Regulation is often seen as a barrier or burden on business. However, the right regulation or innovative regulation can actually serve as an important source of economic competitiveness. In my previous article, I discussed the importance of an ecosystem-based approach and mentioned the role of regulatory quality and jurisdictional innovation.
Effective regulation is not simply a base requirement of a successful economy. It can also be a competitive advantage if a country’s regulatory regimes are easier to navigate; if the regimes better manage the balance between social, environmental, and economic interests; or if the country is more flexible than its competitors at setting the rules for new innovations and business models.
For a country like Rwanda that is on a journey to establish itself as a leading economic hub, regulatory and jurisdictional innovation will be key in establishing new economic sectors. Malta, a small island in the Mediterranean and member of the European Union, has been successful over the past years in using its jurisdiction to establish new sectors which today employ thousands and contribute significantly to its GDP.
The financial services sector is the most obvious example. Today, Malta has a robust financial jurisdiction that has attracted a diversity of players in sectors such as banking, insurance, trusts, funds and pension schemes. Central to this was to establish innovative structures and laws especially in the areas of pension funds, alternative investment funds and insurance. The sector remains a key contributor to economic activity.
Asset registration such as the ship register, aviation and yachts are also prime examples of jurisdictional innovation. Today, Malta continues to have one of the largest ship registers in the world and its aircraft register has already attracted some of the world’s largest players.
Tied to this is a competitive tax regime which constitutes various advantages for assets registered in Malta. Hand in hand, one finds an innovative special purpose vehicle that was designed purposely to hold assets.
Remote gaming is yet another successful sector which was built on Malta’s use of regulation. Today the sector continues to grow and represents 12% of gross value added. As the first EU country to license online gaming, Malta can now look back at almost two decades of uninterrupted growth in this sector with a fast-developing gaming ecosystem. Africa is seen as the next continent to experience an online gaming boom opening up the need for regulatory hubs.
Even if we look at the manufacturing sector, primarily the pharmaceutical industry, it is Malta’s regulatory structure that has given birth to this important sector. In fact, pharmaceutical companies set-up shop in Malta to take advantage of the country’s legal framework that allows the development of generic drugs in advanced patent-expiry, known as the Bolar Exemption. The jurisdictional innovation allowed firms in Malta to conduct research and trials on drugs before the patent expired and this has given Malta a unique competitive advantage.
These are all success stories of economic sectors that are primarily based on regulatory frameworks.
In looking at the role of regulatory environments in stimulating economic growth, there are five dimensions that are important to keep in mind; these being: design, relevance, overlap, burden and enforcement. These dimensions are critical for undertaking regulatory reform and benchmarking exercises which are important when trying to determine a country’s competitiveness of its regulatory setup.
Going forward, I would like to stress on seven recommendations in relation to regulatory reform; authorities should leverage new technologies for regulatory design and review, increased collection and publication of data on regulatory performance as well as evaluation of all regulations on a rigorous cost-benefit analysis.
Further all regulations should include a pre-determined review mechanism, greater harmonisation and co-creation of regulations and greater adoption of regulatory sandboxes.
Regulatory regimes that unlock the economic potential of new technologies should be a priority.
It is critical for a country like Rwanda to harness the power of jurisdictional innovation and to build economic sectors on innovative regulations and laws.
The writer is a co-founding partner of Seed, a research-driven consultancy firm based in Malta, Europe.
jp@seedconsultancy.com