South Africa the most difficult place in the world to do business

South Africa is the most difficult place to do business in the world, ranking last among the 49 countries measured by the International Monetary Fund (IMF). 

This was revealed by Stanlib chief economist Kevin Lings, who outlined some lessons South Africa could learn from US President Donald Trump’s policies. 

At Stanlib’s InPerspective Roadshow, Lings explained that while Trump has inherited a strong economy, the underlying frailty is covered up by government spending. 

Much of the GDP growth in the United States in recent years has been driven by government stimulus, which has exaggerated the country’s financial difficulties. 

This growth path is unsustainable, as the US government cannot continue spending at its current levels, meaning it will have to end. 

As a result, Trump has sought to pivot the economy towards private sector-led growth by reining in government spending and reducing the regulatory burden on small businesses. 

Since 1994, 61.1% of US jobs have been created by small businesses, defined as businesses with less than 500 employees. 

Nearly 100% of United States businesses, numbering 34.8 million, are defined as small, versus 19,688 big companies. 

In a December survey by the National Federation of Independent Businesses (NFIB), small business owners expressed the most confidence about conditions for the next six months in 23 years. That means they are probably going to invest, expand and create jobs.

Lings said there are some key lessons South Africa can learn from this. The country also needs to wean itself off government spending as its debt burden becomes unsustainable. 

The IMF recently measured South Africa’s ease of doing business against 49 other countries, and it came to last. 

It also said that if South Africa could even just achieve an ease of doing business equal to the average, the country’s economic growth rate would double. 

South African business leaders have long pleaded with the government to make it easier to do business in the country. 

Standard Bank CEO Sim Tshabalala asked the government last year to reduce regulatory red tape to make it easier to conduct business in South Africa. 

“Please improve the quality of our institutions. In the case of South Africa, we use the lovely phrase ‘Please capacitate the public sector’,” he said.

“Some parts of the public sector are excellent, such as the National Treasury and the Reserve Bank. Replicate what is happening in those across the board.”

“Please capacitate the state,” he repeated. “Please professionalise it. Please continue to make doing business easier.”

Business leaders’ pleas have lately been matched by reports from the World Bank and the IMF outlining the damage excessive regulation has had on South Africa and how to reduce this burden. 

The World Bank’s latest report on South Africa, Driving Inclusive Growth in South Africa, said strengthening market competition and more efficient institutions are low-hanging fruit for the country. 

“Today, many of South Africa’s markets lack dynamism. Firm entry and exit are a third of the average of a typical middle-income country,” the lender said.

While ensuring greater economic inclusion and enhanced household welfare, market competition is the best way to dynamise an economy as it boosts efficiency and promotes innovation. 

South Africa could rebalance its economic model by making it easier for foreign and domestic investors and young workers to enter markets and reducing the protection of incumbents.

The reduction of protection for incumbents includes state-owned enterprises, which are, for the most part, highly inefficient monopolies. 

South Africa must also make its institutions more efficient and supportive rather than burdensome on private businesses. 

The World Bank said the burden of institutions has become excessive – not only for businesses and citizens but also for public administration. 

South African policymakers have attempted, often with good intentions, to correct market or historical failures by intervening through hard regulations, such as Black Empowerment policies, local content, and collective labour bargaining. 

Today, these interventions have become so cumbersome that they smother the implementation capacity of the public administration, especially local officials, and open spaces for corruption.