The World Bank has urged South Africa to consider easing BEE and labour policies to make it less demanding for foreign companies to invest in the country.
In an overview on “driving inclusive growth” in South Africa, the global lender said the country should adjust its regulations to market realities.
“The burden of several industry and labour policies can be reduced by adjusting them to the reality of the market. For example, by generalising the use of equity equivalence investment programmes by the department of trade & industry, instead of the hard, complex conditions associated with BEE policies,” it said.
Finance minister Enoch Godongwana has admitted to warming up to the idea of easing regulations to make it easier for foreign businesses to invest in the country.
He said regulatory hurdles need to be looked into, noting that the government had 100 active labour market instruments across 20 departments, according to a technical team appointed by the National Treasury to investigate the effect of these on the economy.
Equity equivalents allow multinationals to invest in areas such as skills training, development of small and medium-sized enterprises, and research & development, instead of selling equity to black people.
Elon Musk, who heads the US administration’s department of government efficiency (Doge), has objected to the 30% historically disadvantaged ownership requirement that his company, SpaceX, would be obliged to comply with to be allowed to operate its Starlink satellite system in South Africa.
Godongwana, speaking at the release of the World Bank overview, joked that setting up a Doge in South Africa might not be a bad idea, given the onerous regulations that financial institutions and other businesses have to comply with locally.
“I was talking to Sim Tshabalala, who is the CEO of Standard Bank. He gave me a file which said a bank in South Africa is regulated by 208 pieces of legislation and regulation.
“A big bank such as Absa or Standard Bank employs about 3,000 people, whose main function is ... to deal with compliance. You may say there is some good in Elon Musk and [President Donald] Trump’s madness, sometimes.”
He said South Africa’s discourse on empowerment policy was polarising due to the political sensitivity of the matter.
“On the one hand, you will get the extremists who are going to say it undermines market fundamentalism. On the other you get people who say it undermines transformation, and transformation is everything, instead of approaching the debate rationally.”
The World Bank also said South Africa should make it easy for younger people to enter the labour market.
The minister has failed to recognise that it’s not just the majority party in government that he needs to present the budget to, it’s the GNU — and they have differences in the GNU, and therefore the budget had to be postponed
— Cas Coovadia, Business Unity South Africa CEO
“Market competition, while ensuring greater economic inclusion and enhanced household welfare, is the best way to dynamise an economy as it boosts efficiency and promotes innovation.
“South Africa could rebalance its economic model by making it easier for foreign and domestic investors, and for young workers, to enter markets, and by reducing the protection of incumbents (including state-owned enterprises).”
Regulations were mostly penalising for small firms, which lacked the capacity or financial means to navigate the complex system of rules and regulations, and for low-skill workers, who faced a heavy income tax burden if formally employed, the World Bank further noted.
Meanwhile, Business 20 (B20) group sherpa and former Business Unity South Africa (Busa) CEO Cas Coovadia said Godongwana should have postponed last week’s ill-fated budget event ahead of time, as it was a mistake for him to assume the government of national unity would accept tax increases unconditionally.
He was speaking to Business Times on the sidelines of the launch of the business segment of this year’s G20 activities in South Africa.
“The minister has failed to recognise that it’s not just the majority party in government that he needs to present the budget to, it’s the GNU — and they have differences in the GNU, and therefore the budget had to be postponed.
“Obviously it’s not ideal. I think postponing a budget is serious. But again, one of the other things we have to call for and appreciate in the global dynamic currently is [to] treat everybody according to the same standards. I mean, America every few years has a budget crisis and people accept that as one of those things and they sort it out.”
The budget was supposed to be tabled in parliament on February 19 but the cabinet rejected it over a proposal to raise VAT by two percentage points — from 15% to 17%.
Coovadia referred to the imbroglio as “a bit of a crisis” and said Western sovereign credit ratings agencies regarded the event as part of the growing pains of managing a coalition government. The budget is now set for March 12, but there is still no sign of a consensus on tax proposals.
He said business structures — including Busa — would not accept a wealth tax, or a corporate tax increases.
“We have always been against the wealth tax and still remain against the wealth tax. We don’t believe that taxation and increasing taxation is the way to go. We believe that we need to concentrate on the fundamental interventions that need to be made to get the economy to grow.”
Rachel Reeves, chancellor of the exchequer in the UK — speaking to reporters in Cape Town — said while she understood the perils of drafting and tabling a national budget first-hand, she had “confidence” the GNU would resolve the impasse.
“I’m a finance minister. I know that budgets are challenges and my party has got a big majority in parliament. We don’t have to act in a coalition.
“I’ve got every confidence that South Africa will be able to get a budget through, but as a finance minister, I recognise the challenges.”
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