Granting industrial licences

Studies of Brazil, Egypt, India, Indonesia, Mexico, Pakistan and Spain indicate that industrial licensing involves unexpected costs but delivers few of the expected benefits. The systems are often too complex and implemented ad hoc. For example, in Spain, government agencies developed economic criteria for the granting of licences, but were unable to implement them on a systematic basis. This created uncertainty among investors. In some countries the licensing process can take six months or longer, and even then the applicant may fail. Investment is discouraged, and research suffers because there is little assurance that firms will receive licences to turn plans for new products into reality. Licensing usually favours large firms over small, although very small firms often lie outside the licensing system altogether. Large firms tend to be better informed and can allocate more resources to deal with the licensing system. Where multiple applications are permitted, large firms have been known to preempt the entire capacity available through licensing. In some countries the authorities have attempted to promote competition by licensing several small firms. But in industries where economies of scale are important, investment in firms of less than optimal size has merely fostered inefficiency. Another drawback is that countries need to commit manpower to administer their licensing system. This carries a high price, particularly in African economies where skilled manpower is scarce. Furthermore, industrial licensing can engender corruption, especially when the interpretation of rules is left to the discretion of a few officials.