Business reforms can spur economic dynamism in the East African Community
East Africa is famous for its breathtaking landscapes and its unique concentration of wild animals. Could it also become as famous for its dynamic economic development?
In 2009 I came to Tanzania to work on tax harmonization in the East African Community (EAC). The Common Market Protocol was about to be signed and one of the biggest goals was to tap into the economic potential of the region by facilitating (cross-border) trade and improving the business climate. A year later, the five Partner States of the East African Community ratified the Common Market Protocol in order to realize “accelerated economic growth and development through the attainment of the free movement of goods, persons, labor, the rights of establishment and residence and the free movement of services and capital”. The overarching goal of the East African Community is to achieve sustainable economic growth in order to increase employment and reduce poverty.
Broadly taken, Latin America and the Caribbean (LAC) weathered the turmoil of the global economic crisis fairly well. After the region’s GDP growth slowed notably in 2008, and fell to negative levels in 2009, growth returned to relatively robust, positive rates by 2010. What’s more, this bounce-back in GDP aligned closely with trends in the private sector.
Value added, as a percentage of GDP, in both manufacturing and services, returned quickly from negative levels in 2009 to positive growth by 2010; over the same period, government consumption remained comparatively flat.
In other words, if you want to understand LAC’s recent pattern of economic growth, look at the private sector.
Data from the World Bank Group’s Enterprise Surveys put together a wealth of information, gathered directly from private sector firms’ experiences, to create a picture of the business environment around the world. For our recent work in LAC, the project surveyed nearly 15,000 business owners and top managers in 31 countries, including interviews conducted by re-visiting thousands of businesses in 15 countries, where the surveys were also conducted in 2006.
In a previous post written jointly with Arvind Jain, Arvind and I highlighted some recent findings concerning businesses in Azerbaijan. Below, I extend the discussion to another country, Russia. What follows is a brief summary of our main findings, with more details available in the country note, found hereThe note is based on newly collected firm-level data on various aspects of the business climate and experiences of a statistically representative sample of firms Enterprise Surveys. The data also contain information on various measures of performance and the structures of the firms. The main findings are as follows.
Editor's Note: The following post was submitted jointly by Mohammad Amin and Arvind Jain, both of the World Bank Group's Enterprise Analysis Unit.
For all of us working towards providing a better business and regulatory environment, it is important to know whether economic analysis has improved the quality of regulatory decisions. A proper analysis of the costs and benefits associated with regulations (government rules that govern private activity) is critical in determining which regulations to administer and in what capacity.
The conventional wisdom is that the exchanging of information on an individual or firm will go a long way in determining credit worthiness, thereby improving credit availability. When a bank evaluates a request for credit, it can either collect information on the applicant first-hand, or it can source this information from other lenders that have already transacted with the applicant. Information exchange between lenders can occur voluntarily via “private credit bureaus” or it can be enforced by regulation via “public credit registries.”
To promote the registration of new firms, many countries have been undertaking reforms to reduce the costs, days or procedures required to register a business. For example, the World Bank Doing Business report each year identifies the 10 most improved countries on the overall Doing Business index (comprised of 9 subindicators). One of these subindicators measures reforms related to starting a business, with 30-65 countries reforming in this area each year. A still unanswered question is whether some reforms are more important than others. A priori, it is not clear what magnitude of reduction in costs (or days or procedures) is necessary to create a significant impact on firm registration. In other words, what exactly constitutes a reform? Is a 20% reduction in the costs of registration sufficient, or is a 50% reduction necessary to get a substantial number of firms to register?
In a recent paper Leora Klapper and I empirically investigate the magnitude of reform required for a significant impact on the number of new registrations. We use a new dataset that is uniquely suited for this purpose: the World Bank Group Entrepreneurship Snapshots (WBGES), a cross-country, time-series panel dataset on the number of newly registered companies. We supplement it with data from Doing Business reports that contain the cost, time and procedures required for registration of new companies. Importantly, both datasets focus on limited liability companies. In an earlier paper, we used the same dataset to investigate the impact of the global financial crisis on new firm registrations.
Conventional wisdom holds that bribery is the preferred means of influencing government policy in less developed countries, while lobbying is more common in developed countries. Perhaps due to this perceived compartmentalization of lobbying and bribery, very little is known about the relationship between lobbying and bribery, the extent and effectiveness of lobbying vs. bribery in less developed countries, and how this relationship changes as countries move up the development ladder.
Buying and selling a product or service involves a number of costs, including time spent searching for the best prices, negotiating for good discounts, researching product quality and writing contracts where applicable. Broadly, these are called the transaction costs of economic exchange, and part of the reason firms exist is to keep transaction costs at a minimum.
In a series of earlier posts, I discussed a number of findings about informal (unregistered) firms in 6 African countries, including Burkina Faso, Cote d’Ivoire, Cape Verde, Cameroon, Madagascar and Mauritius. These findings were based on Informality Surveys collected by the Enterprise Analysis Unit to better understand the functioning of the informal sector—a large sector for which we have virtually no systematic data.