Author: Walter Bhengu
The easing of compliance obligations while ensuring sufficient safeguards is a matter that the Financial Action Task Force (FATF) and the Johannesburg Stock Exchange (JSE) have had to grapple with in recent times. The FATF has made variations to the measures for putting countries on its blacklists and greylists to alleviate pressures on least developed countries and focus on those countries posing greater risks to the international financial system. On the other hand the JSE embarked on a project aimed at simplifying the JSE Listings Requirements with concise regulatory objectives, easier to understand and apply. These interventions not only assist countries and businesses but the regulators themselves in terms of their staff and processes.
The burden of bureaucracy
Government employees tasked with enforcing regulations often bear the brunt of overregulation. The sheer volume and complexity of regulations can create an overwhelming workload, leading to significant stress and burnout. Regulatory staff are required to navigate a maze of rules, ensuring compliance across various sectors. This not only consumes valuable time and resources but also leads to decreased job satisfaction and higher turnover rates. When employees are constantly under pressure, their productivity and morale suffer, which in turn affects the efficiency of government operations. A glaring gap that needs to be highlighted is that, each time new regulations are introduced, government employees need to undergo training. Such training usually happens in a live environment when implementation is already underway. As such the employees may find it difficult at that point to respond to queries of citizens or businesses that seek clarity on the new processes.
Resource diversion and misallocation
Overregulation demands substantial resources for monitoring, enforcement, and compliance activities. This diversion of resources can strain government budgets, limiting the availability of funds for other critical areas such as education, healthcare, and infrastructure development. When a significant portion of the budget is allocated to regulatory enforcement, other essential services may be underfunded, leading to a decline in the overall capacity of the government to deliver public goods effectively. This misallocation of resources can hinder socio-economic development and exacerbate existing challenges. Each time a new law is introduced in Parliament, the functionary that submits that law needs to indicate the financial implications of implementing that law. It is however, difficult to fully estimate the true cost of implementation in the long term. With the fiscus currently under strain, we have seen universal budget cuts which have also seen cuts to organs of state that deal with compliance and enforcement.
Bureaucratic inefficiencies
The proliferation of regulations often leads to bureaucratic inefficiencies. Government processes can become bogged down with paperwork, lengthy approval procedures, and redundant checks. This not only slows down decision-making but also hampers the ability of organs of state to respond swiftly to emerging risks. For instance, during a public health emergency, the need for rapid response can be thwarted by cumbersome regulatory requirements, delaying critical interventions and potentially exacerbating the crisis. As such, in recent history during the Covid pandemic, there was a suspension of some regulatory requirements under the Disaster Management Act. This freed up time for government employees to assist with pressing matters. Lessons can be learnt from that to try and ascertain which processes or regulations are no longer required.
Corruption and unethical practices
Complex and excessive regulations can create fertile ground for corruption and unethical practices. Businesses, in their bid to navigate the regulatory maze, may resort to bribery or other illicit means to expedite processes or avoid penalties. This undermines the integrity of government institutions and erodes public trust. When corruption becomes pervasive, it weakens the rule of law and reduces the effectiveness of government processes. Government employees, caught in this web of corruption, may find themselves complicit or powerless to effect change, further demoralizing the workforce.
Stifling innovation and adaptability
Organs of state, like businesses, need to innovate and adapt to changing circumstances. Overregulation can stifle innovation within government by creating a risk-averse culture where employees are more focused on compliance than on finding creative solutions to problems. This can hinder the government's ability to implement new technologies and improve service delivery. For example, the adoption of digital tools and processes may be slowed down by regulatory hurdles, preventing the government from modernising its operations and enhancing efficiency. This is very clear in the public procurement space where there have been calls for greater innovation but the myriad of legal instruments to comply with have made it difficult to innovate.
Impact on policy implementation
When government employees are overwhelmed by regulatory tasks, their ability to implement and monitor other important policies effectively is compromised. This can lead to gaps in policy enforcement and a failure to achieve desired policy outcomes. For instance, environmental regulations may be well-intentioned, but if the regulatory burden is too high, enforcement may be lax, leading to continued environmental degradation. Similarly, social welfare programmes may suffer if regulatory staff are stretched too thin to oversee their proper implementation. This may be the reason why it has been difficult to monitor abandoned mines.
The case for smart regulation
The solution is not to abandon regulation altogether but to adopt a more balanced and strategic approach. Smart regulation focuses on creating a regulatory environment that protects public interests while fostering economic growth and innovation. This involves streamlining regulatory processes, reducing unnecessary red tape, and ensuring that regulations are clear, consistent, and predictable. By doing so, governments can create a more conducive environment for businesses to operate, innovate, and contribute to economic development, while also enhancing the capacity and morale of government employees. This is what the Red Tape Reduction (RTR) task team in the Presidency was set up to do. The objective of the RTR is to suggest initiatives aimed at reducing excessively complex rules, regulations, procedures, and processes that inhibited economic growth and job creation in key areas of the economy.
Overregulation of businesses by the government can have far-reaching negative consequences, not only for the private sector but also for government employees and processes. By recognising the pitfalls of excessive regulation and adopting a more balanced approach, governments can enhance their capacity to serve the public effectively and foster a more dynamic and innovative public sector. The key lies in smart regulation that protects public interests without stifling the entrepreneurial spirit and economic dynamism that are essential for progress. Developing countries, in particular, must strive to strike this delicate balance to unlock their full potential and achieve sustainable development.
