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World Bank: Cumbersome Regulations Hurt African Business  - 2004-09-09

The head of an economic research organization in Kenya says the World Bank's recent business report paints an accurate picture of how cumbersome government regulations stifle business and employment opportunities in most African countries.

The chief executive officer for the Nairobi-based Institute of Economic Affairs, Albert Mwenda, says the last time he checked, someone planning to set up a hotel in Kenya needed to apply for about 28 licenses before it can open for business.

He says the Kenya example is reflected in a World Bank report released Wednesday that shows how inefficient and cumbersome government regulations and processes stifle business and employment opportunities in most African countries.

"It takes, on average, about six months in Kenya to get a business up and running," he said. "We are doing badly in Kenya compared to the countries that have been listed as the best examples in terms of providing a good business environment."

Mr. Mwenda says in most developed countries, a new business can open its doors in about a month's time.

He calls for governments to reform their court systems so that liquidations and other business cases are resolved quickly, to have a special office to investigate complaints by business, and create a one-stop shopping process for investors and businesspeople.

The World Bank report examined the business regulatory practices of 145 countries. The second annual report looks at starting a business; hiring and firing workers; registering property; enforcing contracts; getting credit; protecting investors; and closing a business.

The report found widespread disparities among countries. For instance, the time it takes to register a new business ranges from two days in some places to more than 200 days in others.

It says most regulatory reforms that would help business have been occurring in European and other high-income countries. Sub-Saharan Africa as a whole scores poorly.

According to the report, 16 of the 20 countries rated as having the most unwieldy business regulations are in sub-Saharan Africa, with the Democratic Republic of Congo, Angola, Burkina Faso, and Chad among the bottom five.

The report says Chad requires 19 procedures to be followed when registering a new business, compared to two procedures in Australia.

But there are bright lights in sub-Saharan Africa. One of the report's authors, Simeon Djankov, says Botswana is among the top-20 countries with best practices, with South Africa following closely behind.

He says Mozambique has shown vast improvements in how credit information is provided, making it easy for banks and other creditors to check the credit-worthiness of borrowers.

Mr. Djankov also points to Madagascar and Ethiopia as paring down the procedures and time it takes to start new businesses, and Namibia for enabling part-time contracts to be flexible.

The World Bank's vice president for private sector development, Michael Klein, says that, because of poor government regulations, many businesses in Africa cannot afford the time or money it takes to start up an initiative in the formal sector.

"This whole syndrome of high regulation pushing firms into the informal economy and then missing out on opportunities for jobs and income creation is prevalent throughout Africa," he said.

Another of the report's authors, World Bank Senior Economist Caralee McLiesh, says a common belief is that low-income countries lack the money or resources to reform their government regulation.

"We are not talking about very large-scale infrastructure projects here," she said. "What we are talking about is legislative change. The reforms sometimes only involve simple administrative changes that cost very little. The reforms themselves actually save money as well as make it easier for businesses to be more productive."

Ms. McLiesh says Botswana should be a role model and incentive for other African countries to reform their business regulations.

Botswana scores high in the areas of providing access to credit and disseminating credit information. Compared to other African countries it takes less time to register property in Botswana and the cost of enforcing contracts is relatively low.