Another shot in the foot for businesses in South Africa
The South African government recently introduced two important pieces of legislation to boost business operations in the country, particularly for small businesses, but one has now been withdrawn.
Through the Department of Employment and Labour, minister Nomakhosazana Meth gazetted the new code of practice on dismissals under the Labour Relations Act.
This code makes it easier for small businesses to dismiss underperforming employees, not requiring the same complex and costly processes that larger businesses must follow.
According to Business Leadership South Africa (BLSA) lead, Busi Mavuso, the new code is a reasonable and positive move for businesses in the country, as it makes hiring and firing much easier.
“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,” she said.
“It makes managing dismissals much more straightforward.”
While not without pushback from unions, the codes should make South Africa a more attractive place to start a business and hire people in the first place, Mavuso said.
The second important piece of legislation that has come to light in recent weeks is the Department of Trade, Industry and Competition’s draft amendments to the regulations under the National Credit Act.
These were published by the department for public comment, but were unceremoniously withdrawn this past week before the public comment period had been fully concluded.
These draft regulations included important changes to enable lenders to more easily assess small businesses for new loans.
The current regulations, which haven’t 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 doesn’t matter how good a business plan they have and the future profits they may earn.
“So, if you’re an entrepreneur with a great business idea you’ve worked to develop over the last six months, and need a small loan to get going, no lender can legally lend to you because your bank statement history would show you couldn’t afford to repay the loan, as you hadn’t been working,” Mavuso noted.
In a positive move, the draft rules, among other things, enabled 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,” she said.
Shot in the foot
However, DTIC minister Parks Tau unilaterally withdrew the draft rules on Friday (12 September), apparently after receiving over 20,000 negative comments.
“This is an enormous setback. The draft rules had 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,” Mavuso said.
“For those of us who have put substantial effort into developing these proposed amendments, it is a huge slap in the face.”
The BLSA CEO said that it appears the 20,000 negative submissions the minister received aren’t even relevant to the proposed amendments, but rather to fears that students would be unfairly targeted by the laws.
The regulations, as they stand, allow educational institutions, alongside any lender, insurer, debt collector, organ of state, etc, to submit information to credit bureaus, for example, if a student absconds while owing money.
Mavuso noted that this 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.
The CEO criticised Tau’s move to withdraw the legislation entirely, saying that it has now delayed a years-long process to the detriment of small businesses.
“This is an irrational way to form policy. What the minister should have done is rationally consider the comments received during the consultation period. If he had found that the students had a point about the existing regulations, he could have considered some further amendments,” she said.
“But in summarily withdrawing the proposed amendments, before the consultation period had even concluded, let alone the input rationally assessed, the minister has simply ended a detailed and careful amendment process.”
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