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Doing Business in Africa: Regional Overview Mary Agboli, Operations Officer Investment Climate, PEP Africa May 22, 2006. Doing Business Indicators.

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slide1

Doing Business in Africa: Regional Overview

Mary Agboli, Operations Officer

Investment Climate, PEP Africa

May 22, 2006

slide2

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

2006

2004

2005

  • Regulation of Entry
  • Labor Regulations
  • Contract Enforcement
  • Credit Markets
    • Credit information
    • Collateral
  • Bankruptcy
  • Business Licensing
  • Taxation
  • Trade Infrastructure
    • Transport
    • Customs
    • Standards
  • Updates of ‘04 and ‘05
  • Corporate Governance
  • Property registration
  • Updates of ‘04 topics

Products: Report, academic papers, country summaries, website database

www.doingbusiness.org

slide3

What is new this year?

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

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

  • 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
slide4

How the Indicators are derived

The methodology: time and motion study

  • Follow the entrepreneur from the beginning to the end of a basic transaction
  • Record every step of the process, and the associated time and cost
  • Gather all the relevant laws, regulations, decrees, fee schedules
slide5

Starting a business in Mozambique 2005

1. Obtain certification of unique name

2. Open a provisional bank account

3. Incorporate through public deed

4. Register provisionally with the Commercial Registry

5. Publish articles in official gazette

6. Final commercial registration

7. Apply for operation license

8. Inspection from Ministry of Health

9. Inspection from Fire department

10. Declare activity at tax department

11. Register for VAT

12. Declare activity at Employment center

13. Register with Social Security

14. Subscribe worker’s compensation insurance

Cost (% of GNI per capita)

Time (Number of days)

Procedures

Source: Doing Business database

slide6

180

160

140

120

100

80

60

40

20

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Procedures

Source:

Doing Business

database

Improvement in Starting a Business in Mozambique

2005

Time reduced from 153 days to 113

2006

Procedures reduced from 14 to 13

slide8

Starting a business: some best practices and reforms

  • Single access point for businesses
  • Makes 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,

slide9

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.

  • New Zealand
  • Singapore
  • United States
  • Canada
  • Norway
  • Australia
  • Hong Kong, China
  • Denmark
  • United Kingdom
  • Japan
  • Ireland
  • Iceland
  • Finland
  • Sweden
  • Lithuania
  • Estonia
  • Switzerland
  • Belgium
  • Germany
  • Thailand
  • Malaysia
  • Puerto Rico
  • Mauritius
  • Netherlands
  • Chile
  • Latvia
  • Korea
  • South Africa
  • Israel
  • Spain
slide10

Bottom 30 economies on the ease of doing business

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

140. Tanzania

139. Rwanda

138. Uzbekistan

137. Eritrea

136. Sierra Leone

135. Angola

134. Haiti

133. Cambodia

132. Senegal

131. Madagascar

130. Cameroon

129. Benin

128. Algeria

127. Mauritania

126. Zimbabwe

155. Congo, Dem. Rep

154. Burkina Faso

153. Central African Republic

152. Chad

151. Sudan

150. Niger

149. Togo

148. Congo, Rep.

147. Lao PDR

146. Mali

145. Cote d’Ivoire

144. Guinea

143. Burundi

142. Timor-Leste

141. Egypt

slide12

Why reform?

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

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

slide13

Economic Growth

Better investment climate can contribute to economic growth.

Reforms to reach the top quartile of countries would add 2.2 percentage points annual growth

Actual Growth

1994-2004

Bottom quartile

Top

quartile

Ease of Doing Business indicator

slide14

Informality

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

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

Top

quartile

Bottom quartile

Ease of Doing Business indicator

slide17

Who is reforming?

There are some success stories in Sub-Saharan Africa

  • 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.
slide18

Not all reforms are business friendly

Some reforms have made it harder to do business.

  • 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.
slide19

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
slide20

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.
slide21

Implementing reforms

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

  • 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
slide22

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.
slide23

Who are Africa’s top performers?

  • Ranked in top 40 on ease of doing business
    • Mauritius – 23
    • South Africa – 28
    • Namibia - 33
    • Botswana - 40
slide24

Contact Doing Business

www.doingbusiness.org/

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