Photo: Hanna Rhodin
By Hanna Rhodin
There is a long history of a bustling merchant culture in Kuwait. Since the 18th century, the country has been known for trade: whether in exchanging goods with India, boat-building, or its pearling industry. Wealth has come to be associated with certain families within the country, thanks to their past success in business that, in some cases, dates back generations. Today these families continue to dominate the private sector. However, according to the official statistics, nearly 85 percent of the Kuwaiti population is still employed by the government. While the last decade has showed a surge in entrepreneurial initiatives, roadblocks and barriers remain.
By Hanna Rhodin
How do you go about starting a business when you lack the education or financial means? The answers often depend on the region, country, or city you live in. In early 2015 I traveled to Beira, Mozambique to volunteer with Care for Life, an NGO working with a holistic approach to assisting families in low-income communities. Part of this approach was to enable individuals to take charge of their own livelihood by establishing a small family business. This included their work with starting associations and mutual businesses — the latter being a 10-step process which many do not know how to undertake.
Registering a business should not take more than a few weeks (or, in more developed countries, a few days), yet during the two months I was working with these associations the process proved to take longer than that. For various reasons, several did not complete it and were still working on it as I completed my time there.
With reports showing a steady increase of the level of informality in Albania and recent World Bank reports that Albania’s informal sector is estimated to make up as much as 40 to 50 percent of the country’s economy, the issue of informality is integral to Albania’s development. Now especially, as the European Union has granted Albania conditional EU candidate status. The gesture indicates both a challenge and an opportunity – formal accession negotiations will not begin until Albania addresses several key priorities, particularly reforming the country’s finances and reducing corruption.
Over the last decade, the number of businesses around the world operating in the shadows has grown. Men and women who stand at cash registers and add up their profits at the end of the day are increasingly doing so outside the jurisdiction of the state. Profits derived from the informal economy represent a significant share of the global economy, both in terms of currency and workforce labor, accounting for between 25 and 40 percent of annual output.
In developing countries with large informal sectors, thousands of entrepreneurs are locked out of the formal legal economy by a maze of regulations, burdensome procedures, high tax rates, and other barriers. These entrepreneurs can neither thrive personally nor contribute to their economy. Further, these entrepreneurs, and their employees alike, lack legal protection, access to credit, and have no legal ground to push back against corruption.
Thus the concerted effort to reduce informality has taken a front and center role in Albania. Recognizing how the informal sector is a breeding ground for corruption, one of the country’s leading think tanks, the Albanian Center for Economic Research (ACER), began working on the issue with a group of reform-minded business organizations.
Photo: BBC / AFP
This post is continuation of a previous article on regional integration in Africa.
Reducing tariffs is a great start for increasing trade within Africa, but important non-tariff barriers (NTBs) must also be reduced in order to boost trade both within and outside of the continent. In fact, the United Nations Economic Commission for Africa found the costs of NTBs in 2010 were higher than the costs of tariffs. The African Development Bank notes that, “while tariffs have progressively fallen, the key challenge to intra-African trade is non-tariff barriers that stifle the movement of goods, services and people across borders.”
What sort of non-tariff barriers exist in Africa? Infrastructure across the continent is poor, discouraging the movement of goods and people. Less than a quarter of roads are paved, and those are often filled with potholes. It’s not uncommon for airfare with a layover in Europe or Asia to be cheaper than direct intra-continental flights. Meanwhile, seaports are crumbling and rail connection is paltry.
“Thick borders” are also an issue, created by burdensome administrative procedures for clearing goods for import and export. Lines of trucks at the border lead to waits measured in days due to excessive bureaucratic red tape and burdensome administrative procedures. A report by Transparency International (TI) and TradeMark East Africa (TMEA) found that drivers at Rwanda-Tanzania customs stations spent an average of 72 hours obtaining customs clearance. World Bank economist Paul Brenton found that a truck serving supermarkets across a Southern Africa border may need to carry up to 1600 documents to comply with different countries’ requirements for permits, licenses, and other required paperwork.
Photo: Wikimedia Commons
The high level of economic development in Poland today is often accredited to the rapid implementation of liberal free market policies, or “shock therapy”, in the immediate aftermath of the collapse of Communism in Poland.
The architect behind economic shock therapy was the former Minister of Finance and Deputy Premier of Poland Leszek Balcerowicz, who earlier this year was invited by Ukraine’s President Poroshenko to design a similar economic reform policy for Ukraine, implying that Ukraine could emulate the success story of Poland.
However, Poland’s positive transition does not provide a comprehensive blueprint for Ukraine, as other social and institutional factors were imperative in ensuring the economic growth of Poland.
Real estate investors are attracted to the United States because its strong legal system protects their investment and because of the easy availability of accurate information. (Photo: Wikimedia Commons)
I recently participated in George Washington University’s 2015 Global Real Estate Conference in New York. Having been invited to share CIPE’s work developing the International Property Markets Scorecard at the International Real Estate Federation’s (FIABCI-USA) annual meeting, which dove-tailed with the conference, I took the opportunity to educate myself on the current happenings in the real estate field and see how CIPE’s work might resonate with the professionals most connected to international investment in property.
Headliners at the conference included international representatives from such prominent companies as Morgan Stanley, CBRE, Knight Frank, and Cushman & Wakefield. Mostly I learned a great deal of “inside baseball” language and can now boast a broader vocabulary, but there was another theme that kept coming up. Whether talking about mitigating risk, conducting valuation of property, or trying to determining capitalization rates, it all came down to the need for reliable information and a stable environment that allows for confident investing.
A public-private dialogue session with Senegalese President Macky Sall.
The private sector is a key actor in efforts to promote economic growth, reform the business climate, and strengthen democratic policymaking worldwide. Businesses possess the know-how to analyze economic conditions and identify obstacles and opportunities for growth, while governments have the means to pass business-friendly legislation.
From a democratic point of view, a vibrant private sector contribution to dialogue expands participation in policymaking and civic engagement in governance, improves the quality of business representation, and supplements the performance of democratic institutions.
The latest case study from the forthcoming publication Strategies for Policy Reform discusses CIPE’s experience assisting the advancement of policy dialogue in Senegal that supports market-oriented reforms and private sector development.
As Senegal’s largest, most representative and well-organized business association, l’Union Nationale des Commerçants et Industriels du Senegal (UNACOIS) has played a key role in the country’s policymaking process by engaging the government in public private dialogue. At regional and cross-regional dialogue sessions jointly organized by UNACOIS and CIPE, UNACOIS members identified the nation’s complex tax code and high tax rates for SME operators as a major cause of informality in the SME sector. With CIPE support, UNACOIS developed an evidence-based policy paper on tax reform, held public-private dialogue meetings with relevant stakeholders, and presented these recommendations to government officials.
Read about UNACOIS’s successes in reforming the Senegalese Tax Code, establishing a mechanism for regular, ongoing public-private dialogue, and reducing informality here.
Teodora Mihaylova is Research Coordinator at CIPE.