Sections:
Investment Climate Facility - case studies
17 November 2005
Case study 1: Streamlining Business Registration and Licensing
The problems with registering a business in Africa are well known. On average, in Sub-Saharan Africa, it takes 11 procedures to register a business, it takes 63.8 days and costs the equivalent of 215.3% of gross national income per capita1.
There is a need to make doing business easier – through reducing costs, simplifying business registration and licensing procedures. This will enable business that are currently informal to enter the formal sector, widening the tax base and enabling these businesses access to the wider business environment that supports business growth.
Where reform has occurred the impact can be significant:
- Uganda: a successful pilot programme in Entebbe focused on streamlining business licensing. As a result, the time that Ugandan entrepreneurs needed to register a business fell from 2 days to just 30 minutes. An estimated four times as many businesses registered in Entebbe the year after the pilot and, despite the lower annual registration fee, the higher number of registrations meant that the total revenue collected by the municipality increased by 40%. There were significant savings in administrative staff time too.
- South Africa: a recent investigation into the cost of ‘red tape’ for small businesses played an important part in developing the South African Government’s new focus on lowering the costs of doing business. The study showed that red tape compliance was costing South African firms 6.5% of GDP and that, in relation to their size, small firms bear the heaviest burden. It helped South Africa’s Revenue Service find ways to simplify the VAT rules overall, and particularly for the small retail shops on which so many poor people depend.
- Kenya: the introduction of the Single Business Permit System reduced the number of approvals needed to operate a small business from over 20 separate licenses to one licence. Compliance and non-compliance costs saved by this one measure were assessed to be equivalent to 1% of GDP.
Countries such as Ethiopia, where it is still very difficult to establish and operate a business, could learn from these reform programmes. One of the ICF’s activities could be to start a programme that works with governments and the private sector and which builds on these lessons and successes, to spread this experience to other countries such as Ethiopia.
Case study 2: Improving Competition
Anti-competitive behaviour damages the business environment in Africa just as it does in more developed countries. The losers are businesses and consumers, both of which have to pay higher prices. Practices like price fixing, market carve-up, bid rigging, misuse of dominant market positions and tied sales prevent firms entering new markets and expanding. They push up costs. They deny to consumers the wider benefits that competition can bring. As a result, the country becomes less competitive, damaging long term growth and employment opportunities.
Africa has fewer skills and less capacity to identify and tackle these problems. However, it is starting to acquire them. Some African competition authorities have successfully tackled anti-competitive practices in recent years. Practices which have been ruled against include the prevention by leading firms of further competition in the Zambian poultry industry, the maintenance of high prices by Kenyan insurance firms and the withholding by sewing machine distributors in South Africa of spare parts required by competitors.
There is a need to reinforce these fragmented successes and to help governments determine which approaches are appropriate in which contexts. The ICF will work with African governments and their sector regulators, as well as with regional bodies, to help assess the extent of anti-competitive behaviour and inappropriate regulation in particular sectors. It will recommend policy and regulatory changes and build capacity to implement and enforce competition rules.
Case study 3: Customs Reform: Business response to improving customs administration
Managing logistics and importing and exporting goods is crucial to business, especially in Africa. Customs Services play an important role in collecting vital national revenue and enforcing the rule of law at the border. But they can also be an unnecessary obstacle to legitimate trade, by slowing down the movement of goods and people through inefficient procedures or corrupt practices. They can be an important element in attracting or turning away trade and investment.
On average, it takes 3 times as many days, nearly twice as many documents and 6 times as many signatures to import in a poor country as it does in rich countries. Obstacles to exporting are just as large. Trade in Africa takes the longest – 45 days on average to export and 59 to import. Typical regulations in Africa require 18 signatures to export and 28 to import
But there are good examples of improvement. For example, Customs reforms in Mozambique have been described as “a model for the wider public sector” by contributing almost half of Mozambique’s domestic revenue. Since the start of a reform project managed by Crown Agents together with the Mozambique Government, revenue increased year on year – from 49% (approx US$ 45 million) in year one to 175% three years later. Goods are now cleared up to 40 times faster than the pre-reform rate1.
However, much still remains to be done across the continent. This project would determine the current status of customs administration across Africa, and create a benchmark or index that will track progress. It would also implement reform programmes in selective countries where this is identified as a particularly significant barrier to business and where the Government recognises the problem. The ICF will ensure the work has high visibility politically, assisted through the index which will track progress and enable simple country-to-country comparison.
The programme will result in faster and simpler clearing of goods, reduced corruption, reduced costs, increased revenue to government and increased cross-border trade (particularly for smaller businesses). In addition to these direct benefits, customs reform is also a very visible and impressionable activity that impacts on the general image of Africa. The ICF will co-fund the project and work with partners such as the Business Action for Improving Customs Administration in Africa
(BAFICAA).
Case study 4: Telling the true story of Africa
The Business Action for Africa conference statement in July 2005 said: “Unbalanced, stereotypical and negative perceptions of Africa are not just driven by the media but also commentators. This needs to be changed to reflect a more balanced view of a continent and its many success stories. The media has a responsibility for balanced reporting while business must be more vocal about the many examples of successful investments.”
The ICF will help improve the way business people think about Africa through telling real life success stories. Stories such as the mobile phone industry which now has more than twice as many mobile phone subscribers than land-line telephones in Africa. Or Nigeria, which is now regarded as the world’s fastest growing market increased subscribers by 143% in the 12 months to June 2003.
There are other equally impressive industries and companies in fields as diverse as banking – the transformation of Equity Bank in Kenya or the launch of the new Mzansi (basic bank account) in South Africa which now has 2m clients - to tomato growing in Ghana or the growth of service sectors such as tourism. Success industries and companies are too numerous to mention. However, such stories are rarely seen or covered in the media and rarely form any part of Africa’s image.
People can, and are doing business in Africa – with great benefits to the poor. The ICF will prioritise this strand of its work. It has wide support in Africa by Africans who wish to see Africa portrayed in a more balanced way – the ICF will ensure high level political and business support for this work, and use its network to include key African and global personalities.
