It felt like good progress was being made on two fronts – easing the labour law burden on small companies and enabling lending to small businesses. But by the end of the week, the second of those had shockingly been withdrawn despite its obvious benefit to a large part of the economy.
Positive reforms are essential to turning around our poor economic growth and tackling our unemployment crisis. Through Nedlac and initiatives like Business for South Africa, we work extensively to help develop proposed policy changes that can contribute to improving the business environment.
The new code of practice on dismissals, under the Labour Relations Act, was gazetted last week by the minister of employment and labour, Nomakhosazana Meth, making it easier for small businesses to dismiss underperforming employees. 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.
That is only reasonable – small businesses cannot afford extensive HR departments that can be on hand to manage underperforming employees. The code is explicit that it should not require small businesses to comply with obligations that are not practical or feasible for their operation. It makes managing dismissals much more straightforward. The codes are based on draft codes published in January that had been developed through an extensive Nedlac process. They will make it easier to run a small business in this country and cheaper to manage a workforce, which will make it more desirable to hire in the first place.
The new code is a good example of how progress can be made when social partners work together. But while one minister was moving forward, another was about to derail equally important reforms to credit regulations.
The department of trade, industry & competition had published draft amendments to the regulations under the National Credit Act for public comment. These draft regulations included important changes to enable lenders to more easily assess small businesses for new loans.
Shocking
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. That’s even if your idea was sure to generate more than enough to meet repayments.
The draft new 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.
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Shockingly, however, minister Parks Tau suddenly on Friday cancelled the public comment period, apparently after he received 20 000 negative submissions. The last day for public comments was Friday. Rather than wait to conclude that and then carefully review the comments received before deciding the next step, the minister summarily withdrew the amendments.
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. For those of us who have put substantial effort into developing these proposed amendments, it is a huge slap in the face.
Adding insult to injury, it appears the 20 000 negative submissions the minister received aren’t even relevant to the proposed amendments. Those emerged on the back of a campaign to encourage students to write in about the fact that the existing regulations include, among those who can be sources of credit information that is sent to credit bureaus, educational institutions. In other words, 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. That 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.
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. 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.
While the minister of labour has taken a step forward in easing the burden on small businesses, the minister of trade, industry & competition has taken a major step backwards. It makes a mockery of business’s efforts to work with the president and the rest of government to find ways to enable our economy to grow.
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I strongly urge the minister to reconsider his action and restore credibility to the policy process by reintroducing these amendments, or he will have to explain to struggling entrepreneurs why politics matters more than their livelihoods.
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