World Bank Press: "A Paradox for Poor Nations: Inventors Face Big Barriers Where Entrepreneurs Are Most Needed"

A Paradox for Poor Nations: Inventors Face Big Barriers Where Entrepreneurs Are Most Needed
World Bank Press

The World Bank has begun an annual survey cataloging the hazards of starting a business in 145 countries. It discovered that, in many poor nations, heavy regulation and red tape impede enterprise. It takes 153 days to start a business in Mozambique, for example, but two days in Canada. Enforcing a contract in Indonesia can cost more than the contract's actual value; doing the same in South Korea costs just 5.4 percent of a contract's value, reports The Wall Street Journal (05/09).

The Philippines exemplifies the World Bank's central finding, writes the business daily: Poor countries with the greatest need for entrepreneurs to speed growth and create jobs also put the most obstacles in their way. Corruption is a large part of why these bureaucratic logjams persist: The more roadblocks there are, the more opportunities for underpaid government officials to secure kickbacks. But there are other impediments to regulatory overhaul. The World Bank report noted that trade unions prevented Peru from reducing mandatory severance payments, while notaries in Croatia for years have stalled its efforts to simplify procedures to start businesses.

While many other Asian countries have produced successive generations of self-made business leaders since World War II, the people who dominate business and innovation in the Philippines are either foreigners or well-entrenched local business families, frequently led by ethnic-Chinese patriarchs such as beer-and-tobacco tycoon Lucio Tan. With the possible exception of Tony Tancaktiong, founder of the successful Jollibee Foods Corp. fast-food chain, a kind of Philippine McDonald's, few others have joined the country's wealthy elite in decades. The upshot is that the Philippine economy is unusually shallow in terms of vibrant home-grown commercial enterprises. Electronic components made there by foreign companies account for 70 percent of all exports, largely because there are few indigenous products to export except bananas, fish and furniture made from local timber. Former Trade Secretary Cesar Purisima, in an interview before his recent appointment as the Philippines' finance secretary, says the country's business culture is flawed. "Traditionally, Filipinos have sought high-paying jobs in banks and corporations rather than setting out on their own," Purisima says. "We have to try to change that and make it easier for entrepreneurs to emerge."

For the Philippines, excessive regulation and the banking system are two big obstacles to local entrepreneurship. The World Bank's business survey found it took 50 days to establish a new business in the Philippines at a cost of 20 percent of the country's average per capita gross national income. That compares with eight days and 1.2 percent of per capita income in Singapore and 33 days and 6.7 percent in Thailand. And banks here traditionally have been more reluctant to lend to up-and-coming entrepreneurs than banks elsewhere in Asia, economists say. In recent years, the country has also been slow to clean up nonperforming loans originating during Asia's financial crisis in 1997-98, further crimping banks' ability to lend to people who often have little more than their ideas to offer as security.