Freeing Business From A Tangle of Red Tape

Image: Flickr, David Brossard
Image: Flickr, David Brossard

IT TAKES on average 4.3 days to satisfy the regulatory requirements to start a business in North America, according to the World Bank. In Africa, it takes 69.5 days.

It’s no economic secret that lumbering bureaucracies undercut productivity, encourage commerce outside the formal sector and fuel corruption, but Africa has been slower than other parts of the world in recognising this. Now that’s starting to change. More and more countries on the continent are beginning to streamline their regulatory regimes to jumpstart their economies. The new government in Kenya has begun moving towards a single business permit. Uganda recently launched a pilot streamlined trade-licensing system.

To encourage faster movement in this direction, the Commonwealth Business Council launched an initiative in Abuja, Nigeria, in December 2003 called ‘Cutting Red Tape for Business in Africa.’ The programme, implemented with the Johannesburg-based Small Business Project, promotes ‘regulatory best practice’ among key players in business and government.

‘There is the inertia of bureaucracy,’ said Douglas Irvine, SBP general manager. ‘Civil servants have a vested interest in the regulations they implement. Perhaps more importantly, there is a lack of awareness of what is called the “costs of compliance”’ – costs incurred in meeting regulatory requirements, such as fees for lawyers and accountants. Small and medium enterprise – the ‘missing middle’, as Irvine calls them – are particularly affected.

The Commonwealth Red Tape initiative coincides with a worldwide push for deregulation. Analysts warn that terms like ‘red tape’, ‘best practices’ and ‘appropriate regulation’ can be misused by proponents of deregulation.

Streamlining bureaucratic procedures is one thing, extensive dismantling of regulatory safeguards another. Opponents of the latter warn that overzealous deregulation erodes labour and environmental-protection standards and allows corporations to manipulate supply and demand. Look no further, they argue, than the accounting scandal at Enron, energy shortages in California and petrol price hikes in Nigeria.

‘In some cases, deregulation has simply gone too far,’ said David Jarvis, an analyst at the National Labour and Economic Development Institute in South Africa. ‘What we see is cartels taking over regulation, where government has pulled out. In other cases, there is legislation, but enforcement is lacking. We do not believe that the law is onerous in most Africa countries, certainly by international standards.’

There is agreement, however, that regulatory reform should be an inclusive process in which all stakeholders work with government to generate a regulatory impact assessment. Streamlining procedures and identifying where new rules are needed – to protect investments and property, for example – should be based on a thorough investigation of implied consequences.

‘It’s not a simple mantra: “deregulate!”’ Irvine said.

Sixteen countries in Francophone West Africa have adopted a new uniform business law to banish the ad-hoc administration of justice between and within countries. The idea is to make existing regulations more predictable and applicable to create a safer and more evenly integrated business environment across the region.

‘Many of our importers have in the past resorted to routing their goods to neighbouring seaports because of more conducive and accommodating or customer-friendly laws there,’ said Emenike Orji of the Benin Importers and Exporters Association. With the new regional law in place, he said ‘we hope that business activities will bounce back to Cotonou port.’


Five principles of smart regulations

  • Proportionality: Regulators should intervene only when necessary. Remedies should be appropriate to the risk posed, and costs identified and minimised.
  • Accountability: Regulators must be able to justify decisions and be subject to public scrutiny.
  • Consistency: Government rules and standards must be implemented fairly.
  • Transparency: The regulatory process should be open, simple and user-friendly.
  • Targeting: Regulations should be focused to minimise side-effects.

Source: SBP: Gaining Momentum, November 2003