Doing business in South Africa: still a long way to go
The 2016 Ease of Doing Business ranking was recently published, and the African country fell two positions, from 72 to 74. This article wishes to shed some light in what are South Africa’s biggest setbacks in making the process of doing business easier and simpler.
South Africa is one of the most developed countries in the African continent and presents endless opportunities for investments at a lower cost than its neighbors due to better infrastructure, lower corruption levels and a more efficient bureaucracy. Thus, it is relatively easier for entrepreneurs to establish their businesses in South Africa as compared to its neighbors.
According to the World Bank doing business in report, South Africa is ranked 74th globally and 4th among Sub-Saharan African countries, behind Mauritius, Rwanda and Botswana.
The report considers 11 indicators, such as starting a business, dealing with construction permits, getting electricity, etc., the report assesses how efficient, transparent, accessible and simple are the regulations and processes related to conduct business across the world.
Although South Africa has been making changes in several areas to improve the environment for business operations, it keeps falling in the overall ranking. One explanation is that other economies worldwide are doing a better job on improving regulations. However, the biggest explanation comes from the country itself. One major issue that keeps South Africa from a good performance is that procedures such as starting a business, getting electricity and trading across borders are still underperforming.
Difficulty in starting a business
One of the biggest issues is the actual process of starting a business. In 2014, South Africa modernized its registration process and allowed the entire procedure to be done online, even upload of supporting documents, ending the need for an intermediary and making it more accessible for overseas investors. However, the process still has several setbacks that need to be dealt.
Firstly, the quality of the online system is still a big issue, with delays due to an overwhelming application submission. Secondly, the fact that applicants must apply with multiple government agencies that are not fully integrated also is an impediment for an efficient process. The integration process will eliminate the need of having to provide the same data several times.
Complete digitization of the entire business registration process is an urgent need for South Africa.
Around 80% of all registrations in 2014 were done online, which is a huge improvement but still behind most developed countries.
Once a business is registered online, and the company is registered for tax (a process that also can be done online), the company must register their employees, especially with the Compensation Fund, which unfortunately does not have an electronic registration portal and must be registered manually.
According to the report, registering a new company takes 7 steps and an average of 43 days, compared to an average of 30 days in the region and 9 days in OECD high income companies. Until the entire process is done electronically and the electronic system becomes more integrated and efficient, starting a business in South Africa will continue to be troublesome and time-consuming.
Another major issue is the quality and access to electricity. According to the Global Competitiveness Report 2015/2016, also by the World Bank, South Africa’s quality of electricity is very
low, ranking 116 among 140 countries worldwide.
Although obtaining electricity takes only 84 days, which is not that long when compared to the average of 76 days of the OECD high income countries, it costs almost the double, 156% of income per capita compared to 63% for the OECD group. One of the biggest contributors for the elevated price is the need to make a deposit against nonpayment of future electricity bills. Although the practice is common across the world, it imposes a financial burden on companies, especially small and medium size ones.
Cross-Border Trade Issues
Additionally, ‘trading across borders’, i.e. procedures involved in the export and import through sea, is also problematic. South Africa performs extremely poorly in such category, with the process of exporting taking 100 days vs. 12 for OECD high income countries, and the importing one taking 170 days against 36 for the OECD group. Not only it is time-consuming but is also one of the most expensive place to export globally.
As with all the above problems, only with a simplification process, of the access and number of documents required, an increase in efficiency in terminal handling, a decrease in port tariffs will allow South Africa to better perform at trading across borders, and increase exports and imports to the country.
More importantly, countries that perform highly in the Ease to Do Business ranking are usually countries in which all business-related processes can be easily done online. Considering the amount of influx of international investments worldwide, the internet and mobile communications have become the best mediums to make sure every business activity can be completed and monitored from any place at any time, and is this what South Africa should aspire to achieve.
South Africa is already on the right path; however, it still has a long way to go. If it wishes to take advantage of the investment flow it must make changes to accommodate overseas businesses today.
Talk to us
Healy Consultants can help you be more at ease when starting your business in South Africa. With over 10 years of experience of incorporating business worldwide, we will be able to navigate you through the difficulties the country presents. Please email us at email@example.com or call us at +65 6735 0120 to know how we can help your South African business.