Developing Economies Need to Make it Easy to Register Businesses During this Pandemic
In many developing countries, a large portion of the businesses and organizations are not formally registered and are considered a part of the informal sector. In some countries, as much as 60% of organizations are “informal” (Madichie, Nkamnebe, and Ekanem, 2020). These informal organizations make up significant portions of the world’s poorest economies, and include non-profits and associations focused on socially responsible initiatives. Their “informal” statuses, however, impede them from applying to many COVID-19 grants and relief funding offered by institutions such as the United Nations and the World Bank. So, why don’t they just register their businesses?
These organizations are not lazy, nor do they lack organizational skills. Instead, they exist in countries that have extremely lengthy and costly procedures to start businesses and register organizations. For example, in Eritrea, it takes on average 84 days to register a business, it takes 54 days in Namibia, and 173 days in Laos. In contrast, it takes much less time in developed countries such as the US (4 days), Canada (2 days), and Denmark (4 days) (World Bank, 2020). Registering businesses are not just lengthy procedures but can also be very costly in developing countries. For example, the costs of registering a business can cost up to 35% of the GNI per capita in the Central African Republic (World Bank, 2020). Therefore, many nascent organizations may not have the time nor the resources to formally register their organizations, and thus operate as members of their respective countries’ informal sector. As previously mentioned, however, this informal status impedes these organizations from applying and receiving resources and grants from institutions willing to grant pandemic-related relief.
This is especially problematic because not only are the world’s poorest economies also the most vulnerable to the detrimental effects of pandemic shocks, but also because many people in these poor economies rely on “informal” associations and non-profits to aid in health care and food supply. Personally, I have seen the impact of informal organizations in one of the world’s least developed countries, and I can only imagine how difficult it must be for members of these organizations to achieve their missions during the COVID-19 pandemic. So, what should be done?
First, the governments of the world’s least developed countries should formally register as many informal organizations as possible. This can be done by implementing emergency-style registration centers for businesses and organizations seeking to contribute to the COVID-19 relief. Second, grant-providing organizations and organizations seeking to aid in relief funds should relax requirements about the formal statuses of organizations seeking grants. By relaxing these regulations during this global pandemic, not only would organizations working “informally” be able to better contribute to solutions for the crisis for the world’s least developed economies, but it would also incentivize social entrepreneurs who may have aspirations to contribute to these solutions to organize and start associations and non-profits that may bring about innovations and solutions.
Formally registering organizations in developing economies during this pandemic may not only bring aid to the world’s poorest populations in the short term, but also may spark long term growth in economies that seek development. Many economists find that entrepreneurship and growth in small businesses can be used as engines of economic growth and development (Acs, Desai, and Hessels, 2008). The world’s least developed economies may not only seek pandemic relief in the short run, but also seek economic advancements and growth in the long run. Therefore, making it easy for organizations to formally register during this pandemic can only aid in the short and the long term. Perhaps now is the time to really encourage entrepreneurship in developing economies by making it easy to start a business or organization.
References
Acs, Z. J., Desai, S., & Hessels, J. (2008). Entrepreneurship, economic development and institutions. Small business economics, 31(3), 219-234.
Madichie, N., Nkamnebe, A.D., and Ekanem, I.U. (2020). Marketing in the Informal Economy: An Entrepreneurial Perspective and Research Agenda. In: Nwankwo, S., & Gbadamosi, A. (Eds.) Entrepreneurship Marketing: Principles and Practice of SME Marketing, 2nd Edition. London: Routledge.
World Bank (2020). Start-up procedures to register a business (number). https://data.worldbank.org/indicator/IC.REG.PROC
World Bank (2020). Time required to start a business (days). Retrieved from: https://data.worldbank.org/indicator/IC.REG.DURS
World Bank (2020). Cost of business start-up procedures (% of GNI per capita) https://data.worldbank.prg/indicator/IC.REG.COST.PC.ZS