Discussions
The 10th edition of the World Bank’s Doing Business Report
JB Cronjé, tralac Researcher, discusses the 10th edition of the World Bank’s Doing Business Report
The recently published 10th edition of the World Bank’s Doing Business Report covers 11 areas of a company’s life cycle by focusing on the regulatory environment as it applies to small and medium enterprises. The report provides quantitative measures of regulations for starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency in 185 economies. It also looks at regulations on employing workers.
The overall global ranking shows that Mauritius, at number 19, is the easiest place to do business in Africa followed by South Africa (39), Rwanda (52) and Botswana (59). These four countries are the only African countries featuring in the top third of countries on the list. The bottom third of the list contains no fewer than 37 African countries with the remaining 11 African countries falling somewhere in between.
The report ranks Mauritius highest among African countries on the protection of investors, trading across borders, and paying taxes. Other indicators show that South Africa holds the number one spot in the world on getting credit. All businesses need access to credit to operate and to compete. This indicator analyses a country’s legal framework for secured transactions by looking at how well collateral and bankruptcy laws facilitate lending and the scope, coverage and quality of credit information available through credit bureaus. Information sharing helps creditors to assess the creditworthiness of clients whereas credible legal systems facilitate the use of collateral and the ability to enforce claims in case of default.
The report also ranks Rwanda 8th overall on the ease of starting a business. Rwandan entrepreneurs are required to follow only 2 procedures to start up and formally operate a business. The whole process takes only 3 days to complete. The country stands out as the second best improver globally (behind Georgia) by making a 26.5 % improvement in its regulatory environment since 2005. It has substantially improved access to credit, streamlined procedures for starting a business, reduced time to register property, simplified cross-border trade and made courts more accessible for settling commercial disputes.
According to the report, South Africa made the biggest improvement in the ease of trading across borders in the past year by introducing measures that reduce the time, cost and documents required for international trade. This will have a positive effect throughout southern Africa, since goods to and from many countries such a Botswana, Zimbabwe, Swaziland and Lesotho transit through South Africa. It is an important development seeing that the more costly and time consuming it is to export or import, the more difficult it is for local companies to be competitive and reach international markets. A recent study showed that reducing inland travel time in Sub-Sahara Africa by 1 day would increase exports by 7%. Unfortunately it still takes 28.5 days on average to export and 35.2 days to import a standardised cargo of goods by ocean transport in the Southern African Development Community (SADC). This region lags behind the world average of 22.2 days to export and 25 days to import. However, it should be noted that huge differences occur among individual member countries and between landlocked and island states.
If one takes the regional outlook a step further and calculates the average ranking of the member countries of the different regional economic communities it shows that the Southern African Customs Union (SACU) is by far the easiest geographical region in Sub-Sahara Africa in which to do business followed by SADC, the East African Community (EAC) and the Economic Community Of West African States (ECOWAS). The average global ranking of the 15 countries forming ECOWAS is 151. Only one member state, Ghana, features in the top 120 countries on the list. This is troublesome for various reasons. For example, the report shows there is a correlation between the overall ease of doing business and Foreign Direct Investment (FDI) inflows. Although this correlation does not prove causation, it does show that Doing Business reflects more about a country’s overall investment climate than what would matter only to local small and medium enterprises. It also supports a more general claim that if a government has the ability regulate well in one area, such as domestic business, it will also regulate well in other areas such as foreign investment.
The report emphasises, yet again, that rules matter. Economic activity, especially private sector development, benefits from clear and coherent rules that clarify property rights and facilitate dispute resolution and functioning institutions such as courts and credit bureaus. Effective rules that are efficient in design, transparent, accessible and cheap to implement will enhance business activity and promote growth and development. Ultimately, countries are required to create rules that facilitate interactions in the marketplace without constraining the development of the private sector.
Source:
The World Bank and International Finance Corporation, 2012. Doing Business 2013: Smarter Regulations for Small and Medium Size Enterprises. World Bank: Washington. Available online at: http://www.doingbusiness.org/reports/global-reports/doing-business-2013
Comments received:
Tlohelang Aumane, 22 November 2012 08:05 AM:
“Thank you JB for this interesting article which shows that Africa especially SACU is not staying behind as the world moves. Lesotho has moved a few places from 153 in 2012 to 136 in 2013. The One-Stop Business Facilitation Centre accomplishments have escalated to new heights with announcement of Lesotho moving up 65 points from 144 to 79 out of 185 countries in the World. This escalation is a result of legal reforms of Companies Act 2011, Companies Regulations 2012 and transfer of the registry from Law Office to the Center. This was as well coupled with the automation of the manual files and making information easily accessible to the investors. Lesotho also moved up 47 places on protecting investors and still ranks high on resolving insolvency in Africa.
According to this recently published report Lesotho is at position 9 in starting a business in Africa. The rankings are important as they reflect the level of confidence the World has on Lesotho. The country does not still perform well in some other areas such as access to credit.”