JB Cronjé, tralac Researcher, comments on the need for sound regulatory frameworks in the context of global and regional economic governance

The April 2016 World Economic Outlook edition of the International Monetary Fund (IMF) notes that although the global economic recovery continues, it is occurring at an “ever-slowing and increasingly fragile pace”. It forecast global economic growth for 2016 at 3.2 percent; slightly lower than projections in January 2016. Growth in Sub-Saharan Africa is expected to remain weak at 3 percent, although some countries such as Kenya, Senegal, Ivory Coast, Rwanda and Tanzania can expect above average growth rates of 6 to 7 percent. This year’s GDP growth prediction for the two largest economies on the continent, Nigeria and South Africa, has been lowered by 1.8 percent and 0.1 percent to 2.3 percent and 0.6 percent, respectively. In the case of South Africa, this is attributed to “lower export prices, elevated policy uncertainty, and tighter monetary and fiscal policy”. The country faces possible downgrades by credit rating agencies to a sub investment-grade or “junk” status with a negative outlook this year. Against this background, the business community calls for legislative reforms to measures that are impeding investment and the labour market and for measures to improve management of the public sector, especially state owned enterprises. It certainly can no longer afford to adopt wrong policies (see previous Discussion) that negatively affect economic growth. This is because economic activity requires good rules. There is a growing consensus that the quality of business regulation and the institutions that enforce them are an important element of economic success. Research had found that business regulatory reforms have a positive impact on economic growth rates.

The global financial and economic crisis revealed major flaws in regulation and governance. The need for sound regulatory frameworks is now more important than ever before. In 2012, the OECD Council adopted Recommendations on Regulatory Policy and Governance and calls for a ‘whole-of-government’ approach to regulatory reform. It contains a range of measures countries should adopt to support the implementation of regulation that meet public objectives and have a positive impact on the economy and society. These measures are integrated into a policy cycle in which regulation is designed, assessed and evaluated before and after their adoption, implemented and revised by all levels of government and appropriate institutions. Some of these measures include the adherence to the principle of open government including transparency, meaningful public participation and the publication of draft proposals in plain language; establishment of mechanisms and institutions to conduct oversight of policy procedures and goals; integration of regulatory impact assessments into the early stages of the policy formulation process in order to identify policy goals, evaluate whether regulation is needed and to consider the most effective and efficient ways of achieving these goals; conducting of regular programme reviews; publishing of regular performance reports; formulation of clear policy on the role and functions of regulators; establishment of effective systems for the review of administrative actions; implementation of appropriate risk assessment and management strategies; and, adoption of coordination mechanisms to ensure regulatory coherence. Finally, it proposes increased international regulatory cooperation for enhanced risk management, long-term planning and transparency. Regulatory cooperation can be practiced at agency or government level and could adopt a range of methodologies or combinations thereof including basing regulatory approaches on international standards, according no less favourable treatment to like foreign products and services, exchange information about current and future regulation, consult with counterparts before new regulation is adopted, and identify common challenges and develop joint solutions.

For example, the recently concluded Trans Pacific Partnership (TPP) Agreement provides for the establishment of a dedicated website by each Member State to assist small and medium enterprises to take full advantage of the trade opportunities offered by the Agreement. Common challenges facing small and medium enterprises include complex paperwork, opaque registration processes, inefficient customs administration, weak logistics services, slow delivery of small shipments and restrictions on internet data flows. The dedicated websites will assist them by providing information on intellectual property rights procedures, business registration procedures, employment regulation, taxation procedures, and on standards and regulation applicable in other Member States. It also provides for good regulatory practice principles such as impact assessments for proposed regulatory measures, communication of regulatory decisions to counterparts, online publication of regulation if possible, periodic review of existing regulatory measures, annual notice of proposed regulatory measures, impartiality, due process and coordination across government to ensure a coherent regulatory approach. It obliges Member States to maintain and enforce anti-corruption legislation and to maintain or adopt a code of conduct for public officials.

Closer to home, the African Union’s Charter on Values and Principles of Public Service Administration aims to strengthen professionalism and ethics in public service and provides for principles of good governance including the exchange of experiences and best practices. As at February 2016, the Charter was still two instruments of ratification short for its entry into force, but some of the countries that have ratified it thus far include Algeria, Kenya, Malawi, Mozambique, Mauritius, Namibia, South Africa, Tanzania and Zambia. Once entered into force, all Members to the Charter will be required to entrench the principles of equal access and non-discrimination of all users of public service and administration into their domestic laws and regulation. Members must publish information on procedures and formalities, inform users of decisions, provide reasons behind decisions, inform users of mechanisms available for appeal, and ensure that all procedures and documents are presented in a user-friendly and simplified manner. The public service and administration must, amongst other things, set and respect timeframes for service delivery activities, periodically evaluate and monitor the effectiveness of service delivery activities, and introduce modern and innovation information and communication technologies to support and improve service delivery activities. The Charter also includes a code of conduct for public service agents which must be enforced by each participating Member State.

The Members of the African Union are also currently negotiating a Continental Free Trade Agreement (CFTA) which may include similar provisions to those found in the Charter and TPP. Once concluded and entered into force, participating Member States will each be required to implement obligations in their domestic legislation.

Policymaking is a complex process and takes place at both the national and international level. It requires trade-offs between conflicting interests and objectives, it involves opportunity costs and whatever policy choice is made may have unintended consequences. Regulatory Impact Assessments provide a tool to policymakers to manage these difficult choices and produce effective, evidence-based outcomes at the least possible cost. As far back as 2007, the South African government adopted the integration of regulatory impact assessments into the policymaking process. In 2012, the Presidency issued Guidelines for the Implementation of the Regulatory Impact Analysis/Assessment Process in South Africa. Not widely adopted, this was replaced by Cabinet in 2015 with new Socio-Economic Impact Assessment System Guidelines to better align national priorities, mitigate risks and costs, and reduce the regulatory burden in the formulation, review or amendment of policies, legislation and regulation. According to the Department of Planning, Monitoring and Evaluation, as at November 2015 officials from 33 departments have been trained and 51 Bills, 9 Regulations and 13 Policies are currently subjected to the new process. This will be worth monitoring.

Complementary to this, a focus on the administrative aspects to regulation is particularly important. Reducing the regulatory burden on especially small, micro and medium enterprises (SMMEs) will improve the business environment and increase competitiveness. Time and again the World Bank’s Doing Business Report highlights the need to improve business regulation in terms of the time, cost and procedures it takes to register a business, pay taxes, comply with labour legislation, register property, get construction permits etcetera. In 2014, a South African study found that small firms spend an average of 8 working days each month on regulatory matters including tax, labour, compliance with black economic empowerment and dealing with their municipalities. It estimates that the cost of regulatory compliance amounts to roughly ZAR216 000 a year. This is a staggering cost on any entrepreneur wanting to comply with business regulation. In response, the South African Department of Trade and Industry published Guidelines for Reducing Municipal Red Tape in an attempt to encourage municipalities to improve land development processes and building plans approval timeframes; pay suppliers within 30 days; and reduce timeframes for the installation of electricity and water connections. This is trade facilitation in action. More recently, a private member’s draft Red Tape Impact Assessment Bill was published in the Government Gazette with the objective to provide compulsory measures for the mapping, assessment and evaluation of regulation adopted by all levels of government and regulatory bodies in order to determine and reduce the cost of ‘red tape’. This would entrench an obligation to assess the impact of regulation into domestic law.

Tell us what you think.

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Sources:

Government Gazette, Red Tape Impact Assessment Bill, No 39907 of 7 April 2016.

Haidar, J.I., 2012. The impact of business regulatory reforms on economic growth, Journal of The Japanese and International Economies. Available [Online] at: http://www.parisschoolofeconomics.eu/docs/haidar-jamal-ibrahim/jjie.pdf

SBP, 2014. Examining the challenges facing small businesses in South Africa Available [Online] at: http://www.sbp.org.za/uploads/media/SBP_Alert_-_Examining_the_challenges_facing_small_businesses_in_SA_01.pdf