Improving the Business Climate by Reforming Administrative Regulation: Issues and Challenges for Imp

1
Improving the Business Climate by Reforming
Administrative RegulationIssues and Challenges
for Implementing Systemic Reform

• CRC 3rd International Conference
• Cape Town, South Africa
• 7-9 September 2004
• Margo Thomas, FIAS

2
Key Administrative Regulations and Procedures
Faced by Domestic and Foreign Investors
Start-up
Locating
Operating
3

• Basic premise Developing countries seeking to
  increase levels of private investment in order to
  accomplish economic growth and poverty
  alleviation goals
• Basic question What are the factors that affect
  a countrys competitiveness in attracting private
  capital?
• The cost of doing business is an important
  decision factor for
• Foreign investors in assessing competing
  locations
• Small and medium domestic investors decisions to
  move from the informal to the formal sector
• Objective To help developing countries eliminate
  administrative barriers and reduce the cost of
  doing business

4
Heritage Foundation's Index of Economic Freedom
Regulation (2003)
(Scores are on a scale of 1 to 5, the lower the
score the better)
Zambia
Uganda
Tanzania
Kenya
Honduras
South Africa
Mauritius
Ghana
Botswana
Singapore
0
1
2
3
4
5
5
Evidence of Regulatory Burden Selected SSA
Countries
Source World Bank/RPED Investment Climate
Surveys
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Investors Perceptions of Regulatory and
Administrative Procedures (e.g. Ghana)
40
37
35
30
25
17
20
Respondents ()
16
15
15
15
10
5
0
Somewhat
satisfied
Satisfied
Very
dissatisfied
Dissatisfied
Somewhat
dissatisfied
Source FIAS Administrative and Regulatory Cost
Survey, 2002
7
Starting a Business Cost of Registration
Source Doing Business Database, World Bank,
2004.
8
Starting a Business Registration and Approvals
(e.g. Ghana)
9
Taxation RegistrationSelected Countries
Source FIAS Administrative and Regulatory Cost
Surveys
10
Taxation Registration Requirements(e.g., Ghana)

• Business start up procedures requiring a Tax
  Identification Number (TIN)
• Company registration
• Tax clearance certificate
• Clearance of imports through customs. Therefore,
  the equipment imports of new companies cannot be
  processed by customs, and the new company then
  incurs considerable cost for storage, and finance
  charges among other costs associated with the
  delay
• Tax clearance certificate is required for certain
  foreign exchange transactions. Therefore, for new
  foreign-owned companies seeking to access foreign
  capital to finance start-up operations this is an
  additional cost

11
Access to Land and Construction Procedures (e.g.
Zambia)
Source FIAS Administrative Barriers Study, 2004
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13
Business Environment Reform in Selected
Sub-Saharan Countries Key Issues

• Since 1980, these countries have undertaken waves
  of administrative reform aimed at eliminating
  barriers
• Largely externally driven
• Response to perceived need to stimulate private
  investment in order to support economic growth
  and poverty alleviation objectives
• Most recent wave largely driven by AGOA, EU
  Anything but Arms and NEPAD initiatives

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Key Issues (contd)

• Marginal progress in undertaking actions to
  address administrative barriers to investment and
  reducing the cost of doing business.
• Uneven pace of reform, largely in response to
  external pressure.
• Absence of comprehensive, strategic approaches to
  business environment reform.
• Lack of effective leadership and commitment to
  implementing reforms.

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Key Issues (contd)

• Regulatory systems governing the administrative
  procedures for businesses in these countries
  share some of the following general
  characteristics
• Weak administrative capacities and limited
  resources for implementing change
• Dated and unclear or conflicting regulations
• Low levels of monitoring and accountability
• High compliance costs
• Administrative corruption

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More Regulation in Lower Income Economies
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Who loses from excess regulations? The poor and
the disadvantaged
More Corruption
A Larger Informal Sector
ARE
PAN
RUS
LBN
ARG
VEN
SAU
BOL
ECU
GEO
SER
PER
MEX
TUR
PAN
KAZ
GTM
CMR
IRN
URY
AZE
DZA
SYR
AZE
IDN
ZWE
THA
UKR
ROM
BOL
THA
ZWE
COL
KEN
ALB
ITA
HRV
GTM
BLR
BIH
TWA
HND
BRA
TZA
KOR
NGA
ARM
DOM
BLR
PHL
CIV
GEO
UKR
LVA
NGA
JAM
MDA
PAK
HND
NIC
UGA
RUS
CZE
MYS
NER
TZA
VNM
ZMB
MDG
PER
BGR
EGY
SVK
GRC
BRA
JPN
KGZ
BEL
YEM
BFA
LVA
LTU
KAZ
CHN
UZB
LKA
BGD
PHL
Corruption
HKG
ARM
ZMB
FRA
POL
COL
IRL
TUN
ARE
JOR
ITA
JAM
NIC
ZAF
MDA
BEN
HRV
LBN
VEN
GRC
SEN
SEN
ISR
IND
BWA
URY
BGR
USA
BEL
HUN
SVN
KOR
MEX
CIV
TUR
UGA
DEU
MAR
EGY
MYS
ROM
LKA
DZA
NOR
DOM
LTU
ESP
ECU
ISR
BIH
SVN
ARG
Informal Employment
DNK
SWE
MLI
POL
ALB
PRT
KGZ
NER
ZAF
FIN
GHA
MLI
GHA
MDG
MOZ
PRT
PAK
AUT
MNG
CRI
HUN
HKG
MWI
TWA
NPL
DEU
BFA
NOR
BGD
CAN
NPL
IRL
CMR
FRA
CRI
ESP
AUS
ETH
KEN
UZB
SER
MAR
CHE
JPN
NLD
SGP
BWA
SAU
GBR
CHL
CZE
CHE
AUS
AUT
USA
SVK
GBR
NZL
TUN
ETH
YEM
JOR
DNK
IRN
IND
NLD
SYR
CHL
MOZ
CAN
SGP
SWE
IDN
MWI
FIN
MNG
CHN
NZL
VNM
Procedures to Start a Business
Procedures to Start a Business
Source World Bank Group, Doing Business 2004


Note Partial scatterplots controlling for
income per capita. Relationships are
statistically significant at 5 level.
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Inter-related Issues

• Quality of regulation and the legal framework
• Rule making process
• Public/private consultation
• Governance
• Political capture
• Regulatory capture
• Public administration reform
• Remuneration and performance management
• Capacity
• Culture of service delivery
• Budget management

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Characteristics of Modern Regulatory Systems

• Security. The legal framework must provide
  security for the rights of the private sector and
  consumers obligations, penalties, due process,
  rights of appeal.
• Legitimacy. Commitment to an objective approach
  for effectively protecting the interests of
  private and public sector stakeholders is
  essential.
• Clarity and transparency. Clear and simple
  regulations, a transparent regulatory process,
  and the accountability of government officials
  will increase the confidence of the private
  sector and the consumer in the regulatory
  process, help to improve compliance, and minimize
  administrative corruption.

Source Jacobs, S. (2003). Assisting Economic
Transition An RIA Strategy for Developing
Countries. Centre on Regulation and Competition,
University of Manchester.
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Characteristics of Modern Regulatory Systems
(contd)

• Efficiency. Rules should be designed to
  accomplish policy objectives without imposing
  undue costs of compliance to businesses.
  Regulatory systems must be designed to deliver
  services and process decisions in an orderly and
  timely manner.
• Capacity. Technical expertise, strong regulatory
  skills and service-orientation are essential for
  effective and credible regulation. Tools for
  monitoring impact and analyzing compliance
  trends are also critical for effective
  regulation.

Source Jacobs, S. (2003). Assisting Economic
Transition An RIA Strategy for Developing
Countries. Centre on Regulation and Competition,
University of Manchester.
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Regulatory Reform Pyramid

• 2. Regulatory Reform
• Produce high quality regulations
• Improve regulatory processes RIA, Consultation,
  Planning
• Update and review existing regulations

• 1. Deregulation
• Eliminate regulations that impede competition,
  trade
• Reduce number of regulations
• Reduce burden and cost of regulations
• Simplify procedures
• Streamline administration

Source OECD, 1995
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New Approaches to Business Regulation

• There is an ongoing but significant shift in the
  modern approach to regulation.
• This change has been motivated, in part, by an
  increased understanding of the importance of
  collaboration between government, business, and
  civil society in achieving common goals
• Economic growth,
• Protection of consumers, and
• Protection of the environment.

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New Approaches to Business Regulation

• Public Service Delivery
• Service orientation
• Monitoring and enforcement
• Accountability
• Organizational
• Staff
• training and performance monitoring codes of
  conduct

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New Approaches to Business Regulation

• Tools for systematically improving the quality
  of regulations
• Guillotine and sun setting to eliminate
  outdated and irrelevant regulations.
• Impact assessments of remaining and new
  regulations.
• Silence is consent to establish active time
  limits for approvals and authorizations.

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Implications for Developing Countries

• Since regulation and enforcement should not be an
  end in itself and poorly designed regulations are
  likely to produce poor outcomes regardless of
  compliance, it is necessary to place this issue
  into a broader context.
• Policies aimed at encouraging competition,
  supporting private sector activity, and
  protecting consumers.
• Institutions (including regulations) should be
  appropriately designed to accomplish desired
  outcomes.
• Monitoring of compliance and enforcement should
  aim to be consistent, fair, efficient, and
  effective.

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Implications for Developing Countries

• Strong legal frameworks for business entry and
  operation. The legal framework must provide
  security for the rights of the private sector and
  consumers obligations, penalties, due process,
  rights of appeal.
• Comprehensive reform is necessary to ensure
  systemic change and effective implementation.
• Effective implementation of changes in
  administrative regulations require resources,
  capacity, and organizational change over the
  longer term.

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Implications for Developing Countries

• Stakeholder support for credible regulatory
  reform.
• The regulation of business activity should not be
  an end in itself, it is intended to help achieve
  common goals of economic growth, protection of
  resources, and protection of consumers.
• Therefore, the support of stakeholders
  government, businesses and civil society is
  essential for the design of effective regulations
  to protect stakeholder interests.
• Commitment and championship at highest levels of
  government.
• Broad stakeholder support is important, but in
  light of often competing interests, strong
  political will essential to effect systemic
  change. Therefore, commitment and leadership at
  appropriate levels of government is essential.

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Challenges

• Adapting the experience of good practice
  countries
• Strategic approach to business environment reform
• Convincing government that reform is essential by
  linking these issues to economic development
  strategy
• Good regulation and institutions help markets
  function and economies to grow
• Political will
• Capacity and resources
• Research

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• Thank You for Your Attention