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It’s pretty easy to do business in SA

Right, so where is the FDI?

CAPE TOWN – South Africa’s position is an unchanged 41st in the World Bank and International Finance Corporations annual Doing Business 2014 survey.

The study aims to assess the impact of the regulatory environment on local businesses in 189 countries around the world.  It measures the efficiency and strength of laws, regulations and institutions that are relevant to domestic small and medium-sized companies throughout their life cycle.

Unsurprisingly Singapore was ranked first in ease of doing business – for the eighth straight year. It was followed by Hong Kong, New Zealand and the United States. See the table below:

Doing Business 2014 Ranking:
     1.   Singapore
     2.   Hong Kong
     3.   New Zealand
     4.   USA
     5.   Denmark
     6.   Malaysia
     7.   South Korea
    18.   Thailand
    96.   China
    99.   Vietnam
   108.   Philippines
   116.   Brazil
   189.   Chad
Source: World Bank ‘Doing Business 2014’

 

Source: World Bank ‘Doing Business 2014’

The Ukraine is the most improved economy this year, moving from 140th to 114th. Within sub Saharan Africa Mauritius remains the out and out leader, in 20th place – unchanged from last year. Rwanda overtook South Africa as the continents second easiest country to do business in – from a regulatory perspective.

Of the 20 economies that have improved the most since 2009, nine are in sub-Saharan Africa. 

Doing Business does not measure all aspects of the business environment that matter to firms and investors. For example, it does not measure security, macroeconomic stability, corruption, skills or the strength of financial systems.

This year South Africa made paying taxes easier for companies by replacing the secondary tax on companies with a dividend tax borne by shareholders. This was the only improvement noted by the researchers.

The implementation of the new Companies Act in 2012 simplified several aspects of doing business, notably registering a business. But there is one consequence that is only being felt now, says Haydn Davies, a partner at Webber Wentzel. “The business rescue process introduced in the Act has resulted in more litigation than the rest of the Act put together,” he says. “The aims of business rescue are laudable, but the legislation is short on detail and as a result it introduces uncertainty where there was certainty.”

In relative terms South Africa is in a good position, says economist Mike Schϋssler. “SA has always had a good financial and banking system; registering property is easier than it was – although we are still in the wrong half. Sars is efficient, although as a small business owner I don’t always like them.”

But how useful is a survey that measures just one component of what makes an economy an attractive destination? “South Africa’s rank is not bad – yet we are not winning the FDI we would like,” he says. “We are seeing foreign investment into well established businesses that can expand into Africa, or into industries with significant tax concessions like the motor industry. What we are not seeing is genuine from the ground up foreign investment.”

Aside from obvious economic and political concerns, Davies believes there are many improvements that could be made in terms of regulatory red tape.

For instance when items are examined in silos –like registering a business; or applying for a VAT number or opening a bank account – the process appears smooth. But once Sars, Fica requirements and internal banking requirements are layered over each other it can become complex. “You can’t register for VAT until you have a bank account. But you can’t open a bank account until you have satisfied the bank’s ‘know your client’ requirements. And you can’t do that until something else is ticked,” he says. “It can take months to open a business because of issues that are not one person or one department’s fault.”

He cites as an example a Belgian company which struggled to open a South African subsidiary because it has a “+” in its name. Apparently the SA banking system will not allow the plus sign in a company name.

 “Yes we have a great payment system; the banking service works; the cellular providers work. But there is something lacking,” says Schϋssler. “There is more emphasis on rules than on growth.”

See the table below which compares the ease of doing business in several African countries, as well as other factors.

Click image to enlarge

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