EXECUTIVE SUMMARY

							             REGULATION FOR ENTERPRISE DEVELOPMENT AND
                   REGULATORY IMPACT ASSESSMENT

                     by Colin Kirkpatrick and Jenifer Piesse

CONTENTS:

Executive Summary

1.   ENTERPRISE   DEVELOPMENT             AND    THE     ENABLING      BUSINESS
     ENVIRONMENT:

     1.1    Private Sector Development
     1.2    An Enabling Business Environment
     1.3    Encouraging Business Enterprise within the Context of Good
            Governance
     1.4    Market Failure and the Enabling Business Environment
     1.5    Market Failure and Government Policy
     1.6    Is an Enabling Business Environment also a Sustainable Development
            Environment?
     1.7    Summing Up

2.   THE REGULATORY ENVIRONMENT

     2.1    Defining Regulation
     2.2    Regulatory Reform and the Enabling Business Environment

3.   REGULATORY IMPACT ASSESSMENT (RIA)

     3.1    Overview
     3.2    What is Regulatory Impact Assessment (RIA)?
     3.3    Estimating the Costs, Benefits and Risks of Regulation
     3.4    Assessing the Impact of Regulation on the Business Environment
     3.5    Summing Up
EXECUTIVE SUMMARY

In market economies, the private sector is the predominant source of economic activity.
Much of the investment, human capital and knowledge which drives economic growth is
sourced in the private sector and private enterprises are the major providers of
employment, incomes and essential goods and services. The private sector can also
provide expanding opportunities for poor people whether through self-employment in
microenterprises or as employees in small and medium businesses.

Well functioning markets are needed if the private sector’s role in generating growth and
incomes is to be sustained. But markets often fail to function well if left to themselves,
and public intervention may be required when markets fail to deliver economically
efficient outputs of goods and services. Intervention may also be needed if the markets
generate an outcome that is inconsistent with broader goals of social justice or
environmental sustainability.

Governments in most developing countries now recognise the private sector as the
main engine of economic growth, and acknowledge the need to focus public policy on a
narrow set of core functions which enable the markets to function efficiently and
contribute effectively to the goals of environmental sustainability and social welfare.

The purpose of public policy towards the private sector, therefore, should be to create
the conditions which will enable private enterprises to contribute to the country’s
development goals of economic growth, improved social conditions and environmental
protection. Regulation is the means by which government attempts to affect private
sector behaviour. The design of regulation policies is both complex and challenging for
decision-makers, for the following reasons. First, regulation can give rise to both
benefits (gains) and costs (losses) for different groups, and across time. Second, the
positive and negative impacts are not confined to the economic effects, but also include
social and environmental gains and losses resulting from the regulatory policy. Third,
the empirical evidence on which to base the potential or actual impact of a particular
regulatory measure is frequently weak or absent.

This introduction has made the following points:

   the private sector is the key driver of economic growth

   the role of government is to ensure that markets contribute fully to the nation’s
    development goals. Where markets are imperfect, or do not meet the needs of
    sustainable development, government regulation may be required
   the private sector’s development will also have impacts on economic growth, social
    conditions and environmental sustainability

   regulation will alter the economic, social and environmental effects of the private
    sector’s development. These impacts can be negative and positive.

The remaining sections of this Application Guidance Note discuss the following issues:

Section 1 explains what is meant by an ‘enabling business environment’ and why this is
a necessary condition for enterprise development and private sector growth. This
section also discusses what government can do to support and strengthen an enabling
environment for business development.

Section 2 explains what is meant by ‘regulation’ and how the ‘regulatory environment’
relates to the enabling business environment.

Section 3 explains what is meant by ‘regulatory impact assessment’ (RIA), and
discusses how RIA can be used by decision-makers to decide on whether regulation is
‘good’ or ‘bad’, or could be made ‘better’.