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Doing Business in Africa: Regional Overview

Mary Agboli, Operations OfficerInvestment Climate, PEP Africa

May 22, 2006

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Doing Business Indicators

Doing Business 2006 is third in a series of annual reports investigating the regulations that enhance business activity and those that constrain it

•Regulation of Entry •Labor Regulations• Contract Enforcement• Credit Markets

• Credit information• Collateral

• Bankruptcy

• Corporate Governance• Property registration

•Updates of ‘04 topics

• Business Licensing • Taxation• Trade Infrastructure

• Transport• Customs • Standards

•Updates of ‘04 and ‘05

2004 2005 2006

Products: Report, academic papers, country summaries, website databasewww.doingbusiness.org

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In 2006, three indicators were added to further analyze economic outcomes and identify what reforms have worked, where and why

What is new this year?

Three new indicators: Dealing with licenses: reducing the cost and hassle of obtaining licenses

keeps more businesses in the formal economy, which may improve safety Paying Taxes: burdensome taxes generate undesirable outcomes, such as

corruption Trading across borders: countries with more efficient customs and trade

transport (fewer documentation and signatures) export and import more

Focus is on creating jobs as this is a priority for most countries. In Africa, jobs in the formal sector is a priority.

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How the Indicators are derived

The methodology: time and motion study

1. Follow the entrepreneur from the beginning to the end of a basic transaction

2. Record every step of the process, and the associated time and cost

3. Gather all the relevant laws, regulations, decrees, fee schedules

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Starting a business in Mozambique 2005

1. Obtain certification of unique name2. Open a provisional bank account3. Incorporate through public deed4. Register provisionally with the Commercial Registry5. Publish articles in official gazette6. Final commercial registration7. Apply for operation license8. Inspection from Ministry of Health9. Inspection from Fire department10. Declare activity at tax department11. Register for VAT12. Declare activity at Employment center13. Register with Social Security14. Subscribe worker’s compensation insurance

Source: Doing Business database Procedures

Tim

e (N

umbe

r of

day

s)Cost (%

of GN

I per capita)

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Improvement in Starting a Business in Mozambique

0

20

40

60

80

100

120

140

160

180

1 2 3 4 5 6 7 8 9 10 11 12 13 14Procedures

Source: Doing Business database

Time reduced from 153 days to 113

2005

2006

Procedures reduced from 14 to 13

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Time to start a business (in days)

35 35 38 46 54

95108

146 153

192

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Starting a business: some best practices and reforms

• Single access point for businessesMakes start-up on twice as fast

• Standardized articles of incorporation Facilitates document processing at registry and prevents errors

• Simplify license requirements

•Eliminate the mandatory publication in the Official Gazette

Colombia, Nicaragua, Turkey,Belgium

Slovakia, Singapore, Sweden,Norway

Honduras (temporary license),Mexico (SARE), Peru

Ethiopia, Germany,Serbia and Montenegro,

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Top 30 economies on the ease of doing business

High ranking countries have created a regulatory environment conducive to the operations of business. All the top countries regulate businesses but do so in less costly and burdensome ways.

1. New Zealand2. Singapore3. United States4. Canada5. Norway6. Australia7. Hong Kong, China8. Denmark9. United Kingdom10. Japan11. Ireland12. Iceland13. Finland14. Sweden15. Lithuania

16. Estonia17. Switzerland18. Belgium19. Germany20. Thailand21. Malaysia22. Puerto Rico23. Mauritius24. Netherlands25. Chile26. Latvia27. Korea28. South Africa29. Israel30. Spain

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Bottom 30 economies on the ease of doing business

155. Congo, Dem. Rep154. Burkina Faso153. Central African Republic152. Chad151. Sudan150. Niger149. Togo148. Congo, Rep.147. Lao PDR146. Mali145. Cote d’Ivoire144. Guinea143. Burundi142. Timor-Leste141. Egypt

140. Tanzania139. Rwanda138. Uzbekistan137. Eritrea136. Sierra Leone135. Angola134. Haiti133. Cambodia132. Senegal131. Madagascar130. Cameroon129. Benin128. Algeria127. Mauritania126. Zimbabwe

Entrepreneurs face more regulatory obstacles in Africa than in any other region.

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Top reformers in 2004-2005

CountryStarting

a business

Dealing with

Licenses

Hiring and

FiringRegistering Property

Getting Credit

Protecting Investors

Paying Taxes

Trading acroos borders

Enforcing contracts

Closing a business

Serbia √ √ √ √ √ √ √ √Georgia √ √ √ √ √Vietnam √ √ √ √ √Slovakia √ √ √ √Germany √ √ √ √Egypt √ √ √ √Finland √ √ √ √

Romania √ √ √ √Latvia √ √ √ √

Pakistan √ √ √ √Rwanda √ √ √

Netherlands √ √ √

Reforms affecting Doing Business indicators on: Reforms affecting Doing Business indicators on:

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Why reform?

Improving the investment climate can lead to more employment. How much more?

7.6%

5.7%

3.7%Reforms to reach the

top quartile of countries could cut 3.7

percentage points off unemployment

Implied rate after cut

Bottom quartile

Top quartile

Ease of Doing Business indicator

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Economic Growth

Better investment climate can contribute to economic growth.

1.0%

2.6%

+ 2.2%Reforms to reach the top quartile of

countries would add 2.2 percentage

points annual growth

Actual Growth 1994-2004 Bottom

quartileTop

quartile

Ease of Doing Business indicator

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Informality causes firms to remain small and create few jobs. Unlocking this can reduce poverty

Informality

32.3%

18.9%

9.1%Reforms to reach the

top quartile of countries could cut 9 percentage points off the share of informal sector as a % of GDP

Implied rate after cut

Bottom quartile

Top quartile

Ease of Doing Business indicator

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Africa can do more..

Africa has the lowest reform intensity

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8

OECD high income

South Asia

East Asia & Pacific

Latin America &Carribean

Middle East & NorthAfrica

Sub-Saharan Africa

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Taxes are highest in Africa

0.0% 10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

East Asia & Pacific

Middle East & North Africa

South Asia

OECD high income

Eastern Europe & Central Asia

Latin America & Caribbean

Sub-Saharan Africa

World

Corporate income tax

VAT or Sales tax

0ther taxes

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Who is reforming?

• Rwanda - a top reformer - abolished mandatory pre-shipment inspections and created specialized court chambers for business and tax matters, reducing court delays.

• Mozambique cut the property transfer tax from 10 to 2.4% of the property value, the largest cost reduction in the world.

• Kenya and Mauritius improved credit information sharing by amending their banking acts. This makes it easier for lenders to evaluate creditworthiness.

• In Mauritania, the Nouakchott port now operates around the clock, compared with only 60 hours a week previously.

• Burundi introduced a new summary procedure for debt recovery and allowed private bailiffs to operate, reducing delays in the courts.

There are some success stories in Sub-Saharan Africa

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Not all reforms are business friendly

• Madagascar increased the minimum capital requirement for starting a new business to $5,350, or 25 times the average annual income.

• Kenya added a procedure for paying stamp duty.

• Chad increased notary fees, transfer and registration taxes to raise total cost of registering property from an already steep 17% to 22% of the property value.

Some reforms have made it harder to do business.

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Stimulating reforms

Doing Business can be used to generate reforms

• Simpler business entry in Brazil, Bulgaria, El Salvador, Ethiopia, Indonesia, Peru, Serbia and Montenegro, Yemen

• Faster court enforcement in Jordan, Serbia and Montenegro

• New credit registries in Afghanistan, Chengdu (China), Russia

• Fewer licenses and approvals required in Georgia and Poland

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Doing Business supports reforms

Doing Business can be used to generate reforms

• Trigger: governments have used the rankings to get targets– For example, Mauritius wants to move from its current

ranking of 24 to top 10 in 5 years– Mozambique wants to be at par with the rest of SADAC

countries in 10 years

• Focus: The indicators can be used to focus on a particular issue. For example, in Mozambique, we can identify specifically the delays in business start up.

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Implementing reforms

• Doing Business consistently ranked Burkina Faso low, despite otherwise strong record in economic management

• Doing Business stimulated dialogue between government and World Bank Group

• IFC responded with technical assistance program targeting areas highlighted by Doing Business

• Doing Business Better in Burkina Faso program will operate over 2.5 years, use DB indicators as outcome measure

Doing Business Better in Burkina Faso: PEP Africa is working with the government of Burkina to improve the investment climate and the country’s ranking on some of the Doing Business Indicators

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The African story may change in 2007

• Some countries are reforming the indicators and may move up in the ranking (Burkina Faso, Malawi)

• However other regions are also reforming• More countries will be included in the ranking (Swaziland, Cape

Verde, Guinea Bissau)

Also..• Doing Business is looking to including an index to capture corruption• World Bank Group is exploring state level Doing Business Indicators

in Nigeria. Similar exercise in Latin America has created pressure for reforms at the sub-national level.

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Who are Africa’s top performers?

• Ranked in top 40 on ease of doing business– Mauritius – 23– South Africa – 28– Namibia - 33– Botswana - 40

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www.doingbusiness.org/

Contact Doing Business

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Thank you