The keys to boosting private sector confidence

Major political upheavals may create a financial downturn, but many are followed by a quick rebound.

A key factor in determining which rebound sharply and which do not is business confidence. Confidence is what asset prices are built on, why transactions are made, and what creates demand. The challenge now will be restoring that confidence. The government has made it clear that they endorse a market-driven economic strategy that puts the private investment at the center. With that in place there are three simple ways to begin the process: embrace efficient regulation, engage in structured dialogue with the private sector, and use the power of the private sector to address the country’s social and economic challenges.

The foundation of business confidence is trust between people, government and business. Some question if the private sector can be trusted to care for air quality, consumer safety and serving poor communities. The task of ensuring that public interests are taken into account falls to regulation.

One of the best ways to restore trust is by introducing effective regulations that reduce the cost and time required to comply while increasing the certainty of the process, including enforcement. In the best case scenario these are “win-win”, protecting the environment, for example, while stoking competition and allowing good firms to thrive.

An area that requires this kind of approach is border control, where there is a clear public interest in preventing illegal or dangerous goods from entering the country and a private interest in a fast process. Nations that regulate borders badly tend to inspect every container, causing delays, damaging shipments, and creating a strong incentive for non-transparent procedures.

But it need not be that way. The government of Morocco uses information technology to identify cargo that poses the most risk and, as a result, it inspects only 5 to 10 percent of shipments. This has increased the detection rate of bad cargo, thus protecting the public interest, while making trade faster and firms more competitive. Like many countries, Tunisia has reformed scores of laws, and supported them with regulations.

But it also had a stock of obsolete regulation. Based on a decree by the prime minister, Tunisia’s finance ministry has created a high-level technical committee along with working groups in all departments to look at 500 formalities and eliminate those that are unnecessary, ineffective, not based on law, or redundant. It will have this job done by next March, creating a much more competitive environment, something that is vital for the prosperity of a new Tunisia.