Time to liberate all business, not just small business

John Kane-Berman says comprehensive deregulation is the only way to tackle unemployment

The lekgotla of the ruling party’s national executive committee held early last month envisaged “a reduction in the red tape that constrains the growth of business”, particularly small, medium, and micro enterprises (SMMEs) and informal businesses.

In his closing remarks at the lekgotla, Cyril Ramaphosa said, “We are taking steps to reduce the regulatory burden on small, medium, and micro enterprises. This includes ensuring that informal traders are not subject to undue and unfair regulatory requirements”.

How far the African National Congress (ANC) will actually implement these oft-repeated promises is open to doubt. Does President Ramaphosa intend even to try to get them implemented? He himself probably does not know.

Small businesses are of course subject to all sorts of disadvantages, including labour legislation that is more onerous for them than it is for larger businesses. Echoing the Institute of Race Relations and many leaders of organisations representing small businesses, John Steenhuisen, leader of the Democratic Alliance, said recently that the playing field for small business should be levelled by “exempting them from all but the basic conditions of employment, including from wage bargaining council decisions to which they have not been party”.

The bargaining council system works to the advantage of larger businesses and against the interests of smaller ones, so automatic exemptions would be a great start to liberating smaller companies from some of the regulatory measures that protect bigger ones from competition.

But South Africa needs to slash the red tape that inhibits all shapes and sizes of business, not just SMMEs.

According to Statistics South Africa, this country has around formal 350 000 businesses outside farming and parts of the broad financial sector. The Small Enterprise Development Agency puts the number of SMMEs (some of whom would be in the formal sector) at around 2.36 million. The distinctions based on size may be interesting, but they are artificial, as are the distinctions between the formal and informal sectors.

Businesses classified as formal or informal are to be found in almost all sectors of the economy. The formal sector outside agriculture accounts for 68% of all jobs, and the informal sector outside agriculture for 18%. Agriculture (both formal and informal) accounts for 6%, and private households for the remaining 8%. Some economic sectors are more highly regulated than others, but the impact of regulation in one sector spills over into others.    

The economy, after all, is a single economy, no matter how it might be disaggregated into component parts. If, for example, coal-fired power stations and the coal mines feeding them were to close, the impact would be felt across enterprises of all kinds and sizes. Whole towns on the Highveld, notably Witbank and Middelburg, but also Hendrina and Ermelo, would suffer devastating blows.

People from engineers through accountants and plumbers to teachers to car-guards and hawkers would lose their jobs. So would dentists, cashiers in supermarkets, motor mechanics, gardeners, owners of spaza shops, and cleaning women in bed-and-breakfasts, to name but a few of the tens of thousands of people likely to suffer, along with their families.

Earlier this year the Minerals Council (formerly the Chamber of Mines) reported that that industry had been subjected to more than 2 000 pieces of new regulation since 1994. The backlog in the processing of more than 5 000 mining licences was holding back around R30 billion in investment. South Africa accounted for 0.1% of global greenfields mining exploration, compared with 13% in the rest of Africa.

Cut the red tape that is strangling mining, and huge numbers of jobs, formal and informal, high-paid and low-paid, across practically every economic sector and in all nine provinces would be generated for people with vastly different types of skill.

The most powerful argument for comprehensive deregulation - or liberalisation – is that there is no other means of tackling unemployment.

Referring to this country’s “extreme unemployment crisis,” Annabel Bishop of Investec Bank recently wrote that it was “hugely problematic that businesses’ efforts to expand and employ more are blocked by government’s slow productivity such as the backlog of prospecting mineral licences, permit renewals, etc”. South Africa, Ms Bishop added, “suffers under a stranglehold of red tape and regulatory barriers and blockages”.

She continued: “Blockages to private sector service provision and general business activity need to be eradicated.” The size of the of the private business sector needed to triple – yes, she did say triple - to absorb the unemployed. It should not be constrained by state controls, poor state productivity, and the “growing size of the state”.       

Nor should the racial angle be ignored. In his budget vote in May this year, Ebrahim Patel, minister of trade, industry, and competition, said it was “critical” to “promote black industrialists and small businesses”. Why only them? With unemployment running to almost 12 million, South Africa should not allow itself the luxury of promoting business on a racially selective basis.

Until the courts declared their policy unlawful, the tourism department applied racial criteria to the award of Covid relief funding. In a recent article on Business Live, Rob Rose of the Financial Mail (FM) cited some of the absurdities. The CEO of Tsogo Sun had said, “You can have your view on whatever colour the owners might be, but I can guarantee you that 95% of the staff working for those tourism companies are black.”

A businessman who ran a fleet of 15 Ubers had told the FM he was rejected by the relief fund because the company wasn’t black owned. “I had to close down the company to pay debt. And all my drivers were black and either semi-skilled or unskilled.”

Tito Mboweni, a former finance minister, said he couldn’t support a policy which discriminated against, say, the owner of the Magoebaskloof Hotel on the grounds that the owner was white, because 95% of the staff were black.

Once again, we see the perverse consequences of the ANC government’s racial policies. Hammer whites and you also hammer blacks (apart, of course, from the usual suspects). Getting rid of discriminatory laws is but one component of the comprehensive liberalisation that South Africa needs if the relentless rise in unemployment is to be stopped, and then reversed.  

* John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom. Readers are invited to take a stand with the IRR by clicking here or sending an SMS with your name to 32823. Each SMS costs R1. Ts and Cs apply.