Not so long ago, doing business in Africa was regarded a tortuous process at best and downright impossible at worst. Everything, it seemed, conspired to stop you conducting your business with any measure of ease. No longer. The latest World Bank Doing Business report says that African countries are now among the world’s top reformers. Gabriella Mulligan reports.
Sub-Saharan African countries are progressing in leaps and bounds in terms of ease of doing business, with the continent accounting for five of the top 10 most-improved regulatory environments for doing business worldwide. A number of African countries are implementing multiple reforms in the space of a year.
Nonetheless, entrepreneurs in Africa are still faced with some of the world’s most time-consuming and costly set-up procedures, calling for further well-designed regulatory attention and reform.
According to the World Bank Group report, Doing Business 2015, sub-Saharan Africa has implemented the highest number of business regulatory reforms in the world over the past year, with 74% of the region’s economies improving their business regulatory environment for local entrepreneurs.
The World Bank Group found that over the course of the past year, 35 of 47 economies in sub-Saharan Africa implemented at least one regulatory reform making it easier to do business. Indeed, over the year covered by the report, only 21 countries worldwide made three reforms or more over the year, with six of these located in sub-Saharan Africa.
Out of a global 230 regulatory reforms occurring over the space of the year, 75 of these were attributable to the sub-Saharan Africa region.
Of these reforms made in sub-Saharan Africa, the data shows reform focuses on two areas: 39 of the reforms aimed to reduce the complexity and cost of regulatory processes, and the remaining 36 focused on strengthening legal institutions.
This divide in focus echoes reforms worldwide, with 63% of global business-oriented reforms looking to reduce the time-consuming, complicated and costly nature of regulatory processes, while the rest of the reforms aimed at strengthening legal institutions.
“Among reforms to reduce the complexity of regulatory processes, those in the area of starting a business were the most common, followed by reforms in paying taxes. In 2013/14, as in earlier years, many of the reforms making it easier to start a business focused on introducing a one-stop shop or eliminating the minimum capital requirement,” says Frédéric Meunier, co-author of Doing Business 2015.
“Globally, the most common features of tax reforms in the past year were the introduction or enhancement of electronic systems and the simplification of taxes,” he says, adding that the Republic of Congo, Senegal and Zambia were among those African countries to merge or simplify certain taxes.
On a regional level, sub-Saharan Africa is showing the biggest reduction in the overall tax rate since 2004, although this total rate is still higher than in other regions. On average, the total tax rate dropped by 17% between 2004 and 2012, to 53.4% of commercial profit.
“Among reforms to strengthen legal institutions, the largest numbers were recorded in the areas of getting credit and protecting minority investors,” Meunier says.
Having measured the ease of doing business worldwide since 2005, the World Bank Group’s statistics show that all of the economies in the sub-Saharan Africa region have regularly conducted business-focused regulatory reforms across the indicators measured by Doing Business – namely, starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.
Rwanda stands alone
In Africa, Rwanda is singled out as having implemented the largest number of reforms in the region over the course of the past decade – having made 37 ease of business reforms since the report was first published. The country currently ranks 46th out of the 189 countries included in the data, having jumped two places in the rankings since last year on the back of still-continuing reforms.
Most other countries in the sub-Saharan Africa region have, during this period, made between one and 25 reforms, but none of them nearing the regulatory industriousness of Rwanda.
What the figures distinctly suggest is an increasing willingness to address hindrances to ease of doing business from a regulatory standpoint in Africa; and, not only in the case of Rwanda but more generally across the region, the results are already showing.
A number of countries in the region were this year well within the top half of countries worldwide included in the ranking for ease of doing business, including South Africa, Rwanda, Ghana, Botswana and Namibia.
Based on their regulatory activity over the course of the past year, Benin, the Democratic Republic of Congo, Côte d’Ivoire, Senegal and Togo were ranked among the 10 top improvers worldwide in terms of ease of doing business, having improved business regulation the most among the 189 economies covered.
Senegal performed particularly well, implementing regulatory reforms in six of the 10 areas tracked by Doing Business – a global high for the year – and achieving business standards comparable to high-performing economies of developed countries.
“Thanks to such reforms, Senegal is gradually narrowing the gap with best practices seen elsewhere. For example, in 2005, completing every official procedure to import goods from overseas took 27 days. Today it takes 14 days, the same as in Poland. Ten years ago, a budding entrepreneur in Dakar spent 59 days to start a business. Now, that same process requires a total of six days – the same as in Norway,” says Meunier.
While some countries in sub-Saharan Africa are highlighted for the progress they are making, others receive recognition for the stable and business conducive climate they have achieved, through systematic reforms over the course of the past decade.
Mauritius is named the country in the region with the most favourable business climate for local entrepreneurs. According to the World Bank Group’s research, setting up a business in Mauritian capital Port-Louis takes less than a week, while transferring a property is completed within two weeks.
“Mauritius has been conducting reforms consistently over the past few years and has considerably improved regulations applicable to small and medium-size companies,” says Meunier.
Red tape still gets in the way
Nonetheless, despite the positive indicators that the regulatory environment shaping doing business in Africa is improving, many challenges remain, and sub-Saharan Africa still reflects poorly on the global scale, particularly in terms of bureaucratic procedures and costs.
“Despite all the efforts, doing business remains challenging for most local entrepreneurs. African entrepreneurs face the most cumbersome and expensive start-up procedures in the world,” Meunier says.
According to the latest research, starting a business in sub-Saharan Africa takes approximately four weeks, and is estimated to cost around 56% of income per capita. Compared to the global averages of three weeks and 26% of income per capita, the sub-Saharan Africa region still has some way to go before it can be said to be competitive in the global arena.
Meunier points out that difficulties do not only concern setting up businesses, but rather closing a business is also a very lengthy and costly process in the region. Lenders to firms that go through a bankruptcy process recover 24 cents on the dollar in sub-Saharan Africa, while the world average recovery rate is 40 cents on the dollar of their loan, making the region a risk-intensive place for lenders.
Further regulatory reforms could help promote private sector growth in Sub-Saharan Africa, says Meunier, by limiting bureaucratic obstacles, as well as reducing the cost and time factors impacting on ease of business – a category of reforms relatively easy to implement. However, the key to such reforms is that they should be well designed, and properly implemented, he says.
“Reforms aimed at cutting red tape and improving regulatory efficiency are generally easier to implement, because they rarely involve large institutional players and they yield relatively quick results. Reforms aimed at improving legal institutions are typically complex. Most entail substantial changes to legal frameworks, are costly to implement and can take years to yield positive results,” says Meunier.
Nonetheless, the data suggests governments worldwide – including across Africa – have recognised the need to improve the ease of doing business as a key catalyst to being a competitive player in the global economy.
“Over the past decade governments have increasingly focused on reforming business regulation as one way of maintaining competitiveness in an increasingly globalised economy,” Meunier says.