A POLICY FRAMEWORK TO ENHANCE ENTREPRENEURSHIP IN SOUTH AFRICA
...luent, dermacated smoking ares etc. In addition, efficiency costs are incurred by further legislations such as inappropriate labour market regulation. Box 1 represents a summary of the key legislation affecting prospective entrepreneurs. BOX 1: Cross-cutting Regulatory RequirementsThese are the most important regulations that affect most formal businesses. However, this is not a complete list of all general regulations. In addition, almost every sector of the economy has regulations that are specific to its type of operations. General Start-up: nine registration requirements, five different offices Reserve a company nameRegister name and articles of associationRegister for: VAT; skills levy, indicating the relevant SETA; PAYE; Income taxRegister with Unemployment Insurance Fund; Regional Services CouncilRegister as employer for Workman’s Compensation People and workplace Labour Relations ActBasic Conditions of Employment ActOccupational Health & SafetyCompensation for Occupational Injuries and Diseases ActHIV/AIDS and EmployerSkills Development Act & LevyUnemployment Insurance ActEmployment Equity ActBroad Based Black Economic Empowerment Act Taxation Standard Income Tax on Employees (SITE)Income taxSecondary tax on companiesPAYEProvisional taxCapital gains taxValue added taxRegional services council levy Miscellaneous License feesStamp Duties ActPrice controlsCompetition ActConsumer Affairs ActPromotion of Access to Information ActTrade marks, registered design, patents, merchandise marks, copyrightEnvironmental policy & legislationNational Environmental Management Act• Environment Conservation Act• Atmospheric Pollution Prevention Act• National Water ActTourism levies and requirementsCustoms & excise Source: Counting the Cost of Red Tape Nov 2004 In his response to his 2005 State of the Nation Addresss, President Thabo Mbeki acknowledges that some of these legislations are too onerous, particularly for smaller enterprises, turning “people into criminals simply because they do not have the capacity” to afford a lawyer to understand all these regulations. Recommended Policy Research by the World Bank has shown that an improved regulatory environment could increase economic growth by up to 1.4% a year. To this end a recommended policy framework would encompass the following: · Lower the burden on company tax; · Review labour laws which discourage employment; · Improve and speed up the business start up process by reducing the administrative burden; · A regulatory framework that favours competition and eliminates unnecessary barriers to market entry. 2.2. The Economy According to the Global Entrepreneurship Monitor, most of the new job growth in the U.S. over the past decade has been created by small businesses. The forecast is that this trend will continue. A National Governors Association study of entrepreneurial growth in the United States also notes that although Fortune 500 companies have lost more than 5 million jobs since 1980, 34 million jobs have been created by entrepreneurs and small business. This report notes that although entrepreneurs usually get their start by forming small business, not all small businesses are entrepreneurial. Within the context of South Africa, entrepreneurship and small business have a special importance as the labour absorption features are in line with the factor endownments of the country. Recommended Policy Policies designed to promote entrepreneurship need to address impediments to innovation and start up companies by ensuring the following: · A stable macro-economy based on financial discipline by the government, prudent fiscal management and low inflation, tax and financial sector reform and exchange rates that reflect the strength of the economy; · Fostering of small to medium enterprises; · Global linkages based on openness to trade, investment, technology and ideas, the reduction of trade barriers, the relatively free movement of people and the encouragement of exports through a realistic exchange rate; · The level of social benefits should not discourage entrepreneurship but should be enough to alleviate extreme poverty; · Adopt HIV/AIDS policies that promote a productive workforce; · Development of physical infrastructure and support services to provide: o Adequate and affordable building space; o Adequate and affordable land zoned for business development; o Highway accessibility; o Adequate water and sewer services; o Adequate phone services; o High speed internet access. 2.3. Productive vs Unproductive Entrepreneurship “It is often stated that an economy of private enterprise has an automatic bias towards innovation, but this is not so. It has a bias only towards profit” (Baumol, 1990) While the total supply of entrepreneurs varies among countries, the productive contribution of the country’s entrepreneurial activities varies much more according to their allocation between productive activities such as innovation and largely unproductive activities such as organized crime. This allocation is heavily influenced by the relative payoffs society offers to such activities. This implies that policy can influence the allocation of entrepreneurship more effectively than it can influence its supply. South Africa has more than its fair share of unproductive entrepreneurial activities such as organized crime, tax evasion, rent seeking activities such as litigation and takeovers. Corporate executives devote their time and energy to legal suits and counter-suits. How the entrepreneur acts at a given time depends on the reward structure within the economy. Recommended Policy To discourage destructive entrepreneurship, it is necessary to change the rules that determine relative rewards by adopting policies such as the following: · Legislation that discourages frivolous law suits such as rules that require a plaintiff in a private anti-trust law suit to bear the legal costs of both parties if the defendants are found not to be guilty; · Tax rules that rechannel entrepreneurial effort; · Effective monitoring systems; · Strengthen the efficiency of policing systems. 3. INDIVIDUALS 3.1. Education and Training Most studies on success factors for entrepreneurship point to the fact that successful entrepreneurs are relatively well educated. The greatest threat to the development and expansion of entrepreneurship in South Africa is the poor quality of education for previously disadvantaged individuals. In general, the South African education system prepares students for employment rather than for self-employment. The development of an entrepreneurial attitude should be encouraged in young people, starting at school. Society has transformed from an age where the blue-collar industrial worker was dominant to one where he is being increasingly replaced by the knowledge worker. Education is the centre of this knowledge economy and knowledge and the ability to apply it are the only comparative advantages. A nation that wants to succeed has to invest in the skills and knowledge of its people through quality education. Nations have to develop an awareness and a different mindset to acquiring a formal education and the habit of continuous learning. South Africa will need to move away from the focus of studying liberal arts and rather pursue more technological fields like engineering, sciences and mathematics. This human capital investment will ensure that the country will be able to acquire the necessary skills needed in a knowledge economy. Cheap industrial labour is no longer a comparative advantage. Recommended Policy · Improve access to schools; · Improve the quality of teaching particularly in mathematics and science; · Improve the quality of entrepreneurship education; · Build management capacity through training and continuous learning; · Education and training systems to be compatible with global systems to allow entrepreneurs ease of mobility between countries. 3.2. Innovation Common among successful entrepreneurial countries and organizations is a commitment to the systematic practice of innovation. Most innovations result from a conscious, purposeful search for innovation opportunities found only in a few situations. Areas of opportunity in the country as a whole include the following: · Demographic changes; · Changes in perception; · New Knowledge. Innovation begins with an analysis of sources of new opportunities. To be effective, it has to be simple and focused, beginning small, not grandiose. Successful innovation aims from the outset to be a standard setter, aiming for leadership. Recommended Policy · Allow stakeholders to participate in policy making; · Open transparent dialogue with business; · Create a national culture that encourages innovation by supporting research and development. 3.3. Financing Entrepreneurial Ventures Entrepreneurs organize and grow new businesses in varied circumstances and, consequently, accept risk. Access to finance is an important obstacle to entrepreneurship development. Given the high failure rates of start-up businesses, banks have been unwilling to fund the risk. The main cons...