To develop, the private sector requires a legal and regulatory environment that fosters business and is backed by strong institutions with effective monitoring and enforcement powers. In such an environment, informal enterprises become formal; formal enterprises expand and employ more people; tax payments are affordable; property rights are respected, and lenders accept these properties as collateral; innovation picks up, spurred by inventions that can be patented and protected legally; and once the law protects investments against arbitrary expropriation, entrepreneurs have greater access to capital. When business entry, property registration, trading, and tax payments are simplified and streamlined, businesses have more incentives to invest, expand, create jobs, and respect the rules.

Countries with heavy regulations of business entry, on the other hand, have higher levels of corruption and informal economic activities. Over the past few years, African countries have adopted an increasing number of reforms seeking to transform the legal and regulatory environment and encourage competition, free trade, and FDI. Yet the business climate in the region still remains less attractive than in others parts of the world. The reform momentum therefore needs to be intensified and focus on an appropriate policy framework: transparent legal, regulatory, and administrative institutions.