Africa improving business conditions

8 min
Manfred Stamer
Manfred Stamer Senior Economist for Emerging Europe and the Middle East
Alexis Garatti
Alexis Garatti Head of Macroeconomic Research

African countries’ ease of doing business soars

The World Bank Group just released its Doing Business 2019 Report. For 15 years, through the examination of data on 11 areas of business regulation, the World Bank has released a report which measures processes necessary to the conduct of business in 190 countries. The report assigns to each country a ranking, a general score and a ranking and a score per category.

For many years, African countries have been lagging behind developed countries and other emerging economies. In the last year, however, they have markedly progressed as they made it easier to do business. We have defined a “Modified Ease Of Doing Business (MEODB) score, taking into account the four sub-indicators Protecting Minority Investors, Trading Across Borders, Enforcing Contract and Resolving Insolvency which are particularly relevant for exporters and foreign investors. Based on this MEODB, Mauritius ranks 30th, neck to neck with developed economies. Djibouti upgraded its score from 50.81 to 62.6 while Morocco, Sudan and Kenya also improved their scores with gains of 5.32, 5.82 and 8.68, respectively. Rwanda, a former war-torn country, dramatically recovered from its past thanks to advances in the business environment. As a consequence, private investment soared (+60%) over the last 8 years as well as Foreign Direct Investment which increased by 40% over the same period.

At the same time, emerging economies have been rocked over the past year and this shows in their score: South Asia and Latin America and the Caribbean are the two regions absent from the top 40 ranking. Nicaragua and Mexico top the list of countries which lost the most points on the MEODB score. And while four of the top 10 improvers of this score are African countries (Djibouti, Kenya, Sudan and Morocco) none from Latin America made it into the list. Their success stems from a sizable number of reforms implemented through the years

Looking at the overall Doing Business survey, an impressive 107 reforms were captured in 2017-2018 across 40 economies in sub-Saharan Africa alone. One third of all business regulatory reforms recorded were also in the economies of sub-Saharan countries. Since 2004, of the three regions which improved the most – Europe and Central Asia, sub-Saharan Africa and the Middle-East and North Africa – with 905 reforms, sub-Saharan African again stands out as the group with the highest total number of reforms.

Such new performances can be accounted for by a long term work. Coordination between countries led to an improvement of the judicial framework: the Organization for the Harmonization of Business Law (OHADA), which includes 17 African countries, led to reforms regarding the conduct of dispute settlement with the introduction of mediation.

Africa also proved a frontrunner in digitization which played a huge role in their advancement. Emerging and developing countries have long struggled with collecting tax revenue and African countries proved innovative to solve the issue: Ivory Coast and Togo for example created online systems for filing corporate income tax and value added tax returns.

Among all, Rwanda stands out as the second biggest reformers in the history of Doing Business. The post-war consensus that the private sector should be the main driver of the economy led the government to create an environment that makes it easier for business and investment to prosper with reforms in property registration, business registration (from 43 days to 4 days), credit access and tax paying.

Nevertheless the African success needs to be qualified: there is still a long road ahead

The average Ease Of Doing Business score in Africa is less than 40 compared to 73 in OECD, underscoring the long road that African countries are faced with. More importantly, it is important to highlight the discrepancies between African groups notably regarding the trading across borders, the getting electricity and the resolving insolvency categories. For example, Angola and Eritrea perform poorly in front Zambia and Rwanda in getting credit.

Likewise, gaps exist even within a country: Rwanda is 2nd in registering property and 3nd for getting credit but 88 for trading across borders and 51 for starting a business; Morocco  ranks 25 for paying taxes but 112 for getting credit.

South Africa, the continent’s economic powerhouse, ranks 82 this year – its position unchanged compared to last year. In 2017, it was ranked 74. And in 2014, it ranked 41.  The country’s bleak figures contrast with its neighbors’ which have significantly improved their rankings and scores over the previous years. South Africa is still plagued by the corruption in public services which may account for the particularly low ranking in the Starting a Business (134), the Registering Property (106) and the Dealing with Construction Permits (96) scores. Its overall score, 66.03, is higher than the regional average of Sub-Saharan Africa (51.6) but is still lower than OECD’s countries which economic prosperity South Africa aims to achieve. In May 2018, the IMF called for bold reforms to boost the economy and allow it to reach its potential.