South Africans wanting to establish their own businesses do not only need a dash of entrepreneurial spirit. As important, they need lashings of patience if they intend to establish a close corporation (CC) or private company.
Disturbingly, words such as "frustrating" and "nightmare" crop up frequently in reference to a process that can take up to six months.
Robin Dixie, a council member of the Institute of Certified Public Accountants of SA, says: "It is very difficult to register a company; the average person would have no idea where to start."
Little wonder. There are up to 13 separate applications required and a host of sidetracks and potential delays along the way. Then there are licences to deal with and properties to be registered.
Analysts have criticised government delays in removing red tape for new companies as it is an easy way to boost the economy and, more importantly, give job creation a lift.
"There is no reason to delay reform as few people would argue that having burdensome business start-up is a good thing," says the World Bank's private equity arm, the International Finance Corp (IFC), in a recent global survey. "The cost of reform to ease business entry is minor and often requires only the stroke of a minister's pen. The benefits are enormous and so are the costs of waiting," the IFC comments.
In SA, step one in forming a business is relatively simple. A budding entrepreneur can choose between establishing a new company or CC or buying a dormant one "off the shelf".
Costs involved are similar but neither route offers hope of a speedier process, says Brendon Taylor, a partner at Cape Town firm WBS Accounting.
Total costs of about R1 500 for a CC and between R2 500 and R3 000 for a private company are unlikely to be the primary concern of most people eager to get their business up and going.
But delays are; and they begin with reserving a name for a new company with the Companies & Intellectual Property Registration Office (Cipro). This takes up to six weeks, says Dixie.
Delays have also been aggravated by Cipro's move of premises and an upgrade of its IT systems this year, says Taylor. Even now, Cipro's Internet connectivity leaves much to be desired. Its website is unacceptably slow and unreliable, says Jo Schwenke, MD of private equity firm Business Partners.
Even when a company name is reserved, the finishing line lies many weeks away. A bank account must be opened; then it's off to the SA Revenue Service (Sars) to register for Vat. This entails giving Sars a business plan detailing expected cash flow which can take another month, says Dixie.
Sars will also require registration for income tax, employees tax and provisional tax. Other steps that must be taken include registering with the Unemployment Insurance Fund, Workman's Compensation Insurance, the relevant industrial council and for the skills development levy.
But even these tasks pale into insignificance when it comes to obtaining a business licence from municipalities. This can require "superhuman energy", says Schwenke.
Businesses that require a licence include all those involved in the food trade or sale of perishable foodstuffs and all health and entertainment facilities. And if it's a restaurant you want to open, a copy of the menu may also be required. Liquor licences require a separate application to the Liquor Board.
According to the City of Johannesburg's website, a licence application is submitted to the trade licence department, which then sends a report to five departments for review and recommendation. The departments are: environmental health; noise & air pollution control; metropolitan public safety; emergency services; and urban planning building control.
Woe betide the business owner who operates without a licence. Beyond a fine, they are also in danger of being legally compelled to forfeit the entire business to the state, says Schwenke.
In the IFC survey, SA didn't fare too badly in a 155-nation survey measuring the ease of doing business. The country was ranked 28th. But it is still not where it should be in comparison with developed countries and those emerging countries with which it competes to attract investment.
SA did not rank among the top 30 in any of the three areas that have to be navigated when starting a business (see table). In Australia, New Zealand and Canada, for example, it takes only two procedures and in Australia two days to open a business. In SA it's nine procedures and 38 days. Similarly, in dealing with licences, SA is somewhere in the middle of the rankings, requiring 18 procedures and 176 days at a considerable cost. The top countries have at the most 10 procedures which take around 60 days to complete.
Generally, says the IFC, Africa has been slowest to reform and entrepreneurs face more regulatory obstacles in Africa than in any other region. An exception is Rwanda, where in 2001 new company and labour laws made it easier to start businesses and hire workers. "Since initiating reform, Rwanda has had annual economic growth averaging 3,6% - among the highest in Africa," the report says.
In another World Bank report - the investment climate survey, released last week - the organisation cites lack of finance as an obstacle facing new businesses. "While established firms appear to have little difficulty accessing finance at reasonable rates, this may be more difficult for new firms, more particularly in the absence of substantive collateral consequent upon low income and education levels," the survey finds.
"The SA system may function relatively well for those that have already secured a place within it, but not provide the support needed to enhance the level of new entrants," it adds.
The way forward, suggests Schwenke, is to build on the positive elements that exist and government's desire to improve the system. For example, he says, Cipro's website can perform all the desired functions. All that is needed is the technical expertise to make it work efficiently.
Ultimately, he adds, the solution lies in weeding out inefficient individuals in the company formation process. "I would also like to see more interaction between government and small business represented by organisations such as ourselves."
