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| Indigenous PSD and regulation in Africa and Central Europe, Bannock et al, 2002 |
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| Country(ies) | Ghana, Hungary, Kenya, Latvia, Malawi, Poland, South Africa, Tanzania, United Republic Of, Uganda, Zambia |
| Implementing agency(ies) | Bannock Consulting |
| Funding agency(ies) | Department for International Development (DFID) |
| Date completed | August 2002 |
| Issues/challenges | The social and economic structures, and particularly the levels of incomes and labour force skills, are very different in Africa compared with Central Europe. However, there are some parallels: All the countries covered underwent major political and economic reforms in the first half of the last decade as they dispensed with unrepresentative and interventionist governments. In most of the African countries self government came in the early 1960s, but all had troubled transitions to multi-party democratic systems which emerged only in the early to mid-1990s. The three Central European countries achieved independence from communist regimes in around 1990.
Both regions suffer from low tax compliance and inherited obstacles to enterprise, an overly bureaucratic legislative framework and an associated tendency towards corruption.In the past and to this day in emerging countries of Asia and elsewhere, development in market economies has been driven by the efforts of large numbers of small firms complementing larger firms and co-ordinated by the market. Inappropriate regulation creates obstacles to this process by raising the costs of business entry and growth. In particular, regulation and inadequate institutions for property rights and the rule of law create barriers to transition from the subsistence and very small scale economy to the modern more productive sector. Regulatory costs bear most heavily on the smallest firms. |
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Description
The large number of small firms in developing countries is not in itself a sign of under-development. Rather it is that these firms are confined to subsistence and insufficiently productive activities. In the advanced countries the vast majority of business enterprises are also very small but they are participating in the modern, formal economy and account for a disproportionate share of employment creation.
Even in Africa and despite the regulatory barriers which are the subject of this study, surveys show that micro and small enterprises employ more than 40% of all new entrants to the labour force and a few grow to employ 10 or more employees. These figures suggest the potential that exists if barriers could be removed.
Summary of results
Whilst some efforts are being made to tackle regulatory reform in our African countries, there are clear contrasts in progress in policies and implementation between these countries and our Central European sample. Few countries in Africa have explicit policy rationales which bring out the need to remove legislative obstacles to private sector development, instead most focus on support services promotion, instead of removing the barriers which could render support unnecessary.
In the formulation of policy the private sector is not brought in as a partner through effective consultation. Policy formulation and implementation is also excessively centralised in government, and strong lead ministries covering all aspects of private sector development are generally absent. Monitoring of policy is inadequate and the necessary statistical base is weak. Central European Countries have better institutions in all these respects.
Differences in policy and policy implementation among the countries studied are reflected in rates of growth in GDP per capita achieved. In fact there is a fairly clear continuum in these respects over the years 1995-99 between those African countries which have made little progress in regulatory reform, those that have made some changes (Ghana, Tanzania and Uganda) and our three Central European countries (Poland, Latvia and Hungary), with the highest rates of growth in the latter group.
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