A solid business environment can help fragile states rebuild (Credit: World Bank)
One and a half billion people live in areas affected by fragility, conflict or large-scale organized criminal violence. Their hope at a better life is often marred by the realities that exist around them. It is indeed a vicious cycle as one of the findings from the Word Bank’s World Development Report 2011: Conflict, Security and Development, confirms that lack of economic opportunities and high unemployment are key sources of fragility.
However, it is not completely hopeless in fragile states. Our work in the World Bank Group shows us daily that a favorable business environment in which entrepreneurs are enabled provides an opportunity for people to escape poverty. The key question is-- how can we build a solid business environment in fragile states to ensure strong private sector-led growth?
First and foremost, the role of governments working to enable a better business environment is key, their role in ensuring that the conditions are in place for strong private sector-led growth is a crucial step. Second, a strong understanding and measurement of the current environment through data and analytical tools is needed. The report we recently released titled Doing Business in the g7+, which uses the Doing Business data reveals a solid analysis of the business regulatory environment at hand, can be useful in this case. And third, and building on the first two items, benchmarking progress of economies such as those that have not only emerged successfully from conflict but also have started to make real progress towards building a climate for private sector growth can provide useful lesson for others to learn from.
This is exactly the spirit of the g7+ group (a country-led mechanism established in 2010 to monitor report and draw attention to the unique challenges faced by fragile states). “Through sharing of the lessons among peers, its members can use their successes and failures to inform a new and better understanding of their own conditions and necessary steps for transitions” according to their website.
Challenges, no doubt are prevalent and the above is easier said than done. The report finds on average, the 16 g7+ economies covered by Doing Business– Afghanistan, Burundi, the Central African Republic, Chad, the Comoros, the Democratic Republic of Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, Timor-Leste and Togo – lag behind international best practices in business regulation. Among the 185 economies covered by Doing Business, g7+ economies have an average ranking of 160 in the ease of doing business.
Yet, there is encouraging news. All g7+ economies have improved their business regulatory environment since 2005. Sierra Leone, Burundi, Guinea-Bissau, Timor-Leste, Côte d’Ivoire, Togo and the Solomon Islands are among the 50 economies globally that have made the biggest improvements relative to their earlier performance.
The most common reform efforts in the g7+ were aimed at making it easier to start a business; through 28 regulatory reforms, the g7+ economies have cut the average time to start a business by more than half and the cost (as a percentage of income per capita) by two-thirds since 2005.
Moreover, we already observe some excellent examples of efficient business regulation within the g7+ economies. Take Liberia, for example, where in 2011, having already worked to simplify business registration for several years, the government established the Liberia Business Registry, a one-stop shop bringing together the various agencies that are involved in registration process under one roof. Today, it will take an entrepreneur in Monrovia just 6 days to comply with the legal and regulatory requirements to start a new business—the same as an entrepreneur in New York City. And Liberia is not alone in making it easier for their citizens to become entrepreneurs – 8 other g7+ economies also have a one-stop shop for business registry.
There is much to celebrate. But it’s clear that g7+ economies have much more to do. So how can the g7+ economies sustain the momentum and ensure that these countries stay on a successful reform path? World Bank Group’s Director Pierre Guislain suggested a few key elements in his presentation during the g7+ meeting on Private Sector Investment and Job Creation: (1) detailed action plan that identifies priority areas and reforms and assign deadlines and responsibility, (2) high-level political leadership to ensure continuity and institutionalization of reforms, (3) public-private dialogue and technical / working committees, (4) monitoring & evaluation to track implementation and impact of reforms, and (5) the importance of communicating reform to implementing agencies, business and legal communities, media and the general public.
We know that implementing a set of good business regulations are important, but that alone cannot guarantee strong private-sector-led growth. We also know that other big factors—war, political unrest and the education level of the workforce—are also important determinants of the business environment. Yet we believe that by removing bottlenecks to firm creation and growth, governments can signal the emergence of a more business-friendly environment. This in turn can set the stage for broader reform and enable steps to a better future.
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