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Too little or too much – Time to refocus on compliance issues

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With the economy slowly starting to show signs of improvement, the Retail Motor Industry Organisation (RMI), an employer organisation active in an industry consisting of around 22 000 employers and about 280 000 employees in the automotive aftermarket sector, is urging government not to overlook the regulatory factors which employers are struggling with.

“Even before the pandemic, it was clear that one of the bigger risks for businesses in 2020 remains legislation and regulation and yet very little has been done to address this,” says Jakkie Olivier, CEO of the RMI.  Olivier says encouragingly the latest Motor Industry Bargaining Council (MIBCO) stats for the last seven months show an increase in the number of businesses for the period (from 22 013 – 22 231) but a decrease in the number of employees (from 302 192 – 288 813) “This tells us that although we have some closures there are a number of new start-ups. The question is how can we support these businesses and how will they be impacted by compliance issues.”

Last year RMI commissioned IQ Business, an independent management consulting firm in South Africa, to conduct research into the Cost of Compliance and its Impact on Commercial Sustainability in the Retail Motor Industry.

Olivier says the conversation is not about whether compliance is necessary or not.

In fact, barring some exceptions, business owners understand the role that compliance plays in their industry and are more often than not grateful that the industry is regulated. Albeit to varying degrees, many business owners also recognise how the current set of compliance that pertains to their business is relevant to both their industry, as well as to South Africa’s unique socio-economic context. This generally means that if communicated properly resistance to regulation is unlikely to be unmanageable. “However,” says Olivier, “this does not mean that business owners perceive the regulatory environment to be perfect.  We have overregulation in some areas which is challenging and problematic in terms of financial sustainability for most businesses. Non-compliant businesses and the lack of enforcement of all these regulations also makes the playing field uneven putting even further strain on the compliant businesses to operate profitably.”

Olivier says when it comes to health and safety and the environment for example, there is a general sense amongst business that more can be done by all parties concerned to reduce the impact that industry is having on the environment. “Many RMI members believe that this is an area that is under regulated. Given the attention that sustainability and sustainable development is receiving globally this finding is not surprising and, at the same time, encouraging to see. It also suggests that if regulation matters in this area are communicated and driven tactfully then businesses are likely to respond responsibly,” he says.

On the other hand when it comes to labour-related matters there exists an almost consistent view that labour-related matters are over-regulated. “Business owners specifically expressed the view that the regulation disproportionately favours the employee, with the employer feeling that they have inadequate recourse in cases of poor performance. There is a perception that employees are excessively protected even when underperforming or transgressing. “This is clearly an area that can only be ignored for a limited period of time,” says Olivier.

When one looks at the commercial impact of the regulatory framework on business, excluding the unforeseen impact of Covid this year, 23% of business owners overall had considered closing their business on account of compliance costs.  While the threat to commercial sustainability impacts all business, clearly smaller businesses are impacted more. For example, a business in the body repair sector with a  turnover under R30 million is calculated to show a Net Profit margin of 14% when not compliant and only 5% when compliant. “This phenomenon will inevitably serve as a barrier to non-compliant SMMEs that are considering becoming compliant. It begs the question if there is therefore scope for the compliance obligation to be relaxed somewhat for businesses in the automotive retail sector? If so, what could it mean in practical terms?”

“There is little debate that regulatory considerations for business owners in the retail motor industry space are multi-faceted, complex and ever-evolving. While we appreciate the pandemic has thrown some unprecedented curveballs to government this year, it would not be advisable to ignore these underlying issues which threaten sustainability of the sector, not to mention the job losses currently being experienced in the industry,” concludes Olivier.