## 1. South Africa’s growth has been too weak for too long.

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---

### A. Growth history and macro context
- Annual growth averaged 3.6 percent in the first decade following the end of Apartheid (1994-2007).
- Average real growth of below 1 percent between 2008 and 2024 led to a decline in real per capita income to its 2007 level and an erosion of living standards.
- Weak growth has hindered efforts to address persistent social legacies of apartheid and failed to meet employment aspirations.

### B. Structural rigidities and the business environment
- Entrenched structural rigidities identified:
  - Inefficient state-owned enterprises operating in key sectors with associated recurrent infrastructure breakdowns.
  - Eroded state capacity and high levels of bureaucracy.
  - Product-market rigidities contributing to low business dynamism and subdued employment opportunities (OECD, 2025a).
- Regulatory constraints documented to hinder market participation and firm growth (Owoseni and Ahwireng-Obeng, 2024; World Bank, 2025).
- South Africa stands out as one of the most restrictive business environments across all OECD countries and G20 emerging economies.
- Key contributors to restrictiveness: burdensome administrative procedures, communication and simplification failures, interaction with stakeholders, weak regulations and competition impact evaluation, tariff barriers, barriers to entry in Service and network sectors, and administrative and regulatory burdens.
- The gap to the business regulation frontier has widened since 2010, especially for bureaucratic costs and administrative requirements, disproportionately burdening SMEs (IMF, 2025).

### C. Potential macro gains from product-market reforms
- IMF (2025) estimates: closing 50 percent of South Africa’s gap relative to the EM frontier on business regulations could boost real output by around 2 percent in the medium run relative to a no-reform scenario.
- Corresponding note: this corresponds to boosting South Africa’s average yearly growth by up to 0.4 percentage points relative to a no-reform scenario.
- Complementary governance reforms would amplify effects, particularly in the near term, by bolstering trust and confidence in government reform efforts.

### D. Empirical firm-level analysis: data and methods
- Data source: World Bank Enterprise Surveys (WBES) covering a large and representative sample of firms; sample period 2002−2025.
- Sample composition: 183 economies covering all regions and income groups.
- Firm-level inputs and outputs: number of employees, intermediate consumption, capital stock, compensation of workers, sales, and exports.
- Firm characteristics: age, size, and foreign ownership.
- Performance measures:
  - Business dynamism: sales growth and employment growth.
  - Labor productivity: ratio of value added or sales to number of employees.
  - Total-factor productivity (TFP): residual from a Cobb-Douglas sales equation accounting for labor, capital, and intermediate inputs (equation (1)).
- Main regression specification: firm performance related to regulatory burden (time managers spend dealing with licensing and permitting), controlling for firm size, age, ownership, share of foreign capital, education of labor force, access to finance, and country/sector/year fixed effects (equation (2)).
- Instrumentation: country-sector-city average of managers’ time spent dealing with regulations (excluding the firm’s own observation) and the location average share of informal payments as instruments; two-stage least squares used to address endogeneity.

### E. Key empirical findings on regulatory burdens and firm performance
- Regulatory burden (time spent on licensing and permitting) for the average South African firm almost doubled between 2007 and 2020.
- SMEs share in surveys: close to 80 percent in 2007 and about 87 percent in 2020.
- A one-percentage-point increase in business leaders’ time spent dealing with regulations is associated with a 0.94 percent reduction in firm-level job growth in South Africa.
- Firms where managers spend a larger share of time on regulations exhibit:
  - Weaker sales growth.
  - Weaker employment growth.
  - Lower labor productivity and lower total-factor productivity.
- Impact is consistently larger in South Africa compared to the average country in the sample, especially for job growth, labor productivity, and TFP.
- Small firms (less than 20 employees) in South Africa suffer about twice as much as the average of all firms in the sample from the impact of cumbersome business regulations on total-factor productivity.
- Robustness: results hold after controlling for training provided to employees, access to a credit line, security expenses, transport obstacles, and presence of foreign firms.
- Alternative regulatory measure: using firms’ own perceptions of licensing and permitting as an obstacle yields similar results — a one-percentage-point increase in perceived licensing/permitting obstacle associated with a drop in firm-level productivity by close to one percent.

### F. Deep dive: licensing and permitting (L&P) in South Africa
- Primary legislation: Businesses Act, No. 71 of 1991 governs business licensing and permitting.
- Criticisms of the Act and L&P regime:
  - Decentralized approach results in fragmentation and inefficiency across national, provincial, and municipal spheres.
  - High compliance costs, especially for SMMEs.
  - Excessive requirements that disincentivize informal employment.
  - Broad scope and complex wording yield different interpretations, uncertainty, and potential legal disputes.
- Decentralization and capacity constraints:
  - Lack of a national policy framework to guide local and provincial authorities leads to inconsistent enforcement and duplicative processes.
  - Misaligned fee structures and municipal capacity constraints produce differentiated applications detrimental to business creation and operation, particularly for small and informal operators.
- Specific procedural burdens:
  - No public up-to-date list of all permits and licenses required; business owners must research necessary approvals.
  - Absence of the “silence is consent” principle (no automatic approval past a set time period).
  - Lack of the “once-only” principle (firms must repeatedly provide data to public bodies).
  - No differentiation of licensing complexity and length based on risk associated with activity.
- Sectoral examples:
  - Water use licensing requirements and delays can delay farming startups or discourage large-scale farming due to compliance and equity demands.
  - Water use licensing also constrains manufacturing and mining sectors.

### Informal employment and restrictive local requirements
- At about one-third, South Africa’s share of informal employment in total employment is significantly smaller than that of many peers G-20 emerging markets (Indonesia, India, Mexico).
- Although licensing requirements and the ban on street vending were lifted post-apartheid, cities continue to impose restrictive requirements and zoning rules that:
  - Limit informal trading and often push vendors away from central business districts and towards less lucrative areas with more limited growth opportunities.
  - Include requirements for a business license, a permit to trade in a particular location and associated monthly tariffs, and a Certificate of Acceptability to prepare and sell food, which are often complex and unaffordable for informal traders.
  - Expose violators to criminal sanction, with a fine or imprisonment in all major metropoles.
  - Grant law enforcement broad powers to impound or confiscate informal traders' goods for failing to comply with by-laws.
- This approach to the informal sector is described as highly restrictive compared to most developing countries.
- While ensuring safety is critical, the Act's provisions could potentially be used to discriminate against certain business types or disadvantaged communities.

### The Three-Tier Licensing & Permitting System in South Africa (Box 1)
- Licensing and regulation divided between national, provincial, and local government spheres:
  - National government sets overall framework and broad policies.
  - Provincial governments implement and adapt national policies and may have specific licensing requirements.
  - Local authorities (municipalities) enforce regulations and issue licenses within their geographic areas.
- Sector examples of decentralized L&Ps:
  - Liquor trade: municipal trading permits + provincial liquor board licensing.
  - Waste management: environmental permits from municipal and national agencies, plus sectoral waste-handling permissions.
  - Telecommunications: licenses issued by ICASA (national) with no municipal engagement.
  - Informal food vendors: face health and zoning restrictions at local/provincial levels.

### Product-market restrictions, concentration, and competition
- South Africa’s product market is highly concentrated, translating into low competition and higher prices.
- The Competition Act aims to prevent anti-competitive practices and promote fair market competition but faces challenges including:
  - Balancing competition enforcement with public interest.
  - Adapting to a rapidly evolving global economy and technological advancements.
  - Addressing the legacy of economic concentration and inequality.
- Evidence and assessments:
  - Competition policy has been effective in blocking anti-competitive mergers and uncovering explicit cartel behavior but relatively ineffective in addressing entrenched market power and opening the economy to greater access.
  - Lack of competition has allowed incumbents to remain unchallenged, benefit from high markups, reduce innovation incentives, and weigh on productivity.
  - Complexity of procurement procedures, licensing regimes, and regulatory controls create significant barriers to entry for domestic and foreign investment, undermining contestability especially in services and network industries.
  - Thakoor (2020) estimated that South Africa could boost GDP per capita growth by 1 percentage point in the short term and up to 2.5 percentage points in the long-term by improving contestability in key markets.

### Common uncompetitive practices and sectoral barriers
- Observed uncompetitive practices:
  - Exclusionary conduct, strategic mergers, and lobbying for restrictive regulations to preserve market shares.
  - Use of vertical restraints, exclusive dealing, and bundling to foreclose rivals.
- Systemic hurdles for new entrants:
  - Distribution, logistics, and access to finance constrained by exclusivity clauses and vertically integrated supply chains.
  - Import restrictions have reinforced incumbents by shielding them from external competition.
  - Example: punitive import duties on essential business tools (e.g. single cab bakkies) impose higher operational costs for small businesses.

### Sector-based regulation specifics
- Retail and professional services:
  - South Africa’s retail sector is significantly more regulated than that of OECD and G-20 peer economies.
  - Barriers in many professional services are higher than the average in OECD countries or G-20 emerging markets, e.g., lawyers and real estate agents where there is only one pathway to enter the profession and a requirement to hold South African citizenship.
  - Architects and civil engineers who studied abroad must pass a local exam to enter the profession.
- Mining sector: heavy regulatory regime and regulatory uncertainty sometimes identified as impediments to investment.

### Public procurement and insolvency
- Public procurement:
  - South Africa has one of the least competitive public procurement rules among OECD countries and peers G-20 emerging markets.
  - The Public Procurement Act (Act No. 28 of 2024) aims to unify fragmented procurement legislation and improve transparency across all spheres of government.
  - Remaining challenges:
    - Bid timeframes are not proportional to projects’ value and complexity.
    - Contracting authorities do not divide tenders into smaller lots, limiting smaller firms' participation.
    - Late payments of invoices, estimated at close to one-fourth of total invoices (MPAS, 2024), constrain firms' cash flow, particularly for small suppliers.
- Procurement practice example: Singapore’s OBLS portal allows licensing across 260 categories via an integrated national online platform; average application processing time dropped from 21 to 8 days.
- Insolvency regime:
  - Insolvency procedures and time to discharge debt tend to be lengthy as they are done by regular courts of law.
  - Exemptions on personal assets are limited, and management is dismissed during restructuring (unlike in most OECD countries), distorting incentives for early filing.
  - There is no early warning system, and no special insolvency procedure for SMEs.

### Empirical summary on effects of cumbersome regulations
- Cumbersome business regulations hinder firm performance in South Africa, with implications for economic growth and job creation.
- IMF (2025) highlighted that implementing reforms to close 50 percent of South Africa’s gap relative to the EM frontier on business regulations could generate material gains by boosting real output by around 2 percent in the medium term.
- This paper's results:
  - Firms’ dynamism (sales and employment growth), as well as labor and total-factor productivity, are lower in firms where managers spend a larger share of their time dealing with government regulations (licensing and permitting).
  - The negative impact of cumbersome business regulations on firm performance is consistently larger in South Africa compared to the average country in the sample.
  - The negative impact is particularly large for small South African firms, which suffer about twice as much as the average firm.
- Causes identified:
  - Highly decentralized licensing and permitting regime results in duplicative processes and misaligned and costly fee structures.
  - Capacity constraints in most municipalities lead to fragmentation and inefficiency and differentiated applications detrimental to business creation and performance, especially for small entities.
  - Access and cost of energy, reliable logistics and water supply, and the cost of dealing with local government with weak capacity are among top constraints reported by businesses.

### Policy recommendations: harmonization and specific measures
- Overarching principle: L&Ps should be used sparingly to address specific risks and protect public interests; processes should be streamlined and efficient.
- Establish a coherent National Licensing & Permitting Policy to align regulatory roles across government tiers, leverage digital systems, and support standardized fees. The comprehensive national policy framework should aim for:
  - Centralized and streamlined systems:
    - Define roles between national, provincial, and municipal entities to avoid overlaps.
    - Use a single-window or centralized electronic platform to apply for and track multiple licenses and permits to reduce duplication, simplify compliance, increase transparency, and shorten turnaround time (examples: digital one-stop portal as in Malaysia and Singapore).
  - Building capacity:
    - Address institutional weaknesses at municipal level and boost enforcement via training and intergovernmental coordination.
  - Simplifying licensing for informal trading and micro firms:
    - Concessional licensing/permitting and digital onboarding, and facilitating trading opportunities in high-traffic areas to lower digital, financial, and regulatory barriers and encourage individual entrepreneurship.
  - Risk-based licensing:
    - Differentiate licensing requirements based on risk profile so low-risk businesses operate with minimal licensing (examples: Botswana and New Zealand).
    - Brazil’s new Business Environment Law (2021) introduced automatic approvals for medium-risk businesses reducing compliance cost.
  - Predictability:
    - Introduce a public up-to-date inventory of all permits and licenses required, a “silence is consent” principle where appropriate, and possibly a “once-only” principle to lower administrative burden.
  - Fee standardization:
    - Implement national fee schedules with room for locally calibrated pricing as in the Botswana and Kenya models.
  - Clear distinction between licensing and registration:
    - Differentiate business registration (legal identity for tax/statistics) and licensing (regulatory permission to operate) to avoid confusion and streamline procedures.
  - Transparent appeals and complaint mechanisms:
    - Formal and transparent channels to challenge licensing decisions to protect business rights and improve fairness and public trust (examples: Japan and Botswana).
  - Regular review of licensing requirements:
    - Periodic reviews to eliminate redundant or outdated licenses to keep regulations current with economic and technological developments (examples: Australia and Canada-British Columbia).
- Additional reforms to ease product market restrictions and support dynamism:
  - Clarifying legal requirements:
    - Complement public online database for primary laws with an online database for subordinate regulations and require “plain language” drafting to reduce entrepreneurs' compliance time.
  - Ensuring a level-playing field:
    - Review regulations and incentives that limit competition and align sector regulators with the Competition Commission to strengthen competition policy and enforcement.
    - Reduce barriers to entry in regulated service sectors and set clear criteria to recognize foreign qualifications to facilitate skilled immigration.
  - Simplifying procurement:
    - Make bid timeframes proportional to projects’ value and complexity and divide tenders into smaller lots to increase competitiveness and opportunities for smaller firms.
  - Insolvency regime:
    - Further streamline insolvency procedures to facilitate restructuring or exit of distressed firms and free up resources for new entrants.

### Appendix I. Variable definitions (selected)
- TFP: Total Factor Productivity estimated as the residual of production function.
- Labor Productivity: Ratio of total sales per employee.
- Sales Growth: Sales growth between t and t-3.
- Job Growth: Job growth between t and t-3.
- Time spent dealing with regulations: Percent of senior management time spent in dealing with government regulations (e.g. licensing).
- Licencing & permitting obstacle: Dummy = 1 if firms perceives licensing and permitting as an obstable (from minor to major).
- Size (<20 employees): Dummy = 1 for firms with less than 20 employees (small firms).
- Firm has a credit line: Dummy = 1 if establishment has a line of credit or loan from a financial insitutiton.
- Informal Pay: Percent of total annual sales paid in informal payments (to get things done).

*Source: sipea2026017 (IMF staff paper).*

### 1. South Africa’s growth has been too weak for too long. After a strong performance in the first

### 1. South Africa’s growth has been too weak for too long. After a strong performance in the first

### A. Growth history and macro context
- Annual growth averaged 3.6 percent in the first decade following the end of Apartheid (1994-2007).
- Average real growth of below 1 percent between 2008 and 2024 led to a decline in real per capita income to its 2007 level and an erosion of living standards.
- Weak growth has hindered efforts to address persistent social legacies of apartheid and failed to meet employment aspirations.

### B. Structural rigidities and the business environment
- Entrenched structural rigidities identified:
  - Inefficient state-owned enterprises operating in key sectors with associated recurrent infrastructure breakdowns.
  - Eroded state capacity and high levels of bureaucracy.
  - Product-market rigidities contributing to low business dynamism and subdued employment opportunities (OECD, 2025a).
- Regulatory constraints documented to hinder market participation and firm growth (Owoseni and Ahwireng-Obeng, 2024; World Bank, 2025).
- South Africa stands out as one of the most restrictive business environments across all OECD countries and G20 emerging economies.
- Key contributors to restrictiveness: burdensome administrative procedures, communication and simplification failures, interaction with stakeholders, weak regulations and competition impact evaluation, tariff barriers, barriers to entry in Service and network sectors, and administrative and regulatory burdens.
- The gap to the business regulation frontier has widened since 2010, especially for bureaucratic costs and administrative requirements, disproportionately burdening SMEs (IMF, 2025).

### C. Potential macro gains from product-market reforms
- IMF (2025) estimates: closing 50 percent of South Africa’s gap relative to the EM frontier on business regulations could boost real output by around 2 percent in the medium run relative to a no-reform scenario.
- Corresponding note: this corresponds to boosting South Africa’s average yearly growth by up to 0.4 percentage points relative to a no-reform scenario.
- Complementary governance reforms would amplify effects, particularly in the near term, by bolstering trust and confidence in government reform efforts.

### D. Empirical firm-level analysis: data and methods
- Data source: World Bank Enterprise Surveys (WBES) covering a large and representative sample of firms; sample period 2002−2025.
- Sample composition: 183 economies covering all regions and income groups.
- Firm-level inputs and outputs include number of employees, intermediate consumption, capital stock, compensation of workers, sales, and exports; firm characteristics include age, size, and foreign ownership.
- Performance measures:
  - Business dynamism: sales growth and employment growth.
  - Labor productivity: ratio of value added or sales to number of employees.
  - Total-factor productivity (TFP): residual from a Cobb-Douglas sales equation accounting for labor, capital, and intermediate inputs (equation (1)).
- Main regression specification relates firm performance to regulatory burden (time managers spend dealing with licensing and permitting), controlling for firm size, age, ownership, share of foreign capital, education of labor force, access to finance, and country/sector/year fixed effects (equation (2)).
- Instrumentation: country-sector-city average of managers’ time spent dealing with regulations (excluding the firm’s own observation) and the location average share of informal payments as instruments; two-stage least squares used to address endogeneity.

### E. Key empirical findings on regulatory burdens and firm performance
- Regulatory burden (time spent on licensing and permitting) for the average South African firm almost doubled between 2007 and 2020.
- SMEs share in surveys: close to 80 percent in 2007 and about 87 percent in 2020.
- A one-percentage-point increase in business leaders’ time spent dealing with regulations is associated with a 0.94 percent reduction in firm-level job growth in South Africa.
- Firms where managers spend a larger share of time on regulations exhibit:
  - Weaker sales growth.
  - Weaker employment growth.
  - Lower labor productivity and lower total-factor productivity.
- Impact is consistently larger in South Africa compared to the average country in the sample, especially for job growth, labor productivity, and TFP.
- Small firms (less than 20 employees) in South Africa suffer about twice as much as the average of all firms in the sample from the impact of cumbersome business regulations on total-factor productivity.
- Robustness: results hold after controlling for training provided to employees, access to a credit line, security expenses, transport obstacles, and presence of foreign firms. Using firms’ own perceptions of licensing and permitting as an alternative regulatory variable yields similar results (a one-percentage-point increase in perceived licensing/permitting obstacle associated with a drop in firm-level productivity by close to one percent).

### F. Deep dive: licensing and permitting (L&P) in South Africa
- Primary legislation: Businesses Act, No. 71 of 1991 governs business licensing and permitting.
- Criticisms of the Act and L&P regime:
  - Decentralized approach results in fragmentation and inefficiency across national, provincial, and municipal spheres.
  - High compliance costs, especially for SMMEs.
  - Excessive requirements that disincentivize informal employment.
  - Broad scope and complex wording yield different interpretations, uncertainty, and potential legal disputes.
- Decentralization and capacity constraints:
  - Lack of a national policy framework to guide local and provincial authorities leads to inconsistent enforcement and duplicative processes.
  - Misaligned fee structures and municipal capacity constraints produce differentiated applications detrimental to business creation and operation, particularly for small and informal operators.
- Specific procedural burdens:
  - No public up-to-date list of all permits and licenses required; business owners must research necessary approvals.
  - Absence of the “silence is consent” principle (no automatic approval past a set time period).
  - Lack of the “once-only” principle (firms must repeatedly provide data to public bodies).
  - No differentiation of licensing complexity and length based on risk associated with activity.
- Sectoral examples:
  - Water use licensing requirements and delays can delay farming startups or discourage large-scale farming due to compliance and equity demands.
  - Water use licensing also constrains manufacturing and mining sectors.

*Source: sipea2026017 (IMF staff paper).*

### 18. Restrictive requirements also hinder self-employment. At about one-third, South Africa’s share of

### 18. Restrictive requirements also hinder self-employment. At about one-third, South Africa’s share of

### Informal employment and restrictive local requirements
- At about one-third, South Africa’s share of informal employment in total employment is significantly smaller than that of many peers G-20 emerging markets (Indonesia, India, Mexico).
- Although licensing requirements and the ban on street vending were lifted post-apartheid, cities continue to impose restrictive requirements and zoning rules that:
  - Limit informal trading and often push vendors away from central business districts and towards less lucrative areas with more limited growth opportunities (Skinner, 2018; Khalid, et al. 2025).
  - Include requirements for a business license, a permit to trade in a particular location and associated monthly tariffs, and a Certificate of Acceptability to prepare and sell food, which are often complex and unaffordable for informal traders.
  - Expose violators to criminal sanction, with a fine or imprisonment in all major metropoles.
  - Grant law enforcement broad powers to impound or confiscate informal traders' goods for failing to comply with by-laws.
- This approach to the informal sector is described as highly restrictive compared to most developing countries (Khalid, et al. 2025; OECD, 2025b).
- While ensuring safety is critical, the Act's provisions could potentially be used to discriminate against certain business types or disadvantaged communities.

### Box 1. The Three-Tier Licensing & Permitting System in South Africa
- Business licensing and regulation are typically divided between the national, provincial, and local government spheres:
  - (1) The national government sets the overall framework and broad policies for business regulation, including licensing requirements and standards.
  - (2) Provincial governments have the authority to implement and adapt these national policies to their specific regional needs and may also have their own specific licensing requirements for certain businesses.
  - (3) Local authorities (municipalities) are responsible for enforcing regulations and issuing licenses for specific businesses within their geographic areas.
- Sector examples of decentralized L&Ps:
  - Liquor trade: Requires municipal trading permits + provincial liquor board licensing.
  - Waste management: Demands environmental permits from municipal and national agencies, plus sectoral waste-handling permissions.
  - Telecommunications: Licenses issued by ICASA (national) with no municipal engagement.
  - Informal food vendors: Face health and zoning restrictions at local/provincial levels.

### Product-market restrictions, concentration, and competition
- South Africa’s product market is highly concentrated, translating into low competition and higher prices.
- The Competition Act aims to prevent anti-competitive practices (price fixing, market dominance, collusion) and promote fair market competition, but faces challenges including:
  - Balancing competition enforcement with public interest.
  - Adapting to a rapidly evolving global economy and technological advancements.
  - Addressing the legacy of economic concentration and inequality.
- Evidence and assessments:
  - Competition policy has been effective in blocking anti-competitive mergers and uncovering explicit cartel behavior but relatively ineffective in addressing entrenched market power and opening the economy to greater access (Makhaya and Roberts, 2013; Roberts, Vilakazi, Simbanegavi, 2017).
  - Lack of competition has allowed incumbents to remain unchallenged, benefit from high markups, reduce innovation incentives, and weigh on productivity (World Bank, 2025).
  - Complexity of procurement procedures, licensing regimes, and regulatory controls create significant barriers to entry for domestic and foreign investment, undermining contestability especially in services and network industries (World Bank, 2020; Arrowsmith, 2010).
  - Thakoor (2020) estimated that South Africa could boost GDP per capita growth by 1 percentage point in the short term and up to 2.5 percentage points in the long-term by improving contestability in key markets.

### Common uncompetitive practices and sectoral barriers
- Uncompetitive practices observed:
  - Exclusionary conduct, strategic mergers, and lobbying for restrictive regulations to preserve market shares (CCSA, 2017; 2018).
  - Use of vertical restraints, exclusive dealing, and bundling to foreclose rivals (Khan, 2017; Geradin and Petit, 2020).
- Systemic hurdles for new entrants across the value chain:
  - Distribution, logistics, and access to finance are constrained by exclusivity clauses and vertically integrated supply chains (Makhaya and Roberts, 2013).
  - Import restrictions have reinforced incumbents by shielding them from external competition (OECD, 2018).
  - Example: punitive import duties on essential business tools (e.g. single cab bakkies) impose higher operational costs for small businesses and constrain emergence of new entrepreneurs.

### Sector-based regulation specifics
- Retail and professional services:
  - South Africa’s retail sector is significantly more regulated than that of OECD and G-20 peer economies (OECD, 2025).
  - Barriers in many professional services are higher than the average in OECD countries or G-20 emerging markets, e.g., lawyers and real estate agents where there is only one pathway to enter the profession and a requirement to hold South African citizenship.
  - Architects and civil engineers who studied abroad must pass a local exam to enter the profession.
  - Mining sector: heavy regulatory regime and regulatory uncertainty sometimes identified as impediments to investment.

### Public procurement and insolvency
- Public procurement:
  - South Africa has one of the least competitive public procurement rules among OECD countries and peers G-20 emerging markets.
  - The Public Procurement Act (Act No. 28 of 2024) aims to unify fragmented procurement legislation and improve transparency across all spheres of government.
  - Remaining challenges:
    - Bid timeframes are not proportional to projects’ value and complexity.
    - Contracting authorities do not divide tenders into smaller lots, limiting smaller firms' participation.
    - Late payments of invoices, estimated at close to one-fourth of total invoices (MPAS, 2024), constrain firms' cash flow, particularly for small suppliers.
- Procurement practice example data:
  - Singapore’s OBLS portal allows licensing across 260 categories via an integrated national online platform, which helped reduce the average application processing time dropped from 21 to 8 days.
- Insolvency regime:
  - Insolvency procedures and time to discharge debt tend to be lengthy as they are done by regular courts of law (André and Demmou, 2022).
  - Exemptions on personal assets are limited, and management is dismissed during restructuring (unlike in most OECD countries), distorting incentives for early filing.
  - There is no early warning system, and no special insolvency procedure for SMEs (OECD, 2025b).

### Empirical findings on the effects of cumbersome regulations
- Cumbersome business regulations hinder firm performance in South Africa, with implications for economic growth and job creation.
- IMF (2025) highlighted that implementing reforms to close 50 percent of South Africa’s gap relative to the EM frontier on business regulations could generate material gains by boosting real output by around 2 percent in the medium term.
- This paper's results:
  - Firms’ dynamism (sales and employment growth), as well as labor and total-factor productivity, are lower in firms where managers spend a larger share of their time dealing with government regulations (licensing and permitting).
  - The negative impact of cumbersome business regulations on firm performance is consistently larger in South Africa compared to the average country in the sample.
  - The negative impact is particularly large for small South African firms, which suffer about twice as much as the average firm from the impact of cumbersome business regulations.
- Causes identified:
  - Highly decentralized licensing and permitting regime (across national, provincial, local spheres and across sectors) results in duplicative processes and misaligned and costly fee structures.
  - Capacity constraints in most municipalities lead to pronounced fragmentation and inefficiency and differentiated applications detrimental to business creation and performance, especially for small entities.
  - Access and cost of energy, reliable logistics and water supply, and the cost of dealing with local government with weak capacity are among top constraints reported by businesses.

### Policy recommendations: harmonization and specific measures
- General principle: L&Ps should be used sparingly when necessary to address specific risks and protect public interests; processes should be streamlined and efficient (OECD, 2024).
- Establish a coherent National Licensing & Permitting Policy to align regulatory roles across government tiers, leverage digital systems, and support standardized fees. The comprehensive national policy framework should aim for:
  - Centralized and streamlined systems:
    - Define roles between national, provincial, and municipal entities to avoid overlaps.
    - Use a single-window or centralized electronic platform to apply for and track multiple licenses and permits to reduce duplication, simplify compliance, increase transparency, and shorten turnaround time.
    - Example: digital one-stop portal as in Malaysia and Singapore.
  - Building capacity:
    - Address institutional weaknesses at municipal level and boost enforcement via training and intergovernmental coordination.
  - Simplifying licensing for informal trading and micro firms:
    - Concessional licensing/permitting and digital onboarding, and facilitating trading opportunities in high-traffic areas to lower digital, financial, and regulatory barriers and encourage individual entrepreneurship.
  - Risk-based licensing:
    - Differentiate licensing requirements based on risk profile (e.g., food production vs. retail clothing) so low-risk businesses operate with minimal licensing (examples: Botswana and New Zealand).
    - Brazil’s new Business Environment Law (2021) introduced automatic approvals for medium-risk businesses reducing compliance cost.
  - Predictability:
    - Introduce a public up-to-date inventory of all permits and licenses required, a “silence is consent” principle where appropriate, and possibly a “once-only” principle to lower administrative burden.
  - Fee standardization:
    - Implement national fee schedules with room for locally calibrated pricing as in the Botswana and Kenya models.
  - Clear distinction between licensing and registration:
    - Differentiate business registration (legal identity for tax/statistics) and licensing (regulatory permission to operate) to avoid confusion and streamline procedures.
  - Transparent appeals and complaint mechanisms:
    - Formal and transparent channels to challenge licensing decisions to protect business rights and improve fairness and public trust (e.g. in Japan and Botswana).
  - Regular review of licensing requirements:
    - Periodic reviews to eliminate redundant or outdated licenses to keep regulations current with economic and technological developments (e.g. in Australia and Canada-British Columbia).
- Additional reforms to ease product market restrictions and support dynamism:
  - Clarifying legal requirements:
    - Complement public online database for primary laws with an online database for subordinate regulations and require “plain language” drafting to reduce entrepreneurs' compliance time.
  - Ensuring a level-playing field:
    - Review regulations and incentives that limit competition and align sector regulators with the Competition Commission to strengthen competition policy and enforcement.
    - Reduce barriers to entry in regulated service sectors and set clear criteria to recognize foreign qualifications to facilitate skilled immigration (OECD, 2020).
  - Simplifying procurement:
    - Make bid timeframes proportional to projects’ value and complexity and divide tenders into smaller lots to increase competitiveness and opportunities for smaller firms.
  - Insolvency regime:
    - Further streamline insolvency procedures to facilitate restructuring or exit of distressed firms and free up resources for new entrants.

*Source: IMF chapter/section sipea2026017.*

### Appendix I. Table 3. South Africa: List and Definition of Variables

### Appendix I. Table 3. South Africa: List and Definition of Variables

### Sources
- World Bank Enterprises Surveys and IMF Staff estimates.

### Variable definitions
- TFP  
  - Total Factor Productivity estimated as the residual of production function
- Labor Productivity  
  - Ratio of total sales per employee
- Sales Growth  
  - Sales growth between t and t-3
- Job Growth  
  - Job growth between t and t-3
- Time spent dealing with regulations  
  - Percent of senior management time spent in dealing with government regulations (e.g. licensing)
- Licencing & permitting obstacle  
  - Dummy = 1 if firms perceives licensing and permitting as an obstable (from minor to major)
- Firm Age  
  - Firm age
- Size (<20 employees)  
  - Dummy = 1 for firms with less than 20 employees (small firms)
- Size (20-99 employees)  
  - Dummy = 1 for firms with 20-99 employees (medium-sized firms)
- Size (>=100 employees)  
  - Dummy = 1 for firms with 100 employees or more (large firms)
- Privately Owned  
  - Dummy = 1 if firm is privately owned
- Foreign Ownership  
  - Dummy = 1 if foreigners own at least 10 percent of the firm's capital
- Training for employees  
  - Dummy = 1 if firm offered formal training to employees in last fiscal year
- Firm has a credit line  
  - Dummy = 1 if establishment has a line of credit or loan from a financial insitutiton
- Security Costs  
  - Security costs (% of annual sales)
- Transport Obstacle  
  - Dummy = 1 if firms perceives transport as an obstable (from minor to major)
- Informal Pay  
  - Percent of total annual sales paid in informal payments (to get things done)

*Source: World Bank Enterprises Surveys and IMF Staff estimates.*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026017.pdf_