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Red tape And High Taxes Block New African Business

A new World Bank report says high taxes and red tape are major obstacles to opening new businesses in many African countries. At the same time, the report says Eastern European nations have the fastest rate of reforms and are aggressively encouraging entrepreneurs.

Simeon Djankov is the lead author of the World Bank report. He spoke to English to Africa reporter Joe De Capua about the problems facing new African businesses. He says, “The biggest problem in the continent…is the relative lack of political will in addressing the issues of improving the business environment, which I think from that stem a number of other issues of why there is no reform. In other words, in most other regions of the world, certainly in Eastern Europe, where reform is fastest, but basically in every other region in the world, there are at least discussions about the need to improve the environment for business because it’s understood that that creates jobs, reduces the informal sector, increases growth and so on. In much of Africa, that discussion does not seem to be currently taking place at least at the political level."

The result, according to the World Bank report, is much less reform in Africa compared to other continents.

Mr. Djankov says, “It’s very difficult for exporters and importers to trade. And this is not so much so much because of infrastructure issues, although that’s a problem, it’s much more to do with bureaucracy basically.” The report says the tax burden can be oppressive and start-up costs for new business prohibitive.

The consequences include most people working in the informal sector, denying the government of much needed revenue, but also denying workers contracts, which can offer protection.”