The Western Cape Government Economic Development and Tourism

Red Tape Reduction Conference

29 & 30 September 2014

Chris Darroll

Cost of Red Tape in South Africa & Regulatory Impact Assessments

SBP’s work on regulatory costs and impacts:

• Regulatory best practice assessments

Botswana, Ghana, Kenya, Malawi, Tanzania, Uganda, Nigeria, Zambia, South Africa, Vietnam

• Regulatory compliance cost studies (red tape)

- Counting the Cost of Red Tape for Business in South Africa

- Cutting the cost of Red Tape for Rwanda

- Sectoral studies, eg. Counting the Cost of Red Tape for Tourism in South Africa

• Administrative barriers to investment in South Africa

joint partner with the World Bank

• Regulatory Impact Assessments (RIA)

- South Africa

- Western Cape

- Vietnam

- Nigeria

What do we mean about regulatory costs?

Three types:

• Efficiency costs

• Compliance costs

• Costs of non-compliance

Costs of complying with regulations and administrative procedures which

include:

• Time spent on understanding rules and complying with them

• Fees to service providers (eg. accountants, tax consultants)

• Costs caused by delays and inefficient procedures

Not all regulations are red tape

What is red tape?

SBP’s compliance cost survey of 1,800 businesses (small, medium, large) nationwide

showed - in 2004

• Total compliance costs – red tape – amounted to R79 billion

• 6,5% of GDP

• 2,8% of total turnover in 2003

• 16% of the total wage bill in 2003

• 28% of SARS revenue (2002/2003)

• Big firms have the largest cost in real terms

• But, small firms bear the heaviest burden relative to size

Red tape in South Africa

SBP’s SME Growth Index (longitudinal study tracking 500 firms employing less than

50 employees in Cape Town, Durban and Johannesburg metropoles):

• Each firm spent on average 75 hours a month dealing with red tape

• Using conservative estimates of the Davis Tax Committee this amounts to each business

owner spending equivalent of R18 750 per month or R225 000 per year, per firm.

• Correlations show that in 2013 cost of red tape was between 4.5 – 6% of turnover for SMEs

• Almost 60% of firms reported that they did not know all the regulations they were expected to comply with

That was then, what about now?

Regulatory Impact Assessments (RIA)

How can red tape be reduced without reducing the benefits of regulation?

• A tool to test the practicality & feasibility of regulatory proposals

• Assesses need for govt intervention and options for interventions

• Identifies possible risks, adverse impacts & unintended consequences

• Ensures the benefits justify the costs

• Looks for most cost-effective option

• Enables meaningful consultation

• Can be applied to new & existing laws

• A means of achieving priority policy objectives (eg. increase growth & jobs)

• Key instrument for better regulation

What is RIA?

• Ensuring that govt only regulates when necessary

• Keeping adverse impacts to a minimum

• Evidence-based policy making

• Informed decision-making

• Encompasses 5 key principles

What is better regulation?

Proportionality Regulation should be appropriate to size of problem

Targeting Regulation focuses on the key problems & does not cause

unintended consequences in other areas (economy & society)

Consistency Decision making is predicable & avoids uncertainty

Accountability Regulatory actions & outcomes accountable to Ministers,

Parliament, users & the public

Transparency In all matters of decision-making in regard to process &

decision taken

Source: “Imaginative Thinking of Better Regulation”, BRTF, UK Govt

Key Features

RIA Practice – South Africa and other selected countries

Country Year RIA Introduced

Formal Requirement

Central Oversight &

Quality Assurance of RIA

RIA published alongside legislation

Public debates/scrutiny

of RIA process

Australia 1985 ✓ ✓ ✓ ✓

Canada 1992 ✓ ✓ ✓ ✓

United States 1974 ✓ ✓ ✓ ✓

United Kingdom 1985 ✓ ✓ ✓ ✓

Northern Ireland 2001 ✓ ✓ ✓ ✓

New Zealand 2001 ✓ ✓ ✓ ✓

Estonia 1996 ✓

Lithuania 2003 ✓

Poland 2004 ✓ ✓ ✓ ✓

Mexico 1996 ✓ ✓

South Africa 2007 ✓

• Encourage careful consideration of options before deciding on regulation

• Improves quality of evidence informing decision making

• Enhances efficiency by thinking through broader impacts, consequences early in the process

• Increases transparency and accountability by clearly stating reasons for and implications of decisions

• Benchmark for measurement + evaluation post-implementation

• Increases participation through consultation and government co-ordination

Why RIA – The Benefits

RIA improves Public Sector performance

Analysis:

Costs & benefits of Govt action

Increase benefits

Lower costs Reduce policy failures

Consultation:

Responsiveness

Transparency

Build Trust

Reduce information monopoly

Integration:

Getting depts. to work together

Policy coherence

Reduce silo mentality

Change Culture:

Increase Responsiveness

Accountability

“client” orientation

Reduce unneeded regulation

Source: SBP RIA insight Training programme

RIA in summary

Message to governments

• Clarify what RIA should achieve – what will success look like

• Manage expectations at the outset

• Understand the existing environment – “regulatory audit” and building consensus on a regulatory reform agenda

• Build momentum at all levels through champions, platforms, etc, with reform incentives (bottom up)

• Design methodology, performance management and pilot (testing for survival in the system)

• Formal and explicit policy and endorsement (top down leadership)

• Activate actors (private sector, CSO, media, parliament, etc) in regulatory system (sustainability)

• Formalise methodology and implement

• Monitor, evaluate and refine (accountability)

• Applying RIA flexibly

• Awareness raising of RIA at the outset of the concept and continuously

What have we learnt about implementing RIA?

• Compliance costs – red tape – can never be reduced to zero

• Aim should be to cut unnecessary costs, reduce negative impacts and maximise benefits

• Need to assess impacts, benefits and costs objectively for regulatory proposals

• Uncover the causes of inefficiencies and high costs

- baseline against which to measure the impacts of regulatory change and reform

In summary

Chris Darroll

Chief Executive, SBP

Tel. 011 486-0797

chris@sbp.org.za

www.sbp.org.za

Thank you