74025 Economy Profile: South Africa Doing Business 2013 South Africa 2 © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Doing Business 2013 South Africa 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 33 Registering property .................................................................................................................. 41 Getting credit .............................................................................................................................. 52 Protecting investors ................................................................................................................... 59 Paying taxes ................................................................................................................................ 68 Trading across borders .............................................................................................................. 76 Enforcing contracts .................................................................................................................... 85 Resolving insolvency .................................................................................................................. 95 Employing workers .................................................................................................................. 101 Data notes ................................................................................................................................. 108 Resources on the Doing Business website ............................................................................ 113 Doing Business 2013 South Africa 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2011). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy‘s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 185 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 19 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2013 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for South Africa. To allow useful comparison, business regulatory reforms. The data, along with it also provides data for other selected economies information on ordering Doing Business 2013, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2012 (except for http://www.doingbusiness.org. Doing Business 2013 South Africa 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy‘s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Sub-Saharan Africa business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Upper middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 185 by the ease of Population: 50,586,757 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 6,960 percentile rankings on each of the 10 topics included in the index in Doing Business 2013: starting a business, DB2013 rank: 39 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2012 rank: 41* investors, paying taxes, trading across borders, Change in rank: 2 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see * DB2012 ranking shown is not last year‘s published the data notes for more details). The employing workers ranking but a comparable ranking for DB2012 that indicators are not included in this year‘s aggregate ease captures the effects of such factors as data of doing business ranking, but the data are presented corrections and the addition of 2 economies in this year‘s economy profile. (Barbados and Malta) to the sample this year. See the data notes for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy‘s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2013 South Africa 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2013 South Africa 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy‘s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How South Africa and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2013 South Africa 8 THE BUSINESS ENVIRONMENT Figure 1.3 How South Africa ranks on Doing Business topics Source: Doing Business database. Doing Business 2013 South Africa 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business year Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far each economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy since of changes in an economy‘s regulatory environment for 2005 on each indicator in 9 Doing Business indicator sets. firms, but they are always relative. An economy‘s ranking Comparing the measure for an economy at 2 points in might change because of developments in other time allows users to assess how much the economy‘s economies. An economy that implemented business regulatory environment as measured by Doing Business regulation reforms may fail to rise in the rankings (or may has changed over time—how far it has moved toward (or even drop) if it is passed by others whose business away from) the most efficient practices and strongest regulation reforms had a more significant impact as regulations in areas covered by Doing Business (figure 1.4). measured by Doing Business. The results may show that the pace of change varies widely Moreover, year-to-year changes in the overall rankings do across the areas measured. They also may show that an not reflect how the business regulatory environment in an economy is relatively close to the frontier in some areas economy has changed over time—or how it has changed and relatively far from it in others. in different areas. To aid in assessing such changes, last Figure 1.4 How far has South Africa come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the 9 indicator sets shown in the figure. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2013 South Africa 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy‘s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for South Africa United Kingdom DB2013 Best performer globally South Africa DB2013 South Africa DB2012 Botswana DB2013 Mauritius DB2013 Thailand DB2013 Nigeria DB2013 Turkey DB2013 Indicator DB2013 Starting a Business 53 43 99 14 119 85 72 19 New Zealand (1) (rank) Procedures (number) 5 5 10 5 8 4 6 6 New Zealand (1)* Time (days) 19 19 61 6 34 29 6 13 New Zealand (1) Cost (% of income per 0.3 0.3 1.6 3.3 60.4 6.7 10.5 0.7 Slovenia (0.0) capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 0.0 0.0 7.2 0.0 91 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 39 38 132 62 88 16 142 20 China (1) (rank) Hong Kong SAR, Procedures (number) 13 13 22 16 15 8 20 9 China (6)* Time (days) 127 127 145 143 85 157 180 99 Singapore (26) Cost (% of income per 33.4 36.6 172.7 28.5 417.7 9.2 164.3 62.4 Qatar (1.1) capita) Doing Business 2013 South Africa 11 United Kingdom DB2013 Best performer globally South Africa DB2013 South Africa DB2012 Botswana DB2013 Mauritius DB2013 Thailand DB2013 Nigeria DB2013 Turkey DB2013 Indicator DB2013 Getting Electricity 150 148 90 44 178 10 68 62 Iceland (1) (rank) Procedures (number) 5 5 5 4 8 4 5 5 Germany (3)* Time (days) 226 226 121 84 260 35 70 105 Germany (17) Cost (% of income per 1,505.8 1,651.5 353.8 295.1 873.9 75.3 517.9 108.9 Japan (0.0) capita) Registering Property 79 78 51 60 182 26 42 73 Georgia (1) (rank) Procedures (number) 6 6 5 4 13 2 6 6 Georgia (1)* Time (days) 23 23 16 15 86 2 6 29 Portugal (1) Cost (% of property 5.9 5.6 5.1 10.6 20.8 6.3 3.3 4.7 Belarus (0.0)* value) Getting Credit (rank) 1 1 53 53 23 70 83 1 United Kingdom (1)* Strength of legal rights 10 10 7 6 9 5 4 10 Malaysia (10)* index (0-10) Depth of credit 6 6 4 5 4 5 5 6 United Kingdom (6)* information index (0-6) Public registry coverage 0.0 0.0 0.0 56.3 0.1 0.0 23.5 0.0 Portugal (90.7) (% of adults) Private bureau United Kingdom 54.0 52.0 58.9 0.0 4.1 44.1 63.0 100.0 coverage (% of adults) (100.0)* Protecting Investors 10 10 49 13 70 13 70 10 New Zealand (1) (rank) Extent of disclosure 8 8 7 6 5 10 9 10 Hong Kong SAR, Doing Business 2013 South Africa 12 United Kingdom DB2013 Best performer globally South Africa DB2013 South Africa DB2012 Botswana DB2013 Mauritius DB2013 Thailand DB2013 Nigeria DB2013 Turkey DB2013 Indicator DB2013 index (0-10) China (10)* Extent of director 8 8 8 8 7 7 4 7 Singapore (9)* liability index (0-10) Ease of shareholder 8 8 3 9 5 6 4 7 New Zealand (10)* suits index (0-10) Strength of investor 8.0 8.0 6.0 7.7 5.7 7.7 5.7 8.0 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 32 34 39 12 155 96 80 16 (1) Payments (number per Hong Kong SAR, 9 9 32 7 41 22 15 8 year) China (3)* United Arab Emirates Time (hours per year) 200 200 152 161 956 264 223 110 (12) Trading Across Borders 115 145 147 15 154 20 78 14 Singapore (1) (rank) Documents to export 6 8 6 5 10 5 7 4 France (2) (number) Time to export (days) 16 25 27 10 24 14 13 7 Singapore (5)* Cost to export (US$ per 1,620 1,531 2,945 660 1,380 585 990 950 Malaysia (435) container) Documents to import 7 8 7 6 10 5 7 4 France (2) (number) Time to import (days) 23 32 37 10 39 13 14 6 Singapore (4) Cost to import (US$ per 1,940 1,795 3,445 695 1,540 750 1,235 1,045 Malaysia (420) container) Doing Business 2013 South Africa 13 United Kingdom DB2013 Best performer globally South Africa DB2013 South Africa DB2012 Botswana DB2013 Mauritius DB2013 Thailand DB2013 Nigeria DB2013 Turkey DB2013 Indicator DB2013 Enforcing Contracts 82 83 68 58 98 23 40 21 Luxembourg (1) (rank) Time (days) 600 600 625 645 457 440 420 399 Singapore (150) Cost (% of claim) 33.2 33.2 28.1 16.3 32.0 15.0 24.9 25.9 Bhutan (0.1) Procedures (number) 29 29 28 36 40 36 36 28 Ireland (21)* Resolving Insolvency 84 81 29 64 105 58 124 8 Japan (1) (rank) Time (years) 2.0 2.0 1.7 1.7 2.0 2.7 3.3 1.0 Ireland (0.4) Cost (% of estate) 18 18 15 15 22 36 15 6 Singapore (1)* Outcome (0 as piecemeal sale and 1 as 0 1 0 0 1 0 1 going concern) Recovery rate (cents on 35.4 35.2 64.8 40.9 28.2 42.4 23.6 88.6 Japan (92.8) the dollar) Note: DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. The ranking methodology for the paying taxes indicators changed in Doing Business 2013; see the data notes for details. For more information on “no practice� marks, see the data notes. Data for the outcome of the resolving insolvency indicator are not available for DB2012. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy‘s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2013 South Africa 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy‘s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures officially required or commonly done in received practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that the entrepreneur will  Has a turnover of at least 100 times income per pay no bribes. And it assumes that the business: capita.  Is a limited liability company, located in the  Does not qualify for any special benefits. largest business city.  Does not own real estate.  Has between 10 and 50 employees.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2013 South Africa 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in South Africa? costs 0.3% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 0.0% of income per capita (figure a business there requires 5 procedures, takes 19 days, 2.1). Figure 2.1 What it takes to start a business in South Africa Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 South Africa 16 STARTING A BUSINESS Globally, South Africa stands at 53 in the ranking of and the regional average ranking provide other useful 185 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in South Africa to start a business. Figure 2.2 How South Africa and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2013 South Africa 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in South Africa That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in South Africa over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 43 53 Procedures 9 9 9 9 8 6 6 6 5 5 (number) Time (days) 38 38 35 35 31 22 22 22 19 19 Cost (% of income per 9.4 9.7 8.6 6.9 7.1 6.0 5.9 6.0 0.3 0.3 capita) Paid-in Min. Capital (% of 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 South Africa 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by what is possible in making it easier to start a business. the economies that over time have had the best And changes in regional averages can show where performance regionally or globally on the procedures, South Africa is keeping up—and where it is falling time, cost or paid-in minimum capital required to start behind. a business (figure 2.3). These benchmarks help show Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2013 South Africa 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety-one economies globally have no paid-in minimum capital requirement. Source: Doing Business database. Doing Business 2013 South Africa 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in South Africa (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has South Africa made starting a business easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. Amendments to the corporate law have simplified the start-up DB2009 process including abolishing the need to have a lawyer, reducing cost and time. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. South Africa made starting a business easier by implementing its new company law, which eliminated the requirement to DB2012 reserve a company name and simplified the incorporation documents. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 South Africa 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY South Africa is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Johannesburg firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Liability Company professionals and the study of laws, regulations and Paid in Minimum Capital Requirement: ZAR 1 publicly available information on business entry in that economy. Following is a detailed summary of Start-up Capital: 10 times GNI per capita those procedures, along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in South Africa—and the time and cost Time to No. Procedure Cost to complete complete Lodge formation documentation with the Companies and Intellectual Property Commission (CIPC) for registration The new Companies Act 2008 of South Africa requires the following documents to be lodged: • Notice of Incorporation (CoR 14.1) 1 • Memorandum of Incorporation (MOI) (CoR 15.1 A) 5-7 days ZAR 175 If a proposed name is rejected, the company may still be registered and the registration number then becomes the name of the company at incorporation. An approved name may then be submitted later. Application to reserve a name (Form CoR 9.1) has a cost of R50 if done electronically. Open a bank account In order to open a bank account, the applicant needs to have a proof of 1-2 days no charge 2 who the directors are, and the original company documents. This procedure might take longer if required documentation are not in order. Register with the office of the local receiver of revenue (SARS) for income tax, VAT, and employee withholding tax (PAYE and SITE). 3 12 days no charge Business with annual taxable income of more than ZAR 1,000,000 needs to register for VAT.The application for the registration of VAT is done on a VAT 101 form. Cipro and the South African Revenue Service are Doing Business 2013 South Africa 22 Time to No. Procedure Cost to complete complete linked electronically. Once a company is incorporated the relevant South African Revenue Service office is advised and an income tax number is allocated to such entity. The company also has to register as an employer by means of "EMP 101e" form that caters for the necessary registration of all the witholding taxes applicable to the taxpayer including PAYE (Pay as You Earn. ie: employee tax) or SITE (inclusive of employee tax), UIF (Unemployment Insurance Fund) . SITE always is payable on the "first" R60 000, whereafter PAYE is payable on the excesss (i.e. amount after R60 000. The Employer is compelled to register as employer in terms of paragraph 15 of the 4th schedule to the Income Tax Act. If an employee earns less than ZAR60 000 SITE is payable and if the employee earns more than ZAR 1,00,000 PAYE is payable. No separate registration required for SITE. Any employer who is liable to register with SARS for the payment of employees' tax is also required to register with SARS for purposes of paying unemployment insurance fund contributions. An employer does not have a discretion whether to register with SARS or the Unemployment Insurance Commissioner (Department of Labour), as the liability of the employer to register and pay employees' tax and SDL will determine with whom an employer must be registered for UIF purposes. With regards to VAT applications, SARS assesses the viability of the business as part of the registration process. The company must appoint a public officer in terms of section 101 of the Income Tax Act and must advise the relevant SARS office of the full name, residential and postal address of such person. This person must be a resident of South Africa. SARS also carries out a physical inspection of the business premises and performs an interview with the public officer (or the tax practitioner authorised to carry out the registration process) before the VAT registration application is processed SARS introduced new verification procedures for VAT registration with effect from 13 November 2008 in an attempt to combat fraud. These requirements include 1) applications must be submitted in person or by a duly authorised and registered tax practitioner, 2) applications must be accompanied by proof of identity, bank particulars and documentation substantiating the physical business address. * Register with the Department of Labor for Unemployment Insurance. 4 days (simultaneous 4 no charge To register for unemployment insurance, the company submits UI-8 & with procedure 4) UI-19 application forms at once. Once the application is approved, The Department of Labour issues a form UI-33 to confirm registration. * Register with the Comissioner according to the Compensation for Occupational Injuries and Diseases Act. Around 10 days, 5 simultaneous with no charge Registration forms can be obtained from the Department of Labour's Procedure 4 website. Businesses do not have to wait for the approval of registration Doing Business 2013 South Africa 23 Time to No. Procedure Cost to complete complete to start operations. The relevant form is a W.As2. After completing and submitting the W.As2. form at the office of the Compensation Commissioner, the Company will be sent the following documents to complete from time to time (althought these are not required for registration): • W.As8 must be filed within 30 (thirty) days of financial year end, which must balance with Employer's COIDA account; • W.As6a which details the assesment of the Commissioner for premiums payabl;e, less anu amounts paid in advance; • WG30, W.As2 and W.Acl(E) which are claim forms that must be kept in a safe place for us if and when necessary. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 South Africa 24 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy‘s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2013 South Africa 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 13 procedures, takes 127 days build a warehouse in South Africa? According to data and costs 33.4% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in South Africa Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 South Africa 26 DEALING WITH CONSTRUCTION PERMITS Globally, South Africa stands at 39 in the ranking of ranking provide other useful information for assessing 185 economies on the ease of dealing with how easy it is for an entrepreneur in South Africa to construction permits (figure 3.2). The rankings for legally build a warehouse. comparator economies and the regional average Figure 3.2 How South Africa and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2013 South Africa 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to deal with construction permits not (table 3.1). That can help identify where the in South Africa today, data over time show which potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in South Africa over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 38 39 Procedures (number) 12 13 13 13 13 13 13 13 Time (days) 127 127 127 127 127 127 127 127 Cost (% of income 37.5 33.5 30.4 27.5 24.5 23.1 36.6 33.4 per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 South Africa 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by possible in making it easier to deal with construction the economies that over time have had the best permits. And changes in regional averages can show performance regionally or globally on the procedures, where South Africa is keeping up—and where it is time or cost required to deal with construction permits falling behind. (figure 3.3). These benchmarks help show what is Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2013 South Africa 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Source: Doing Business database. Doing Business 2013 South Africa 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in South Africa (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has South Africa made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 South Africa 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for South Africa are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Johannesburg information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers ZAR 6,503,000 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in South Africa —and the time and cost Time to No. Procedure Cost to complete complete Submit site development/ building plans to Municipality for approval Three copies of all plans are circulated internally among several departments within the municipality (usually zoning, water, structural, land survey, drainage/sewage, fire, and health departments). Site development plans may be approved first, which allows the company to start preliminary work on site. Building plans are usually approved by the time the site is ready for construction. The approved plans are 1 returned to the company with all forms required in the future attached: 90 days ZAR 14,006 notification of excavation, concrete work (if applicable), plumbing/sewage, and electrical work. The cost is determined by the municipality based on a sliding scale. The company has the option to call beforehand and request an estimate in about 1 -- 2 days. By law, the time limit for plan approval is 30 days, but the municipality commonly extends the time, so the procedure can take up to 3 months to complete. * Submit copy of building plans to TELKOM to apply for telephone connection 2 TELKOM reviews the plans and marks its requirements and where the 20 days ZAR 600 connection is to be made. The application states when the service is required. This procedure can be done simultaneously with the previous one. * Submit occupational health and safety plan 3 7 days no charge * Pay road repair deposit 30 days ZAR 1,500 4 Doing Business 2013 South Africa 32 Time to No. Procedure Cost to complete complete BuildCo must pay a deposit in case any damage is done to public roads during construction. Submit notification of completion of excavation/ foundation work 5 1 day no charge A notification form is attached to the approved plans. Receive inspection of excavation and foundations work 6 1 day no charge Submit notification of completion of sewage/ plumbing work 7 1 day no charge Receive inspection of sewage and plumbing 8 1 day no charge This inspection takes place before closing up. Submit certificate of compliance (plumbing, sewage) The company is required to submit an official certificate, issued by a 1 day no charge 9 registered plumber, confirming that the plumbing work has been completed according to the applicable legislation and standards. Self- certification is done by a certified professional. Apply for water and sewerage connection 10 The service should not be provided until the certificate of compliance 30 days ZAR 1,350 has been submitted. This procedure can be done simultaneously with the previous one. * Obtain telephone connection 11 1 day ZAR 1,650 This procedure can be done simultaneously with previous ones. Receive final inspection by municipal authorities The inspection is a prerequisite to obtaining the occupational 12 certificate. Usually a preliminary inspection could have taken place 1 day no charge shortly before construction is completed, in which case the final inspection is just a formality. Obtaining the occupational certificate would be issued after this process. Obtain Occupational Certificate 13 This certificate is issued after the final inspection by the municipal 1 day no charge authorities has been carried out and certifies that the building complies with the national and municipal building regulations. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 South Africa 33 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy‘s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer‘s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2013 South Africa 34 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 5 procedures, takes 226 days and costs connection in South Africa? According to data 1505.8% of income per capita (figure 4.1). collected by Doing Business, getting electricity there Figure 4.1 What it takes to obtain an electricity connection in South Africa Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 South Africa 35 GETTING ELECTRICITY Globally, South Africa stands at 150 in the ranking of perspective in assessing how easy it is for an 185 economies on the ease of getting electricity entrepreneur in South Africa to connect a warehouse (figure 4.2). The rankings for comparator economies to electricity. and the regional average ranking provide another Figure 4.2 How South Africa and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2013 South Africa 36 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in South Africa Best performer in South Africa South Africa Best performer Indicator Sub-Saharan Africa DB2013 DB2012 globally DB2013 DB2013 Rank 150 148 Mauritius (44) Iceland (1) Procedures (number) 5 5 Comoros (3) Germany (3)* Time (days) 226 226 Rwanda (30) Germany (17) Cost (% of income per capita) 1,505.8 1,651.5 Mauritius (295.1) Japan (0.0) Note: DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2013 South Africa 37 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and South Africa (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has South Africa made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2013 South Africa 38 GETTING ELECTRICITY What are the details? The indicators reported here for South Africa are based OBTAINING AN ELECTRICITY CONNECTION on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Johannesburg utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: ESKOM verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in South Africa—and the time and cost Time to No. Procedure Cost to complete complete Submit an application for electricity connection to Eskom and await an estimate of connection fees Applications may be done online through Customer Service Online system or by fax. Certified copies of an ID as well as guarantee payment maybe submitted to the servicing Walk-In-Centre on signing of the original contract by the customer. Budget quotes are issued, based on actual costs, whereby the applicant can respond. 60 calendar days no charge 1 When the customer accepts the budget quote (estimate), he submits his acceptance letter (usually attached to the quote) together with the necessary payment or proof thereof to the Customer Executive dealing with his application. * Receive external inspection by Eskom 2 1 calendar day no charge An external site inspection is carried out by Eskom to confirm the site layout so as to compare it with the drawing for costing purposes. Await completion of the external connection works by Eskom Eskom is in charge of the works up to the Meter Kiosk. Beyond falls under internal retic of the customer. 165 calendar days ZAR 862,679.0 3 The utility obtains an excavation permit at the Route Agency. Meter installation will be done, irrelevant if customers' internal retic is done or not. However the final connection will only be done after Eskom Doing Business 2013 South Africa 39 Time to No. Procedure Cost to complete complete have received the Compliance Certificate. Only the meter and meter kiosk are provided by Eskom free of charge. The rest are based on actual costs. Eskom provides the material. If for any reason the customer has to purchase the material not from Eskom, specifications are provided and have to be adhered to. In our case the following technical specifications of connection will most likely apply: • Supply size: 150kVA is the standard size closest to 140kVA • Feeder Voltage: 11kV and Customer takes supply at 400Volts • Network Type: Underground The following scope of works carried out by Eskom will most likely apply: • Mount a new 150kVA 11kV transformer on pole • Label the new transformer • Install MV fused links • Install a new LPU 150kVA meter-kiosk at the customer's boundary • Terminate a 150mm sq 4C Cu cable onto the LV side of the transformer to the meter-kiosk. • Lay 15m of 150mm sq 4C Cu cable from the transformer and terminate it to the new meter-kiosk. (It will be customer‘s responsibility to: lay own cable from his distribution kiosk to Eskom's meter-kiosk and to provide a termination kit.) In addition to the cost of works and material the customer has to pay the security deposit which is refundable on termination of the supply by customer less any amounts owing to Eskom if any. While the supply is active, Eskom has the right to revise existing deposits as per specific supply agreement between individual customer and Eskom. Eskom pays interest rate on deposits equal to the rate of the National bank. However, in most cases the security deposit against consumption is usually by means of a Bank Guarantee ie not hard cash. Testing of the connection: Once the connection part has been completed an arrangement for outage (process which includes quality check and testing) has to be made. It entails communication with the affected customers if any where supply point is shared e.g. minisub connection, arrangement for required staff to be dispatched/work order. The cost of the inspection is included in the costs of the external connection works. * Submit a Certificate of Internal Wiring Compliance to Eskom An electrician issues a Compliance Certificate regarding the internal wiring to Eskom. The internal wiring (reticulation) is not Eskom's 1 calendar day no charge 4 responsibility. An electrician should do the inspection, issue Compliance Certificate and submit it to Eskom. Eskom will require a Certificate of Compliance signed by a registered Electrical Contractor. The applicant's electrician has to be Doing Business 2013 South Africa 40 Time to No. Procedure Cost to complete complete licensed/accredited by the Electrician Contractors Association of South Africa (ECASA). All electricians doing work with Eskom have to be accredited by ECASA. Sign a supply contract with Eskom and obtain a final connection The supply contract can be signed just before the external connection works are ready so the power is turned on the next day after the external 5 connection works are over. 1 calendar day no charge Eskom will only provide final connection after Compliance Certificate was received. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 South Africa 41 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy‘s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer‘s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy‘s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2013 South Africa 42 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 23 days and costs 5.9% of the South Africa? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 6 Figure 5.1 What it takes to register property in South Africa Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 South Africa 43 REGISTERING PROPERTY Globally, South Africa stands at 79 in the ranking of and the regional average ranking provide other useful 185 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies entrepreneur in South Africa to transfer property. Figure 5.2 How South Africa and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2013 South Africa 44 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in South That can help identify where the potential for Africa today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in South Africa over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 78 79 Procedures (number) 6 6 6 6 6 6 6 6 6 Time (days) 24 24 23 24 24 24 24 23 23 Cost (% of property value) 11.3 11.0 8.9 8.8 8.8 8.7 8.8 5.6 5.9 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 South Africa 45 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by (figure 5.3). These benchmarks help show what is the economies that over time have had the best possible in making it easier to register property. And performance regionally or globally on the procedures, changes in regional averages can show where South time or cost required to complete a property transfer Africa is keeping up—and where it is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2013 South Africa 46 REGISTERING PROPERTY Cost (% of property value) Source: Doing Business database. Doing Business 2013 South Africa 47 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in South Africa (table 5.2)? Table 5.2 How has South Africa made registering property easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. South Africa made transferring property less costly and more DB2012 efficient by reducing the transfer duty and introducing electronic filing. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 South Africa 48 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer‘s name—identified by Doing Business City: Johannesburg through information collected from local property Property Value: ZAR 2,864,452 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in South Africa—and the time and cost Time to No. Procedure Cost to complete complete A conveyancer prepares the transfer deed A conveyancer prepares the deed of sale and drafts the transfer deed. He obtains the power of attorney, appointing him to appear before the Registrar. The service of an attorney / conveyancer is mandatory for the registration of the land. A conveyancer is an attorney who is permitted in Transfer fee: ZAR terms of the Attorneys Act to perform specialized duties with regard to 1 day 21,000 for a property 1 the conveyance of immovable property. The Deeds Registries Act of this value empowers only conveyancers to prepare deeds of transfer and in doing so, assumes responsibility for certain facts set out in the deed and documents. Conveyancing fees are set by the Law Society for different property values, and are available at the Transfer Costs table in (Transfer fees). * Obtain a rates clearance certificate from the local authority The transferring conveyancer obtains a rates (taxes) clearance certificate from the local authority, on behalf of the seller only if in Johannesburg. Section 118 of the Local Municipality Act states that any act of 7-30 days transferring property must be accompanied by a rates clearance from Included in 2 (simultaneous with the local authority. However, the local authority will only check the last Procedure 1 Procedures 3 and 4) 24 months--this is sufficient for the transfer to legally take place. If any taxes are owed from previous years, the seller is not exonerated--the taxes will still have to be paid by either the seller or the new owner as per agreement. * The conveyancer prepares and collects all the required documentation 10 days Included in 3 (simultaneous with The conveyancer, before lodging the documentation with the deeds Procedure 1 Procedures 2 and 3) registry to transfer the property to the new company, must also conduct a company search at the Companies and Intellectual Property Doing Business 2013 South Africa 49 Time to No. Procedure Cost to complete complete Commission Office to ascertain the directors of both companies. All conveyancers are linked by internet to this authority and can perform the check online. Usually conveyancers will also ask clients to present them with such documents anyway. In so doing, the conveyancer will: • Peruse the memorandum and articles of association of the companies to confirm the powers to acquire and alienate immovable property. The founding documents of the seller will be the Memorandum and Articles of Association. If the buyer company was formed before 1 May 2011, its Memorandum and Articles of Association will be perused. If the buyer company was formed after 1 May 2011, its Memorandum of Incorporation will be perused • Peruse the necessary resolutions • Ensure compliance with the Financial Intelligence Center Act by obtaining proof from the companies of the physical/business address and Tax/VAT registration number with the South African Revenue Services. The conveyancer will also request this information from the clients before proceeding, and the check is done automatically at the time of paying transfer duty (Procedure 3)--if a company does not have or quotes an incorrect Tax/VAT number, it will not be possible to pay transfer duty and the process will halt • Section 115 of the Companies Act 71 2008 states that a company may not dispose of all or the greater part of its assets except through a special resolution Value of property (Rand): Rate * Obtain a transfer duty receipt from the South African Revenue 0 – 600,000: 0% Services 600,001 – 1.000,000: 3% of the value The transferring conveyancer obtains a transfer duty receipt/exemption above R600,000, but certificate from the South African Revenue Services. less than R1.000,000 As of 23 February 2011, the distinction drawn in calculating transfer 1.000,001 – duties in respect of legal entities and natural persons has been 1 day (simultaneous 1.500,000: R12,000 + 4 abolished. Both legal entities and natural persons now pay transfer duty with Procedures 2 5% of the value based on the sliding scale. The scale has also been amended as follows: and 4) above R1.000,000 but less than • ZAR 0 - ZAR 600, 000.00: Exempt • ZAR 600,001.00 - ZAR 1. 000,000.00: 3% R1.500,000 • ZAR 1.000,001.00 - ZAR 1.500,000.00: 5% 1.500,001 and above: • ZAR 1.500,001.00 and above: 8% R37,000 + 8% of the value exceeding R1.500,000 Parties sign all the documentation at the conveyancer’s office The conveyancer will have all documentation signed by seller and Included in 5 purchaser and obtain guarantees for purchase price. The documents to 1 day Procedure 1 be signed by the parties are as follows: 1. Seller 1.1 Power of attorney to pass Doing Business 2013 South Africa 50 Time to No. Procedure Cost to complete complete 1.2 Transfer duty declarations 1.3 Affidavits (Solvency; FICA) 2. Purchaser 2.1 Transfer duty declarations 2.2 Affidavits (Solvency; FICA) As of April 1, 2012, the Deeds Office fees have increased, as set out in the Government Gazette of 29 February (No. The conveyancer lodges the deed at the Deeds Registry 9694 Notice No. R.166). A number of The conveyancer lodges the deed at the Deeds Registry. The Registrar the of changes have compares the draft deed with data in the register. There are two been made to the examinations at different levels. Schedule of Fees of The standards are monitored and the deed is prepared for registration Office as prescribed and execution. The Registrar executes the deed, updates the register and in regulations 84 and archives a copy. 86 of the Deeds The registration fee depends on the value of the property and is Registries Act No 47 obtained from the Transfer Cost table here (D/O Levy column) of 1937. The following schedule for deeds office fees applies (Deeds office fees payable with effect from September 2, 2010): For the registration of (a) A transfer of 6 Transaction amount | Duty payable | 6-14 days which the purchase price/value of Up to ZAR 150,000 | ZAR 70 | property, whichever is the greater: ZAR 150,001 to ZAR 300,000 | ZAR 350 | (i) does not exceed ZAR 300,001 to ZAR 500,000 | ZAR 450 | R150, 000: R70 ZAR 500,001 to ZAR 1.000,000 | ZAR 550 | (ii) exceeds R150,000 but does not exceed ZAR 1.000,001 to ZAR 2.000,000 | ZAR 650 | R300,000: R350 (iii) exceeds ZAR 2.000,001 to ZAR 5.000,001 | ZAR 1,050 | R300,000 but does not exceed ZAR 5.000,001 and above | ZAR 1,250 | R600,000: R450 (iv) exceeds R600,000 but does not exceed R800,000: R650 (v) exceeds R800,000 but does not exceed R1,000,000: R750 Doing Business 2013 South Africa 51 Time to No. Procedure Cost to complete complete (vi) exceeds R1.000,000 but does not exceed R2.000,000: 850 (vii) exceeds R2.000,000 but does not exceed R4.000,000: R950 (viii) exceeds R4.000.000 but does not exceed R6.000 000: R1,100 (ix) exceeds R6.000,000 but does not exceed R10.000,000: R1,500 (x) exceeds R10.000,000 but does not exceed R15.000,000: R2,000 (xi) exceeds R15. 000,000 but does not exceed R20.000,000:R2,500 (xii)exceeds R20.000,000: R3,000 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 South Africa 52 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower‘s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors‘ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors‘ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, limited liability company. the strength of legal rights index.  Has its headquarters and only base of operations in the largest business city. Doing Business 2013 South Africa 53 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, South Africa stands at 1 in the ranking of 185 collateral and bankruptcy laws in South Africa facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 6 on the The rankings for comparator economies and the depth of credit information index and a score of 10 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in South Africa support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How South Africa and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2013 South Africa 54 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened — well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in South Africa support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in South Africa over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 1 1 Strength of legal rights 10 10 10 10 10 10 10 10 10 index (0-10) Depth of credit 5 5 5 6 6 6 6 6 6 information index (0-6) Public registry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 coverage (% of adults) Private bureau 63.6 63.4 53.0 52.1 64.8 54.7 54.9 52.0 54.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 South Africa 55 GETTING CREDIT One way to put an economy‘s score on the getting and shows the number of economies with this score in credit indicators into context is to see where the 2012 as well as the regional average score. Figure 6.3 economy stands in the distribution of scores across shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for South Africa in 2012 Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2012 information index (0–6), 2012 Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a public credit registry or a private Source: Doing Business database. credit bureau, to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Source: Doing Business database. Doing Business 2013 South Africa 56 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs‘ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in South Africa (table 6.2)? Table 6.2 How has South Africa made getting credit easier—or not? By Doing Business report year DB year Reform Lenders are now required to check their overall debt levels DB2008 before granting loans and guarantees borrowers the right to access and challenge their credit records. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 South Africa 57 GETTING CREDIT What are the details? The getting credit indicators reported here for South The data on the legal rights of borrowers and lenders Africa are based on detailed information collected in are gathered through a survey of financial lawyers and that economy. The data on credit information sharing verified through analysis of laws and regulations as are collected through a survey of a public credit well as public sources of information on collateral and registry or private credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in South Africa Sub-Saharan OECD high income Indicator South Africa Africa average average Strength of legal rights index (0-10) 10 6 7 Depth of credit information index (0-6) 6 3 5 Public registry coverage (% of adults) 0.0 7.7 31.5 Private bureau coverage (% of adults) 54.0 25.6 74.6 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Regional averages for the public registry coverage exclude economies with no public registry. Regional averages for the private bureau coverage exclude economies with no private bureau. Strength of legal rights index (0–10) Index score: 10 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category Yes of movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend Yes automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2013 South Africa 58 Strength of legal rights index (0–10) Index score: 10 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 6 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well Yes No 1 as financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 241,195 0 Number of individuals 17,597,085 0 Source: Doing Business database. Doing Business 2013 South Africa 59 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors‘ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders‘ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy‘s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2013 South Africa 60 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in South Africa? index (figure 7.1). While the indicator does not The economy has a score of 8.0 on the strength of measure all aspects related to the protection of investor protection index, with a higher score minority investors, a higher ranking does indicate that indicating stronger protections (see the summary of an economy‘s regulations offer stronger investor scoring at the end of this chapter for details). protections against self-dealing in the areas measured. Globally, South Africa stands at 10 in the ranking of 185 economies on the strength of investor protection Figure 7.1 How South Africa and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2013 South Africa 61 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in South Africa protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in South Africa over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 10 10 Extent of disclosure 8 8 8 8 8 8 8 8 index (0-10) Extent of director liability index (0- 8 8 8 8 8 8 8 8 10) Ease of shareholder 8 8 8 8 8 8 8 8 suits index (0-10) Strength of investor protection 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 South Africa 62 PROTECTING INVESTORS One way to put an economy‘s scores on the protecting shows the number of economies with this score in investors indicators into context is to see where the 2012 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across shows the same thing for the extent of director liability economies. Figure 7.2 highlights the score on the index, and figure 7.4 for the ease of shareholder suits extent of disclosure index for South Africa in 2012 and index. Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on extent of Number of economies with each score on extent of director liability index (0–10), 2012 disclosure index (0–10), 2012 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. No economy receives a score of 10 on the extent of Source: Doing Business database. director liability index. Source: Doing Business database. Doing Business 2013 South Africa 63 PROTECTING INVESTORS Figure 7.4 How easy is access to internal corporate documents? Number of economies with each score on ease of shareholder suits index (0–10), 2012 Note: Higher scores indicate greater powers of shareholders to challenge the transaction. Source: Doing Business database. Doing Business 2013 South Africa 64 PROTECTING INVESTORS The scores recorded over time for South Africa on the changes over time in the regional average score on strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the investor protections. Source: Doing Business database. Doing Business 2013 South Africa 65 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in South Africa (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has South Africa strengthened investor protections—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 South Africa 66 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, a score is assigned South Africa are based on detailed information for each of a range of conditions relating to disclosure, collected through a survey of corporate and securities director liability and shareholder suits in a standard lawyers as well as on securities regulations, company case study transaction (see the notes at the end of this laws and court rules of evidence. To construct the chapter). The summary below shows the details extent of disclosure, extent of director liability and underlying the scores for South Africa. Summary of scoring for the protecting investors indicators in South Africa Sub-Saharan OECD high income Indicator South Africa Africa average average Extent of disclosure index (0-10) 8 5 6 Extent of director liability index (0-10) 8 4 5 Ease of shareholder suits index (0-10) 8 5 7 Strength of investor protection index (0-10) 8.0 4.5 6.1 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 8 Both board of directors and What corporate body provides legally sufficient 3 shareholders meeting and Mr. James approval for the transaction? is not allowed to vote Whether disclosure of the conflict of interest by Mr. 2 Full disclosure of all material facts James to the board of directors is required? Whether immediate disclosure of the transaction to Disclosure on the transaction and Mr. 2 the public and/or shareholders is required? James' conflict of interest Whether disclosure of the transaction in published 0 No disclosure obligation periodic filings (annual reports) is required? Whether an external body must review the terms of 1 Yes the transaction before it takes place? Extent of director liability index (0-10) 8 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Doing Business 2013 South Africa 67 Score Score description Whether shareholders can hold Mr. James liable for Liable for unfair/oppressive the damage that the Buyer-Seller transaction causes 2 transaction or prejudicial to minority to the company? shareholders Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Whether a court can void the transaction upon a Possible when the transaction is unfair 2 successful claim by a shareholder plaintiff? or entails a conflict of interest Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 Yes shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 8 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 1 Yes filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 1 Yes transaction? Whether the plaintiff can obtain any documents from Any information that is relevant to the 3 the defendant and witnesses during trial? subject matter of the claim Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 1 Yes lower than that of criminal cases? Strength of investor protection index (0-10) 8.0 Source: Doing Business database. Doing Business 2013 South Africa 68 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2011 (number per year adjusted for Doing Business data, in economies where it is more electronic or joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2010. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an ―optimal tax rate‖ that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year‘s threshold is 25.7%. Doing Business 2013 South Africa 69 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, South Africa stands at 32 in the ranking of taxes in South Africa—and how much do firms pay in 185 economies on the ease of paying taxes (figure 8.1). taxes? On average, firms make 9 tax payments a year, The rankings for comparator economies and the spend 200 hours a year filing, preparing and paying regional average ranking provide other useful taxes and pay total taxes amounting to 33.3% of profit information for assessing the tax compliance burden (see the summary at the end of this chapter for for businesses in South Africa. details). Figure 8.1 How South Africa and comparator economies rank on the ease of paying taxes Note: DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 South Africa 70 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how process have changed — and which have not (table easy (or difficult) it is to comply with tax rules in South 8.1). That can help identify where the potential for Africa today, data over time show which aspects of the easing tax compliance is greatest. Table 8.1 The ease of paying taxes in South Africa over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 34 32 Payments (number per 12 12 11 9 9 9 9 9 year) Time (hours per year) 350 350 350 200 200 200 200 200 Total tax rate (% profit) 38.1 37.6 37.1 34.2 30.2 30.5 33.1 33.3 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data correct ions and the addition of 2 economies (Barbados and Malta) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 South Africa 71 PAYING TAXES Equally helpful may be the benchmarks provided by possible in easing the administrative burden of tax the economies that over time have had the best compliance. And changes in regional averages can performance regionally or globally on the number of show where South Africa is keeping up—and where it payments or the time required to prepare and file is falling behind. taxes (figure 8.2). These benchmarks help show what is Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2013 South Africa 72 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2013 South Africa 73 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. South Africa (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has South Africa made paying taxes easier—or not? By Doing Business report year DB year Reform South Africa eased the tax burden on business by abolishing DB2008 the stamp duty. Regional Establishment Levy and Regional Services Levy were DB2009 abolished. South Africa eased the tax burden on business by abolishing DB2010 the stamp duty. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 South Africa 74 PAYING TAXES What are the details? The indicators reported here for South Africa are LOCATION OF STANDARDIZED COMPANY based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see City: Johannesburg the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in South Africa Sub-Saharan OECD high income Indicator South Africa Africa average average Payments (number per year) 9 39 12 Time (hours per year) 200 319 176 Profit tax (%) 24.3 19.0 15.2 Labor tax and contributions (%) 4.1 13.3 23.8 Other taxes (%) 4.9 25.5 3.7 Total tax rate (% profit) 33.3 57.8 42.7 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) taxable Corporate income tax 1 online filing 100 28% 21.7 profit Secondary tax on companies distributed 1 0 10% 2.7 (dividend tax) profits property Property tax 1 online filing 0 0% 2.7 value Occupational injuries gross 1 online filing 0 2% 1.8 insurance contribution salaries Doing Business 2013 South Africa 75 Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) weight of Vehicles tax 1 0 specific tariff empty 1.3 vehicle Unemployment insurance gross 1 online filing 50 1% 1.1 contributions (UIC) salaries gross Skills development levies 1 online filing 0 1% 1.1 salaries value of fuel Fuel tax 1 0 26% consumptio 0.9 n capital included in Capital gains tax 0 paid jointly 0 28% 0.7 gains other taxes Value added tax (VAT) 1 online filing 50 14% value added 0 not included Totals 9 200 33.3 Source: Doing Business database. Doing Business 2013 South Africa 76 TRADING ACROSS BORDERS In today‘s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy‘s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy‘s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include military items. Doing Business 2013 South Africa 77 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in South Africa? Globally, South Africa stands at 115 in the ranking of According to data collected by Doing Business, 185 economies on the ease of trading across borders exporting a standard container of goods requires 6 (figure 9.1). The rankings for comparator economies documents, takes 16 days and costs $1620. Importing and the regional average ranking provide other useful the same container of goods requires 7 documents, information for assessing how easy it is for a business takes 23 days and costs $1940 (see the summary of in South Africa to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How South Africa and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2013 South Africa 78 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in South That can help identify where the potential for Africa today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in South Africa over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 145 115 Documents to export 8 8 8 8 8 8 8 6 (number) Time to export (days) 25 25 25 25 25 25 25 16 Cost to export (US$ per 1,087 1,087 1,087 1,445 1,531 1,531 1,531 1,620 container) Documents to import 8 8 8 8 8 8 8 7 (number) Time to import (days) 35 35 35 35 35 35 32 23 Cost to import (US$ per 1,195 1,195 1,195 1,721 1,807 1,807 1,795 1,940 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 South Africa 79 TRADING ACROSS BORDERS Equally helpful may be the benchmarks provided by These benchmarks help show what is possible in the economies that over time have had the best making it easier to trade across borders. And changes performance regionally or globally on the documents, in regional averages can show where South Africa is time or cost required to export or import (figure 9.2). keeping up—and where it is falling behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2013 South Africa 80 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2013 South Africa 81 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Source: Doing Business database. Doing Business 2013 South Africa 82 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms‘ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in South Africa (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has South Africa made trading across borders easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. South Africa reduced the time and documents required to DB2013 export and import through its ongoing customs modernization program. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 South Africa 83 TRADING ACROSS BORDERS What are the details? The indicators reported here for South Africa are LOCATION OF STANDARDIZED COMPANY based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Johannesburg the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in South Africa Sub-Saharan OECD high income Indicator South Africa Africa average average Documents to export (number) 6 8 4 Time to export (days) 16 31 10 Cost to export (US$ per container) 1,620 1,990 1,028 Documents to import (number) 7 9 5 Time to import (days) 23 37 10 Cost to import (US$ per container) 1,940 2,567 1,080 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 8 285 Customs clearance and technical control 2 50 Ports and terminal handling 4 285 Inland transportation and handling 2 1,000 Totals 16 1,620 Procedures to import Time (days) Cost (US$) Documents preparation 7 365 Customs clearance and technical control 2 125 Doing Business 2013 South Africa 84 Procedures to import Time (days) Cost (US$) Ports and terminal handling 11 450 Inland transportation and handling 3 1,000 Totals 23 1,940 Documents to export Documents to import Balance of Payment (BOP) Form Balance of Payment (BOP) form Bill of lading Bill of lading Certificate of origin Cargo release order Commercial Invoice Certificate of origin Customs export declaration (SAD 500) Commercial invoice Packing List Customs import declaration (SAD 500) Source: Doing Business database. Packing list Doing Business 2013 South Africa 85 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects Time required to complete procedures data relating to the time, cost and procedural (calendar days) complexity of resolving a commercial lawsuit. The ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs assumptions about the case: Enforcement costs  The seller and buyer are located in the economy‘s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer‘s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2013 South Africa 86 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, South Africa stands at 82 in the ranking of dispute through the courts in South Africa? According 185 economies on the ease of enforcing contracts to data collected by Doing Business, enforcing a (figure 10.1). The rankings for comparator economies contract takes 600 days, costs 33.2% of the value of and the regional average ranking provide other useful the claim and requires 29 procedures (see the benchmarks for assessing the efficiency of contract summary at the end of this chapter for details). enforcement in South Africa. Figure 10.1 How South Africa and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2013 South Africa 87 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how time help identify which areas have changed and easy (or difficult) it is to enforce a contract in South where the potential for improvement is greatest (table Africa today, data on the underlying indicators over 10.1). Table 10.1 The ease of enforcing contracts in South Africa over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 83 82 Time (days) 600 600 600 600 600 600 600 600 600 600 Cost (% of claim) 33.2 33.2 33.2 33.2 33.2 33.2 33.2 33.2 33.2 33.2 Procedures (number) 30 30 30 30 30 30 30 29 29 29 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 South Africa 88 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by help show what is possible in improving the efficiency the economies that over time have had the best of contract enforcement. And changes in regional performance regionally or globally on the number of averages can show where South Africa is keeping up— steps, time or cost required to enforce a contract and where it is falling behind. through the courts (figure 10.2). These benchmarks Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2013 South Africa 89 ENFORCING CONTRACTS Procedures (number) Source: Doing Business database. Doing Business 2013 South Africa 90 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in South Africa (table introducing new technology. Lower-income economies 10.2)? often work on reducing backlogs by introducing Table 10.2 How has South Africa made enforcing contracts easier —or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 South Africa 91 ENFORCING CONTRACTS What are the details? The indicators reported here for South Africa are COMPETENT COURT based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this City: Johannesburg chapter on what the indicators cover). These procedures, and the time and cost of completing The procedures for resolving a commercial lawsuit, and them, are identified through study of the codes of the associated time and cost, are listed in the summary civil procedure and other court regulations, as well below. as through surveys completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Summary of procedures for enforcing a contract in South Africa—and the time and cost Sub-Saharan OECD high income Indicator South Africa Africa average average Time (days) 600 649 510 Filing and service 30 Trial and judgment 490 Enforcement of judgment 80 Cost (% of claim) 33.2 50.1 20.1 Attorney cost (% of claim) 22.6 Court cost (% of claim) 7.6 Enforcement Cost (% of claim) 3.0 Procedures (number) 29 39 31 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Doing Business 2013 South Africa 92 ENFORCING CONTRACTS No. Procedure Filing and service: 1 Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the contract. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally or in * writing. Registration of court case: The court administration registers the lawsuit or court case. This includes assigning a 3 reference number to the lawsuit or court case. Arrangements for physical delivery of summons and complaint: Plaintiff takes whatever steps are necessary to * arrange for physical service of process on Defendant, such as instructing a court officer or a (private) bailiff. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to Defendant is 4 successful in the majority of cases. * Proof of service: Plaintiff submits proof of service to court. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff‘s request for pre-judgment * attachment of Defendant‘s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Custody of assets attached prior to judgment: Defendant's attached assets are put under enforcement officer's or 5 (private) bailiff's care. (see assumption 5) Trial and judgment: Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his 6 defense or answer on the merits of the case. Defendant's written answer may or may not include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant‘s defense or 7 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. Filing of pleadings: Plaintiff and Defendant file written pleadings and submissions with the court and transmit 8 copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Adjournments: Court procedure is delayed because one or both parties request and obtain an adjournment to 9 submit written pleadings. * Request for interlocutory order: Defendant raises preliminary issues, such as jurisdiction, statute of limitation, etc. Court’s issuance of interlocutory order: Court decides the preliminary issues the Defendant raised by issuing an * interlocutory order. Doing Business 2013 South Africa 93 No. Procedure Plaintiff’s appeal of court's interlocutory order: Plaintiff appeals the court's interlocutory order, which suspends 10 the court proceedings. Discovery requests: Plaintiff and Defendant make requests for the disclosure of documents, attempting to force the * other party to reveal potentially detrimental documents. Discovery disputes: Following a request for discovery of documentary evidence, the other party disputes the 11 request and calls upon the judge to decide the issue. 12 Request for oral hearing or trial: Plaintiff applies for the date(s) for the oral hearing or trial. Adjournments: Court proceedings are delayed because one or both parties request and obtain an adjournment to 13 prepare for the oral hearing or trial. Trial (prevalent in common law): The parties argue the merits of the case at (an) oral session(s) before the court. 14 Witnesses and expert witnesses are questioned and cross-examined during trial. Adjournments: Court proceedings are delayed because one or both parties request and obtain an adjournment 15 during the oral hearing or trial, resulting in an additional or later trial or hearing date. Final arguments: The parties present their final factual and legal arguments to the court either by oral presentation * or by a written submission. 16 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 17 Writing of judgment: The judge produces a written copy of the judgment. 18 Registration of judgment: The court office registers the judgment after receiving a written copy of the judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. The 19 appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in the law. 20 Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Enforcement of judgment: Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by a * lawyer during the enforcement of judgment phase. Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 21 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order ('seal' on * judgment). Attachment of enforcement order to judgment: The judge attaches the enforcement order (‗seal‘) to the 22 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer or a * (private) bailiff. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court enforcement 23 officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Doing Business 2013 South Africa 94 No. Procedure Contestation of selection of assets identified for attachment: The party, Plaintiff or Defendant, who was not 24 involved in the designation of the assets to be attached, contests the selection of assets for attachment. 25 Attachment: Defendant‘s movable goods are attached (physically or by registering, marking or separating assets). Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 26 newspapers. 27 Sale through public auction: The Defendant‘s movable property is sold at public auction. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which Plaintiff 28 had advanced previously. 29 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 South Africa 95 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers‘ fees proceedings of individuals and financial Assessors‘ and auctioneers‘ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement Official costs of the insolvency proceedings (foreclosure) proceedings. The recovery rate is a are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be recovered business and the case. It assumes that the company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy‘s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2013 South Africa 96 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses piecemeal sale. The average recovery rate is 35.4 cents characterize the top-performing economies. How on the dollar. efficient are insolvency proceedings in South Africa? Globally, South Africa stands at 84 in the ranking of According to data collected by Doing Business, 185 economies on the ease of resolving insolvency resolving insolvency takes 2.0 years on average and (figure 11.1). The rankings for comparator economies costs 18% of the debtor‘s estate, with the most likely and the regional average ranking provide other useful outcome being that the company will be sold as benchmarks for assessing the efficiency of insolvency proceedings in South Africa. Figure 11.1 How South Africa and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2013 South Africa 97 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in South Africa help identify where the potential for improvement is today, data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in South Africa over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 81 84 Time (years) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Cost (% of estate) 18 18 18 18 18 18 18 18 18 18 Recovery rate (cents on the 30.7 31.8 33.9 34.4 33.2 32.2 32.2 34.4 35.2 35.4 dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factor s as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2013 South Africa 98 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by possible in improving the efficiency of insolvency the economies that over time have had the best proceedings. And changes in regional averages can performance regionally or globally on the time or cost show where South Africa is keeping up—and where it of insolvency proceedings or on the recovery rate is falling behind. (figure 11.2). These benchmarks help show what is Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2013 South Africa 99 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: Regional averages on time and cost exclude economies with a “no practice� mark. Source: Doing Business database. Doing Business 2013 South Africa 100 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in South Africa (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has South Africa made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. South Africa introduced a new reorganization process to DB2012 facilitate the rehabilitation of financially distressed companies. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 South Africa 101 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of Particular data for South Africa are presented here employment, specifically as it affects the hiring and without scoring. redundancy of workers and the rigidity of working hours. From 2007 to 2011 improvements were made to To make the data on employing workers comparable align the methodology for the employing workers across economies, several assumptions about the indicators with the letter and spirit of the International worker and the business are used. Labour Organization (ILO) conventions. Only 4 of the 188 ILO conventions cover areas measured by Doing The worker: Business: employee termination, weekend work, holiday with pay and night work. The Doing Business  Earns a salary plus benefits equal to the methodology is fully consistent with these 4 economy‘s average wage during the entire conventions. The ILO conventions covering areas period of his employment. related to the employing workers indicators do not  Has a pay period that is the most common for include the ILO core labor standards—8 conventions workers in the economy. covering the right to collective bargaining, the  Is a lawful citizen who belongs to the same elimination of forced labor, the abolition of child labor race and religion as the majority of the and equitable treatment in employment practices. economy‘s population.  Resides in the economy‘s largest business city. Between 2009 and 2011 the World Bank Group worked  Is not a member of a labor union, unless with a consultative group—including labor lawyers, membership is mandatory. employer and employee representatives, and experts from the ILO, the Organisation for Economic Co- The business: operation and Development, civil society and the private sector—to review the employing workers  Is a limited liability company. methodology and explore future areas of research.  Operates in the economy‘s largest business city. A full report with the conclusions of the consultative  Is 100% domestically owned. group is available at http://www.doingbusiness.org/  Operates in the manufacturing sector. methodology/employing-workers.  Has 60 employees.  Is subject to collective bargaining agreements Doing Business 2013 does not present rankings of in economies where such agreements cover economies on the employing workers indicators or more than half the manufacturing sector and include the topic in the aggregate ranking on the ease apply even to firms not party to them. of doing business. The report does present the data on  Abides by every law and regulation but does the employing workers indicators in an annex. Detailed not grant workers more benefits than data collected on labor regulations are available on the mandated by law, regulation or (if applicable) Doing Business website (http://www.doing business.org). collective bargaining agreement. Doing Business 2013 South Africa 102 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by South other things, the minimum wage for a 19-year-old Africa (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2013 South Africa 103 EMPLOYING WORKERS Employment laws are needed to protect workers from past 4 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did South Africa adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did South Africa make in employing workers in 2012? Reform No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2013 South Africa 104 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and South Africa are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy‘s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? Yes There is no prescribed maximum duration. The parties can agree on a particular date or a particular event upon Maximum length of a single fixed-term contract (months) the occurrence of which the employment automatically terminates. The length of the contract should relate to the duration of the task which th Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage for a 19-year old worker or an apprentice (US$/month) 621.6 Ratio of minimum wage to value added per worker 0.70 Source: Doing Business database. Doing Business 2013 South Africa 105 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data For a 5-day workweek: 9 hours. For a 6-day workweek: 8 hours for 5 days, 5 hours on the 6th day. Different hours Standard workday in manufacturing (hours) can be arranged through collective agreements and negotiations between employers and employees and trade unions (e.g., to increase or reduce w 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 0% operations Premium for work on weekly rest day (% of hourly pay) in case of 100% continuous operations Major restrictions on night work in case of continuous operations? Yes Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 15.0 Paid annual leave for a worker with 5 years of tenure (in working days) 15.0 Paid annual leave for a worker with 10 years of tenure (in working days) 15.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 15.0 working days) Source: Doing Business database. Doing Business 2013 South Africa 106 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? Yes Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? Yes Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2013 South Africa 107 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 4.0 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 4.0 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 4.0 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.0 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 1.0 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 5.0 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 10.0 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 5.3 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2013 South Africa 108 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2013 reports 2011 income per capita property. Second, they gauge the time and cost of as published in the World Bank‘s World Development achieving a regulatory goal or complying with Indicators 2012. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2011 gross contract, go through bankruptcy or trade across national income (GNI) in U.S. dollars is used as the borders. Third, they measure the extent of legal denominator. GNI data were not available from the protections of property, for example, the protections World Bank for Afghanistan; Australia; The Bahamas; of investors against looting by company directors or Bahrain; Barbados; Brunei Darussalam; Cyprus; the range of assets that can be used as collateral Djibouti; Guyana; the Islamic Republic of Iran; according to secured transactions laws. Fourth, a set of Kuwait; Malta; New Zealand; Oman; Puerto Rico indicators documents the tax burden on businesses. (territory of the United States); Sudan; Suriname; the Finally, a set of data covers different aspects of Syrian Arab Republic; Timor-Leste; West Bank and employment regulation. Gaza; and the Republic of Yemen. In these cases GDP or GNP per capita data and growth rates from The data for all sets of indicators in Doing Business the International Monetary Fund‘s World Economic 2 2013 are for June 2012. Outlook database and the Economist Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and The Doing Business data are collected in a income group classifications, available at standardized way. To start, the Doing Business team, http://data.worldbank.org/about/country- with academic advisers, designs a questionnaire. The classifications. The World Bank does not assign questionnaire uses a simple business case to ensure regional classifications to high-income economies. comparability across economies and over time —with For the purpose of the Doing Business report, high- assumptions about the legal form of the business, its income OECD economies are assigned the ―regional‖ size, its location and the nature of its operations. classification OECD high income. Figures and tables Questionnaires are administered through more than presenting regional averages include economies 9,600 local experts, including lawyers, business from all income groups (low, lower middle, upper consultants, accountants, freight forwarders, middle and high income). government officials and other professionals routinely Population administering or advising on legal and regulatory Doing Business 2013 reports midyear 2011 requirements. These experts have several rounds of population statistics as published in World interaction with the Doing Business team, involving Development Indicators 2012. conference calls, written correspondence and visits by the team. For Doing Business 2013 team members visited 24 economies to verify data and recruit The Doing Business methodology offers several respondents. The data from questionnaires are advantages. It is transparent, using factual information subjected to numerous rounds of verification, leading about what laws and regulations say and allowing to revisions or expansions of the information collected. multiple interactions with local respondents to clarify potential misinterpretations of questions. Having 2 The data for paying taxes refer to January – December 2011. Doing Business 2013 South Africa 109 representative samples of respondents is not an issue; 2013 would differ from the recollection of Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business completed subnational comparisons and benchmarks are valid across studies for Indonesia, Kenya, Mexico, the Russian economies. Finally, the data not only highlight the Federation and the United Arab Emirates. Each of extent of specific regulatory obstacles to business but these countries had already asked to have subnational also identify their source and point to what might be data in the past, and this year Doing Business updated reformed. the indicators, measured improvements over time and Information on the methodology for each Doing expanded geographic coverage to additional cities or Business topic can be found on the Doing Business added additional indicators. Doing Business also website at http://www.doingbusiness.org/methodology/. published regional studies for the Arab world, the East African Community and member states of the Organization for the Harmonization of Business Law in Limits to what is measured Africa (OHADA). The Doing Business methodology has 5 limitations that The subnational studies point to differences in should be considered when interpreting the data. First, business regulation and its implementation —as well as the collected data refer to businesses in the economy‘s in the pace of regulatory reform—across cities in the largest business city (which in some economies differs same economy. For several economies subnational from the capital) and may not be representative of studies are now periodically updated to measure regulation in other parts of the economy. To address change over time or to expand geographic coverage this limitation, subnational Doing Business indicators to additional cities. This year that is the case for all the were created (see the section on subnational Doing subnational studies published. Business indicators). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified size — Changes in what is measured and may not be representative of the regulation on The ranking methodology for paying taxes was other businesses, for example, sole proprietorships. updated this year. The threshold for the total tax rate Third, transactions described in a standardized case introduced last year for the purpose of calculating the scenario refer to a specific set of issues and may not ranking on the ease of paying taxes was updated. All represent the full set of issues a business encounters. economies with a total tax rate below the threshold Fourth, the measures of time involve an element of (which is calculated and adjusted on a yearly basis) judgment by the expert respondents. When sources receive the same ranking on the total tax rate indicate different estimates, the time indicators indicator. The threshold is not based on any economic reported in Doing Business represent the median theory of an ―optimal tax rate‖ that minimizes values of several responses given under the distortions or maximizes efficiency in the tax system of assumptions of the standardized case. an economy overall. Instead, it is mainly empirical in Finally, the methodology assumes that a business has nature, set at the lower end of the distribution of tax full information on what is required and does not rates levied on medium-size enterprises in the waste time when completing procedures. In practice, manufacturing sector as observed through the paying completing a procedure may take longer if the taxes indicators. This reduces the bias in the indicators business lacks information or is unable to follow up toward economies that do not need to levy significant promptly. Alternatively, the business may choose to taxes on companies like the Doing Business disregard some burdensome procedures. For both standardized case study company because they raise reasons the time delays reported in Doing Business public revenue in other ways—for example, through Doing Business 2013 South Africa 110 taxes on foreign companies, through taxes on sectors investors, paying taxes, trading across borders, other than manufacturing or from natural resources enforcing contracts, and resolving insolvency. The (all of which are outside the scope of the employing workers indicators are not included in this methodology). Giving the same ranking to all year‘s aggregate ease of doing business ranking. In economies whose total tax rate is below the threshold addition to this year‘s ranking, Doing Business presents avoids awarding economies in the scoring for having a comparable ranking for the previous year, adjusted an unusually low total tax rate, often for reasons for any changes in methodology as well as additions of 3 unrelated to government policies toward enterprises. economies or topics. For example, economies that are very small or that are Construction of the ease of doing business index rich in natural resources do not need to levy broad- based taxes. Here is one example of how the ease of doing business index is constructed. In Finland it takes 3 procedures, 14 days and 4% of annual income per capita in fees to Data challenges and revisions register a property. On these 3 indicators Finland ranks in the 6th, 16th and 39th percentiles. So on average Most laws and regulations underlying the Doing Finland ranks in the 20th percentile on the ease of Business data are available on the Doing Business registering property. It ranks in the 30th percentile on website at http://www.doingbusiness.org. All the th starting a business, 28 percentile on getting credit, sample questionnaires and the details underlying the 24th percentile on paying taxes, 13th percentile on indicators are also published on the website. Questions enforcing contracts, 5th percentile on trading across on the methodology and challenges to data can be borders and so on. Higher rankings indicate simpler submitted through the website‘s ―Ask a Question‖ regulation and stronger protection of property rights. function at http://www.doingbusiness.org. The simple average of Finland‘s percentile rankings on all topics is 21st. When all economies are ordered by Ease of doing business and distance to their average percentile rankings, Finland stands at 11 frontier in the aggregate ranking on the ease of doing business. Doing Business 2013 presents results for 2 aggregate measures: the aggregate ranking on the ease of doing More complex aggregation methods—such as business and the distance to frontier measure. The principal components and unobserved components— ease of doing business ranking compares economies yield a ranking nearly identical to the simple average 4 with one another, while the distance to frontier used by Doing Business. Thus, Doing Business uses measure benchmarks economies to the frontier in the simplest method: weighting all topics equally and, regulatory practice, measuring the absolute distance to the best performance on each indicator. Both measures can be used for comparisons over time. 3 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a When compared across years, the distance to frontier comparable time series since the year the relevant economy or topic measure shows how much the regulatory environment was first included in the data set. The time series is available on the for local entrepreneurs in each economy has changed Doing Business website (http://www.doingbusiness.org). Six topics over time in absolute terms, while the ease of doing and more than 50 economies have been added since the inception business ranking can show only relative change. of the project. Earlier rankings on the ease of doing business are therefore not comparable. Ease of doing business 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to The ease of doing business index ranks economies Do It‖ (World Bank, Washington, DC, 2005). Principal components from 1 to 185. For each economy the ranking is and unobserved components methods yield a ranking nearly calculated as the simple average of the percentile identical to that from the simple average method because both rankings on each of the 10 topics included in the index these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An in Doing Business 2013: starting a business, dealing alternative to the simple average method is to give different weights with construction permits, getting electricity, to the topics, depending on which are considered of more or less registering property, getting credit, protecting importance in the context of a specific economy. Doing Business 2013 South Africa 111 within each topic, giving equal weight to each of the ability of different government agencies to deliver 5 topic components. tangible results in their area of responsibility. If an economy has no laws or regulations covering a Economies that improved the most across 3 or more specific area—for example, insolvency—it receives a Doing Business topics in 2011/12 ―no practice‖ mark. Similarly, an economy receives a Doing Business 2013 uses a simple method to calculate ―no practice‖ or ―not possible‖ mark if regulation exists which economies improved the most in the ease of but is never used in practice or if a competing doing business. First, it selects the economies that in regulation prohibits such practice. Either way, a ―no 2011/12 implemented regulatory reforms making it practice‖ mark puts the economy at the bottom of the easier to do business in 3 or more of the 10 topics ranking on the relevant indicator. 6 included in this year‘s ease of doing business ranking. The ease of doing business index is limited in scope. It Twenty-three economies meet this criterion: Benin, does not account for an economy‘s proximity to large Burundi, Costa Rica, the Czech Republic, Georgia, markets, the quality of its infrastructure services (other Greece, Guinea, Kazakhstan, Korea, the Lao People‘s than services related to trading across borders and Democratic Republic, Liberia, Mongolia, the getting electricity), the strength of its financial system, Netherlands, Panama, Poland, Portugal, Serbia, the the security of property from theft and looting, Slovak Republic, Slovenia, Sri Lanka, Ukraine, the macroeconomic conditions or the strength of United Arab Emirates and Uzbekistan. Second, Doing underlying institutions. Business ranks these economies on the increase in their ranking on the ease of doing business from the Variability of economies‘ rankings across topics previous year using comparable rankings. Each indicator set measures a different aspect of the Selecting the economies that implemented regulatory business regulatory environment. The rankings of an reforms in at least 3 topics and improved the most in economy can vary, sometimes significantly, across the aggregate ranking is intended to highlight indicator sets. The average correlation coefficient economies with ongoing, broad-based reform between the 10 indicator sets included in the programs. aggregate ranking is 0.37, and the coefficients between any 2 sets of indicators range from 0.19 Distance to frontier measure (between dealing with construction permits and A drawback of the ease of doing business ranking is getting credit) to 0.60 (between starting a business that it can measure the regulatory performance of and protecting investors). These correlations suggest economies only relative to the performance of others. that economies rarely score universally well or It does not provide information on how the absolute universally badly on the indicators. quality of the regulatory environment is improving Consider the example of Canada. It stands at 17 in the over time. Nor does it provide information on how aggregate ranking on the ease of doing business. Its large the gaps are between economies at a single ranking is 3 on starting a business, and 4 on both point in time. resolving insolvency and protecting investors. But its The distance to frontier measure is designed to ranking is only 62 on enforcing contracts, 69 on address both shortcomings, complementing the ease dealing with construction permits and 152 on getting of doing business ranking. This measure illustrates the electricity. distance of an economy to the ―frontier,‖ and the Variation in performance across the indicator sets is change in the measure over time shows the extent to not at all unusual. It reflects differences in the degree which the economy has closed this gap. The frontier is of priority that government authorities give to a score derived from the most efficient practice or particular areas of business regulation reform and the highest score achieved on each of the component indicators in 9 Doing Business indicator sets (excluding 5 6 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2013 South Africa 112 the employing workers and getting electricity The maximum (max) and minimum (min) observed indicators) by any economy since 2005. In starting a values are computed for the 174 economies included business, for example, New Zealand has achieved the in the Doing Business sample since 2005 and for all highest performance on the time (1 day), Canada and years (from 2005 to 2012). The year 2005 was chosen New Zealand on the number of procedures required as the baseline for the economy sample because it was (1), Slovenia on the cost (0% of income per capita) and the first year in which data were available for the Australia and 90 other economies on the paid-in majority of economies (a total of 174) and for all 9 minimum capital requirement (0% of income per indicator sets included in the measure. To mitigate the capita). Calculating the distance to frontier for each effects of extreme outliers in the distributions of the economy involves 2 main steps. First, individual rescaled data (very few economies need 694 days to indicator scores are normalized to a common unit: complete the procedures to start a business, but many th except for the total tax rate. To do so, each of the 28 need 9 days), the maximum (max) is defined as the 95 component indicators y is rescaled to (max − y)/(max percentile of the pooled data for all economies and all − min), with the minimum value (min) representing the years for each indicator. The exceptions are the getting frontier—the highest performance on that indicator credit, protecting investors and resolving insolvency across all economies since 2005. For the total tax rate, indicators, whose construction precludes outliers. consistent with the calculation of the rankings, the Take Ghana, which has a score of 67 on the distance to frontier is defined as the total tax rate corresponding th frontier measure for 2012. This score indicates that the to the 15 percentile based on the overall distribution economy is 33 percentage points away from the of total tax rates for all years. Second, for each frontier constructed from the best performances economy the scores obtained for individual indicators across all economies and all years. Ghana was further are aggregated through simple averaging into one from the frontier in 2005, with a score of 54. The distance to frontier score. An economy‘s distance to difference between the scores shows an improvement frontier is indicated on a scale from 0 to 100, where 0 over time. represents the lowest performance and 100 the frontier. The distance to frontier measure can also be used for comparisons across economies in the same year, The difference between an economy‘s distance to complementing the ease of doing business ranking. frontier score in 2005 and its score in 2012 illustrates For example, Ghana stands at 64 this year in the ease the extent to which the economy has closed the gap to of doing business ranking, while Peru, which is 29 the frontier over time. And in any given year the score percentage points from the frontier, stands at 43. measures how far an economy is from the highest performance at that time. Doing Business 2013 South Africa 113 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2013 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 185 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 185 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 9,600 specialists in 185 economies who profiles participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers NEW! Entrepreneurship data underlying Doing Business Data on business density for 130 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and More to come related policy issues Coming soon—information on good practices and http://www.doingbusiness.org/research/ data on transparency and on the distance to frontier Doing Business 2013 South Africa 114