The Regulatory Environment and SMMEs - Evidence from South African Firm Level Data

This paper investigates the impact of government regulation on firms in general, and SMMEs in particular, using four independent cross-sectional surveys. It specifically examines: labour regulations and their relationship with employment and investment; trade regulations; permits and licences for businesses; visa regulations; the predictability of regulatory application; and the costs of regulation. It also investigates the ways firms respond to regulations. Labour market regulations are the most often mentioned regulatory constraint to business and are mentioned as often as obstacles such as the availability of skilled workers, crime and theft, and macroeconomic instability. There is evidence that these regulations constrain firm growth, particularly among smaller firms. The unskilled in smaller firms are most likely to lose their jobs due to these regulations. Labour regulations are not the only type of regulations that have a disproportional effect on smaller firms. The cost of complying with tax regulations, in terms of the cost per worker, is much larger for smaller firms. Smaller firms are also more likely to identify tariff barriers as too high. A common finding throughout the paper is that it is the administrative burden and time costs associated with regulations rather than the direct monetary costs that are the most costly.