What you need to know about doing business in Africa

PUBLISHED: Fri, 28 Oct 2016 05:24:17 GMT

The World Bank recently released the Doing Business 2016/17 report. The survey tracks a set of regulatory indicators related to business start-up, operation, trade, payment of taxes and closure, by measuring the time and cost associated with various government requirements.

READ:These African economies have just made entrepreneurship easier

However, the index does not track variables such as macroeconomic policy, currency volatility (an extremely important factor in many emerging market countries) or crime rates, which are also important in investment decisions.

According to the most recent rankings, New Zealand has the most accommodative business environment globally, having overtaken Singapore since the previous report.

From an African perspective, Mauritius has maintained its title as the most accommodative business environment on the continent followed by Rwanda, Morocco, Botswana and South Africa.

The small island nation has dominated the continent in the Doing Business rankings for many years due to a broad structural reform programme that continues to make significant strides.

At the other end of the spectrum we again see perpetual underperformers such as Somalia, Eritrea, the Central African Republic and Democratic Republic of Congo (DRC), with conflict and poor governance creating some of the most inhospitable business environments globally. Furthermore, Egypt was ranked 122nd, while the oil giants Nigeria and Angola were ranked 169th and 182nd, respectively. 

Kenya (92nd) was again identified as one of the top 10 reformers globally over the past year – the only African country to make this list. Recent reforms have improved the country’s scores in starting a business, getting electricity, registering property, protecting investors, as well as resolving insolvency.

Rwanda, meanwhile, maintained its position as a top reformer, ranking as the second most reformed country globally since the inception of the report 12 years ago, marginally losing out on top spot to Georgia. The report notes that between 2005 and 2017, Rwanda implemented a total of 47 reforms – one of only 10 economies globally that have implemented reforms in all of the Doing Business indicators.

The Distance to Frontier score captures the gap between an economy’s performance and a measure of best practice across the entire sample – with 100 being the frontier.

We can see from the accompanying graph that some African economies have made considerable strides in this regard, but the low base from which development is taking place should be considered. Countries such as Chad, Burundi, Burkina Faso and Benin have improved their business environments considerably in recent years but still perform poorly when placed in a global context.

In turn, Rwanda has overtaken many more developed peers in its reform efforts and is now deemed to have a more accommodative business environment than those of Luxembourg and Greece. 

While some bright spots remain – such as Mauritius consistently punching above its weight, the meteoric rise of Rwanda, and continued efforts by Kenya to improve its business environment – Africa continues to perform poorly in the global context.

The report notes that sub-Saharan Africa is the worst performing region with regard to both its regulatory efficiency and regulatory quality. Some countries have made impressive strides, but base effects should be taken into consideration, and many African countries remain at the bottom of the global rankings.

That being said, the findings again emphasise the diversity on the continent, with disparity in geographic and economic size paralleled by differences in business environments.

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