While South Africa ranks as the top country in Africa for ease of doing business, it is nowhere to be found as far as the pace of reform goes in Wednesday’s World Bank-International Finance Corporation report.
In fact, Tanzania and Ghana made it into the top ten of reforming countries and thirteen other economies — Armenia, Australia, Bulgaria, Czech Republic, El Salvador, India, Israel, Latvia, Lithuania, Morocco, Nicaragua, Nigeria and Rwanda — had three or more reforms.
Reforms would have simplified business regulations, strengthened property rights, eased tax burdens, increased access to credit, and reduced the cost of exporting and importing.
However, on the positive front, Africa as a whole for the first time made it into the top three among reforming regions, after Eastern Europe and the Organisation for Economic Cooperation and Development (OECD) countries. Two-thirds of African countries made at least one reform, according to the report.
“Such progress is sorely needed. African countries still have the most complex business regulations. They would greatly benefit from new enterprises and jobs, which can come with more business-friendly regulations,” said Michael Klein, World Bank/IFC vice-president for financial and private sector development and IFC chief economist.
“Big improvements are possible. If an African country adopts the region’s best practices in the ten areas covered by [the] Doing Business [database], it would rank 11th globally,” he said.
A practical study, showed how some of the improvements were made — but again South Africa was not on the list.
In Côte d’Ivoire, registering property took 397 days in 2005. Reforms eliminated a requirement to obtain governmental consent to transfer property, decreasing the time to 32 days. Burkina Faso cut the procedures for starting a business from 12 to eight and the time from 45 days to 34. Madagascar reduced the minimum capital for start-ups from 10-million francs to 2-million. Tanzania introduced electronic data interexchange and risk-based inspections at customs. The time to clear imports fell by 12 days. Gambia, Nigeria, and Tanzania reduced delays in the courts.
The report noted that 213 regulatory reforms in 112 economies had reduced the time, cost, and hassle for businesses to comply with legal and administrative requirements. The report however stated that it was now becoming easier to do business in Africa and ranked the region’s progress ahead of Asia, Latin America, and the Middle East.
On a more negative note came news from Paul Wolfowitz, president of the World Bank, that challenges still lay ahead for developing countries.
“The report pointed out that in many economies worldwide the costs of doing business were so prohibitive that most entrepreneurs were forced to operate outside the formal economy,” said Wolfowitz.
“The report is a critical tool for developing countries to determine where more reforms are needed,” he added.
The rankings tracked indicators of the time and cost to meet government requirements in business startup, operation, trade, taxation, and closure. They do not track variables such as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates.
Georgia was found to be the top reformer in 2005/06, improving in six of the 10 areas studied by Doing Business. It reduced the minimum capital required to start a business, sped up customs, licensing, and court procedures, and made labor regulation more flexible. Business registrations rose by 55% between 2005 and 2006. And unemployment has fallen by two percentage points.
China and Eastern European countries were also found to be active in enacting reforms.
China sped business entry, increased investor protections, and reduced red tape in trading across borders. It also established a credit information registry for consumer loans. Now banks can check credit histories of 340-million citizens before extending loans. The desire to join the European Union inspired reformers in Bulgaria, Croatia, and Romania (the second-fastest reformer). And regulatory competition in the enlarged union added to Latvia’s momentum for reform.
The most popular reform in 2005/06 was easing the regulations of business start-ups. Forty-three countries simplified procedures, reducing costs and delays. The second most popular reform-implemented in 31 countries-was reducing tax rates and the administrative hassle of paying taxes, according to the report.
“Whatever reformers do, they should always ask the question, “Who will benefit the most? If reforms are seen to benefit only foreign investors, or large investors, or bureaucrats-turned-investors, they reduce the legitimacy of the government. Reforms should ease the burden on all businesses: small and large, domestic and foreign, rural and urban. This way there is no need to guess where the next boom in jobs will come from. Any business will have the opportunity to thrive,” said Simeon Djankov, an author of the report.
In a separate study, also released on Wednesday, South Africa’s Bureau for Economic Research, found that regulatory constraints were the biggest problem facing South Africa’s businesses and economy.
Many analysts in SA feel that the country’s economy is changing to an infrastructure-led economy as government spend kicks in over five years and the consumer-led boom slows, and it is critical for overall GDP growth that these projects come on stream with as little fuss as possible. ‒ I-Net Bridge