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The Ease of Doing Business in a development context

Mwangi Karanja Partner, PwC Rwanda February 22, 2021

Armchair philosophers can prattle on for hours about the proper role of government and whether this policy or that policy will saddle us for generations with a bloated bureaucracy or a streamlined administrative machine. In my view, this debate completely misses the point: the business of government is to facilitate development that serves the greater good.

To facilitate development, governments need to ensure that regulations and requirements strike an appropriate balance between fairness, effectiveness and consistency. There are clear parallels between the rules and regulations influencing business development and socio-economic development overall. Clear requirements and straightforward compliance allows businesses and entrepreneurs to focus on innovation, problem-solving and employment - all factors contributing to development.

Total reading time: 4 min

Man making a phone call

In this region, we have witnessed more and more efforts to privatize certain activities that were previously the domain of governments. Whilst governments may not be quite as involved in our economies as they once were, now they are focused on facilitating development in a variety of ways. The World Bank’s Ease of Doing Business report is one way of comparing the effectiveness of this facilitation role, as it is understood and practiced by different governments worldwide. 

The report examines 11 areas of business regulation in five categories: opening a business, getting a location, accessing finance, dealing with day-to-day operations and operating in a secure business environment. Comparing the public policies that govern and influence these areas of business administration provides a useful context for comparing the overall ease of doing business in different countries.

The report is also a good benchmarking tool over time. Since its inception over 17 years ago, many governments have adjusted policies and passed reforms that have significantly improved their rankings. Rwanda, for example, has steadily climbed and maintained a high ranking for some time. Currently #2 in terms of the ease of doing business in Africa, Rwanda is also one of only two countries in Africa that feature amongst the top 50 globally. These high-ranking countries have implemented policies and reforms contributing to a business environment that is generally conducive to good growth.

Although it is not one of the World Bank’s five main categories, the ease of contracting with the government is also an important factor. Governments are buyers of private sector goods and services, and so the ‘ease of doing business’ in a particular country will also be influenced by the time it takes for the government to award a contract and honour the payment terms, and the cost of complying with the government’s requirements.

Young businesswoman looking at a smartphone

Security is another critical factor. A country’s government can improve and reform the policies and regulations influencing the ease of doing business, but if security in the region becomes problematic, then that overall ‘ease of doing business’ will not actually contribute much to development. Other factors like macroeconomic stability and the relative size of an economy also play a role.

Even so, the Ease of Doing Business rankings inspire many governments to act; some will work to improve their businesses processes and regulations in response to the rankings. Some will form working groups that report directly to the very highest levels of the government, since they have a vested interest in marketing their countries as good places to do business.

For any country working towards an economy and business environment conducive to development, some level of bureaucracy is necessary. Public policies and regulations need to be enforced and monitored, after all. To avoid the potential for unnecessary bureaucracy, however, governments should implement SMART regulations that are Streamlined, Meaningful, Adaptable, Relevant and Transparent. SMART regulations can help to grow economies and improve productivity.

There are various challenges to implementing SMART regulations. I would argue (from my armchair, but also from experience) that we are rarely bold enough! Just because a policy has been in place for five or ten years does not mean that it is cast in stone and can’t be changed. 

 

Another challenge is the potential for overly-protectionist policies that may intend to protect local people and businesses but in fact stymie competition in the global marketplace. Furthermore, regulations can be used to raise revenue in a very convoluted manner which impacts the ease of doing business and consequently development. SMART regulations, on the other hand, should free up more time for productivity, fair competition and economic development.

The COVID-19 pandemic has influenced government policymaking, primarily with regard to public health and economic recovery. Time will tell whether the pandemic has an impact on the policies and regulations influencing the ease of doing business, even though history demonstrates that SMART regulations and measured improvements help to deliver good growth and development consistently over time.

 

Contact us

Mwangi Karanja

Mwangi Karanja

Partner, PwC Rwanda

Tel: +250 (252) 588203/4/5/6

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