Small reforms make big sense

Small reforms make big sense

Issued by the APEC Secretariat

Hiroshima, Japan, 3 March 2010 – The number of days it takes to start a business can have a direct impact on economic growth, says the World Bank.

According to Yara Salem, Private Sector Development Specialist at the World Bank, simple streamlining of processes can have a dramatic impact on economic performance:

“On average, reducing business-related processes by ten days leads to a 0.4 percent economic growth. For some it is even more. For Singapore, reducing the cost of starting a business has increased economic growth by about one percent and for Peru by 2.57 percent.”

In addition, she says, making it easier to start a company can also have a positive impact on employment. She notes, as an example, the dramatic 28 percent increase in the number of businesses registered in Viet Nam following reforms in 2005.

Of course, economies should not stop at registration processes. The benefits of one-dimensional reform are easily undone. Salem specifies that to achieve enduring results demands coordination among institutions:

“You don’t want people just to register businesses. You also want them to pay taxes, protect workers and know about the services that exist to help them. You want to analyse the results and monitor them.”

Mexico is an excellent example of an economy that has created a synergy among agencies so that businesses can follow procedures at a “one-stop shop.” A reduction of red tape has led to a five percent increase in newly registered companies and employment growth of almost three percent.

According to Salem, the five most important things that economies can do to increase the ease of establishing a business are:

Provide one-stop shop service: reduce the number of offices a business must visit to establish itself legally.
Simplify registration formalities: make the process easier and make it purely administrative.
Introduce or improve online processes so that they are interlinked.
Simplify post-registration procedures at local levels.
Abolish minimum capital requirements.

Only five out of APEC’s 21 members maintain minimal capital requirements for starting a business and APEC economies account for five of the ten world economies in which it is easiest to start a business. These economies have standardised forms that are simple and in which answers are not subject to interpretation. Registration fees are fixed and there is a very simple publication requirement to announce the creation of new companies.

These topics were discussed by regional policy-makers and international experts at this week’s Ease of Doing Business Seminar, organised by the APEC Economic Committee.

As per the direction of APEC Leaders, economies are developing strategies for growth that is balanced, inclusive, sustainable and knowledge-based. Specifically, they aim to create conditions that are conducive to business and which, by extension, lead to increased employment and economic growth. Trade facilitation is one of APEC’s fundamental goals and APEC economies continue to address barriers to trade, including the time, cost and frustration associated with starting and operating a business.

ENDS

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