Topic: Business Environment


A conducive business environment is a key ingredient to the creation of vibrant local economies across South Africa. District and local municipalities have a lead role to play in ensuring that local business environments create the opportunities for shared economic growth and development.

The South African Government's National Framework for Local Economic Development (LED) presents an integrated and comprehensive approach to development that incorporates the improvement of local public sector leadership and governance. The Framework encourages local governments to use its resources to create conditions that ‘stimulate and enable the general environment' in which business is done.

Government policies and laws directly affect the costs and risks to doing business. Good policies, laws and regulations encourage open markets, innovation and a more competitive economy. Some policies, laws and regulations have the unintended consequence of weakening the environment for business. A poor business environment can discourage investors (foreign and domestic) and stands in the way of innovation, growth and the creation of jobs.


The business environment refers to government policies, laws and regulations that affect business activities, and the relationship between public, private and civil stakeholders. Government decisions at all local levels directly affect the environment in which businesses operate. [collapse collapsed title="Read more"] Local business environments include **Local policies, laws and regulations** : Some of the examples of this include: Zoning and access to land, Building permits, Environmental regulation, Health and safety regulations, Local taxes and fees, Parking permits, Business licences and permits. **Administration and enforcement mechanisms and procedures** : This concerns the way local policies, laws and regulations are implemented and enforced, as well as the ways national and provincial government policies, laws and regulations are administered in the locality. **Organisational arrangements** : This concerns the way municipalities work with other key stakeholders in the local economy (i.e., government agencies, regulatory authorities, business membership organisations, civil society organisations, trade unions,and universities). It includes formal arrangements such as regular consultations with the business community (i.e., public-private dialogue) and business-related standing committees that may be established within council. Increasing levels of decentralisation and the drive for better local governance makes improving the local business environment critical for local economic growth and poverty reduction. A local business environment that is conducive to business development has the following characteristics: * Policies, laws and regulations are well designed and efficiently enforced * Local governments are responsive to the needs of their business customers * Government consults regularly with the business community to identify ways in which the local business environment can be improved * The local business community is well organised and able to represent its diverse views to the government * Local transparency is increased and corruption is reduced [/collapse]

Key Issues

Constraints to local business growth can be the result of many aspects of the local business environment. While each locality will have its own constraints, there are many common concerns. [collapse collapsed title="Read more"]

  • Reducing red tape: The term "red tape" refers to the regulations, rules, administrative processes and procedures that impede the efficient achievement of policy goals and which produce undesired outcomes. Red tape can produce unnecessary costs for local businesses and can impede the competitiveness of the locality. Red tape costs are often produced by inefficient procedures and poor client services. Streamlining administration processes and increasing the quality of service provided by local government authorities can improve efficiency and reduce compliance costs for local businesses.
  • Informal economy: Many local businesses operate informally - they are not properly registered and operate in marginal markets that are disconnected from larger, formal markets. Municipalities should encourage the formation of local business associations and consultative platforms that allow informal businesses to discuss their concerns. A better local business environment can create incentives for informal businesses to become formal and grow.
  • Improving government services: A good local business environment requires good local governance. Good governance underpins the reform and management of a local business environment that encourages the growth of the local economy. Improved local governance recognises the specific role the public sector should play in the local economy. It promotes open disclosure of information and allows district and local municipalities to work with the business community to open up new opportunities for economic growth.
  • Improving the regulatory system: The public regulatory system - the policies, legal instruments, processes and institutions - is the core of government's relationship with the economy and society. While there is no ideal model for the "right" regulatory system, there is growing evidence that good regulation can lead to economic growth. Governments should increase the scope for markets to work efficiently by removing barriers to entry and exit.
  • Improving the regulatory system: Improving regulations at the local level involves reviewing existing regulations - some of which may be poor quality, inappropriate or simply old and outdated. Some regulations may be fine, but could be implemented in a more effective and efficient manner. Local business environment reform is also about improving the way new regulations are drafted, adopted and enforced. Governments can introduce processes for better law and policymaking. This helps governments in designing modern, precise, targeted laws and regulations that achieve legitimate policy aims with the minimum of burden on those affected.


Critical Success Factors

There is a wide range of activities that can be undertaken to support the improvement of the local business environment. Some of the main activities are described below, while the section that follows describes the tools that can be used.

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  • Improving local policies, laws and regulations so they operate more efficiently and effectively - this requires an assessment of the effect current policies and laws have on local businesses
  • Improving local policies, laws and regulations so that they don't have unintended consequences on local businesses (see regulatory impact assessment in the section below)
  • Improving the ways national and local policies, laws and regulations are administered so they become more effective, local corruption is reduced and local municipalities are more responsive to local business needs and opportunities
  • Improving the way local municipalities liaise with the local business community so there is a better understanding of the major problems and how these problems can be addressed
  • Improving the way local municipalities design and deliver services to the business community so that they become more efficient and effective
  • Helping the local business community to become better organised through business membership organisations that represent the business community in local reform processes

Tools for Local Business Environment Reform

District and local municipalities, and their development partners can draw on various tools and approaches to assist them in their efforts to make their local business environment more conducive to business growth. The following are a sample of the tools available for use in local business environment reform. The selection and use of tools for local business environment reform will depend on the issues to be addressed, the capacity of local organisations and the collaborative arrangements among local stakeholders.
  • Local Business Climate Assessments
  • Local Red Tape Reduction
  • Regulatory impact assessments
  • Public-private dialogue
  • One-stop-shops
  • Business Retention & Expansion
Starting points for Local Business Environment Reform
Here are some points to consider when starting the process of improving the local business environment:
  1. Learn more: It is important to learn more about the kinds of experiences others have had in the field of local business environment reform. This can be done by:
    • Enrolling in the training courses offered by the DBSA Vulindlela Academy
    • Visit specialist websites and download documents to help you better understand the processes involved in local business environment reform
    • Get in touch with people who have done this before and can give you advice on how they got started
  2. Consult with key local stakeholders: Before taking steps to initiate a local reform process, you should discuss the idea with other key local stakeholders. This includes the local business community as well as non-government and community-based organisations. It is important to determine whether these stakeholders share your concerns and identify any initiatives that may already be underway in the community.
  3. Consult with resource agencies: The resources section below identifies a number of agencies that can help you to improve the local business environment. This help might be in the form of networks and referrals to specialists in the field or access to financial resources.
  4. Assess your local business environment: A common first step in local business environment reform is to understand the local business environment and how it affects local business behaviour and growth. In most cases, this involves identifying the barriers or constraints to business growth. Understanding the local business environment can be a standalone activity or it can be a part of a broader LED process.
  5. Prioritise and design actions to improve the local business environment: Because there are likely to be many different barriers or constraints to business growth found in the local business environment, it is important to agree on the priorities for action. Priority might be assigned to the most binding constraints on local business growth or to those constraints that can be addressed immediately or in the medium-term. It is important to discuss the results of a local business environment assessment with all the key stakeholders in order to see which barriers or constraints they believe are a high priority.
  6. Managing local reform processes: Improving the local business environment takes time. It is important to manage this process carefully and to ensure all local stakeholders are on board - especially the local business community. It is important to monitor changes and to ensure that the long-term vision for a conducive local business environment is maintained.
  7. Monitoring changes: Because local business environments are dynamic, they must be regularly monitored. Monitoring ensures that the efforts to improve the local business environment are producing their desired effect, while also helps to identify new priorities for action.


Practical Knowledge

Title & Detailssort descending User Ranking Popularity
10 Things To Do To Create An Enabling Environment
Author(s): IBLF
Year: 2011
Format: Guidelines
No votes yet
4th LED Case Study: Business Women's Association Queenstown
Author(s): SA LED Network
Year: 2011
Format: Case Study
Average: 3 (4 votes)
A Quick Guide to Regulatory Impact Assessments
Author(s): The Cabinet Office, Great Britain
Format: Guidelines
Average: 4 (4 votes)

Theoretical Knowledge

Title & Detailssort descending User Ranking Popularity
A Better Investment Climate for Everyone
Author(s): World Bank
Year: 2005
Format: Report
No votes yet
A Diagnostic Modell for Capacity Building in Regulatory Agencies - An empirical study based on the ICT sector, Southern Africa
Author(s): Derek Eldridge, Brian Goulden
Year: 2004
Format: Study
No votes yet
A Methodology for Identifying the Drivers of Industrial Clusters - The Foundation of Regional Competitive Advantage
Author(s): Edward W. Hill, John F. Brennan
Year: 2000
Format: Study
Average: 1 (4 votes)