Institutional barriers to small scale business development
Institutional barriers for small businesses must be examined in an individual, country specific context. Studies have been conducted on several developing nations on barriers to the development of small businesses. There are several characteristics that are common among the different nations which prompt the barriers on business development. In Brazil, for instance, some of the barriers for operations and growth of companies include taxation and regulations followed by government policy instability and uncertainty (Campos, Nauro F. and Iootty, Mariana. Institutional barriers to firm entry and exit: Case-study evidence from the Bartliain textiles and electronics industries. 21 August, 2007. https://docs.google.com/viewer?url=http%3A%2F%2Fmulyagusdin.terapad.com%2Fresources%2F67269%2Fassets%2Fdocuments%2F101-Econ.Dev.%2520Readings%2F4_Institutions%2520and%2520entry%2520-%2520%2520exit%2520in%2520Brazil.pdf, retrieved 25 April, 2011.)” “In Tanzania, a mismatch is observed between economic policy reforms and restructuring of the institutional framework (Institutional Barriers to Small-Scale Business Development: A Need for Flexibility in Tanzanian Tax and Regulatory Systems. http://www.deepdyve.com/lp/sage/institutional-barriers-to-small-scale-business-development-a-need-for-dsrAMafxd9?autoClickRent=true, accessed 25 April, 2011.)” “Most developing countries can be characterized as ‘neo-patrimonial’ in the sense that much authority is highly personalized rather than rule-based and bureaucratic. This is extremely tricky for businesses because the presumed need for a fairly competitive and open ‘playing field’ field for business might conflict with the more personalized state-business relations that are found more often in a patrimonial state. (Hare, Paul G. Business Development in Four Developing Countries: Institutional Barriers and Supports. September 2006. https://docs.google.com/viewer?url=http%3A%2F%2Fwww.sml.hw.ac.uk%2Fecopgh%2FIPPG-DSA%2520Conf%2CNov2006.pdf, accessed 25 April, 2011. 5)”
The three hypotheses which point to the aspects of the development process which are oftentimes neglected or under-estimated, and which is also why policy advice is often too similar between countries and the reason behind why it often fails include the following:
· “The costs and complexity of doing business are often very high and discourages potential beneficial economic activity. Institutional arrangement which result in high costs are damaging to economic performance. Their diligence depends on the political-economic structures which are very slow to change.
· The lack of modern institutions to manage risk results in firms that remain too small and habitually informal, farms which are over-diversified and technically inefficient. The result is low incomes and low rates of income growth.
· Whether privatization proves to be beneficial for the economy or not depends on post-privatization ownership structures and on the quality of the regulatory and competitive environment in which the privatized firms find themselves in. (Hare, Paul G. Business Development in Four Developing Countries: Institutional Barriers and Supports. September 2006. https://docs.google.com/viewer?url=http%3A%2F%2Fwww.sml.hw.ac.uk%2Fecopgh%2FIPPG-DSA%2520Conf%2CNov2006.pdf, accessed 25 April, 2011. 5)”
In Mali, Compagnie Malienne pour le Developpement des Fibres Textiles (CMDT) works with many small farms concerned with cotton growing. Office du Niger (ODN) deals with farms that grow rice on irrigated land. “These are key economic activities in Mali and based on the studies of CMDT and ODN, Mali is comprised of ‘farms within firms’. (Hare, Paul G. Business Development in Four Developing Countries: Institutional Barriers and Supports. September 2006. https://docs.google.com/viewer?url=http%3A%2F%2Fwww.sml.hw.ac.uk%2Fecopgh%2FIPPG-DSA%2520Conf%2CNov2006.pdf, accessed 25 April, 2011. 7)” CMDT has a vertically integrated research-production-marketing structure which is considered a success. The usage of local extension agents to promote technology diffusion and the spread of best practice as well as the use of pricing schedules that rewarded farmers for sorting their cotton by quality is what contributes to this accomplishment. However the future of CMDT is a very politically sensitive issue as there are complaints that CMDT surpluses have not been useful to develop the infrastructure in the cotton-growing areas.
ODN initially worked in the same way as CMDT however over time the practice has changed. “They no longer maintain a vertically integrated monopoly in its operations, ODN maintains and develops the irrigation system and supplies water to farmers, but the latter no longer has to sell their rice to ODN for threshing, husking and marketing. (Hare, Paul G. Business Development in Four Developing Countries: Institutional Barriers and Supports. September 2006. https://docs.google.com/viewer?url=http%3A%2F%2Fwww.sml.hw.ac.uk%2Fecopgh%2FIPPG-DSA%2520Conf%2CNov2006.pdf, accessed 25 April, 2011. 7)” Other problems have risen as well including needing to diversify crops because the production of rice is insufficient to meet the needs of the farming families. Also, property rights to the land are not clear with ODN’s disinclination to cede individual farmers full rights. Leasing land to foreign companies was not successful. “ODN is considered to be highly corrupt. (Hare, Paul G. Business Development in Four Developing Countries: Institutional Barriers and Supports. September 2006. https://docs.google.com/viewer?url=http%3A%2F%2Fwww.sml.hw.ac.uk%2Fecopgh%2FIPPG-DSA%2520Conf%2CNov2006.pdf, accessed 25 April, 2011. 8)”
In Tanzania, in comparison to its neighboring East African countries (Kenya, Uganda and Sub-Saharan Africa average), companies are of the opinion that access to electricity, tax administration, business licensing and permits, and corruption are big constraints on their operations and growth. “Business licensing and permits were viewed as severe constraint by firms in Tanzania (27.4%), relative to firms in Kenya (15.2%), Uganda (10.1%) and the SSA average (13.7%). This finding is in line with Tanzania’s poor regulatory quality which shows that specific institutions which matter most for companies in their investment activities are particularly weak. (Hare, Paul G. Business Development in Four Developing Countries: Institutional Barriers and Supports. September 2006. https://docs.google.com/viewer?url=http%3A%2F%2Fwww.sml.hw.ac.uk%2Fecopgh%2FIPPG-DSA%2520Conf%2CNov2006.pdf, accessed 25 April, 2011. 8)”
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