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Business

Cutting Through the Red Tape

The World Bank's "Doing Business in 2005" report on business practices and bureaucracy shows many countries, Germany included, are stifling growth and enterprise by wrapping simple procedures in masses of red tape.

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Paperwork and red tape hinders economic growth, says the report

The World Bank's report, “Doing Business in 2005: Removing Obstacles to Growth,” looked at the levels of bureaucracy businesses face in 145 countries. The report showed which countries have the least red-tape and where it's easiest to become an entrepreneur.

This is the second year the World Bank has issued rankings on business environment indicators: More than 3,000 local experts investigated practices in 145 nations, asking whether it was easy or difficult to start a small or medium-size business and whether administrations made it hard to hire and fire.

Among the other things compared were hiring and firing practices, how easy it was to register property, the ease of contract enforcement, and -- for the first time in 2003 -- the property registration process and to what extent investors were protected.

Of the industrial countries, New Zealand, Australia and Norway came out on top. But where was Germany, a country famed throughout the world for doing things by the book?

German procedures take twice as long

It takes a businessman in Finland three simple procedures and two weeks to turn his idea into a company. German competitors, however, have to spend 45 days wading through nine procedures, twice as long as the world average. That kind of bureaucratic hassle meant Germany wasn't among the top twenty.

Gabi Beermeister, a young woman who runs a small kiosk in Berlin, told DW-WORLD German bureaucracy was getting worse.

"Selling bread rolls, cigarettes and sweets required a special catering permit, so I applied to the health authorities," she said. "But they asked for so many things -- architect drawings of the business premises, a permit from the building authorities, letters of approval from banks… I simply gave up."

German government claims successes

Wirtschaftsminister Wolfgang Clement zu Emissionshandel

Wolfgang Clement.

Although Germany ranked only slightly better than mediocre in the "Doing Business in 2005" report, Germany’s Minister of Commerce Wolfgang Clement told the Handelsblatt newspaper that the report didn’t do Germany justice. He pointed out 2003 reforms, like the "Hours of Trading Act", which simplified trade guild rules and improved workplace regulations.

Meanwhile, the German Ministry of Justice has been searching the German law books for unnecessary regulations in a bid to streamline procedures. Two hundred laws and by-laws need to be abolished, found the ministry.

Bureaucratic countries pay a high price

An easy business climate has many benefits, Michael Klein told DW-WORLD. He believes that the easier it is to start a new company, the higher the chances of reducing unemployment and spurring the economy.

"We find that 25 percent of the countries that have the most complicated and bureaucratic regulations tend to grow roughly 2 percent less per year than the countries that have easy and well-structured regulations," Klein said.

This knowledge has certainly prompted many European nations, not just Germany, to tackle reform. "Most of the reform-stimulus has come from the EU," said Klein. "The accession countries felt they should improve their business environment, Slovakia ahead of all of them. But also within the EU, a number of countries -- Spain, Portugal, Finland and Belgium -- have improved business regulations."

Move to Botswana?

The "Doing Business in 2005" report follows the standard World Bank line: economic liberalization and the opening of local markets comes with large payoffs. As proof of that, Michael Klein pointed to Turkey and France, both of which saw new business registration increase by 18 percent after the governments reduced the time and cost of starting a business.

In the end, the report does, indirectly, offer a solution to German businessmen and women interested in a business friendly investment climate: they should move… to Botswana.

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