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

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

3 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.

4 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

5 Starting a business in Mozambique 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 Source: Doing Business database Procedures Time (Number of days) Cost (% of GNI per capita)

6 Improvement in Starting a Business in Mozambique Procedures Source:Doing Business database Time reduced from 153 days to Procedures reduced from 14 to 13

7 Time to start a business (in days)

8 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,

9 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 Zealand 2.Singapore 3.United States 4.Canada 5.Norway 6.Australia 7.Hong Kong, China 8.Denmark 9.United Kingdom 10.Japan 11.Ireland 12.Iceland 13.Finland 14.Sweden 15.Lithuania 16.Estonia 17.Switzerland 18.Belgium 19.Germany 20.Thailand 21.Malaysia 22.Puerto Rico 23.Mauritius 24.Netherlands 25.Chile 26.Latvia 27.Korea 28.South Africa 29.Israel 30.Spain

10 Bottom 30 economies on the ease of doing business 155. Congo, Dem. Rep 154. Burkina Faso 153. Central African Republic 152. Chad 151. Sudan 150. Niger 149. Togo 148. Congo, Rep Lao PDR 146. Mali 145. Cote d’Ivoire 144. Guinea 143. Burundi 142. Timor-Leste 141. Egypt 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 Entrepreneurs face more regulatory obstacles in Africa than in any other region.

11 Top reformers in

12 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

13 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 Bottom quartile Top quartile Ease of Doing Business indicator

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

15 Africa can do more.. Africa has the lowest reform intensity

16 Taxes are highest in Africa

17 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

18 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.

19 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

20 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.

21 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

22 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.

23 Who are Africa’s top performers? Ranked in top 40 on ease of doing business –Mauritius – 23 –South Africa – 28 –Namibia - 33 –Botswana - 40

24 Contact Doing Business

25 Thank you