This document provides guidance for two sessions within a four-day training module on local economic development that focus on reducing red tape. The first session discusses how red tape impacts basic and advanced location factors important for business and involves an exercise where participants identify the most inhibiting local government actions. The second session defines governance and red tape, discusses the benefits of public-private partnerships to reduce red tape, and involves exercises to understand interactions between local government and businesses and prioritize areas for collaboration on red tape reduction. The overall aim is to increase understanding of how improving the regulatory environment can benefit both municipalities and businesses.

1. Department of Provincial and Local Government
Local Economic Development
Trainers’ Mini-Manual
Cutting Red Tape
To Improve the Business Environment:
(Two Sessions within the Four-Day LOCATI
Introduction to LED Module)
Version 1.1: 20/06/06
© InWEnt and GTZ

2. 1. Aims of the Mini-Manual
This mini-manual provides an option on Cutting Red Tape within the Local
Competitiveness Training Initiative’s (LOCATI’s) four-day module on an
Introduction to Local Economic Development (LED). The aim of the option is to
introduce red tape as an issue within the framework of the existing manual. The
two sessions that are presented here are therefore adaptations of Session 6 on
Locality Development and Session 11 on Governance. In each session, red tape
represents a sub-set of the broader issues that are usually covered within the
session. The conceptual framework provided by the Hexagon of LED remains
essentially the same.
The intended output of this option is increased understanding by participants of
the importance of improving the business environment (BE) in their areas, and in
particular the regulatory framework, and awareness of the existence of a full
training module and facilitation support services on cutting red tape, available
from InWEnt and GTZ.
2. Second Triangle: Locality Development and Red Tape
(Session 6 in the four-day module)
Step 1: Presentation of the Triangle of Location Factors
One of the facilitators presents the second triangle, illustrated in Slide 1 below.
The second triangle represents basic and more advanced location factors that
contribute to strengthening the competitive advantages of a local economy and
are important from a business development perspective. Local government in
particular plays a key (although by no means exclusive) role in determining the
quality of such location factors. The private sector and other actors such as
research, training and business support institutions also play important roles.
However, the focus of this presentation is mainly on factors that are influenced by
local government.

3. Slide 1: Strengthening location factors
Strengthening location factors
Basic location factors
-- geographical location -- labour
-- transport infrastructure -- energy
-- municipal services -- environmental costs
-- real estate -- taxes and levies
-- ICTs -- subsidies
Relevant for individuals: Relevant for firms:
-- quality of housing -- efficiency of
-- environmental quality government
-- schools and HE
More advanced -- business climate
-- health facilities location factors -- availability of
-- culture and recreation related industries
-- safety & security -- supporting
institutions
Businesses decide to stay or invest in an area for a number of reasons related to
the quality of location factors. These can be divided into basic and more
advanced factors. Among the basic factors, the geographical location relative to
suppliers and customers, business services and markets are important. Here, the
private sector and its organisation generally play the key role in the strengthening
of this factor.
For almost all businesses, it is important that a location has an efficient transport
infrastructure, basic municipal services in place (such as electricity, water,
sewerage and waste removal) and an attractive and clean environment.
Increasingly, the availability of more advanced information and communication
technologies (ICTs) has become an important factor in determining the
competitive advantage of a locality. The availability of serviced property at
affordable prices is also an important basic consideration.
Further factors, such as the availability of skilled labour in an area and energy
costs are also basic. Environmental costs are important for some firms. The level
of taxes, levies and subsidies are important for all firms.
Among the more advanced location factors, the efficiency of government is
critical from a business perspective. The competency and consistency with which
local government enforces laws and regulations, the rapidity with which it
implements procedures and processes and the manner in which it interacts with
the private sector will influence whether a business stays or invests into an area.

4. Also important from a business perspective is the business climate in an area,
which relates to the vibrancy of a local economy and the relationships between
businesses themselves and between businesses and supporting institutions in
the areas of education, training, research and advocacy. Finally, the existence of
related industries is also important for businesses as it reduces distance to
suppliers and inputs, reduces costs and raises the productivity of firms.
Finally, businesses are not only concerned about the environment for economic
activity, but also about the social conditions prevailing in a locality. For example,
the quality of schools, higher education facilities, health facilities, the natural
environment, recreational and cultural facilities are all important considerations
for them, and these are areas in which local government typically has very
important roles to play. In South Africa, safety and security have become key
considerations too. Finally, career opportunities within a locality are important
considerations for employees and their families.
Step 2: Brief discussion on the second triangle
The facilitator asks participants whether they can think of other location factors
that are important from a business perspective. This opens a brief discussion of
the triangle.
Step 3: Participatory exercise on location factors
Using cards, the facilitator asks the following question: “In your view, what local
government actions most inhibit business development?”
Three yellow cards are handed to each participant. They then write down the
factors in their local economy that are the most inhibiting to enterprise
development. The facilitator draws a triangle on a display sheet, as illustrated in
the chart 1 below.
The facilitator places the yellow cards on the corners of the triangles or along the
axes depending on their content, and clusters them into categories of problems,
as illustrated in the diagram below. The distribution of cards is then discussed
with the participants.
To end this step, the facilitator asks the participants which cards contain red tape
issues, and marks these with red dots. This is to see how participants understand
the term ‘Red tape’ prior to a presentation on the topic.

5. Chart 1. Most inhibiting Local Government actions
Local government actions that most
inhibit business development
Basic location factors
More advanced
location factors
Step 4: What is red tape?
The facilitator then marks those cards that relate to red tape with a red cross,
explaining that red tape has been identified by national government as one of the
main inhibiting factors for business development in SA. The facilitator then
provides a brief presentation on red tape as set out in the next slide.

6. Slide 2: What is red tape?
What is Red Tape?
 Definition
 Red tape stands for any official rule or bureaucratic
procedure that is marked by excessive complexity
and results in delay, inaction and unnecessary cost.
 Sources
 Rules and regulations
 Administrative procedures
 Impacts on business
 Compliance costs
 Non-compliance costs
 Efficiency costs
 Procurement costs
Sources of red tape
• Rules and regulations
Rules and regulations are indispensable to securing a supportive framework for
enterprise development, provided they are well designed, proportionate and
efficiently and fairly exercised. However, in practice, the regulatory framework is
often burdensome, complex and costly, which discriminates against those that
have less influence, in particular small enterprises. Complex tax regulations,
costly registration and licensing fees are onerous for formal enterprises and deter
many informal operators from entering the formal economy. In addition, complex
and heavy regulatory frameworks are often associated with high levels of
corruption, which makes the simplification of existing rules and regulations even
more imperative.
The aim of cutting red tape is not to eliminate regulation but rather to simplify it.
The objective is thus to encourage what is sometimes called ‘smart regulation’, a
simplified regulatory structure that can be more effectively enforced. Improving
the regulatory environment at local level offers several opportunities for mutual
benefit - win-win situations - for municipalities and businesses. It can increase
local competitiveness, stimulate output and employment growth and raise tax
revenues. Efficient management of a simplified regulatory framework also brings
considerable savings in cost and time on the side of the local municipality. This

7. can release scarce person-power for more productive use in development and
service delivery.
• Administrative procedures
It is important to distinguish rules and regulations from administrative procedures.
Rules and regulations may be well designed, yet red tape resulting from
cumbersome bureaucratic processes remains rampant. Bureaucracy is
associated with hierarchical management structures and onerous reporting
systems, which produce excessive paperwork and lengthy permitting procedures.
It can also entail the abuse of position and rent-seeking, often linked with political
patronage and corruption.
It is important to highlight that corruption imposes heavy burdens on both formal
and informal businesses. It is a major deterrent to formalization, thus constituting
a serious obstacle to economic growth and poverty reduction.
Streamlining bureaucratic processes, improving organizational efficiencies,
increasing civil service capacity and cracking down on corruption can therefore
play an important role in reducing the costs of doing business. The Batho Pele, or
People First, national programme focuses on improved public service delivery in
general, while ASGISA seeks to build on this by focussing specifically on service
delivery that reduces the costs of doing business.
Impacts on business
There are four main areas in which red tape impacts on business: compliance
costs, non-compliance costs and cost of public services. The costs of complying
with regulations include not only the taxes and levies paid by firms to
government, but also the time and costs involved for the firm to do this, which
may be hired out to a professional, for example a tax consultant. There are also
costs associated with non-compliance, which generally affect informal
businesses more than formal ones. Non-compliance can result in fines, bribery,
harassment, appropriation of stock and outright suspension of businesss activity.
Efficiency costs refer to the costs arising from market distortions created by red
tape. An example would be the cost to an informal enterprise of not expanding
output in order to remain under the VAT threshold or below a given tax band.
This leads to sub-optimal output and employment within the firm and economy.
Finally, red tape impacts on firms through the difficulties it imposes in meeting the
requirements of procurement contracts with the public sector. The barriers
created by procurement procedures are most severe for small, especially
informal, firms and can be the source of corrupt practices.
Step 5: Questions of clarification/Discussion
The facilitator takes the cards marked with red crosses and clusters these into
categories. These then form the basis of discussion. The facilitator asks if any

8. red tape issues that are important in their localities are missing and adds these to
the clusters.
Then, a discussion is facilitated using one or more of the following questions: “Is
this a regulatory problem or a problem of administrative procedure?” and/or
“Which of the issues are the most important obstacles to business development
in a locality?” and/or “Is formal or informal business the most affected by this form
of red tape?’

9. SESSION 11. GOVERNANCE AND RED TAPE REDUCTION
Step 1. Input on governance and red tape reduction
The facilitator explains that the Triangle on Governance deals with red tape as a
sub-set of the wider issue of governance. S/he then refers to Slide 3 below to
define the term governance.
As was mentioned in the presentation of the second triangle, the manner in which
local government interacts with the private sector will greatly influence whether a
business stays or invests into an area. It is in the interface between the public
and the private sector that business, especially small enterprises, face high
transactions costs brought on by the unnecessary regulations, bureaucratic
procedures, poor service delivery or opaque procurement and tendering systems.
Increasing the service orientation of local officials can greatly contribute to
reducing the compliance costs for businesses and improving the overall business
environment within a locality.
Slide 3. A definition of governance
A definition of governance
 The term governance refers to the way in
which local government performs
administrative processes and interacts with
the private sector and social actors.
Slide 4 below illustrates current and desired future relations between local
government and business over the local red tape reduction initiatives.

10. Slide 4: Partnerships for cutting red tape
Governance & Cutting Red Tape
Public-Private Partnerships bring:
Growing trust & joint action lead to:
upward spiral of improved service delivery
& economic growth & poverty reduction
Government brings:
•Service provision
•Knowledge of systems Businesses bring:
•Public resources •Wealth & job creation
•Power to cut red tape •Tax revenues
•Stakeholders together •Aversion to red tape
•Balance between •Ideas on how to cut red tape
various interests
Local Suspicion & conflict lead to: Private
Government Sector
downward spiral of red tape application &
aversion, rising costs, deteriorating business environment,
declining economic activity & rising poverty
The discontinuous red line represents the prevailing relationships between the
public and private sector, which are mainly characterised by high levels of
distrust and conflicting views on how to stimulate LED and poor communication.
Businesses find local government unresponsive and even hostile to their needs
and try to avoid its scrutiny and/or invest elsewhere. Local government revenues
decline and services worsen, leading to a deteriorating environment for business.
The outcome is a spiral of economic decline and worsening conditions for
communities in the locality.
The top corner of the triangle represents the potential of a public/private sector
partnership to reduce red tape. The lines from the local government and business
corners to the apex represent what the two parties can bring to the process.
Businesses bring an entrepreneurial approach, first hand knowledge of the
impacts of red tape on their own operations, private sector resources and the
ability to act fast to implement initiatives. Local government brings service
delivery, the knowledge of regulatory systems and administrative procedures and
public resources. It also has the authority to re-frame the regulatory environment,
to convene stakeholders and to balance conflicting interests.
The promotion of Public-Private Dialogue (PPD) leads to mutual understanding,
the building of trust and greater transparency. By jointly implementing local red

11. tape reduction initiatives, the business environment is improved and private
sector development is encouraged. Local government and business together can
lobby higher levels of government to change laws and regulations that are
outside the ambit of local government. The outcome is a positive spiral of
increased investment, economic growth, employment creation, increased public
sector revenues and improved services for all.
The facilitator explains that this is not a once-off process. Sustained
improvements in the BE require continuous PPD and action, which may lead to
the creation of local government-business networks or fora.
Step 2: The interaction matrix
The interaction matrix is designed to help participants get a better understanding
of the costs and benefits to potential partners of collaborating over an issue: in
this case local government and business over red tape reduction.
Toolbox 1: Interaction matrix
Interaction between Local Government and Businesses
Benefits & Costs and risks of
opportunities of working together to
working together to reduce re tape
reduce red tape
For local 1 2
government
For businesses 3 4
It is possible to increase the number of partners in the left hand column. This
makes sense if there are sub-groups whose interests differ significantly, for
example in the case of formal and informal businesses. In this case the facilitator
splits the rows on two: formal and informal.
The participants respond by writing their observations on cards, starting with field
1, then 2 etc. For example, the question for field 1 is “What are the benefits and
opportunities for local government in collaborating with business over red tape
reduction in their locality?”
The information generated in the matrix enables one partner to understand more
clearly the perspective of the other. It also provides insights into where
opportunities for collaboration might lie and where collaboration is likely to be
most difficult. To simplify the analysis, the facilitator clusters the cards and
eliminates duplicates. If the number of cards per participant is reduced to, say,
two for each box, this also simplifies matters.

12. Step 3: The Pareto exercise
With the possibilities of collaboration in mind, participants then prioritise areas for
further discussion. In voting, the question they would have in mind is “Where are
the greatest opportunities for successful collaboration between local government
and business?” A Pareto exercise determines how many points are given out to
each participant for the vote. (See tool box 5) These points are then made known
to the participants. Actual voting can take the form of sticking dots on the clusters
or using a marker pen to make the dots on the clusters.
Toolbox 2: The Pareto Rule
The Pareto Principle is also known as the 80-20 Rule.
Each participants gets a number of points equal to 20%
of the cards (e.g. 35/5=7), having eliminated duplicates.
Each participant then places her/his dots (or makes a
mark) on the cards to reflect his/her prioritisation of the
idea/action. Participants may spread their votes between
cards or place all of them on one card.
Step 4: Discussion on dialogue and action
The session ends with a plenary discussion on dialogue and action. This can
take the form of questions on the material covered in the session, examples of
dialogue and action in other areas of the country or questions on where to go
next, which lead into the next session.
The facilitator then refers the participants to the 1,5 day training exercise and
follow up facilitation support service that are available from GTZ and InWEnt for
those who want to pursue this further.

13. 6. Partner Profiles
GTZ- Deutsche Gesellschaft fur Technische Zusammenarbeit GmbH
The Deutsche Gesellshaft für Technische Zusammenarbeit (GTZ) GmbH is an
international co-operation enterprise for sustainable development with worldwide
operations. It provides viable, forward looking solutions for political, economic,
ecological and social development in a globalised world. GTZ promotes complex
reforms and change processes, often working under difficult conditions. Its
corporate objective is to improve people’s living conditions on a sustainable
basis.
GTZ’s mission includes services to clients and international donors. Capacity
building of partner organization and individuals is its key contribution. It is
committed to stakeholders’ participation.
Its work in South Africa supports the sustainable realization of the government’s
policies towards poverty alleviation, especially among the previously
disadvantaged individuals. Their work focuses on “Local governance and
Development”, “Good governance” and “Skills Development”. It considers
HIV/AIDS as a major threat to South Africa’s development and suggests
appropriate responses to it.
InWEnt– Internationale Weiterbildung und Entwicklung GmbH
InWEnt (Capacity Building International, Germany) is
synonymous with human resources and organisational
development in international cooperation. Our service
package addresses specialists, executives and decision-makers in industry,
politics, administaration and civil society. InWEnt works with partners in
developing countries, transition states and industrialised nations, and in this way
reaches some 55,000 individuals every year.
InWEnt’s shareholders are the Federal Republic of Germany represented by the
Federal Ministry for Economic Cooperation and Development (BMZ), The Carl
Duisberg Gesellschaft and the German Foundation for International
Development.
For more information, contact:

14. InWEnt Regional Office, GTZ Office
PO Box 13630, Local Economic Development
Hatfield 0028, PO Box 13732
Pretoria Office 103A, Hatfield 0028
Phone: +27-(0)12-3426115, Pretoria
Fax: +27-(0)12-3428594 Phone: +27-(0)12-342 3537
Email: birthe.schmidt@inwent.co.za Fax: +27-(0)12-342 3510
Email: wegmann@gtzled.co.za