Download the file - United Nations Rule of Law

tion is inadequate or the roads are largely impassable,that too is an additional cost. And all thesecosts are effective barriers to exit from the informaleconomy, because they make all other costs,including legal costs, that much more onerous.Below is an elaboration of implications for thosecurrently doing business informally.Legal, Regulatory, and AdministrativeBarriersRegulatory barriers comprise inappropriate orrigid requirements and stem from a governmentpolicymaking environment that normally wishesto have a total control either for a political or socio-economicagenda. Many developing countriesare emerging from a history of heavy-handedregulation, with approvals required for even thesmallest activity, and authority overly centralisedand inflexible. This means they are hampered bythe legacy of a heavily regulated economy and acommand and control approach to administrationand enforcement. Poor quality law-making overthe years has created a tangle of complex andinconsistent laws that present a daunting regulatoryhurdle to the would-be formal enterprise. Assuch, the regulatory systems of these countriesare not well developed to support a flourishingmarket economy that will create growth andformal jobs. A study 56 carried out in 2002 foundthat the costs and barriers imposed by regulationin developing countries are not only higherthan they were in the developed world when itembarked on industrialisation, but are higher insome cases than in the advanced countries today.Taking business entry costs as a proxy for allregulatory costs, the report suggested that thesecosts in Africa (94%), in relation to GDP percapita, are much higher than those in other partsof the world — Central Europe (67%), IndustrialSouth Asia (19.80%), and for many advancedcountries (3%).The World Bank study on doing business usingindicators such as those in FIgure 3, 57 establishedclearly the correlation between the ease of doingbusiness and the size of the informal economy.Two methods were used to produce the ranking —one involved averaging out a country’s performanceacross the indicators, and the other used the rawvalues of indicators. Both regressions showed thatthere is a statistically significant correlation betweena country’s overall performance on the DoingBusiness indicators and the size of its informalFigure 3 Regulatory Burdens Impacting on Informal Enterprises (World Bank, 2005)Starting a BusinessNumber of ProceduresTime (days)CostMinimum CapitalRegistering PropertyNumber of ProceduresTimeCostHiring and Firing of WorkersDiffi culty of hiringRigidity of hoursDiffi culty of fi ringRigidity of employmentFiring costsGetting CreditCost to create collateralLegal rights of borrowers and lendersCredit informationPublic registry coveragePrivate bureau coverage223