B.E. Assessment

Gaining momentum: The state of regulatory best practice in Africa, SBP, 2003

    Description
    REGULATORY BEST PRACTICE (RBP) captures the idea that the regulatory environment should be as favourable as possible for trade and investment. Recent research has shown that an appropriate regulatory and institutional environment is the single most important component of a country's economic growth strategy. Government's role must be to create an environment that is good for all business, from large corporations to small and medium enterprises, by ensuring that inappropriate legislation, regulations, and administrative requirements do not inhibit growth, or prevent markets from operating effectively.

    Summary of results
    The degree of commitment to RBP on the part of the 12 countries studied varies enormously. In every case, there is some sort of understanding that growth is desirable, and that this has to be driven by the private sector. However, making this happen requires giving attention to appropriate regulation.

    In several cases, the message has not got across. But even where it has, there is a long, hard road between accepting the idea and achieving full implementation. No country had advanced very far down this path, although Uganda's achievements thus far are laudable.

    A major problem is that there are temptations in the policy world that can lead a country off the path to RBP. As a primary concern, poverty alleviation often leads to one such dead end. Policy-makers all too often think the solution to poverty is to give public goods to the poor. Of course, when destitution becomes life-threatening, such hand-outs are essential. But the sustainable solution is to make it possible for the poor to get into the market, either as entrepreneurs or employees.

    This means that the barriers to starting and growing businesses have to be lowered - and the barriers that are easiest to deal with, and produce the most dramatic returns, are the laws and regulations erected by the state itself. It is the poverty and low capacities found in Africa that seem to render this route less than obvious in the eyes of policymakers.

    They need to remove their blinkers. Poor regulation leads to investor uncertainty. This happens because many regulatory frameworks demand official administrative capacity beyond what is available. The result is a combination of patchy implementation and noncompliance. Potential investors are simply not sure about where they and important associates such as indigenous suppliers and financial institutions stand. It becomes much more complicated to do business. It also opens avenues for potential corruption.

    So, paradoxically, the urge to regulate widely in order to make potential investors feel more secure ends up undermining that very sense of certainty. This can be avoided by implementing the RBP idea of matching regulation to government capacity. Governments should not attempt to implement a heavier regulatory system than their officials can deal with.

    Sustained political will is needed if RBP is to be achieved in Africa, and help facilitate economic growth. The commitment to RBP is often too weak, as can be seen in several of the countries studied, where other demands assumed priority: political issues in Zambia, Malawi and Swaziland, the pre-election civil service pay hikes in Ghana, and the political importance of public bureaucracies in all countries. One can sympathise with political leaders who simply have far less leeway in the low-resource environments of African politics.

    But this should not allow RBP concerns to be pushed into the background. In this regard, the title to this paper contains a message of hope. Progress is uneven - but RBP in Africa does seem to be gaining momentum.