Simplifying business registration and licensing to boost enterprise growth in Africa
July 01, 2016
Starting a business can be a cumbersome, lengthy and often expensive process. Many countries’ business registration processes involve bureaucratic systems which often rely on manual procedures. These lengthy processes can gradually hinder and discourage entrepreneurs from opening a business.
When entrepreneurs have a business idea they need to be able to quickly register and get the necessary licensing in order to start operations and generate an income. Bureaucratic procedures and costly registration processes can discourage entrepreneurs from starting up their businesses as they already need to bear the costs of setting up their business activities. Countries need to simplify their registration and licensing procedures if they are to encourage business growth.
The 2016 World Bank Doing Business Report states that there are various advantages for entrepreneurs who formalise their companies as these businesses tend to have greater profits, investments and productivity, while their employees benefit from security and other legal protections. A formally registered business is legitimate, has access to credit, and is able to hire employees in accordance to state laws. Government also
benefits as more companies enter the tax base and provide additional tax revenue for social and economic development.
However, around the world entrepreneurs continue to face excessive burdens in formalising their businesses, including bureaucracy and complex procedures. According to the 2016 World Bank Doing Business Report, in more than half of the economies it surveyed, formal registration of a company is such a complicated process that entrepreneurs often have to use the services of a third party, such as a notary. This results in an additional cost burden for entrepreneurs trying to enter the formal business sector. These complexities create an environment for businesses to operate illegally.
Businesses therefore need a simple, transparent, efficient and cost effect way of formalising their enterprises. Governments need to modernise business registration and licensing systems by using technology to re-engineer, simplify and automate processes and procedures. Electronic systems that are available online will enable entrepreneurs to submit company registration applications, make payments and receive registration certificates quickly and cost effectively. This will make the process more appealing to entrepreneurs.
African entrepreneurs and business owners will reap huge benefits from effective registration and licensing procedures as they will have more time to spend on their core business activities, rather than spending valuable time on obtaining the correct credentials for their business. Business owners will also be able to assure third parties that they are operating under the laws as set out by their business license.
ICF has been intervening and supporting African governments to create simplified electronic business registration and licensing systems. These interventions have taken place in Cape Verde, Burkina Faso, Mauritius, Liberia, Mozambique, Sierra Leone, Tanzania and Rwanda.
As business registration and licensing is the legal entry point for any business to start operating, it is vital that countries make this entry point as simple and accessible as possible. Effective systems will consequently open the door to private sector growth and increase the number of new businesses in a country as entrepreneurs are motivated and encouraged to legalise their enterprises.