_L. Fox and A.M. Oviedo_ _Institutions and Labor Market Outcomes in Africa_ shows a lower percent of firms growing.<sup>15</sup> This may represent some type of structural shift, possibly related to regulation. According to the _Doing Business_ report of 2006, Africa was a top reformer, owing to the number of regulatory reforms introduced. As is common throughout the world, small and young firms are growing much faster than large firms, but even large firms are expanding at over 10 percent on average (Table 4).<sup>16</sup> There seems to be no difference in employment growth between exporters and non-exporters, and firms in Francophone countries are growing slightly faster than in Anglophone.

# INSERT TABLES 4-5

Where does SSA stand in terms of regulation? According to the _Doing Business_ (DB) indicators, not very well (even after introducing major reforms earlier in the decade). An overview of the DB scores is presented in Table 5 for Anglophone and Francophone countries. This reveals that overall regulation and labor regulation is more stringent in Francophone countries, although both groups have quite poor scores (high scores) when compared to the rest of the world.<sup>17</sup> In virtually all categories (entry, licensing, registration, labor, contracts, trade, taxation, access to finance, investor protection, bankruptcy), the Anglophone group’s rank stands ahead of the Francophone group’s. For instance, in the labor regulation category, the Anglophone group has better scores in hiring, rigidity of hours, and has lower non-wage labor costs. Furthermore, even though the actual firing costs (in terms of weeks of wages) are higher in Anglophone countries the overall firing index is lower (that is, firing is less difficult legally).<sup>18</sup>

# INSERT TABLES 5-6

At a first glance, the stringent EPL and overall high level of business regulations in SSA countries do not seem to be stifling employment growth. Table 6 shows the average employment growth by country together with two DB indicators: labor market regulation and the overall regulation ranking. Countries are sorted according to the overall ranking, from best to worst. As we can easily note, there seems to be no pattern between employment growth and the regulation ranking of the country.

Firms agree that EPL is not an important obstacle to growth. The surveys measure firms’ perceptions of the business environment (Figure 2). Although there is a potential endogeneity problem (i.e., these firms are the survivors of the regulatory environment), what firms report hinders them the most is not the regulatory environment, but limitations in infrastructure, access and cost of finance, and government behavior (corruption).<sup>19</sup> Labor regulations rank lowest relative to all other constraints according to firms.<sup>20</sup> Even more important, the ranking of

> 15 There may also have been a difference in the sampling strategies in the two years.  Although the sampling strategies are supposed to be the same, in Uganda, we find important differences in the distribution of firms by sector in the two samples.

> 16 Aterido and Hallward-Driemeier (2008) analyze employment growth in a large cross section of countries around the world.

> 17 The DB score shows the ordinal ranking of the country relative to all other countries where DB data are collected and analyzed. As they are ordinal scores, a country could undertake a major reform, yet not see much change it its DB score because other countries with similar scores are also reforming. This may be happening in Africa.

> 18 For methodological details, see <u>www.doingbusiness.org.</u>

> 19 Note that some dimensions of _Doing Business_ , such as poor contract enforcement, show up to the entrepreneur as an increased risk, and hence the lender may raise the cost of finance.

> 20 This is also found in South Africa by Habyarimana (2008).

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