Crispus

Monday, September 20, 2004

How Regulation Fuels African Poverty

A recent World Bank report, “Doing Business in 2005,” shows that poor countries impose three times the administrative costs and double the red tape as rich countries. The Economist illustrates:

Incorporating a business takes two days in Canada, but 153 in
Mozambique.…

In Haiti, for example, it takes 203 days to register a company, which
is 201 days longer than in Australia. In Sierra Leone it costs 1,268% of average
income, compared with nothing in Denmark. To register in Ethiopia, a would-be
entrepreneur must deposit the equivalent of 18 years’ average income in a bank
account, which is then frozen. In Lagos, Nigeria’s commercial capital, recording
a property sale involves 21 procedures and takes 274 days. Official fees amount
to 27% of the value of the transaction. In Norway the task takes less than a day
and costs only 2.5% of the price of the property.

Africa accounts for 2/3 of the world’s countries with the most onerous procedures, so no wonder that few companies wish to do business there. Says the Adam Smith Institute blog: “It is difficult to force people to be entrepreneurial, but they can be encouraged to be so if it is both easy and rewarding. The burdens and the fees should be lower, not higher, in the poorer countries because they need the growth more.”

Socialist procedures which undermine African entrepreneurship potential are a key barrier holding back the continent. Instead of the U.N. holding meaningless conferences, how about one focusing on reducing red tape and increasing growth so we can have some “African Lion” or “Caribbean Lion” countries?

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