| Summary: | The importance of a good regulatory and institutional environment for business creation and growth is well established. Good regulations and a level playing field are particularly important to maximize opportunities for private investment in small island states like Sao Tome and Principe, which tends to be constrained by the lack of economies of scale and distance to markets. Burdensome regulations can hamper the competitiveness of export-oriented sectors, which are essential for Sao Tome and Principe's sustainable growth and job creation. Moreover, sectors that depend on natural or cultural assets, such as tourism, require good quality regulations and planning to protect those assets. Improving the regulatory environment is an important factor, together with better skills, connectivity, and infrastructure, to strengthen the competitiveness of Sao Tome and Principe's economy. Accurate data on the size and composition of the private sector in Sao Tome and Principe is lacking, but existing information shows that it is dominated by microenterprises in commerce and services. The ongoing enterprise survey will provide insights on the characteristics and main challenges of Sao Tome and Principe's firms, while an updated business census, which is planned with support from the World Bank, will give a broader view of the private sector. Data from the National Statistics Institute (INE) shows that there are only 14 companies with more than 100 employees, including the utilities and transport sector SOEs, and 80 percent of firms for which data is available have less than five employees. Most firms are concentrated in the commerce, construction, and tourism sectors. While additional analysis will be necessary to identify the factors contributing to the small size and sophistication of SaoTome and Principe's firms, the regulatory environment may be among them as it affects entry and operating costs, access to finance, and ability to resolve commercial disputes
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