is no single long-term vision for energy policy in South Africa.
• Policy uncertainty has a broadly negative effect, particularly on the private-sector renewable energy industry, which is relatively young in South Africa and has the potential to promote localisation and employment, and generate greater long-term investment and thus economic growth.
• Energy plans are inconsistently evidence-based. For example, energy supply and demand forecasts are not regularly updated or tied to economic growth trends.The energy plans currently in use were developed in 2010; the Integrated Resource Plan was published in 2011. Legislation governing these plans requires annual review.
• As Eskom dominates the energy sector in South Africa, its severe governance and financial problems present challenges for the energy sector as a whole, as well as placing an immense risk on the economy as a result of the sovereign guarantees that support the Eskom debt.

Analysis

Energy supply cannot be generated instantaneously, on the basis of current demand. Instead, it must be planned, costed and built well in advance of need. It is therefore extremely concerning that the South African energy sector displays poor long-term planning and incoherence across different energy plans within government. Energy is needed both for current production and to attract investment that will grow the economy. Energy plans must be clarified, aligned and developed into a road map of implementable goals that can be assessed at regular intervals.

The draft Integrated Energy Plan, released in November 2016, aimed to provide an integrated long-term energy vision for the country in respect of primary energy for electricity generation, gas and liquid fuels. Unfortunately, there are several serious problems with the document. These can be summarised as:

• A lack of coordination across energy plans makes it seem as though they are independent of one another rather than forming an integrated vision. For example, basic assumptions in the economic models used differ across the Integrated Resource Plan and the Integrated Energy Plan, when the two plans should share an understanding of factors like the discount rate.
• Insufficient analysis and policy recommendations. Although the Integrated Energy Plan includes recommendations, these are high level and sometimes disconnected from the plan’s modelling implications. It is unclear how the plan will be implemented, which is an essential component of policy.
• The process by which results are generated is not transparent. For example, modelling assumptions are not explained or justified. This prevents stakeholders outside the policy development process – such as BUSA, on behalf of organised business – from fully understanding and engaging with the document.

The way forward

• Prioritise public consultation for a coordinated high-level road map of all pending energy legislation and policies.
• Finalise and consult meaningfully on the Integrated Energy Plan and the Integrated Resource Plan, while addressing concerns over transparency in the planning process.
• Finalise and release other plans such as the Gas Utilisation Master Plan.
• Continue the Renewable Energy Independent Power Producer Procurement Programme and institutional arrangements with clear policy commitment.
• Engage with Eskom on challenges such as the long-term price trajectory and a sustainable funding model.

Conclusion

The experience of loadshedding more than a decade ago illustrated the importance of long-term planning and implementation for energy policy. Yet there are serious flaws in current energy plans. These flaws need to be addressed to create a clear vision for long-term energy policy in South Africa and so provide the certainty investors need. BUSA remains committed to partnering with government, and working with Eskom to meet the economy’s current and future energy needs.

Sources

BUSA. Draft Integrated Energy Plan November 2016: Submission by Business Unity South Africa. 31 March 2017.

BUSA and Jabu Mabuza. “Presentation to Energy Indaba 2017”. 8 December 2017.

Context

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.

Guiding principles

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.

Challenges

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.

Analysis

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.

In addition:

• 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.

Conclusion

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.

Sources

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.

Introduction

Small and medium enterprises (SMEs) constitute the biggest part of the economy and have the potential to create a significant number of jobs in South Africa, which would help to reduce poverty, unemployment and inequality. Evidence worldwide shows that SMEs are the most significant source of new employment in a country. Under the right conditions, they can enhance competition, innovation and entrepreneurship.

While SMEs are the largest contributor to private employment in South Africa, they fall well short of the averages in developed and developing economies. Smaller businesses in South Africa contribute only 65 percent to employment, compared with a worldwide average of 95 percent, indicating the potential of sustainable black enterprise development to facilitate inclusive growth.

In 2015, with support from the International Labour Organization, BUSA embarked on a series of research and reporting activities to develop an evidence-based policy position and action strategy to boost enterprise development and facilitate the transition of informal businesses into the formal economy. This research formed the basis of BUSA’s policy position, action plan and engagement with its social partners.

Guiding principles

Thriving SMEs are a means of creating an inclusive economy and a transformed society. At a time when manufacturing and the primary sectors of the economy are under great stress and the economy remains concentrated in the hands of a few, small and medium local businesses and township economies have great potential to help grow and develop an inclusive economy.

The concerns and needs of small and informal businesses need to be heard in national economic and social policy debates, so care must be taken to reduce their regulatory burden and the administrative inefficiencies that hinder them. There needs to be a “think small first” principle in policy development. While BUSA is often incorrectly seen to mainly represent the interests of big business, it is correct that it must become an effective, more vocal representative of informal, small and medium enterprises.

Challenges

Research by BUSA has identified the following as key obstacles to the development of small businesses and their incorporation into the formal economy:

• Entrepreneurship must be encouraged and skills development strengthened. A major obstacle to enterprise development in South Africa is that the education system does not teach young people to be entrepreneurial. Coupled with this, a skills shortage in the workplace consistently ranks as one of the biggest impediments to the growth of small firms.
• Information about hiring and employment practices and accessing finance and market opportunities are particular areas where small businesses need support.
• There needs to be a coherent definition and legislative treatment for small, medium and micro businesses to ensure policy alignment across government and public and private institutions.
• Support measures need to target the needs of specific kinds of small business.
• Small businesses carry a disproportionate regulatory burden. In terms of the burden of government regulations, the 2015 Global Competitiveness Report places South Africa at 117 out of 144 countries. Findings from the Davis Tax Committee and the SME Growth Index indicate that the burden of regulatory compliance to small business equates to an administrative opportunity cost of R216 000 a year, or R18 000 a month.
• Entrepreneurship and business support services are underdeveloped in South Africa. There are too many procedures to register a business or to access development support from government. Many businesses do not know what support is available or how to navigate the bureaucracy around it.

The way forward

To practically address the challenges facing small business, BUSA has developed an Action Plan on Enterprise Development for SMEs, Start-ups and Formalising Businesses. The key outcome of the plan is to create “an enabling environment for sustainable small business development and growth and the formalisation of the informal economy”. This can be achieved in the following ways:

• Evaluate and propose workable solutions to reduce the regulatory burden and red tape faced by small businesses. Advocate for the inclusion of small business growth as a key criterion in government’s socioeconomic impact assessment.
• Provide better access to information, particularly in relation to access to finance, registration of business and how to manage labour relations. BUSA can foster links with members and partner associations that provide information on support services and incentive programmes for business start-ups and SMEs.
• Partner with government, institutions and associations to provide support to SMEs on specific challenges: for example, the Commission for Conciliation, Mediation and Arbitration on hiring and employment practices; the Banking Association South Africa on financing opportunities; and government on how to register a business.
• Identify the main challenges imposed by the tax regime on small businesses and work with the National Treasury to resolve them.
• Help strengthen the voice of small business in national economic and social policy debates.
• Advocate for the establishment of a platform of government, business and labour partnerships to focus on small business support and job creation.
• Prepare a position paper and recommendations to simplify the definition of a small business in the National Small Business Act.
• Prepare a self-help guide for small businesses so they can better access Sectoral Education and Training Authorities opportunities and funding.
• Explore social security benefits for SMEs and informal business owners and employees, including health care, pension funds and unemployment insurance.

Conclusion

Enterprise development and drawing informal enterprises into the formal economy are major opportunities to achieve the employment and growth objectives of the National Development Plan. This requires a “think small first” approach to policy development and coordination across all spheres of government. A uniform definition of a small business across all programmes would help increase coherence in policy and enable small businesses to know when they may be eligible for differentiation. To this end, BUSA should ensure that it is an effective advocate for SMEs, representing and advancing their interests in national social and economic policy debates.

Sources

BUSA. Action Plan on Enterprise Development for SMEs, Start-ups and Formalising Businesses.

BUSA. Triple Challenge of Inequality, Poverty and Unemployment. Presentation. 26 July 2017.

Trade and Industrial Policies Strategy. Report for BUSA: Towards a Single Definition of Small Business. December 2016.

SBP. The Enabling Environment for sustainable Enterprise Survey. 30 September 2015.

Introduction

BUSA is committed to achieving a deracialised, vibrant, diverse and globally competitive economy that enables all South Africans, regardless of race, gender or age, to have the opportunity to participate in the economy and earn a sustainable livelihood for themselves and their dependants. This can only be done through a collaborative approach with BUSA’s social partners.

Business recognises that economic transformation and inclusion is the best way to achieve the goals set out in the National Development Plan and effectively deal with the challenges of unemployment, poverty and inequality.

To this end, BUSA established an Economic Transformation Think Tank and developed a Business Approach to Black Economic Transformation for Inclusive Growth, which was endorsed by the BUSA Board and membership. This approach guides BUSA’s strategy and engagements with its social partners.

Guiding principles

Business believes that:

• The pace and depth of inclusive economic transformation has been insufficient.
• There is a need for full and equitable participation by black people in the South African economy, with an emphasis on those who are most disadvantaged (women, youth, people with disabilities and those living in poor households in townships and rural areas).
• Business’s ability to transform rapidly is greatly enhanced if government creates the conditions for growth.
• Corruption, maladministration and state capture undermine economic transformation.
• Business, government, organised labour organisations and other social partners need to take a collaborative, pragmatic approach to economic transformation. Their partnership should be based on trust and a commitment to social and economic development.
• A proactive, innovative and scalable approach to transformation is required. It should take into account the diversity of economic sectors, the different formats and sizes of business, and recognise the need for short- and medium-term trade-offs to achieve sustainable transformation.

Challenges to inclusive growth

• Smaller businesses contribute only 65 percent to employment, compared to a worldwide average of 95 percent, indicating the potential of sustainable black enterprise development to facilitate inclusive growth.
• The regulatory environment has many best-in-class laws, but their application fails to create the requisite certainty and conditions for competitiveness, economic inclusion and growth.
• Energy and water supply and road, rail, transport and IT infrastructure are inadequate, unreliable and too costly to enable businesses of all sectors, formats and sizes to be more competitive.
• A productive and stable labour market is required to boost business confidence.
• Funds to support black and small business development are inadequately focused and managed, and often inaccessible and misspent.
• There is a significant mismatch between skills being generated by the basic and post-school education system and those required for a growing economy and the fourth industrial revolution.
• The social security system is inadequate to sustain the number of marginalised, predominantly black, South Africans. It is also inefficient. This increases dependency on the employed and the cost of employment to businesses.
• Trade regimes, agreements, support structures and incentives are not optimally designed and implemented to enable South African businesses, of all sizes, to participate fairly and competitively across national borders. Through regional integration, Southern African Development Community countries can take advantage of economies of scale and reverse migration to South Africa.

Analysis

Business unconditionally endorses the intent of broad-based black economic empowerment (B-BBEE), employment equity and skills development legislation.

The B-BBEE Act (2003) and the B-BBEE Codes of Good Practice of 2007 (amended in 2013) aim to ensure meaningful participation of black people in the economy and substantially change the racial profile of ownership and management of the economy. However, no authoritative and comprehensive national study exists that measures all aspects of transformation in order to monitor performance over time. 

The Employment Equity Act (1998) prohibits direct and indirect discrimination in the workplace and aims to transform the labour force through affirmative action focused on black people, women and people with disabilities. The legislation has, however, driven a transactional approach, rather than supporting a substantive commitment to transformation. While progress has been made at most occupational levels, it has been limited at higher management levels. 

The Skills Development Act (1998) aims to facilitate the systematic development of the skills of employees, particularly black people and women, to make them more employable. However, the Sector Education and Training Authorities are fraught with contestation, inefficiency and maladministration, and only produce the skills business needs to a limited extent.

The B-BBEE Codes

An assessment of the B-BBEE Codes has shown that the Codes’ quantifiable measures have often resulted in organisations taking a transactional approach, where compliance is targeted rather than more systemic economic transformation.

• Ownership has largely failed to deliver meaningful control and value to black people, whose shareholdings are generally insufficient for them to exert direct influence on the strategic direction of companies.
• While there has been an increase in the representation of previously disadvantaged individuals at middle management, professional and technically skilled levels, this increase has not occurred at top and senior management levels. Nor has the appointment of black managers necessarily resulted in a transfer of management control.
• Systemic social and organisational factors are inhibiting participation and progression in the workplace. The value of diversity (improved performance and competitiveness) has not generally been recognised by business. Insufficient numbers of professionals are graduating with the skills necessary to meet the needs of a growing economy.
• There is significant scope to improve the effectiveness of public- and private-sector support of emerging enterprises. Enterprise and supplier development takes time and resources, and can affect short-term competitiveness. This necessitates government-led, sectoral programmes and a focused effort to build entrepreneurship.
• Data on socioeconomic development (SED) investment by the private sector is not readily available. Despite the significant financial and human resources expended, efforts are fragmented and often duplicated. There is a need to comprehensively evaluate the return of investment and best practices in SED. Corporates tend to focus on larger, well-administered and better resourced SED organisations to the detriment of smaller grassroots organisations. The effectiveness of SED spend is often impacted by a lack of public services, which is outside the control of business.

Business has detailed proposals to deal with each of these challenges. The measurement of B-BBEE needs to be recalibrated to focus more effectively on substantive transformation, value and influence.

Measures to create black-owned and -controlled businesses include providing access to markets, capital and skills that support entrepreneurship. There should be greater emphasis on asset sale transactions as part of establishing black-controlled businesses.

Increased black management control and better employment equity practices require mentorship, fast-track programmes and diversity management tools. Businesses need to share best practice and make use of the qualitative information contained in employment equity reports, as well as identify the different approaches needed for different industries.

The way forward

Business’s efforts to facilitate economic transformation and help build social cohesion has four elements:

1. Enabling a transformation culture in business through systemic initiatives and developing a research base that demonstrates the economic value of diversity.
2. Supporting enterprise development, including through industry development programmes, by scaling the Black Industrialist Programme and leveraging the Small and Medium Enterprises Fund.
3. Developing skills for current and future business needs, including by leveraging the Ikusasa Student Financial Aid Programme and implementing a widespread mentorship programme.
4. Promoting employment, particularly of the youth, through programmes like the Youth Employment Services initiative and other systemic contributors to sustainable employment.

Business wants to build strategic partnerships with government and organised labour to deliver economic transformation, using the National Economic Development and Labour Council as a forum for robust engagements. To this end business will:

• Use its skills and expertise to enhance its contribution to transformation and work with institutions like the B-BBEE Commission and the Employment Equity Commission to build an inclusive economy.
• Explore with government mechanisms to comprehensively and consistently measure economic transformation.
• Partner with government to introduce assessments of the impact of policies and regulations on economic development, small and medium enterprises, investment, job creation and barriers to doing business.
• Formulate a statement of intent, in which businesses of all sizes, formats and types commit to creating and supporting a deracialised and inclusive South African economy.

Conclusion

It is a strategic imperative for business to create an inclusive, globally competitive economy that creates value for all South Africans, regardless of race, gender or age. Transformation, which broadens and deepens economic benefit and participation, is the best way to facilitate South Africa’s growth and development.

Business is committed to working with government, labour and other social partners to accelerate economic transformation and inclusive growth. Business will do so by supporting education, skills development, job creation – particularly among the youth – and enterprise development.