NCPA - National Center for Policy Analysis

Regulation in East Africa

April 12, 2002

Important economic reforms in East Africa -- Kenya, Tanzania and Uganda -- during the late 1980s and early 1990s have failed to deliver the private sector growth and increased employment expected. Researchers say that is because regulatory policies and administrative procedures hamper private sector development. Many of these problems stem from the command and control bureaucracies of the colonial period.

According to researchers:

  • A Tanzanian bank was expected to submit 285 tax returns during the course of a year, while a hotel was required to submit more than 454 documents to various government agencies.
  • In Uganda, a 1998 private sector survey revealed that, on average, 15 percent of management time was consumed by regulatory compliance activity, with some firms reporting as much as 40 percent.
  • Trade licensing in Kenya became so onerous that it was described in 1997 as the "single greatest deterrent to entry into and growth of business in the private sector in Kenya."
  • Ugandan tax administration is costly due to the frequent number of tax audits to which businesses are subjected: during 1995-97, the Uganda Revenue Authority audited 68 percent of all formal businesses -- some several times in one year.
  • In an economy plagued by bureaucratic delays, over 80 percent of firms in Uganda pay bribes to get things done faster -- and bribery has an adverse effect on firm growth more than three times greater than that of taxation.

Studies have shown that in Africa, far fewer small businesses grow to medium-sized businesses than in developed countries. Yet, as in developed countries, it is small business growth that the East African nations are relying upon most heavily to deliver increased job opportunities and economic prosperity.

Source: Fiona Macculloch, "Government Administrative Burdens on SMEs in East Africa: Reviewing Issues and Actions," Economic Affairs, June 2001, Institute of Economic Affairs.

 

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