Bureaucracy and over-reliance on oil revenues hinder small business

Outdated and poorly implemented rules and regulations, coupled with an over-reliance on income from oil and diamonds, are hampering the development of small and medium businesses in Angola, causing slow growth and stagnant employment as the country tries to recover from decades of civil war. According to the World Bank survey, 'Doing Business in 2006: Creating Jobs', which measured the time and cost of various government requirements for business, Angola ranks a poor 135th out of 155 countries in terms of business regulations and reforms. "Angola is very bureaucratic - its laws are outdated and are not made for life nowadays," said Rita Ramalho, an economist with the World Bank's Monitoring, Analysis and Policy Unit on Private Sector Development, during a weeklong visit in the capital, Luanda, to talk to local businesspeople and disseminate the survey results. The study, which focused on small-scale enterprises, revealed that Angola was the worst place in the world to get a micro-enterprise off the ground, mainly because the costs involved are beyond the means of most ordinary citizens. Entrepreneurs would have to fork out more than $6,000 to set up shop - around six times the gross national product per capita - and plough through 14 cumbersome procedures in a start-up process that takes five months on average. The seemingly endless bureaucratic hurdles, which continued even after the business had started trading, were forcing many prospective businesspeople to earn a crust in the informal market where they paid no taxes, leaving the government with less to spend on social services. Noting that many of Angola's laws were pre-1975, when the country was ruled by former colonial power Portugal, Ramalho said a lack of resources and organisation were deterring potential trade. "In most cases we are dealing with old laws, but then the way they are implemented is not the most efficient, and there are also technical reasons, such as the lack of an electronic system to register property," Ramalho commented, pointing to the paper-based system for property registration, which is causing a massive backlog in a process that can take more than a year. There appears to be little incentive for the government to make life easier for the small-to-medium business sector while it continues to garner much of its revenue from oil, an industry inhabited by huge multi-national corporations. Angola is sub-Saharan Africa's second largest producer of 'black gold', churning out around 1.3 million barrels per day, which is expected to rise to more than two million barrels per day by 2008. "Oil is a good thing for the country of, course, because it provides income, but on the other side, because there is this wealthy sector, the government can always get money out of that without having to think about the small and medium sector, [which is seen] as less important and is less promoted," Ramalho commented. Diamonds and oil were "such big sectors here - it makes sense that these are the government's biggest focus - but it should be thinking of other things too; there are other things that could be great sources of income and revenue," she added. The existence of so many barriers to business meant Angola was failing to take advantage of a key sector for driving future growth. According to the survey, countries that had moved from the bottom of the rankings to the top, in terms of business efficiency, could increase their economic growth rate by over two percent per year and also create jobs. "This type of bureaucracy is bad for everyone, but it is worse for the small- and medium-sized companies, and these are the motor [engine] of growth and development in general," Ramalho remarked. Red tape and inefficiency were impacting the economic health of the nation, choking investment and channelling smaller companies into the informal sector. "If you simplify regulations you will get more companies joining the formal sector, and the consumer, the employees, the government - everybody - wins. The consumer because he has [access to] a better quality of goods ... the worker because he will have security and social benefits ... and the government would win, too, because there would be more companies from which they could collect taxes," Ramalho explained. The cost involved in implementing the current complicated regulations could be better spent on roads, healthcare and the education systems that Angola so desperately needs, she noted. While Ramalho stressed that the World Bank was not trying to dictate what the government of Angola should do, she hoped the authorities would look at the research and try to simplify business procedures. "There's a huge potential upside. A lot of people live at a very low level of income - providing opportunities for those people would improve their lives," she said. "Decreased poverty would have a big effect".