Need for dialogue to improve competitiveness

Sub-saharan Africa has seen economic growth rates averaging more than 5 per cent for the last 15 years. However, economies are largely agrarian bolstered by extractive resources and usually with a large informal economy, which largely focuses on local trading. The Africa Competitiveness Report 2015 makes the assumption that increased competitiveness is a critical driver of structural transformation and broad based growth. However, as we learn from WEF’s Global Competitiveness Index, most countries in Africa are not competitive. Indeed, the move by many from agriculture to services rather than to manufacturing suggests that their current growth is unsustainable. But, WEF suggests, to support manufacturing and to become more sustainable, they need better infrastructure – energy, roads, ports, irrigation – as well as improved education, and a more conducive business enabling environment. In particular, WEF sees a need for reduced barriers to trade a strengthened regulatory framework (especially for rules of origin, competition policy, intellectual property rights and dispute resolution). They argue for the removal of both tariff and non-tariff barriers and improved access to finance. They suggest that the “success of reform agenda will also depend on active dialogue among key stakeholders” (p82) between countries, not least to promote knowledge sharing and peer learning, but I would argue that more dialogue is needed between public and private sectors as well.

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Battling red tape – still

957887_red_tapeGovernments need to keep focused on ensuring that regulation does not impose burdens on business that simply deter business from ‘doing business’ – but they also need to focus on the substance and not just keep ‘moving the deckchairs’. They also need to take extreme care to ensure that they think about the impact of regulation on small business. Big business can largely take care of itself, not least because they can afford to pay for people to deal with the red tape. But small businesses usually rely on the entrepreneur, who usually needs to devote his or her spare time, to deal with regulation. So thinking small first is immensely important.

The British Government announced on 28 June that it was appointing six business leaders to a red-tape task force, specifically to identify European regulations that need to be scrapped or reformed (see BBC news). The group includes Marc Bolland, CEO of Marks & Spencer, Paul Walsh, chairman of Compass, Ian Cheshire, CEO of Kingfisher, Glenn Cooper, MD of ATG Access, Louise Makin, CEO of BTG – and just one person who might be regarded as representing small business, Dale Murray, investor and entrepreneur.

I wonder, however, what difference this will make – for three reasons:
Firstly, large businesses do not think about red tape and regulation in the same way as mall businesses. Large businesses can deal much more easily with the requirements imposed. And they are much better placed to defend themselves if something goes wrong. But more importantly, there is tendency to think that provided they are happy, then everyone is happy, often not recognising that large companies use regulation as a competitive advantage. Much better to design regulatory policy and implementation requirements so that it is acceptable first to small business – and large businesses will then also be happy. So the task force is weighted the wrong way.

Secondly, the government is forever saying that it wants to do more to cut regulation, but most of the action seems to be on the organisation of the structures within government rather than on the regulation itself. After the re-election of the Tories in 1983, they initiated work on deregulation, subsequently launching the Enterprise and Deregulation Unit (within government) in 1986, and renaming it the Deregulation Unit in 1991. Their efforts were reinvigorated in 1992 and the Deregulation Task Force was launched in 1994. The first Blair administration was equally keen to demonstrate its friendliness to business but recognised both that a greater level of regulation was inevitable and that being careful about the way in which regulation was implemented could reduce the imposition on business. It consequently replaced the DTF with a Better Regulation Task Force (which quickly set out five principles of effective regulation) and replaced the Deregulation Unit with the Better Regulation Unit. The Government launched the Better Regulation Guide in 1998 which introduced the concept of Regulatory Impact Assessments. The Better Regulation Unit became the Regulatory Impact Unit in 1999. Up to 2005 the Cabinet Office took responsibility for better regulation. In 2005, the Regulatory Impact Unit was moved to BERR and renamed the Better Regulation Executive. The Better Regulation Task Force was renamed the Better Regulation Commission in 2006 and closed in 2008, with the Executive taking on the work, supported by a Regulatory Policy Committee set up in 2009. The Government also started to make efforts to improve local regulation, setting up the Local Better Regulation Office in 2009, based in Birmingham, but then bringing that back within BIS in 2012 and renaming it the Better Regulation Delivery Office. The Government has also launched the Red Tape Challenge website to encourage businesses and the public at large to tell it about regulation that is not fit for purpose. It is not even clear whether this new initiative replaces on the existing initiatives or is additional – or indeed why there should be a unit that focuses solely on EU legislation, when often the problem is not the EU legislation but the desire of civil servants to ‘gold-plate’ the directive on the grounds that this gives certainty to business (thus adding considerably, usually, to the complexity).

Thirdly, the best way to mitigate the impact of EU regulation is to ensure that we are there at the beginning, as ideas are being formulated. In the UK, we are still too used to adversarial politics – and a chance to argue about policy right to the last minute. But most of Europe, and certainly the Commission, takes a more consensual approach. This means that the real work needs to go on before a position is ever published by the Commission. And that, in turn, requires considerable effort by business associations and others to ensure that they are gathering market intelligence and doing something about it.

Ideas for improving the regulatory process

There is a desire by business and trade associations to influence public policy but there are a large number of possible policies, largely concerned with the process of policy making, that rarely get promoted – possibly because most associations take a sectoral approach – and yet could make a considerable difference, especially in developing countries where development partners are making efforts to support business associations to advocate change in public policy. Ideally, they should be taken up by apex associations, but even apex associations will not necessarily see a quick return so do not prioritise them. Ideas include:

  • Promoting the adoption by government of three or four simple principles which can be promoted across government to stress the importance of business to the economy and to encourage Ministries to think carefully about the potential implications of their decisions
  • Wherever possible looking for approaches that do not require regulation or legislation including codes of conduct administered by trade associations
  • Requiring the preparation and publication of a Regulatory Impact Assessment (complete with cost benefit analysis, ideally with an opportunity for the private sector to contribute to the cost benefit analysis) before new regulations impacting on business are adopted
  • Requiring minimum consultation periods to allow the private sector and other stakeholders to respond to proposals for new or changed regulations which impact on business
  • Wherever possible, designing regulations so that there is no need to apply for a permit or make a payment, but rather impose an obligation with (the few) businesses that fail to conform pursued through the courts
  • Requiring minimum periods between regulations being finalised and being implemented to allow businesses to understand the implications and, if necessary, to put in place appropriate procedures
  • Improving access, preferably through the creation of a comprehensive website, by businesses to the requirements imposed on them by legislation so that they understand exactly what is required, including tax rates, enforcers, etc
  • Asking the Government to require that a Minister in every Ministry be given explicit responsibility for regulatory reform with a view to reducing regulatory requirements and improving the enabling environment
  • Establishing a capacity building programme within government to ensure that many more officials understand the importance of creating an enabling environment conducive to growing business
  • Launching a regulatory reform action plan – with government inviting the private sector to identify regulations that could be improved or abolished – in order to send a clear message to business that it is ‘open for business’
  • Creating a department within government, preferably in the Prime Minister’s Office, to take responsibility for promoting regulatory reform
  • Minimising and preferably eliminating overlapping regulation and mulitple monitoring of businesses
  • Instituting a programme of annual awards to recognise publicly politicians and civil servants, Ministries and Agencies that have made special efforts to improve the enabling environment

I am sure you will have your ideas – do please feel free to share them.

Canada the best place to do business

Forbes magazine has its own take on the best countries in which to do business. It has just published its 2011 Best Countries for Business list. It looked at 11 factors – property rights, innovation, taxes, technology, corruption, personal freedom, trade freedom, monetary freedom, investor protection, red tape and stock market performance – so has a rather different perspective to Doing Business, though considerable overlap as well. It uses research undertaken by others including Freedom House, Heritage Foundation, World Bank, Transparency International, World economic Forum and others. The list covers 134 countries.

Canada has this year taken the top spot, up from 4th in 2010, rising it seems largely due to reforming its tax structure and reducing tax levels. It is worth noting that the Government of Canada is actively aiming to make Canada more competitive for business. Denmark, which was number one in 2010 slipped to 5th. It is interesting to note however that the Nordic countries generally do very well, with Sweden at 7, Norway at 8 and Finland at 13.

Singapore, which was top in the Doing Business ranking, comes in at 6. The UK is at 9, one position ahead of the US at 10.

It is not surprising to discover that countries in sub-Saharan Africa, on the whole, fare badly. Rwanda does quite well, coming in at 65. Mozambique does surprisingly well coming in at 77. Nigeria is at 101, Kenya at 103, Uganda at 107 and Tanzania at 108. Burundi is in the bottom three – 132 – with Zimbabwe at 133 and Chad last at 134.

The Forbes list does not get the widespread coverage of Doing Business but makes use of some factors, such as stock market performance, that might be expected to give some indication of business confidence in a country. Overall, it doesn’t really tell us any more than we get from Doing Business – except that governments need to make considerable effort if they want to make their countries good places in which to do business.

Doing Business 2012

The eagerly awaited Doing Business 2012, the latest in a long line of Doing Business reports, has just been published by the World Bank. The Bank reiterates its assertion that “enabling private sector growth and ensuring that people can participate in its benefits requires a regulatory environment where new entrants with drive and good ideas … can get started in business and where firms can invest and grow”.

Over the last year, the Bank says that 125 economies implemented 245 reforms affecting indicators measured by Doing Business. In sub-Saharan Africa, 36 of 46 governments improved their regulatory environment – which is extremely encouraging but also reflects their generally low rankings and need to take more action. Even more encouragingly, three of this year’s top ten reformers are African: Sao Tome e Principe, Cape Verde and Burundi. All are small, two are islands, but one is important as a constituent of the East African Community – and its neighbour, Rwanda, continues to impress, rising a further five places to 45th. Tanzania is at 127, down from 125, and Mozambique is at 139, down from 132, so they still have all to play for – and with the help of development partners such as DANIDA and DFID are trying hard to make a difference. The real need, I suspect, is for these governments to change the culture within government. Tanzania, for example, has worked hard to change the culture within its Ministries. It has one key reform that affects its DB rank: it has made it easier to get good through the ports. But too many government agencies are looking for new ways to extract money from businesses rather than making it easier for them to do business – and the consequence is that business leaders perceive that it is getting more difficult to do business in Tanzania.

Improving the enabling environment

All round the world, spurred on by the World Bank and its Doing Business reports, governments are looking for ways to make it easier for businesses to do business. There are a host of factors that comprise the so-called enabling environment (sometimes called the investment climate) including infasructure (power, roads, water, telecoms etc), access to finance, regulation and licensing, corruption, access to skilled labour, macro-economic factors such as inflation and interest rates and many more. In developed couuntries, we take many of these – such as reliable power or telecoms – for granted and complain about regulation and access to finance. These are both important in developing countries as well – but generally power and corruption are seen as the key barriers to business and the main deterrents to investment.

My objective in writing this blog s to draw attention to some of the problems that exist in places such as Tanzania, Kenya, Mozambique and Nigeria – and to encourage debate and discussion about what could be done to improve the enabling environment in those countries. I don’t imagine that I will have time to write something every day, but I hope that I might manage at least once a week, so please keep coming back – and please contribute.