The US may be the economic superpower, and China the new manufacturing powerhouse, but there is one industry in which Africa still leads the world: the manufacture of red tape.
This year’s edition of “Doing Business”, an annual report published by the World Bank, is a depressing but important reminder of what we already knew: poor countries tend to stifle their economies with impossibly burdensome regulations, while most rich countries let entrepreneurs start businesses, buy and sell property, and ship goods through customs. In Brazil, it takes 152 days to satisfy the authorities that you are fit to establish and register a legal business. That process takes just two days in Australia; and yet somehow, despite this indecent haste, the fabric of Australian society has not yet fallen apart.
There is every reason to believe that effective regulations are not merely a luxury that only the rich can afford, but an important foundation for a thriving private sector and economic growth. Fortunately, red tape need not last for ever. The report documents a flurry of reforms in unlikely sounding places, including Egypt, Kenya and Ghana. China and India, too, are streamlining their business regulations. But the broad pattern of the past five years has been that the main reform efforts are taking place in eastern Europe and in rich countries.
It is a shame that more governments in poor countries cannot find the time to snip a few strands of red tape. Workable regulations will not alone produce wealth, but they certainly help. And unlike building new roads or extending an electricity grid, simplifying regulations is cheap.
“Doing Business” publishes a ranking of the easiest and most difficult places in the world to do business. That serves the purpose, perhaps, of generating a little friendly competition: good rankings are often mentioned in investment promotion advertisements. But the rankings do not mean very much.
Far more important, and useful, are the underlying case studies that show would-be reformers exactly where the most tangled knots in the red tape are located, and how other countries in similar situations have managed to untie them.
This report serves as a reminder that one of the most compelling roles for the World Bank is to generate this sort of data, which is an expensive yet invaluable public good. It is also yet another prod to the bureaucrats of the world: if you can’t do anything useful, at least get out of the way.
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