Delay, High Cost of Business Registration, Counter Productive – World Bank/IMF

Thursday, November 17, 2005

Saviour Davidson Fia

According to the World Bank and the International Monetary Fund, African nations, despite their high youth unemployment rates, continue to thwart small and medium businesses with legal burdens and piecemeal reforms.

Data on recent reforms to the regulatory environment for business contained in ’Doing Business 2006,’ a publication by the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF), point to the fact that African countries pose the most obstacles to entrepreneurs across almost all variables. The simplest indicator is probably the time to start a formal business. Four of 10 worst performers are African – Burkina Faso (135 days), Angola (146 days), Mozambique (153 days), and the Democratic Republic of Congo (155 days). By contrast, the world’s two most efficient business registration systems, Australia and Canada-take two and three days respectively.

Over here in Africa, start-ups are charged a registration fee, which in theory, is intended to cover administration cost. According to the World Bank, such a fee is not necessary.

It went on to reveal that Denmark registers businesses free of charge and that “there is a marked tendency for business registration to be seen as a source of government revenue rather than a simple statistical record.”

Experience in our developing countries indicates that making it costly to register business tends to be counter-productive, since companies will tend to remain informal rather than comply, thus ironically reducing rather than boosting government revenues.

The delay and high cost of business registration “inhibits the emergence of new firms, capital formation, job creation, the movement of entrepreneurs from the informal sector to the formal and growth generally,” according to the November edition of the ’Business in African Magazine.’

Source: Ghanaian Chronicle (link opens in a new window)