Central Bank report: red tape hampers economic growth
PHILIPSBURG — Businesses perceive government more as a hurdle than a help in realizing their dreams of creating and running a successful business. That is the rather sad conclusion of a working paper published by the Central Bank, entitled Effect of Red Tape on Business and Economic Development by economic analysis and research specialist Reggie Martes.
For this Red Tape Survey, Martes received 775 completed surveys from companies: 440 from Curacao and 335 from St. Maarten.
The report expresses concerns about the economic development on both islands because real gross domestic product growth has been weak during the past decade; Curacao’s economy contracted by 2 percent and that of St. Maarten by 1 percent. At the same time, public debt is higher than 50 percent of GDP, while unemployment is in the double digits.
“Identifying and implementing reforms that reduce red tape can accelerate economic growth,” the report states. It identifies red tape as excessive rules and regulations and meaningless paperwork.
There is no specific research into the effect of red tape on the business community in St. Maarten but the survey offers a candid insight into what troubles our local entrepreneurs the most.
Businesses perceive the following issues as the most annoying: paying taxes, obtaining credit, getting electricity and dealing with construction permits. They also indicated that registering a business and obtaining a crib number takes too long.
To put this in perspective: according to the World Bank it takes 100 days to open a business in a poorly regulated environment. In St. Maarten this process takes 200 days which leads to the conclusion that the country’s regulatory environment is very poor.
Asked what puts the highest administrative burden on them, companies came up with the following top five: financial institutions, SZV, the tax inspectorate, the ministry of Tourism and Economic Affairs (regarding business and directors licenses) and GEBE (regarding electricity and water). Problems businesses encounter with financial institutions are opening an account, receiving financing approvals and high banking fees. The tax inspectorate hit the top five because dealing with wrong assessments and drafting objections are both time consuming and costly.
Companies spend between 20,000 and 50,000 guilders (roughly $11,000 to $28,000) a year and they spend between 6 and 10 hours a week to keep up with regulatory requirements.
Follow up and liaising with regulators and the monitoring of audit compliance put a lot of pressure on businesses. The main reason (according to responding businesses): the administration system of the government is not properly managed and includes time-consuming procedures. Businesses strongly agree with the statement that government legislation leads to much paperwork.
The survey asked respondents also for suggestions to improve the current situation. They consider web-based reporting as the best measure to reduce the administrative burden. Perceived hurdles in the current way of doing things are the amount of paperwork and having to submit the same information to different government agencies. Furthermore, the businesses say, it takes too long to obtain business and directors licenses, work permits, police records and to open a bank account.
Among the proposals are suggestions to make the labor laws more flexible, to speed up procedures to obtain work and residence permits and to renew permits for skilled foreign workers.
Businesses indicated that the cost of complying with regulatory government requirements has gone up between 2015 and 2019, and that compliance with all these rules has a negative impact on profitability, in particular in the restaurant and hotel sector.
Among the recommendations outlined in the report is simplification of tax procedures “because they are perceived as the worst red tape bottleneck for businesses.” The report also recommends to modernize labor and immigration laws. ”Simplification of procedures and lowering the cost of doing business are crucial to support economic growth,” the report concludes.
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