Cote d'Ivoire : private sector
            dynamics and constraints
Private sector assessments provide
            information and analysis essential to formulating strategies
            for alleviating constraints on private sector development.
            They are meant to contribute both to the Bank's policy
            dialogue with borrowing governments and to the formulation
            of country assistance strategies. The authors examine the
            constraints on growth faced by private enterprises and how
            these relate to the policy and institutional environment in
            Cote d'Ivoire. They employ new data sources as well as
            surveys of, and in-depth interviews with, private
            entrepreneurs. They focus on: the effects of taxes and labor
            regulation on private firms; the impact of public spending
            on private sector development; and the role of informality
            in enterprise activity. Following are some of their
            findings. Tax policy and enforcement impose a heavy
            financial burden on a shrinking base of formal enterprises,
            whose regulatory burden has also grown. Taxes are
            increasingly independent of a firm's profits. This
            substantial fixed cost may lead some businesses to exit
            prematurely and may discourage others from formal entry. The
            overall tax burden on small and medium-size enterprises has
            risen disproportionately, to levels that discourage formal
            participation in the economy. Informal firms pay some taxes,
            but there is considerable leakage in collection. Unnecessary
            rigidities in labor policies weigh less heavily than
            expected on firms, because they avoid their full costs
            through such means as subcontracting and apprenticeships.
            The restrictions nonetheless limit firms' flexibility
            of operation and ability to reward merit. In the 1980s,
            public spending increasingly channeled limited financial
            resources and human capital toward nondevelopment purposes,
            including poorly performing enterprises and elite-oriented
            services, precluding their use in the private sector. The
            methods of financing public spending (such as withholding
            taxes and accumulating arrears) have sharply curtailed the
            capital available to private enterprises. The public
            sector's dramatic accumulation of arrears and growing
            reputation as a bad customer are undermining the competitive
            private supply of goods and services to the government.
            Government employment policies attract many of the most
            qualified potential entrepreneurs and business professionals
            to government employment. Rather than a sharp divide, there
            is a continuum between small informal and large formal
            firms. Some medium-size and large formal firms engage in
            informal behavior, and large firms sometimes lower their
            costs through links with informal firms - including
            purchases of inputs that have escaped regulation and taxes.