NCPA - National Center for Policy Analysis


May 11, 2005

In developing countries, ordinary people face great obstacles establishing small businesses and becoming entrepreneurs, says the World Bank. Often, they are unable to find funding or they are smothered by the bureaucratic hassles of establishing an enterprise. Their forgotten fate illustrates how the poorest countries are often the ones where it is hardest to get a new concept or product to market.

The World Bank's annual survey catalogues the hazards of starting a business in 145 countries and found in many poor nations heavy regulation and red tape impedes enterprise. Consider:

  • In Mozambique, it takes 153 days to start a business but only two days in Canada.
  • Enforcing a contract in Indonesia can cost more than the contract's actual value but doing the same in South Korea costs just 5.4 percent of a contract's value.
  • It took 50 days to establish a new business in the Philippines at a cost of 20 percent of the country's average per capita gross national income, compared with eight days and 1.2 percent of per capita income in Singapore and 33 days and 6.7 percent in Thailand.

The World Bank's central finding indicates how poor countries with the greatest need for entrepreneurs to speed growth and create jobs also put the most obstacles in their way.

Corruption is a large part of why these bureaucratic logjams persist: The more roadblocks there are, the more opportunities for underpaid government officials to secure kickbacks.

But there are other impediments to regulatory overhaul. For example, the World Bank notes that trade unions prevented Peru from reducing mandatory severance payments, while for years, notaries in Croatia have stalled its efforts to simplify procedures to start businesses.

Source: James Hookway, "A Paradox for Poor Nations," Wall Street Journal, May 9, 2005; and "Doing Business in 2005: Removing Obstacles to Growth," World Bank, September 2004, Oxford University Press.

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