3 Reasons Why Ease of Doing Business in a Country is Important

Opinion17.01.2017
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With the growing number of small-and-medium enterprises in the region, ease of doing business plays a crucial role in the region’s economic growth. While ease of doing business has implications for foreign direct investments, local businesses too are impacted by the processes, rules, and regulations set up by governments that can help promote a business-friendly environment or hold local businesses back from their entrepreneurial ambitions. It goes without saying that when systems, processes, rules and regulations are business-friendly, setting up businesses is made easier for not just big companies but also smaller ones that have less capital and resources at their disposal.  In creating an open and fair economic environment, ease of doing business can benefit businesses and local citizens in the following way:

Access to economic opportunities

While big businesses often find it easier to set up shop and deal with the bureaucracy of setting up a business, smaller companies and startups rely on systems that are easily accessible and reliable to set up their businesses. This includes dealing with things like construction permits, getting electricity, registering property, getting credit, paying taxes, trading across borders, enforcing contracts, resolving insolvency, and protecting minority investors. For larger corporations and businesses that have access to the means and personnel, or third party agencies to process all the paperwork, payments, registrations, etc, this usually takes place quickly and without much of a hassle. However, with small and medium enterprises, the more red tape that exists can often result in obstacles that ultimately prevent them from moving ahead with their businesses in a timely manner or discourage individuals from pursuing businesses in their local economies.

Lower transactions costs

Transactions costs form a major part of setting up shop for small and medium sized businesses. It is usually the case that bigger corporations are able to take on the transactions costs of setting up their businesses whether through their own financial resources or access to outside financial capital. Having fewer steps in the process of setting up a business along with less bureaucracy and red tape can help small and medium sized businesses manage their financial resources and credit. It also gives them the opportunity to better manage their finances and allocations for their post-setup operations and the running of their actual businesses.

Less Corruption

Countries with more stringent regulatory environments for setting up businesses and entrepreneurship often experience greater forms of corruption.  For one, if the requirements of setting up a business are overtly burdensome for smaller entrepreneurs or businesses, they often turn to the informal sector to run their operations. This often has less protection for labor conditions, is more vulnerable to economic shocks, and often provides corruption loopholes that end up adding to the costs of doing businesses for them.  On the other hand, with more steps and processes to go through, official systems and channels can also face vulnerability to corruption. Therefore, simplifying the set up process for small and medium enterprises can greatly benefit both the government as well as the economic environment.

Evidently, it is important for local governments to consider their economic environments alongside the processes and regulations set up for businesses. While Asia and the Pacific region faired ok in the latest World Bank Doing Business Report , with the current political environment in the region it is hoped that local governments remain open to creating a flexible and open economic environment for their citizens and outside parties interested in investing in the region.