The Expert Explains: Is Africa doing enough to promote regulatory reform?
The World Bank’s latest report on Doing Business 2016: Regulatory Quality and Efficiency has highlighted that Mauritius remains the top destination for doing business in Africa, ranked in 32nd place globally, and that Sub-Saharan Africa accounts for 30% of the regulatory reforms which made it easier to do business in 2014/2015. However, are these reforms targeted in the right areas which will boost investment? Is Africa doing enough to promote regulatory reform overall? For those who wish to dig deeper, here’s the explanation, straight from the desk of our expert guest contributor, Samantha Seewoosurrun, a reputed professional consultant in the financial services sector.
The World Bank’s Doing Business report, now in its thirteenth year, is recognised as a key international barometer which measures the regulations which enhance business activity and those which constrain it. It compares quantitative indicators across 189 countries, and over time, on business regulations and the protection of property rights. It examines regulations affecting the life of a business, such as starting a business, paying taxes and enforcing contracts, amongst others.
Which countries in Africa come out top in the recently published report Doing Business 2016: Regulatory Quality and Efficiency? Mauritius leads the way, ranked in 32nd position globally, and has significantly improved its position in relation to the granting of construction permits compared to the previous year. Rwanda is placed second, some way behind in 62nd place, while Botswana appears in 72nd place, South Africa in 73rd and Seychelles in 95th.
If we look at the most improved performers globally compared to the previous year, five African countries appear in the top ten, namely Uganda, Kenya, Senegal, Benin and Mauritania. Both Senegal and Benin are members of the Organization of the Harmonization of Business Law in Africa (OHADA), based in Cameroon, which is an initiative adopted by 17 West and Central African states. Membership of OHADA is open to all African states, including those outside the African Union. The World Bank points out that OHADA states have made significant progress in removing regulatory barriers, with 14 of its member states implementing a combined 29 business regulation reforms over the past year, 24 of which targeted regulatory costs and complexity, while five strengthened legal institutions.
In what areas have improvements been made, and do they matter to investors? The ease of starting a business is clearly a key consideration, and this has been made easier in a number of countries, for example with Kenya launching government service centres offering company pre-registration services in major towns, Senegal reducing the minimum capital requirement to start a business and Uganda introducing an online system for obtaining a trading licence. Rwanda abolished the need for new companies to open a bank account to register for VAT. Over time, Mozambique has cut the number of days for entrepreneur to start a business from 168 days in 2003 to 19 days currently. A number of countries made it easier to register property, including Madagascar, Kenya and Nigeria, while Tunisia, the Gambia and Mozambique all made it easier to pay taxes.
Which countries sit at the bottom of the rankings, and which are moving in the wrong direction? The bottom five in Africa are Chad (183rd), Democratic Republic of Congo (184th), Central African Republic (185th), South Sudan (187th) and Eritrea (189th out of 189 countries). Given that NGOs often claim that many companies active in Africa, particularly multinationals, are seeking to avoid or evade taxes, it is curious that, in reality, the process of paying taxes by companies has been complicated in the past year in a number of countries. Madagascar has introduced a new requirement for a bank-certified check to pay the tax authority, Liberia has introduced a minimum corporate income tax, while Sierra Leone has introduced a capital gains tax. Furthermore, the Democratic Republic of Congo made paying taxes more complicated for companies by introducing a new social security contribution paid by employers, even if it subsequently reduced the rate of the contribution.
If we look to the consistency of government thinking and actions, why is one of the most improved countries, Kenya, still introducing extra burdens in the area of construction permits, where it has now introduced an additional approval before issuance of the building permit and increased the costs of both water and sewerage connections? It appears to fly in the face of the logic of the streamlined approach to public services delivery through the creation of one-stop-shop ‘Huduma centres’, which the IFC considers has accelerated the pace of reforms and has removed some of the ‘red tape’ which investors have struggled with in the past. Even Rwanda, as a strong performer in Africa overall, has increased the time and cost for documentary and border compliance for importing by making preshipment inspection mandatory for all imported products, which sows doubt about the government’s overall commitment to a business-friendly climate and trade.
What lessons can be drawn from this year’s World Bank survey? Firstly, it shows that African countries are not – uniformly or for all time – to be saddled with a reputation for corruption or inefficient government, and that determined action demonstrates that genuine improvements are possible. Secondly, it shows that regional organisations such as OHADA can provide guidance on the path to regulatory reform, and that membership of this organisation should be further expanded. Third, in order to attract investors, consistency of approach is crucial to building confidence. There is no point in a government undertaking a swathe of beneficial reforms to help an entrepreneur start a business, only to place more obstacles in the way of the person seeking to pay taxes or obtain a building permit. This year’s survey shows that substantial progress has been achieved in certain countries, but there is still much more work to be done.