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SMEs - regulation in Africa

The question is always raised as to whether or not developing countries are over-regulated or not. The World Bank Doing Business Report in particular assesses these aspects of these African countries and the general consensus is that they are over-regulated.

There are essentially two problems here however. The first is whether over-regulation is a bad thing. I am no expert on the USA, but it is my understanding that it is a very highly regulated environment, and also extremely complex in that it can vary dramatically from city to city and state to state. So then, is the African problem that itis over-regulated? I think the observation is being misinterpreted and the problem is not in fact over-regulation (a generalisation) but rather a case of the governments being inept and unable to manage the regulatory environment they have created.

This leads to the second problem. South Africa is a good example. Since independence in 1994, the ANC government has introduced many new laws. Many of these are in fact extremely advanced in their thinking, but South Africa does not have ability to enforce the regulations. A classic example is the smoking legislation. While as a non-smoker I fully endorse the legislation, they have absolutely no chance of this legislation succeeding as they do not have the capacity, in all respects, to implement and enforce this legislation. They same holds true for a number of these new laws.

South Africa has legislation that is extremely advanced, and often ahead of many leading developed countries. However, their ineptitude and inability to manage their own legislation leads to a complete disrespect for the rule of law. This is because that as business sees new legislation arriving they initially see the pro's and con's and decide if it presents an opportunity or a threat. However, once nothing arises from its passage through Parliament, it soon becomes obvious that it is simply just another law on the books, and the impact will be nil. And so the disrespect for the legal system develops into a Western style free for all.

So perhaps these African countries are not over-regulated, but are rather under-managed. It is not about passing sophisticated legislation, but rather about enforcing the legislation that exists.

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SMEs and entrepreneurs in Africa
By Dr. Rob Smorfitt

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Have an MBA and a PhD in entrepreneurship. Three key areas of ongoing research are entrepreneurship and innovation in large business strategy, the impact of legislation on SME development and SME finance. Run my own SME blog at as well as an entrepreneurship and innovation for large businesses blog at I have been self-employed since 1982. I have started or purchased in excess of 50 businesses since then. Most were sold again and a few were shut down because of a lack of profitability. Many were run by staff or family while I worked full time in my bigger businesses. Author of 6 books. Written articles for various magazines, newspapers and websites. Experienced in research within developing countries.
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