Red tape blocking the path to prosperity


Each country has its own national set of business regulations, which stipulate how companies should operate within the national borders. Some of these regulations are incorporated into the legal system from the private sector, where good practices defined certain codes of conduct; some are defined by state legislators and some by supranational authorities. The third source of business regulation is steadily increasing its importance because of the EU integration process – three Balkan countries are EU members (Greece, Bulgaria and Macedonia), the other four are official candidate countries (Macedonia, Montenegro, Serbia, Albania). Bosnia and Herzegovina is a potential candidate. During the negotiation process, candidate countries will have to implement EU business regulations into their own legal system.  The Freedom Barometer Index takes into account several different aspects of business regulation:
1.    Administrative requirements
2.    Bureaucracy costs
3.    Starting a business 
4.    Extra payments
5.    Licensing restrictions
6.    Costs of tax compliance
The overall level of regulation varies significantly among the Balkan countries, with the average mark of 5, 8. Serbia, Croatia and Bosnia have the heaviest regulatory burden while Macedonia holds the best regional score. This is mostly consistent with other sources describing business environment, most notably World Bank’s Doing Business Report.
 
Albania    B&H    Croatia    Montenegro    Serbia    Greece    Bulgaria    Macedonia       
5.78        5.43    5.43        6.05              5.08        5.99        5.77         6.84     

Why is business regulation important?


Business regulations set the rules how companies should perform in their tasks. If they are excessive this can incur heavy costs on businesses, the same as taxes but without any fiscal gains. These costs can hamper business growth, and if high enough, even result in high levels of shadow economy in order to evade them. Business regulation can also prevent opening of new businesses, through licensing or standard meeting requirements, thus serving as barriers to entry.
The Balkan countries show that regulatory the burden of their economies is high and that major improvements in this area should be undertaken. The main problems in the regulatory environments are administrative requirements where all the countries show much lower scores. The three top performers here are Albania, Macedonia and Montenegro, while all the other countries have a high administrative regulatory burden. Greece, Croatia and Serbia have particularly burdened their businesses.  
 
Albania    B&H    Croatia    Montenegro    Serbia    Greece    Bulgaria    Macedonia       
5.18        3.7      2.22        4.87              2.28        2.03        3.28         4.25     


Another problem is the level of bureaucracy cost. Inefficient and obsolete bureaucracy depletes public resources which could have been used better in different settings, but also poses obstacles to businesses.   
What steps should be taken?
Economic growth is much needed in the whole region. Bearing in mind the fiscal difficulties in which most of the Balkan countries are due to challenges in putting public spending under control which would lead to decreasing taxes, growth friendly policy could be obtained by lowering the administrative cost of businesses. Cutting the red tape would generate a more business friendly environment, which is more important to local SME sectors than the large multinational companies. 
The EU integration would prove crucial in this sector for the non-EU countries. During the process, national regulations should be altered in order to adopt European standards. The business regulation among the EU countries has been slowly increasing over the years, worsening the regulatory environment. At the same time, EU countries regulatory environment is mostly still better than the one in the Balkans (compare the marks for Germany 3.97 Austria 3.79 Denmark 4.01 or Estonia 5.48). Therefore, even though EU regulations have its downside it could still be considered an improvement for most Balkan countries.