Red Tape Study 5th Version 06 September 2012

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The environment of small business in KwaZulu-Natal

THE ENVIRONMENT OF SMALL BUSINESS IN THE

KWAZULU-NATAL PROVINCE

R.G. Taylor

September 2012


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TABLE OF CONTENTS

REPORT SUMMARY 5

1. RESEARCH BACKGROUND AND PURPOSE 10

2. SURVEY METHOD AND SAMPLE 14

3. EMPLOYMENT AND SKILLS PROFILE 20

4. BUSINESS PERFORMANCE AND FACTORS OF INFLUENCE 26

5. REGULATIONS, REGULATORY FRAMEWORKS AND REGULATORS 37

6. OVERVIEW AND INTERIM CONCLUSIONS 447. REFERENCES 50


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LIST OF FIGURES

2.1 SAMPLE LOCATIONS 15

2.2 SECTOR LOCATIONS 17

2.3 BUSINESS FORMS 18

2.4 SECTOR BUSINESS FORMS 18

2.5 AGE PROFILE BY SECTOR 20

3.1 EMPLOYEES BY SECTOR 21

3.2 HISTORIC EMPLOYEE CHANGES BY SECTOR 22

3.3 FUTURE EMPLOYMENT PLANS 22

3.4 EMPLOYMENT PLANS BY LOCATION AND SECTOR 23

3.5 FACTORS AFFECTING EMPLOYMENT DECISIONS 25

4.1 TURNOVER CHANGES BY SECTOR 26

4.2 TURNOVER BY LOCATION AND SECTOR 27

4.3 BUSINESS PROSPECTS BY LOCATION AND SECTOR 28

4.4 FUTURE FINANCIAL PROSPECTS BY LOCATION AND SECTOR 29

4.5 EXPECTED SIGNIFICANT CHANGES AFFECTING BUSINESS 30

4.6 PERCEIVED PROBLEMS AFFECTING SMALL BUSINESS 31

4.7 FINANCIAL SUPPORT FOR SMALL BUSINESS 34

4.8 FACTORS OF IMPORTANCE FOR LOCAL GOVERNMENT 35

5.1 QUALITY OF GOVERNMENT INFORMATION 39

5.2 QUALITY OF GOVERNMENT SERVICES 40

5.3 KEY ISSUES FOR ATTENTION OF GOVERNMENT 41

5.4 REQUIRED TRAINING PROGRAMMES 41


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LIST OF TABLES

2.1 SECTOR CLUSTERS 16

4.1 STRATEGIES FOR NEXT 12 MONTHS 32

4.2 RESPONSE TO STATEMENTS ON BUSINESS CONCERNS 36

5.1 REPORTED FREQUENCY OF ENGAGEMENT IN KEY

AREAS 37

5.2 REGULATIONS INTERMS OF DIFFICULTY 38

5.3 PROFILE OF SECTORAL ENGAGEMENT WITH REGULATIONS 39

6.1 SUMMARY OF RECOMMENDATIONS AND PROPOSED ACTIONS 48/49


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is a strong sense that small businesses understand most of the rationale for regulation

but have considerable difficulty with the way in which it is enacted. Instruments such as

the Standard Cost Model (UK) are invaluable in assessing the cost implications of new

legislation. They do not, however, necessarily cover those experiences of poor

information flows and poor service that can attend engagement with state authorities

and which add to costs and inconvenience for businesses.

The systemic nature of regulation and its implementation has to be recognized. South

African research completed in 2006 places considerable emphasis on the need to adopt

an holistic approach to the development, understanding and implementation of

regulations. A more inclusive and systemically sensitive approach to the total process of

regulatory enactment would go some way to streamlining the experience, making it

more cost effective and sensitive to the real needs of business without compromising

the obligations of neither the civil service nor the public interest.

Different sectors are understood to have different public risk profiles. For example

manufacturing and tourism, both of which have been focal in recent work (2011) and

earlier work (2008), are particularly heavily encumbered by legislation emanating from

all levels of government. The nature of both manufacturing and tourism relative to the

numbers of points of risk exposure set these sectors apart to a significant extent that

would lend credence to the fact that they are heavily burdened by the requirements of

the law. In brief, cognizance of these sectoral differences is essential in any evaluation

of the regulatory environment.

Recent work in the United Kingdom and South Africa (both completed in 2011)

indicates the value of longitudinal studies in the assessment of the development of

small business and in the creation of a favourable business climate for small business.

Studies, such as this one that provide a snapshot at a point in time are useful but do

not portray trends that reveal the manner and direction in which changes are occurring

The survey was intended to solicit the views of a representative sample of small

businesses in five KwaZulu-Natal towns. Collectively, these towns were known to

represent 80% of the provincial economy and were therefore considered to be an


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adequate representation of the prevailing circumstances of small businesses in the

province. The selected towns/metropolitan authority areas which were targeted were

Pietermaritzburg, Durban, Newcastle, Empangeni/Richards Bay and Port Shepstone. A

total of 1934 valid returns were received.

In employment terms the small businesses surveyed are really small. 97% employ less

than 50 persons with limited to non-existent intention to increase numbers of employees

in the short term future. The average number of employees per business is 2,4 persons

excluding the owner. Although only 71% of respondents addressed this question, the

overall sense is that the small businesses are really small in employment terms and

intend to stay that way.

There is little doubt that issues surrounding labour and employment are emotive issues

but are also regarded as a major limitation to the potential of small businesses to create

desirable new employment. The inherent flexibility that typifies employment relationship

in small business context is perceived to be under threat from the requirements to adopt

minimum wage regimes, along with the potential for growing enterprises to become

immersed in industry-wide industrial action that most small businesses can ill afford.

In a ranking of factors that were seen to be most significant for business success, those

surveyed unambiguously, but not surprisingly, identified the state of the economy, cash

flow and local competition as the most significant influences on business success.

Finance and access to finance were of lesser importance. This is mostly because small

businesses in general use private means to fund their operations. This survey confirmed

this.

The quality of municipal services, rates charges, roads, cleaning of public spaces and

the reliability of supply and the costs of electricity and water were very prominent as

factors impacting the performance and prospects for small businesses.

It is evident that taxation and regulations associated with labour administration are the

most bothersome and time consuming/costly for small business owners. A study

completed in 2005 and subsequent studies would agree with this finding. It is also

improbable that the situation regarding regulations and compliance will significantly


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improve in spite of recent attempts by government to simplify and streamline some

processes especially with regard to taxation. It is, for example generally anticipated that

a raft of new labour legislation is expected to be enacted soon. Not only is this thought

to hold cost implications for small businesses but it is also likely to increase the

incentives for mechanization to the detriment of labour.

Related to the matter of regulatory compliance, and seen to be part of it is the capacity

of, and manner of engagement with, the various levels of government. It is clear that

respondents do not enjoy a totally satisfactory relationship with government agencies

and departments. For the most part this was put down to a poor service culture and a

need for a greater customer focus in the activities of government. Issues of capacity and

competence were regularly foregrounded in addition to allegations about corruption in a

variety of guises within the civil service and amongst elected officials. In essence,

therefore red tape and bureaucracy are unlikely to go away, but it is possible and

desirable to make the experience of it and the administration of it considerably more

efficient and cost effective for all concerned.

The following recommendations are made:

That there is recognition of the complexity of the small business environment,

within which red tape and regulation are framing conditions that comprise only

one part of a situation that ideally requires broader systemic consideration and

an engagement on that basis if improvement is to occur;

That the role of anti-social behaviour, such as manifested by various forms of

crime, be understood to be a major limitation on small business survival and

growth, including customer flight;

That planning delays and poor servicing of (and absent) infrastructure represent

backlogs and lost potential;

That the concept of red tape clearly also includes administrative attitudes,

information quality and capacity that generates costs for small businesses;

That labour legislation is almost certainly hampering the willingness of small

businesses to grow and offer additional work opportunities;


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That corruption and discrimination are seen to be real and are perceived to be

impacting not only the award of work opportunities but also rentals in the private

sector;

That trends are more meaningful in studies of this nature than once off

snapshots with no interventions to improve;

That difference between locations appears, at this time, to be relatively less

important but that interrogation of potential differences should be undertaken.


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1. Research Background and Purpose

1.1 This survey is similar to others that have gone before where attempts have been

made to understand and facilitate the development and growth of small

businesses. Previous international, national and regional studies have (perhaps

unsurprisingly) drawn very similar conclusions regarding the impediments to

small businesses which seemingly remain relatively misunderstood as a

distinctive business form that holds distinctive characteristics. It is also readily

evident that there is considerable common ground amongst global small

businesses with respect to the issues that are surfaced when surveys are

conducted amongst them. The OECD (2004) report that outlines potential

strategic policy and practice approaches for the support of small businesses is

perhaps the most comprehensive set of recommendations for the review of policy

frameworks for small business. The report also recognizes the challenges that

appear to be global experience of small businesses.

1.2 The recently published Headline Report of Strategic Partnerships for Business

Growth in South Africas (SPBs) Growth Index (SPB, 2011), reinforces the

challenges that confront South Africa in attempting to stimulate the development

and growth of small businesses. For example, the aspiration of government to

create five million jobs over the next ten years can be simply translated into13600 new manufacturing businesses and a total of 100000 new businesses

overall (SPB,2011:3). It could be noted that less than 4% of startup businesses

take on new employees and that for every 100 new businesses an average of 10

jobs are created (GEM, 2005). Established businesses average 3.1 3.2

employees. The requirement to create employment through the medium of small

businesses will require a paradigm shift in thinking and practices relative to small


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business development. A focus on the red tape and bureaucracy alone will not

achieve this scale change in the rate of creation and survival of small

businesses.

1.3 It is typically common cause internationally that small and medium sized

enterprises hold greater potential for employment creation than do large

enterprises. A review of the potential of characteristics of small businesses that

was conducted in the USA demonstrates that the absorptive capacity of small

business as creators of new employment opportunities has significantly

exceeded that of large businesses in every year in the period 1990-2003(Edmiston, 2007:78). From a perspective of employment in South Africa, the

Global Entrepreneurship Monitor (GEM) records that 73% of employment occurs

in firms that are have fewer than 50 employees; 45% are employed in firms of

less than 10 employees (GEM, 2010). The same report further records that, in

the period 1985-2005 only 10% of new jobs were created in large, established

firms in a national environment where the rate of entrepreneurial activity is two to

three times lower than desired. From a perspective of employment creation

alone, the challenge to create a business climate that is conducive to facilitating

new business formation and support is a formidable one. South African research

completed in 2006 (GTZ, 2006) makes the case for improvements built upon a

foundation of a better public/private dialogue that addresses key dimensions of

the business climate that includes processes of governance, policy and

regulation, government capacity development and access to business services

and infrastructure. The need is urgent.

1.4 Although this study was framed to address itself to the matter of red tape and

its effects on small business, it was soon recognized that this had been a focal

issue for previous surveys that had been completed all with similar results (e.g.

Department of Economic Development & Tourism [DEDT], 2010; DEDT 2010).

The most referenced national survey on the cost impacts of compliance was

completed by Strategic Partnerships for Business Growth in Africa (SPB) in


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2004. At that time the estimated total costs of compliance in South Africa was

said to be some 6,5% of GDP, a number that compares unfavourably with other

countries. In their 2011 Report on small businesses in selected sectors, SPB

restated this figure. It is therefore believe to have contemporary validity. This

serves also to make the case for a comprehensive process, (such as has been

instituted in the UK) for the assessment of the compliance cost implications of

proposed legislation before it is enacted (Better Regulation Executive (BRE),

2005). All indications are that the compliance processes in South Africa have

become more burdensome, given the advent of a number of legislative measures

that have arisen as part of the transformation agenda of government. The costburden of regulation, as a proportion of operating expenses, falls more heavily on

small businesses rather than large ones, mostly because of the uniformity of

legislation as applicable to most business types and sizes.

1.5 The reported concerns with anti-social behaviours, including perceived

corruption and crime are also noteworthy additions to the burdens carried by

small businesses that also fall within the remit of government (SPB,2008). It is

worth noting that crime is recorded to be the third most problematic element for

doing business in South Africa; corruption ranks fifth (GEM, 2010). The record

shows that in 2009, 70% of robberies were perpetrated against small business.

1.6 Red tape is an ambiguous term because it is widely documented that for many

businesses it embraces the entire experience of engagement with government.

Compliance processes involve understanding the purpose and processes of the

legislation, obtaining relevant and correct information, waiting periods, courtesy

of staff, and the general sense of fair and equitable treatment - in addition to

compliance. There is a strong sense that small businesses understand most of

the rationale for regulation but have considerable difficulty with the way in which

it is enacted. Instruments such as the Standard Cost Model (UK) are invaluable

in assessing the cost implications of new legislation. They do not, however,

necessarily cover those experiences of poor information flows and poor service


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that can attend engagement with state authorities and which add to costs and

inconvenience for businesses.

1.7 The systemic nature of regulation and its implementation has to be recognized.

South African research completed in 2006 (GTZ, 2006) places considerable

emphasis on the need to adopt an holistic approach to the development,

understanding and implementation of regulations. A more inclusive and

systemically sensitive approach to the total process of regulatory enactment

would go some way to streamlining the experience, making it more cost effective

and sensitive to the real needs of business without compromising the obligationsof neither the civil service nor the public interest.

1.8 Different sectors are understood to have different dynamics, regional needs and

public risk profiles. For example manufacturing and tourism, both of which have

been focal in recent work (SPB, 2011) and earlier work (SPB, 2008), are

particularly heavily encumbered by legislation emanating from all levels of

government. The nature of both manufacturing and tourism relative to the

numbers of points of risk exposure set these sectors apart to a significant extent

that would lend credence to the fact that they are relatively more heavily

burdened by the requirements of the law. In brief, cognizance of these sectoral

differences is essential in any evaluation of the regulatory environment.

1.9 Recent work in the United Kingdom (BIS Small Business Survey 2011) and

South Africa (SPB, 2011) indicates the value of longitudinal studies in the

assessment of the development of small business and in the creation of afavourable business climate for small business. Studies, such as this one that

provide a snapshot at a point in time are useful but do not portray trends that

reveal the manner and direction in which changes are occurring other than in the

very short term.

1.10 The aim of the study therefore was to profile small businesses in various sectors in

the KwaZulu-Natal Province with a view to determining the distribution of these


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The original target of 2500 was not achieved in spite of an extended survey periodand strenuous efforts to improve the output of survey team members. This reduced

sample size does not compromise the validity of the major findings of the survey.

2.2 The survey was conducted using a structured questionnaire that was formulated so

as to profile the concerns and the performance of small businesses across a range

of sectors. It was clear at the outset that previous, relatively recent work (DEDT,

2010, 2011) had already attempted to address the costs to small businesses of

compliance requirements. This survey therefore sought, in addition, to establish asmany significant factors as possible that small businesses found to be impediments

to their growth and progress.

2.3 A survey team comprising 22 interns from KZN Provincial Government was

designated to administer the survey in the five sites. This team had very changeable

membership over the life of the survey and never numbered more that 15 at any one

time. The survey commenced at the end of June 2011, was scheduled for

completion in August 2011 but was attended by slow delivery of results, leading toan extended survey period until the end of November 2011. The survey was

supported by six interviews with city officials and business chambers in Durban and

Pietermaritzburg as well as business development agencies that provided invaluable

insights into the small business environment.

2.4 In view of the experience of slow delivery, and attendant complications associated

with a need for a more direct approach to the management of the survey team, the

initial intention to stratify the sample to reflect the profile of sectoral activities in each

town was not pursued as a priority. It must, therefore, be recorded that the

distribution of the total sample to sectors was conditioned by the random nature of

the survey teams activities that tended to focus on urban, relatively accessible and

centralized locations. This would have an influence on the sample mix and indeed

some aspects of the results; although the overall meaning of the results is not

believed to be unduly contaminated. The survey, albeit conducted on a relatively


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random basis, did produce a good, though not unexpected, mix of sectors. In order

to simplify some aspects of analysis but also to reconcile this work with that

previously done, it was decided to adopt the sectoral clustering that had been used

by the Global Entrepreneurship Monitor (GEM, 2010). This resulted in four sector

clusters being used as the basis for further data analysis as displayed in Table 2

which also defines the component elements that comprise each cluster.

TABLE 2.1: SECTOR CLUSTERS

SECTOR

(NUMBER OF

RESPONSES)

EXTRACTIVE

(33)

TRANSFORMATIVE

(518)

CONSUMER

SERVICES

(900)

BUSINESS

SERVICES

(319)

Sector

Constituents

Agriculture

Forestry

Fishing

Mining

Construction

Manufacturing

Transport

Communications

Utilities

Wholesale

Retail

Motor

Vehicle

Hospitality

Personal

Education

Recreation

Finance

Insurance

Real Estate

The distribution of these sectors to the five towns is shown in Figure 2.2.


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Unsurprisingly, the dominance of the consumer services sector is evident at all

locations. This reconciles with previous work that confirms that a significant majority

(67%) of small businesses are typically located in the consumer services (mostly

retail) sector. This is attributed to low barriers to entry but also makes this a sector of

low profit margins, and an over-traded sector that is vulnerable to economic

slowdown. It is also a sector that does not hold great potential for employment

creation to the extent, for example, that the transformative sector could. Greater

openness to new markets could, however, improve prospects for new employment in

the consumer services sector but requires new investment and capacity building in

local operations.

2.5 Perhaps also unsurprisingly, the survey indicates a relativelygreater proportion of

transformative and business services activity in Durban (57%) compared with other

sites. The transformative sector, principally manufacturing, holds greatest potential

for employment generation, although monopoly interests, limited energy access and

growing inflexibility in the local labour market are acknowledged factors that

potentially limit the sector.

0%

10%

20%

30%

40%

50%

60%70%

Figure 2.2: Sector Locations

Extractive

Transformative

Consumer Services

Business Services


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2.6 85% of those surveyed operated from one site only but 413 (20%) of those surveyed

did express the wish to open up at another location in addition.

The dominant business forms (see Figures 2.3 and 2.4) are the close corporation

(46%) and sole proprietorships (29%). Family businesses and partnerships account

for 7% and 6% respectively of the balance and limited liability companies [(Pty) Ltd]

29%

7% 6%

46%

10%

1%

Sole

Proprietor

Family

Business

Partnership Close

Corporation

Pty(Ltd) NPO

Fig. 2.3: Business Forms

0%

10%

20%

30%

40%

50%

60%

Extractive Tranformative Consumer Services Business Services

Fig 2.4: Sector Business Forms

Sole Prop. Family Bus. Partnership CC Pty ltd NPO


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comprise 10% of those surveyed. Non-profit entities and others make up the

remaining 1% of the total sample. The predominance of the close corporation is not

surprising but the recent demise of this business form will afford future interest as

small businesses adjust to the revised legal frameworks that have recently been

enacted.

2.6 New businesses (less than 1 year old) comprised 11% of the sample. 17% were

less than 3 years old; 19% were less than 5 years old and the remaining 53% were

more than 5 years old, including some 37% which were over 10 years old and

therefore well-established enterprises. The disaggregation of the sample into sectors

(see Figure 2.5) reveals that the majority of those businesses surveyed in all sectors

is more than three years old and would therefore be regarded as relatively mature,

established enterprises. The phenomenon of a significantly large proportion of

mature businesses relative to start ups represents both an anomaly as well as a

challenge because it is an inversion of that which is the conventional norm for small

businesses i.e. many startups with relatively fewer survivors. For example, in

South Africa, the propensity for new businesses to be established compares well

with international norms. A report released in 2010 (GEM, 2010) indicates that 8,9%

of South Africans are involved in early stage entrepreneurial activity. This places

South Africans in the middle range of achievement by international standards,

although it is also noted that there is a dominance of White and Indian citizens

involved in small business formation (First National Bank, 2010). For the country as

a whole, the prevalence of persons engaged in small businesses older than 42

months falls to 2,1%. The reasons for this drop are clearly varied but the statistic

compares unfavourably with comparable developing economies, such as those

located in South East Asia and South America. The sample that comprises this

survey indicates many mature businesses and fewer startups hence the anomaly

but also a concern that is largely self-evident. The seeming lack of new enterprise

formation in the survey area is alarming in the sense that it does not bode well for

the achievement of the employment policy objectives that are heavily reliant on new

sustainable small businesses. It also begs the question as to what factors are

influencing the maintenance of an aging group of established businesses (that also


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require enabling support) but which are unlikely to provide the type of growth and

employment opportunity that requires very large numbers of new enterprises as

indicated under 1.2 (above).

3. Employment and Skills Profile.

3.1 In employment terms the small businesses surveyed are really small. 97% employless than 50 persons (see Figure 3.1) with limited to non-existent intention to

increase numbers of employees in the short term future.

15%

11% 12%

8%

15% 14%

18%19%

18%

21%

18%

22%

18%

14%

17%

20%

35%

40%

37%

32%

Extractive Transformative Consumer Services Business Services

Fig 2.5: Age Profile by Sector (Years)

0-1 0-3 0-5 0-10 >10


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The predominant business forms defined in 2.6 above makes this an unsurprising

result but it also means that the expectations of small businesses as a vehicle for

creating employment could be overstated. There was also very little reported

tendency to employ seasonal workers, even within the hospitality sector where

general economic stringency is curtailing retail activity, lengths of stay and holiday

expenditure, even in traditional holiday destination areas (e.g. Port Shepstone).

Whilst the position of small business as that business area that is best placed to

create opportunity is understood to have some credence, the established reality

arising from research completed in the UK, USA and Australia is that existing small

businesses may not generate the employment on the scale that policy makers

anticipate. New small businesses may hold potential but also have dubious survival

potential unless adequately and appropriately enabled.

69%62%

80%72%

28%34%

19%24%

3% 4% 2% 4%


Fig 3.1: Employees By Sector

0-9 Employees 10-49 Employees 50-100 Employees


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3.2 The average number of employees per business is 2,4 persons excluding the

owner. Although only 71% of respondents addressed this question, the overall sense

is that the small businesses are really small in employment terms and intend to stay

that way. Of 1642 responses, 78% of respondents had either not changed or had

decreased the number of employees in the previous twelve months; 22% had

increased their employee numbers but generally by less than 5 employees and

typically only by 1 or 2 persons. Plans for the next 12 months were similar 27%

22% 23%19%

33%

11%14% 14% 12%

67%63%

67%

55%


Fig 3.2: Historic

Employment Changes by Sector

Increase Decrease No Change

13%

31%

22%

36%

4% 5% 4% 4%

83%

64%

74%

59%


Fig 3.3: Future Employment Plans

Increase Decrease No Change


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planned to slightly increase their workforce (typically less than 5 additional persons)

while most (73% either anticipated no change or a decrease). Significantly, the

planned future decreases were low, comprising only a 4% reduction which was

some improvement on the 13% reported decrease in the previous 12 month period.

Figures 3.2 and 3.3 speak to this. Figure 3.2 provides an indication of the historic

situation in the 12 month period preceding the survey while Figures 3.3 and 3.4

provide a projection of employment intentions for the next twelve month period.

Although not conclusive, a comparative view of Figures 3.2 and 3.3 speaks to a

modest stabilization in intention. The proportion of businesses intending to decrease

staff has reduced; those intended to increase have grown and those maintaining thestatus quo have increased.

3.3 While exact numbers would require further investigation, the skills profile across all

areas and sectors is predominantly either skilled (40%) or semi-skilled (37%). A 22%

0%

20%

40%

60%

80%

100%

120%

Extractive

Transformative

ConsumerServices

BusinessServices

Extractive

Transformative

ConsumerServices

BusinessServices

Extractive

Transformative

ConsumerServices

BusinessServices

Extractive

Transformative

ConsumerServices

BusinessServices

Extractive

Transformative

ConsumerServices

BusinessServices

Pietermaritzburg Durban Newcastle Empangeni Port Shepstone

Fig 3.4: Employment Plans By Location and Sector

Increase Decrease Unchanged


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balance is unskilled. Opportunity for unskilled work amongst those surveyed appears

to be limited the demand for new employees is primarily associated with skilled

work. This also militates against the capacity of local small businesses to provide

significant work opportunities for unskilled persons which is arguably the area in

which the greatest needs lie. A reluctance to employ additional staff resides, in

addition, in the impact of existing (and proposed) labour legislation which

respondents cited as a consideration when reviewing their employment decisions.

The GEM (2010) report records, for example, that South Africa ranks 135 th out of

139 countries in terms of inflexible hiring and firing policies. In a similar vein, the

SPB (2011) dialogue records the reluctance of small business to absorb labour andin some cases to constrain employment growth in order to remain outside the scope

of some legislated provisions.

3.4 Race and gender profiling shows that 52% of small business employees are drawn

from the African community (28% male; 24% female) with the White and Asian

ethnic groups approximating 20% each and Coloured persons making up the

balance of 7%.

3.5 While the profile of the sample in terms of the skills, race and gender is useful, of

more use are the factors that small businesses claim to affect their employment

decisions if and when they would exercise that decision (see Figure 3.5). Amongst

an array of possible factors, the least significant (9%) was the view that

management capacity would constrain any decision to increase employee numbers.

Of greatest significance for most small businesses were the existing plans for the

business (44%) that could also include deliberate decisions/choices regarding size

relative to tax and employment equity thresholds. While this is somewhat

speculative, there is evidence from previous recent work (SPB, 2011) in South Africa

that these thresholds are known to be held in mind by businesses when they

consider their future development and growth. Aside of plans for the business, the

issue most fore-grounded by those surveyed was the cost of labour (40%) and the

legislation surrounding labour in general (19%). Skills shortages (27%) and the

associated phenomenon of poor productivity (28%) were also identified as significant


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determinants of the propensity to increase the size of the workforce. Technological

changes and the challenges associated with that were identified by 21% of

respondents to be significant factors of influence in determining the size of their

labour requirements. Inevitably, the overall demand for their products and services

would determine the business needs, according to 32% of respondents.

3.6 There is little doubt that issues surrounding labour and employment are emotive

issues but are also regarded as a major limitation to the potential of small

businesses to create desirable new employment. The inherent flexibility that typifies

employment relationship in the small business context is perceived to be under

threat from the requirements to adopt minimum wage regimes, along with thepotential for growing enterprises to become immersed in industry-wide industrial

action that most small businesses can ill afford. It is recorded that South Africa ranks

135th out of 139 countries in terms of problematic hiring and firing policies and

practices (GEM, 2010) which serves as a disincentive to potential employers.

3.7 The small average size of those businesses surveyed speaks to the essential nature

of small businesses i.e. that they are mostly family funded, managed and operated

44%

19%

28% 27%

40%

32%

9%

22%

Fig 3.5: Factors Affecting Employment Decisions


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and exist to benefit individual family units and close associates. This creates an

operating dynamic and forms of behaviour which are founded on personal

relationships that are not typically present in large businesses. It also means that

small businesses are a distinctive organisational form that is not typically well

understood or accommodated by legislation.

4. Business Performance and Factors of Influence.

4.1 For 62% of those surveyed, their turnover performance over the previous 12 months

had either decreased (34%) or stayed the same (28%). This means that 38% had

improved their turnover performance. Figures 4.1 and 4.2 further develop this overallpicture by sector cluster and location. The relatively larger decrease in turnover in

the consumer services sector is noteworthy but not surprising, given the incidence of

this study at the time of general economic downturn. The location that differs from

this overall trend is Port Shepstone.

32%35%

29%

36%

24%

35%

40%

31%

44%

30% 31%34%


Fig 4.1: Turnover Change by SectorIncrease Decrease No Change


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4.2 Business prospects for the entire sample in all locations for the next 12 months were

felt by 44% to be better, while 22% and 32% felt that business prospects would be

worse or unchanging, respectively. Figure 4.2 shows this as mediated by locationwhere a relative consistency of expectation across locations and sectors is evident.

0%

10%

20%

30%

40%

50%

60%

70%

Extractive

Tranformative

ConsumerServices

BusinessServices

Extractive

Tranformative

ConsumerServices

BusinessServices

Extractive

Tranformative

ConsumerServices

BusinessServices

Extractive

Tranformative

ConsumerServices

BusinessServices

Extractive

Tranformative

ConsumerServices

BusinessServices


Fig 4.2: Turnover Change by Location and Sector

Increased Decreased Unchanged


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4.3 As a assessment of financial confidence in the future, 56% were confident, 18%

were not and 25% did not know (or were uncertain). (See Figure 4.4 for details of

this). Cross-tabulation of changes in turnover performance (which are generally

unchanged or negative) with expression of confidence in the future shows some

ambiguity in the assessments of small businesses that express future confidence but

financial uncertainty, almost at the same time.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Extractive

Transfo

rmative

Consumer

Services

Business

Services

Extractive

Transfo

rmative

Consumer

Services

Business

Services

Extractive

Transfo

rmative

Consumer

Services

Business

Services

Extractive

Transfo

rmative

Consumer

Services

Business

Services

Extractive

Transfo

rmative

Consumer

Services

Business

Services


Fig 4.3: Business Prospects by Location and Sector

Better

Worse

Unchanging


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Figure 4.5 illustrates the stated strong intention of those surveyed to grow their

businesses over the next five years that is also typical of small businesses that are

almost bound to be optimistic in their own interests. This perhaps also underscores

the reality of the very uncertain trading environment for small businesses, offset

against the known optimism that has been found to typify the entrepreneurial spirit,

such as is found in small businesses. Actual figures for percentage changed

turnover performances provided are thought to be unreliable, given a poor or

seemingly confused response to this item. Changes in profitability as reported arelikewise confused and cannot be reliably reported on here without further

investigation. At best, it appears that, with few exceptions, profits have not improved

over the previous 12 months, irrespective of reported changes in turnover.

0%

10%

20%

30%

40%

50%

60%

70%

80%

Extra

ctive

Transformative

ConsumerServices

BusinessServices

Extra

ctive

Transformative

ConsumerServices

BusinessServices

Extra

ctive

Transformative

ConsumerServices

BusinessServices

Extra

ctive

Transformative

ConsumerServices

BusinessServices

Extra

ctive

Transformative

ConsumerServices

BusinessServices


Fig 4.4: Future Financial Prospects by Location and Sector

Confident Not Confident Do Not Know


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4.3 The predominant factor of influence relative to changing turnover performance is

economic recession where 60% of respondents recorded this as being the issue of

most significance that also impacted their propensity to grow their labour force. The

second most significant factor (29%) was related to local competition. This factor is

complicated by the statements made by respondents who were concerned about the

phenomenon of informal street traders whose business was eroding their custom.

There was also a concern about the presence of foreign traders, meaning mostly

Asian persons and imported goods. These are not new issues. The conflict between

those who trade within the law and those who do not is a well documented factor.

Informal traders and the existence of cheap foreign goods are substantially

unregulated, leading to a sense of disadvantage for legitimized, compliant

businesses and resentment directed at the authorities because of their inability orunwillingness to exercise control. Figure 4.6 depicts the outcomes arising from

giving the respondents opportunity to freely express their views regarding problems

as they perceive them also illustrates the concern that respondents have regarding

the existence of illegal traders amongst other factors that will be further elaborated

later.

42%

13%4%

10% 8% 7% 10% 7%

Fig 4.5: Expected Significant Changes in Next

Five Years


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4.4 Other issues of relative concern to respondents regarding turnover performance

were cash flow (22%) - including slow processing of payments especially by

government departments, access to new markets (16%), unfair competition (16%)

meaning also issues relative to lack of monitoring of informal traders and imported

goods as well as perceived discrimination and malpractices in tender awards, rand

strength (15%), and crime (15%). These findings coincide with the findings of a 2011

survey by SPB which also found that the factors highlighted in 4.3 and 4.4 were

those that most impacted small businesses, as reported by small businesses.

4.4 Although only 15% of respondents marked crime as a factor affecting their turnover,

subsequent opportunity to state issues of concern, highlighted crime as a

preoccupation of the small businesses that were surveyed. This was also an issue

raised in interviews with city officials in both Durban and Pietermaritzburg. The

systemic consequences of criminal activity are profound. A report completed in 2008

has dealt in detail with the detrimental effects of crime on business in general (SPB,

2008). Whilst forms of crime vary and location of businesses is significant, evidence

presented is that small, newly established businesses are particularly vulnerable

with crime accounting for 20% of turnover. Customer flight from central urban

19%

6%7%

27%

21%

5% 4%

10%

Fig 4.6: Perceived Problems Affecting Small

Business


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locations is also prevalent, leading in turn to deteriorating trading conditions for

businesses in general and overall decline of inner city neighbourhoods in particular.

4.5 Respondents identified increased market share as that which defined their primary

strategy for the next 12 months as Table 4.1 indicates. Of 1929 responses that

requested identification of the strategy or combination of strategies to be employed

in the twelve months ahead, there is relatively clear indication of a quest to expand

market share and to pursue new markets and new products in general which

appears also to imply recognition of the need to upgrade employee skills. This

appears to validate the views of business chamber interviewees who felt that the

real growth needs of small businesses lay in the expansion to new markets and the

commensurate development of the skills base. In support of this contention, the view

that at least some business support resources are misallocated and could be

redirected towards more effective marketing and/or skills upgrading appears to have

validity.

Table 4.1: Declared strategies of Respondents for next 12 months

Intended Strategy Percentage of Respondents

Improve share of existing markets 40

Access to new local markets 33

Access to export opportunities 9

Opening additional business site(s) 21

Forming alliances or joint ventures 12

New product development 29

New process development 13Increased number of employees 20

Employee skills upgrading 26

Expansion of existing facilities 20

Relocation to new site 15


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4.6 In a ranking of factors that were seen to be most significant for business

success, those surveyed unambiguously, but not surprisingly, identified the state

of the economy, cash flow and local competition as the most significant

influences on business success. Finance and access to finance were of lesser

importance. This is possibly explained by the general tendency of small

businesses to be funded from private reserves and family resources rather than

by accessing loan finance, other than mortgage re-advances. Although there

was considerable written feedback regarding the stringency of requirements for

acquisition of finance and the inefficiencies in the agencies that are charged with

business funding, 67% of respondents were happy with the range of bankingservices provided. Very few (15%) had successfully applied for venture finance;

more (21%) had applied without success and 64% had never sought such

support. This scenario correlates well with the recent findings of the SPB which

has recorded that 60% of small businesses use their own resources (SPB, 2011).

They also note that only 2% access funding from institutions like the Industrial

Development Corporation; 8% used banks and 6% obtained funds from private

investors or shareholders. These statistics, that confirm the tendency to use

private funding sources, probably serve to validate the contentment expressed by

the respondents regarding banking services if your use is limited; there is little

cause for discontent. Figure 4.7 does, however, provide a response to a range of

issues associated with financial support. In essence, the very limited extent to

which small businesses are utilizing publicly-funded agencies as a vehicle for the

initiation and operation of their businesses indicates a need for a review of the

policies and practices of these agencies whose functions appear to lack

significant impact. It is in this context that the 33% appeal for further government

support comes to have meaning, as indeed does the 26% who believe that

banking services are excessively expensive and may justify government

intervention.


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4.7 In the further ranking of factors that were seen to impact business success,

taxation and other government regulations were seen to be significant but only

moderately so. The impact of poor municipal services were highly ranked as a

factor of great significance (see Figure 4.8) This concern is validated in that,

when asked to comment on the quality of municipal services, rates charges,

roads, cleaning of public spaces and the reliability of supply and the costs ofelectricity and water were very prominent as factors impacting the performance

and prospects for small businesses. In the case of Newcastle, a very consistent

plea for improvements in access to Gauteng was strongly evident including

carriage of goods in and out, as well as improved transport for people.

33%

19%

16%

26%

7%

More

Government

Support

Strict Lending

Criteria

Insufficient

Support

High Bank

Charges

More

Awareness

Needed

Fig 4.7: Financial Support for Small Business


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4.8 Table 4.2 indicates the pattern of responses from 1742 of the total sample. It

appears from the above that the issue of market access (item D5.2) is differentially

reported on, but there is significant number who find difficulty with access to new

markets, thus adding credibility to the earlier reported finding that market access is

problematic for some but there is an assertion (D5.14) that new products areregularly brought to market but that export opportunities (D5.12) are not very

important; access to government information and services (D5.7 and D5.13) are

highlighted as a difficulty for most and that the regulatory frameworks (D5.8) may be

a problem for some. Labour legislation (D5.9), contrary to earlier research findings

and to the findings elsewhere in this study is reported to be well understood and

practiced and that people development is significantly attended to (D5.15). This

latter finding would concur with earlier work that identifies a preference for small

businesses (including South African) to develop new skills in existing employees

rather than take on new staff. (e.g. SPB, 2011) The apparent contradictions require

deeper examination as some respondents may be sensitised to the origins of this

study that could have influenced some responses and created apparent ambiguities.

58%

3%

9%

16%13%

Service Delivery Policing Corruption SMME support Political Factors

Fig 4.8: Factors for Improvement in Local

Government Practices


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Table 4.2: Summary Respondent Statements (n=1742)

StatementStrongly

Agree(1)

Agree

(2)

Do notknow

(3)

Disagree

(4)

StronglyDisagree

(5)

D5.1 Our business is good at developing andimplementing business plans and strategies

26% 55% 9% 5% 7%

D5.2 Our business has difficulty in developingmarket knowledge and entering new markets

9% 30% 12% 34% 9%

D5.3 Our business is well supplied withinformation regarding tax and regulationchanges

17%48% 9% 17% 4%

D5.4 Our business manages its cash flow well

and rarely experiences financial crises relatedto cash flow

18% 47% 11% 16% 3%

D5.5 Our business has good networks withother businesses in our region

20% 51% 9% 12% 2%

D5.6 We are usually aware of new businessopportunities and are able to benefit fromthese

11% 40% 16% 21% 5%

D5.7 Government services are easilyaccessible to our business

5% 22% 19% 35% 1%

D5.8 The regulatory framework within whichwe operate does not place excessive burdenson our operations.

6% 36% 25% 18% 5%

D5.9 Labour regulations are well understood

and practiced by our business 18% 51% 10% 10% 3%D5.10 In our business we have many problemswith recruiting appropriately skilled labour

9% 30% 11% 32% 8%

D5.11 Electricity and water supply is not afactor in our business decision making andplanning

12% 33% 6% 27% 15%

D5.12 We have no need for knowledge aboutexport opportunities for our products

13% 34% 11% 22% 10%

D5.13 We would like government support todevelop our business but struggle to find outwhat is available.

26% 40% 12% 12% 3%

D5.14 Our business regularly brings newproducts to market

14% 43% 9 22% 2%

D5.15 Our business spends significant timeon developing its people and management

21% 46% 11% 14% 2%

5. Regulations, regulatory framework and regulators

5.1 As identified in Section 1.4 of this report, previous reports (DEDT, 2010 and 2011)

have dealt extensively with the matter of regulatory costs of compliance and

therefore the costs of compliance have not been extensively dealt with in this report.


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Respondents were, however, asked to identify the areas in which they are required

to report regularly and then to indicate which they found to be most burdensome.

Table 5.1 is indicative of the areas of typical engagement while Table 5.2 indicates

the types of difficulty that small businesses have in terms of their compliance. It is

evident that taxation and regulations associated with labour administration are the

most bothersome and time consuming/costly for small business owners. A study

completed in 2005 and subsequent studies (DEDT 2010, 2011) would agree with

this finding. It is also improbable that the situation regarding regulations and

compliance will significantly improve in spite of recent attempts by government to

simplify and streamline some processes especially with regard to taxation. It is, forexample generally anticipated that a raft of new labour legislation is expected to be

enacted soon. Not only is this thought to hold cost implications for small businesses

but it is also likely to increase the incentives for mechanization to the detriment of

labour.

Table 5.1: Reported proportion of respondents in terms of relative frequency

engagement with regulatory authorities in key areas

Regulatory

Framework

Reported Engagement (AllSectors)

Health andSafety

51%

Labour Laws 57%

EmploymentEquity

43%

Planning &Development

32%

Environmental 30%

Taxation 79%


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Table 5.1 as it stands is only useful to the extent that it exposes the areas in which

most engagement occurs. As such it represents a perspective that is relative only

across all sectors but does nevertheless highlight the incidence of taxation as the

most significant area of engagement for most SMEs in the sample. Labour Laws

and Employment Equity are the next most significant but have differential impacts

according to sector as Table 5.3 shows.

Table 5.2 offers some explanation as to why the engagement profile in Figure 5.1 is

as it is. The relative time and costs associated with taxation and labour

administration in general speak to the idea that the legislation is reasonably well

understood but not necessarily easy to enact. This, however, is a speculative

conclusion that would require more exploration within the sample itself.

Table 5.2: Regulations with which respondents regularly engage according to

their assessment of compliance difficulties (n=1057 or 54%)

Regulation Poorly

Understood/Confusing

Time

Consuming

Costly

Compliance

Requirements

Health andSafety

15% 18% 14%

Labour Laws 13% 21% 20%

Employment

Equity11% 18% 13%

Planning &

Development11% 14% 12%

Environmental 10% 13% 10%

Taxation 15% 17% 35%


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Tables 5.3 Regulation fields in which respondents are required to make regular reports

Regulatory Field and

Sector National Government

Provincial Government Local Government Total

Health and Safety

Transformative

Consumer Services

Business Services

31%

10,7%

14,4%

5,9%

17,7%

5,2%

9,0%

3,5%

16,3%

16,3%

29%

6%

100%

32,2%

52,4%

15,4%

Labour Laws

Transformative

Consumer Services

Business Services

36,8%

10,9%

18,1%

7,8%

22,6%

6,3%

12,1%

4,2%

40,6%

13,5%

22.0%

5,1%

100%

30,7%

52,2%

17,1%

Employment Equity

Transformative

Consumer Services

Business Services

36,1%

10,5%

17,2%

8,4%

23,4%

6,2%

12,4%

4,8%

40,5%

15%

20,9%

4,6%

100%

31,7%

50,5%

17,8%

Planning

Transformative

Consumer Services

Business Services

20,4%

5,8%

11,1%

3,5%

24,4%

7,6%

13,2%

3,7%

55,2%

19,6%

28,4%

7,2%

100%

33,0%

52,7%

14,3%

Environmental

Transformative

Consumer Services

Business Services

18,7%

5,9%

8,1%

4,7%

21,1%

6,1%

12,5%

2,5%

60,2%

22,8%

29,3%

8,1%

100%

34,8%

49,9%

15,3%

Taxation

Transformative

Consumer Services

Business Services

59,2%

18,6%

28,7%

11,9%

13,0%

4,5%

6,9%

1,6%

27,8%

7,1%

16,6%

4,1%

100%

30,1%

52,3%

17,6%


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Table 5.3 represents a more detailed analysis of the responses on three of the

summary sectors regarding the impact legislation. It is clear that there is confusion and

probably speaks to uncertainty and confusion in the minds of small businesses that is

possibly also driven by the incorporation of labour and equity provisions in tendering

and other government processes at all levels of government.

Of significance, however, is the generally greater impact of legislation in the

transformative and consumer services areas. This is not surprising, given the

incorporation of manufacturing and tourism activities (respectively) in these areas. The

actual measure of impact in cost/time terms would require the generation of a

considerable data base with focal consideration of key areas of concern for small

businesses. The DEDT (2011) report has gone some way to identifying the legislation in

overall terms. This need to be rationalized into key focal areas for further exploration.

5.2 It is readily recognized that a great deal of legislation that affects small businesses

is enacted nationally but implemented locally. It is also readily recognized that

legislation emanates from a number of different departments of government and is often

driven by conflicting agendas that do not facilitate systemic effectiveness. In brief, the

overall ideological positioning of government and its translation into policy can, and

often is, differentially driven by a number of departments working in isolation from one

another. While the setting of frameworks nationally provides some measure of

consistency, previous research (OECD, 2004; GTZ, 2006) argues for a process of local

empowerment and inclusion. This would include the development and support of local

development agencies and systems of finance and an inclusive process of decision

making regarding the implementation of regulations at local level. The creation of an

inclusive strategic agenda for the development of small businesses and the building of a

civil service culture that understands the importance of small business in social and

economic terms would go some way to creating a climate in which small businesses

can develop.

5.3 Related to the matter of regulatory compliance, and seen to be part of it is the

capacity of, and manner of engagement with, the various levels of government. It is

clear that respondents do not enjoy a totally satisfactory relationship with government


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agencies and departments. Some (11%) of the respondents were satisfied with the

quality of information received from government, 36% felt that it was adequate, 41% felt

it was poor and 12% said that it was not needed. Figure 5.1 provides a breakdown of

the respondent views relative to government information in the various survey sites.

Other than Empangeni where service quality was deemed to be poor but information

availability relatively better, the overall opinion of government information services is not

good. Significantly, respondents suggested that the use of information technology and

online systems was seemingly unfamiliar territory for most public authorities. It is an

area that warrants further investigation.

Some elaboration of this through written responses revealed that major issues are

difficulty in obtaining information, being given inaccurate or wrong information, under-

qualified staff, poor use of internet potential and general failure to communicate on the

part of government. Service quality by government was also not favourably reported on.Overall, 10% of respondents were content, 31% felt that service was adequate, 50%

thought that it was poor and 10% said they had no need for it (see Figure 5.2). For the

most part this was put down to a poor service culture and a need for a greater customer

focus in the activities of government. Issues of capacity and competence were regularly

foregrounded in addition to allegations about corruption in a variety of guises within the

civil service and amongst elected officials. In essence, therefore red tape and

7%10%

16%

22%

6%

36% 35%33%

41%38%

47%44%

36%

23%

44%

10% 11%

15% 14%

12%


Fig 5.1: Quality of Government Information

Good Adequate Poor Not Needed


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43


12%

56%

11%

6%

15%

Corruption SMME Support

Services

Service Delivery Crime Red Tape (esp.

labour)

Fig 5.3:Key Issues for Attention of Government

7%

17%

42%

23%

12%

Training

Municipal Staff

Municipal

Attitudes

Enterprise

Training

Management

Training

Improve

Availability

Fig 5.4: Required Training Programmes


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6. Overview and Interim Recommendations

6.1The findings of this study require further validation. The study and the supportinginterviews (although limited) that were conducted indicate a more complex set of

circumstances than simply an evaluation of red tape as an impediment to small

business development. South Africa shares the burdens that are common in many

African countries, such as an education and training system that lacks a

developmental orientation, non-coherent government policies in terms of achieving

focal objectives, misallocated or inaccessible finance. In addition South Africa

carries the burden of its political history followed by redress programmes that are

perceived by many to be diluting the energy that might otherwise be mobilized.

Recommendation: Promotion of entrepreneurship education within the

education system in general, framed within the context of redress; a black

economic empowerment agenda that includes greater emphasis on dialogue

with (and amongst) small businesses; a further, related dialogue that focuses

on entrepreneurship development (ED) as a key element in the relationship

between small businesses and larger businesses.

6.2 The overwhelming number of small businesses that comprised this survey are

very small indeed (average of 2.4 employees per business) and intend to remain

small. As is typical of small businesses internationally and locally, they are mostly

privately funded and exist to serve the interests and aspirations of the owner,

immediate family and associates (and very few others). This means that placing

emphasis on existing small businesses as vehicles for employment creation may be

misplaced. A further related finding is that, contrary to the findings of other similar

studies, there was relatively few start up businesses. Many mature businesses made

up the sample. This translates into a business development pipeline with limited

potential for development

Recommendation: That the process of small business creation and growth be

investigated further not only to validate this finding but also to establish the

reasons for the apparent absence of incentive to start new businesses and to


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grow existing ones; that the whole mechanism of public funding provisions

for the support and growth of small businesses be examined in order to

develop frameworks for the more effective use of available resources.

6.3 There is recognition of the complexity of the small business environment, within

which red tape and regulation are framing conditions that comprise only one part of

a situation that ideally requires broader systemic consideration and an engagement

on that basis if improvement is to occur. The plea for locally-sensitive and locally-

constructed solutions to the issues of regulation specific to small businesses is not

new, including means of access to services and effective means for rapid dispute

resolution. The scope for facilitated engagement of public and private sector

interests in the processes of regulation development and implementation exists but

remains substantially unexplored. Differences between locations appear, at this time

to be less significant than shared concerns amongst the small business community

but focal discussions with stakeholders in each location could reveal differing issues

at each location.

Recommendation: An approach to regulatory frameworks development that is

founded on a systems approach; the establishment of locally representative,

inclusive bodies to determine processes for enactment of regulations

affecting small businesses; development for mechanisms for speedy dispute

resolutions.

6.4The role of anti-social behaviour, such as manifested by various forms of crime,

be understood to be a limitation on small business survival and growth, including

customer flight. This can be taken to include allegations of corrupt practices and

discrimination or unfair trading practices that seemingly are supported and condoned

by the public authorities. The policing of illegal trading is understood to be

inadequately engaged, including foreign trader activities and informal business

activities.


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Recommendation: Improved monitoring of illegal trading and unfair practices;

greater awareness and engagement with the impact of crime on small

businesses.

6.5 That planning delays and poor servicing of (and absent) infrastructure represent

backlogs and lost potential that is seen against a backdrop of ever increasing tariffs

for utility services and municipal rates. The impact of significant cost increases for

the operation of businesses is certainly a factor of note.

Recommendation: The need for improved maintenance and new infrastructure

is a known general problem; the levying of tariffs on small businessesrequires review.

6.6 That the concept of red tape clearly also includes administrative attitudes,

information quality and capacity that generates costs for small businesses. The

quality of service and the overall experiences of small businesses in their

engagement with government are mostly negative and therefore indicates the need

to develop capacity in government, including customer relations.

Recommendation: The development of a culture of customer service in

government and the additional engagement of on-line services to limit time

required to attend to administrative issues; the orientation of civil servants,

especially at local government level, to be supportive and understanding of

the significance of small business as a distinctive business form.

6.7 Labour legislation in its various forms is hampering the willingness of small

businesses to grow and offer additional work opportunities. The achievement of

social and political objectives is seen to be creating a dilution of focus. Although

laudable, the various thrusts of government are thought to be in conflict with one

another. For example, job creation through small businesses and the existence of

inflexible labour markets are not mutually supportive.


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Recommendation: That a systemic review be undertaken of the interaction and

counteraction of various forms of legislation impacting labour and job

creation through small businesses

6.8 That trends are more meaningful in studies of this nature than once off

snapshots.

Recommendation: That studies to determine developments in the small

business environment in the Province be undertaken at regular intervals to

determine trends and improvements in the light of specific, defined actions;

that these be supported by local interventions and further informing work thatintends to improve the identified issues; that a systemic, dynamic modeling

exercise/analysis be done to create a framework for assessing proposed

improvement programmes

The above recommendations are summarized in Table 6.1 below with the inclusion of

possible action steps for consideration.


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Table 6.1 Summary of Recommendations and Potential Action Steps

Recommendation Potential Action Steps 6.1 COHERENCE OF POLICY OBJECTIVES

REQUIRED

Clarity of priorities in government to

minimize unintended negative

consequences of enactments on SME

development and plans for SMEs.

Development of specific frameworks for

the support of SME development as a

distinctive business form.

6.1 ENTREPRENEURSHIP SUPPORT IN

EDUCATION SYSTEM

Introduction of entrepreneurship

competencies within the broader

education system.

Establishment of peer-support dialogue

forums for SMEs with public sectorparticipation.

6.1 ENTERPRISE DEVELOPMENT AS

HIGHER PRIORITY IN BEE AGENDA

Elevation of Enterprise Development as a

higher priority area on the BEE scorecard.

Public sector facilitation/encouragement

of supply chain engagement of SMEs and

their development/growth.

6.2 INVESTIGATION INTO LOW NUMBERS

OF START-UPS AND PUBLIC FUNDING

MECHANISMS

Validation and review of reasons for low

number of new/emerging enterprises and

relationship of this to legislated support

frameworks in general.

Assessment of the performance of public-funded institutions in terms of apparent

procedural difficulties in gaining access to

funding.

Assessment of the prioritization of use of

public funds in areas of real needs e.g.

expansion into new markets.

6.3 LOCAL STRUCTURES ESTABLISHED TO

ENACT REGULATIONS AND RESOLVE

DISPUTES

Review of dispute resolution mechanisms

especially in local government.

Establishment of recognised inclusive

private/public local structures to develop

mechanisms for avoiding potentialdisputes and for rapid resolution.

6.4 MONITORING OF ILLEGAL TRADING,

CRIME AND CORRUPT PRACTICES

Ensuring equity and fairness in trading

conditions for all.

Creating an environment whereby

essential legislated procedures are fairly

and justly administered.

6.5 SERVICE DELIVERY IMPROVEMENTS Engagement with SMEs on the costs and

problems associated with service delivery

failures against rising service charges.


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Recommendation Potential Action Steps 6.6 CULTURE OF CUSTOMER SERVICE AND

UNDERSTANDING OF SMALL BUSINESSES

Training of local government personnel in

particular in the area of SME

characteristics and importance.

Developing a culture of customer service

in local government to facilitate urgency in

the need to expedite approvals processes.

Joint private/public engagement to

streamline approval processes and avoid

negative consequences and save costs

through time delays

Significantly increased use of IT and the

internet as a means for improving

customer service and saving time.

6.7 UNDERSTAND UNINTENDED

SYSTEMIC CONSEQUENCES OF LABOUR

AND INSITUTIONAL LEGISLATION

Developing a framework for theassessment of new legislation in terms of

cost/time consequences for all concerned.

Creating models for understanding the

unintended conflicts in the legislated

provision of government and how these

impact SMEs.

Adoption of a systems approach to the

evaluation and implementation of new

and existing legislation.

Consider developing a relevant Standard

Cost Model framework especially focusedon SME impacts.

6.7/6.8 RECOGNISE THE NEED TO DEAL

WITH SMALL BUSINESSES AS A

DISTINCTIVE BUSINESS FORM

Examination of aspects of key legislation

to remove/streamline and make it more

appropriate for the purposes of SMEs.

Assessment of SMEs as possessing

distinctive characteristics that justify a

review of the provisions that negatively

impact their initiation and growth.

Development of mechanisms to monitor

trends in SME development over time in

response to specific interventions and

changing environmental conditions over

time.

6.7 PROCESS INVESTIGATION AND RE-

ENGINEERING IN OFFICIAL PROCESS

ACTIVITIES

Conduct process flow analyses within

approval structures to expose constraints

and inefficiencies.

Re-engineering of key processes and staff

and technology development within local

government in particular.


50/50

50

7. References

1. Better Regulation Executive, UK (2005) Measuring administrative costs: UK

Standard Cost Model Manual, Cabinet Office, London.

2. DEDT(2010) Study on improving SMMEs business environment (Red Tape)

reduction in KwaZulu-Natal, Umhlaba Development Services.

3. DEDT (2011) Assessment of the administrative burdens imposed by

regulations and their impact on businesses operating in the KwaZulu-Natal

Province, Department of Economic Development and Tourism (DEDT),

Pietermaritzburg.

4. Department for Business Innovation and Skills (BIS) (2011), BIS smallbusiness survey 2010, Sheffield, UK.

5. Edmiston, K, (2004) The role of small and large businesses in economic

development, Federal Reserve Bank of Kansas City, Kansas, USA

6. First National Bank (2010) State of Entrepreneurship in South Africa,

Johannesburg.

7. GTZ (2006) Local Red Tape reduction to improve the business climate, GTZ.

8. Herrington, M. Kew, J. and Kew, P. (2010) GEM South Africa Report, Global

Entrepreneurship Monitor, Graduate School of Business, Cape Town.

9. OECD (2004) A guide for the policy review process and strategic plans for

micro, small and medium enterprise development, Centre for private sector

development, Istanbul.

10. Ortmans,J.(2004) How South Africa can boost support to small businesses:

Lessons from Brazil and India, Unpublished monograph.

11. SPB(2008) The impact of crime on small businesses in South Africa,

Strategic Partnerships for Small Business Growth In Africa (SPB),

Johannesburg.

12. SPB (2011) Headline report of SPBs Growth Index, Strategic Partnerships for

Small Business Growth In Africa (SPB), Johannesburg.

13. SPB (2011) Growing Small Firms, Growing Employment, Strategic

Partnerships for Small Business Growth In Africa (SPB), Johannesburg.

Red Tape Study 5th Version 06 September 2012

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Transcript of Red Tape Study 5th Version 06 September 2012