THE World Bank’s much-watched ranking of how easy it is do business in a country is much debated, and while on its own admission it leaves out many policy areas, only the most hard-nosed of cynics would discount its usefulness for individual—and regional—economies.
The institution has over the years softly back-pedalled from its pure free markets ‘Washington Consensus” prescription to now push for nuanced government intervention, holding that the state has the critical responsibility of protecting the weak and keeping order in the market through efficient regulation.
Its latest ranking of 189 economies, noting the criticisms of the annual list that was first put out in 2006, introduces a number of tweaks, but also puts up a spirited fight for its broader methodology, arguing that a deeper reading of the numbers helps stimulate debate, increase accountability and shape reforms.
Mail & Guardian Africa holds no position on the debate, but notes that strong governance and regulation, access to credit, and infrastructure, all measured in one way or another in the ranking, are important for Africa’s inclusive growth and that making it easier to trade is as important as the major macroeconomic policies such as fiscal and monetary interventions.
The 2015 Ease of Doing Business rankings show major gains for sub-Saharan Africa, including having half of the global top 10 improvers in 2013/2014, and the greatest number of regulatory reforms—75 of the 230 counted.
Hearteningly, the World Bank observers that the world is now an easier place to do business in, with 80% of the economies surveyed having improved overall. It uses various indicators for the rankings, including capturing how easy it is to adjudicate a contract debate between two medium sized firms to how long—and cumbersome —it takes to connect electricity to a warehouse, or even register that warehouse in the first instance.
Some of the notable changes in this survey include a new key measure known as the Distance to Frontier score, a measure of the distance from either the best performing economy on that indicator, or a theoretical best possible score.
In our typical fashion, we take a close look at some of the top-level, and deeper, findings:
1—Mauritius is the top ranked African nation, at 28th position. One needs only 6 days and five procedures to start a business, and only four documents to export a standard container. Only eight tax payments are needed in a year, placing it in the top 15 countries globally on this indicator and making it attractive to investors.
Eritrea, the lowest ranked African nation, requires 84 days and 13 procedures to start a business, and 10 documents and 50 days to export the same container.
2—Star performer Rwanda is third at 46th position after South Africa (43), having made big strides in improving its business environment over the last 10 years. Such reforms, the survey notes, have resulted in cost savings to the private sector valued at $5 million, investments worth $45 million, and created about 15,000 jobs. It now takes 6.5 days to start a limited liability company in Rwanda, from 18 days in 2006.
3—The continent’s largest economy, Nigeria, is ranked 170th, behind much smaller economies such as Burkina Faso, Burundi, Madagascar and Benin. The data refutes that the size—and therefore the perceived complexity— of the economy is not a factor, noting that while eight of the 11 economies with a population of over 100 million people made at least one reform, only 18 of 34 economies with a population of less than one million did so.
4—The bottom six countries are all African—Eritrea, Libya, Central African Republic (CAR), South Sudan, Chad and Democratic Republic of Congo. The region also accounts for 11 of the bottom 15 countries globally, adding Angola, Guinea-Bissau, Congo Republic, Mauritania and Liberia to this count.
However, sub-Saharan Africa accounted for the largest number of regulatory reforms, with 39 countries reducing red tape and cost, while 36 strengthened legal institutions. Overall, Benin, Togo, Cote d’Ivoire, Senegal and DR Congo made up half of the top 10 most improved reformers. Last year, only Cote d’Ivoire made this list.
5—Despite complaints over the slow pace of integration in Africa, the survey notes that some of the main changes were inspired by transnational initiatives. The Council of Ministers of the Organisation for the Harmonisation of Business Law in Africa (OHADA) revised a key law, making it easier for businesses in member states to pay less capital into a bank (paid-in minimum) before starting up. Some countries such as Sao Tome and Principe, did away completely with this need for minimum capital requirement for business entities, while firms do not need to obtain a commercial licence anymore.
6—The importance of energy to Africa’s business remains the major drawback to its growth, leading to major international attention, as shown by Barack Obama’s billion-dollar Power Africa plan. However African countries have not been idling by; Rwanda has made increasing the electrification rate a government priority, and its utility company waived all fees for completing a new connection. This, the survey noted, provides a major incentive to seek an official connection and encourages new business ventures. Malawi also notably engaged sub-contractors for connections, reducing the time to complete work by a significant 50 days. It still however takes 118 days to get a connection in Libya, and 135 in Congo-Brazzaville.
7—Sub-Saharan Africa accounted for the highest number of property registration reforms—a major incentive for investment and wealth creation. Cote d’Ivoire for example brought in a single process for tax and property listing and lowered tax, while Senegal also cut out taxation red tape, including a single step for property transfer at the land registry. Sierra Leone fast-tracked its procedure for property registration.
8—Tanzania, Algeria, Ghana, Benin, Cote d’Ivoire and Morocco made big leaps in facilitating cross border trade, from investing in port infrastructure to increase efficiency in the former’s case to simplifying customs procedures for the others. There is however still a long way to go—only 10% of Africa’s trade is with itself, compared to 40% in North America, and about 60% in western Europe.
9—Sub-Saharan Africa countries however made the highest reforms in improving credit information systems, including the DRC and Tanzania, which both established new credit reporting agencies. Cape Verde, Cameroon, Cote d’Ivoire, Kenya and Senegal all significantly strengthened regulation in this area, which is of key concern to small and medium-sized businesses, the biggest employers in developing countries.
10—Africa was also the setting of the most far-reaching changes in protecting minority investor rights, with The Council of Ministers of the Organisation for the Harmonisation of Business Law in Africa (OHADA) simultaneously updating the law in its 17 member countries, providing for among other things, requirements for directors to disclose conflicts of interest, and for shareholders to inspect related-party transactions. Reforms in this ares help deepen capital markets and by extension increase investor confidence.
11—Star performer Mauritius made contract enforcement—and thus doing business— much easier by introducing electronic filings, while South Africa reorganised its court system regarding monetary claims. Benin and Seychelles also made big steps in this area, including setting up established commercial courts. But the continent overall showed startling variations—Tunisia had the highest number of limitations to freedom of contract, while the DRC, surprisingly, had the least of the 34 economies surveyed.
12—Sub-Saharan Africa rivalled the OECD countries in reforms making it easier to resolve insolvency, including Mozambique and the Seychelles. Uganda also strengthened the role of liquidators. Having strong bankruptcy laws makes it easier for both the entrepreneur and creditor to predict risk, with a positive effect for the loan market, while studies have shown that going bust is actually necessary—and even beneficial—for economic growth, despite being most entrepreneurs biggest fear.
13—While the average total tax rate—counting profit, labour and other taxes such as VAT—in sub-Saharan Africa was the highest globally, at 53.4% of a firm’s commercial profit, the region has also over the years had the highest reduction, with a drop of about 17 percentage points since 2004, creating a major incentive for businesses and a boon for the Africa Rising narrative.
14—The survey also notes that contrary to the perception that in Africa you need to grease a few palms to get your business moving, corruption does not accelerate policy implementation or efficiency. Citing a recent 2014 study, firms confronted with demands for bribes wait about 1.5 times as long for a construction permit or electricity connection as by-the-book firms, and 1.4 times as long to import. In other words it often pays to follow the law in Africa.