South Africa’s regulatory environment is becoming an increasingly heavy burden for small and medium-sized enterprises (SMEs), the very businesses we depend on to drive economic growth and create jobs. Often called the lifeblood of the economy, SMEs account for two-thirds of business employment in advanced economies and nearly four-fifths in emerging markets.
It’s worth looking at how other countries are getting it right. Singapore, for example, was ranked the world’s most competitive economy in the 2024 World Competitiveness Ranking by the International Institute for Management Development (IMD). South Africa, by contrast, placed 60th out of 67 countries, inching up just one place from the previous year.
What sets Singapore apart is a pro-business mindset backed by efficient governance, minimal red tape and a highly skilled workforce. In short, it’s a country that knows how to step aside and let business thrive.
Running a business is no easy feat, it’s often likened to doing an extreme sport. But in South Africa, where red tape tangles every step, running a small business without investors or a safety net is more like skydiving with a backpack full of bricks. And, sadly, things are getting more expensive and difficult, with the looming 0.5% VAT hike on May 1 adding yet another burden for entrepreneurs already navigating high costs and heavy compliance pressures.
Red tape comes at a cost
In a recent Saica Biz Impact podcast recording, two leading financiers both agreed that one of the biggest barriers to SME growth in South Africa is compliance. Business owners are routinely turned down for funding because they can’t meet an ever-growing checklist of requirements, whether from Sars, Compensation for Occupational Injuries and Diseases Act (Coida), Unemployment Insurance Fund, the Financial Sector Conduct Authority (FSCA), or industry-specific regulators.
This isn’t just anecdotal. Even South Africa’s biggest corporations are battling the regulatory burden. According to our finance minister, the CEO of Africa’s largest bank recently handed him a full dossier listing the many compliance hoops they must jump through and revealed that more than 3,000 employees at the bank are dedicated to just compliance and regulation. If a giant like Standard Bank is struggling under the weight of red tape, what hope does the average SME have?
Let’s break down the numbers. For a small business to outsource its compliance requirements — including VAT returns, Companies and Intellectual Property Commission beneficial ownership declarations, annual and provisional tax returns, B-BBEE certificates, Coida registration, and industry returns such as Private Security Industry Regulation Authority, Construction Industry Development Board, FSCA, South African Bureau of Standards, and more — the administrative burden alone could cost from R10,000 to R100,000 annually. That’s before the business has even scaled or shown significant profit. And yet we expect SMEs to fuel job creation and innovation.
It doesn’t help that South Africa has one of the highest prime lending rates globally, currently sitting at 11.25%. The high cost of capital is a well-known deterrent for growth and investment. No wonder Africa, and South Africa in particular, struggles to produce unicorns — billion-dollar startups that become global players. If we want to foster the next wave of high-growth businesses, we need to rethink our policy approach: streamline regulations, encourage venture capital, relax exchange controls, and create a framework for open finance.
Capital flows to places where it is welcomed and can grow. If we want investment, innovation and inclusive growth, we need to create an enabling environment, not one in which compliance is a full-time job
The World Bank’s recent Driving Inclusive Growth in South Africa report echoes these sentiments. It warns that overregulation disproportionately hurts small businesses and low-skilled workers, who are taxed heavily and have the least capacity to navigate complexity. Despite the recent VAT hike, some steps, like shortening turnaround times for VAT and corporate income tax audits, have been taken, but these gains are often not felt on the ground. Ask any SME owner how long it really takes to get a VAT refund, and you’ll get a very interesting story.
The government has established a red tape reduction team in the Presidency. But what has it achieved? Where is the evidence that things are improving? At this point, even a simple social media update would help. As business owners, we’re not asking for much, just some support and momentum.
The bottom line is that capital flows to places where it is welcomed and can grow. If we want investment, innovation and inclusive growth, we need to create an enabling environment, not one in which compliance is a full-time job.
South Africa’s small business sector doesn’t just need policy change; it needs bold, immediate action. It shouldn’t cost this much to be a small business owner in South Africa. If we’re serious about tackling unemployment and inequality, we need to start by unshackling the very people trying to make a difference: our entrepreneurs.
• Mtwentwe AGA(SA) is MDof Vantage Advisory and host of the Saica Biz Impact podcast
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