Government’s irrational policy making damaging efforts to grow economy

Government’s irrational policy making was criticised as it damages efforts to grow the economy, with the private sector pointing to the sudden withdrawal of crucial credit regulation reforms that would have helped small businesses access loans more easily as an example.

Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says in her weekly newsletter that last week began with promise for small business reform but ended in policy chaos.

“Three steps forward and two steps back.”

“It felt like government was making good progress on two fronts: easing the labour law burden on small companies and enabling lending to small businesses. But by the end of the week, the second one was shockingly withdrawn despite its obvious benefit to a large part of the economy.”

Mavuso says positive reforms are essential to turn around our poor economic growth and tackle our unemployment crisis.

“Through Nedlac and initiatives such as Business For South Africa, we work extensively to help develop proposed policy changes that can contribute to improving the business environment.”

ALSO READ: How pending labour law amendments will affect you

Department of employment and labour’s new code of practice on dismissals is good policy

The Minister of Employment and Labour, Nomakhosazana Meth, gazetted the new code of practice on dismissals under the Labour Relations Act last week, which would make it easier for small businesses to dismiss underperforming employees.

Mavuso says that while fairness rightly remains a core principle, the burden on small businesses will now be proportional in not requiring complex and expensive consultation and disciplinary procedures.

“That is only reasonable. Small businesses cannot afford extensive HR departments that can be on hand to manage underperforming employees. The code is explicit that it should not require small businesses to comply with obligations that are not practical or feasible for their operations.

“It makes managing dismissals much more straightforward. The codes are based on draft codes published in January that were developed through an extensive Nedlac process.

“They will make it easier to run a small business in this country and cheaper to manage a workforce, which will make it more desirable to hire in the first place.”

She points out that the new code is a good example of how progress can be made when social partners work together. However, while one minister was moving forward, another was about to derail equally important reforms to credit regulations.

ALSO READ: Report reveals there is no lack of funding for small businesses – here’s the problem

Draft amendments to credit regulations would make it easier for small business to get credit – also good policy

The Department of Trade, Industry and Competition published draft amendments to the credit regulations under the National Credit Act for public comment. These draft regulations included important changes to make it easier for lenders to assess the creditworthiness of small businesses for new loans.

The current regulations, which have not been changed since 2013, apply to consumers and include small business borrowers by default. They must provide bank statements and payslips to pass an affordability test.

“It does not matter how good their business plans are and the future profits they may earn. Therefore, if you are an entrepreneur with a great business idea you worked to develop over the last six months and you need a small loan to get going, no lender can legally lend to you because your bank statement history would show you could not afford to repay the loan, as you have not been working. Even if your idea was sure to generate more than enough to meet repayments.”

The new draft rules included enabling lenders to determine affordability by assessing how likely a business idea was to succeed.

For start-up businesses, this could have been a huge improvement to their access to loans.

However, shockingly, minister Parks Tau suddenly cancelled the public comment period on Friday, apparently after he received 20 000 negative submissions. The last day for public comments was Friday.

Mavuso points out that rather than wait to conclude that and then carefully review the comments received before deciding the next step, the minister summarily withdrew the amendments.

ALSO READ: Tau withdraws draft credit regulations after public backlash

Huge slap in the face and enormous setback to pull draft regulations – irrational policy making

“This is an enormous setback. The draft rules emerged from a long process, including substantial work by the business-government partnership on employment and its attempts to improve access to credit for SMEs.

For those of us who put substantial effort into developing these proposed amendments, it is a huge slap in the face.

“Adding insult to injury, it appears the 20 000 negative submissions the minister received are not even relevant to the proposed amendments.

“Those emerged on the back of a campaign to encourage students to write in about the fact that the existing regulations include, among those who can be sources of credit information that is sent to credit bureaus, educational institutions.

“In other words, the regulations as they stand allow educational institutions, alongside any lender, insurer, debt collector or organ of state to submit information to credit bureaus when, for example, a student absconds while owing money.

“That has been in the regulations since 2006. However, the proposed amended regulations made no reference to this whatsoever. The withdrawn regulations mean that the clause remains the status quo in any way.”

ALSO READ: Credit rule row: DTIC insists students are not the target

Tau’s decision is irrational policy making that will damage economic growth

Mavuso says this is an irrational way to draft policy.

“What the minister should have done is rationally consider the comments received during the consultation period. If he then found that the students had a point about the existing regulations, he could have considered some further amendments.

“But to summarily withdraw the proposed amendments before the consultation period had even concluded, let alone the input rationally assessed, the minister simply ended a detailed and careful amendment process.”

She says while the minister of labour took a step forward to ease the burden on small businesses, the minister of trade, industry and competition took a major step backwards.

“It makes a mockery of business’s efforts to work with the president and the rest of government to find ways to enable our economy to grow.

“I strongly urge the minister to reconsider his action and restore credibility to the policy process by reintroducing these amendments, or he will have to explain to struggling entrepreneurs why politics matters more than their livelihoods.”