Ease of Doing Business

Posted in Investment Guide

The World Bank Doing Business project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level.

The Doing Business project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. Doing Business captures several important dimensions of the regulatory environment as it applies to local firms. It provides quantitative indicators on regulation for starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Doing Business also measures features of labor market regulation. EAC Partner States undertook various reforms inspired by Doing Business Reports of the World Bank Group since 2002.

On the ease of Doing Business (DB), the Doing Business Report 2020 ranked Burundi 166^th (with a DB score of 46.8%) in 2019 from 168^th in 2018, Kenya 56^th (with a DB score of 73.2%) in 2019 from 61^st in 2018, Rwanda 38^th (with a DB score of 76.5%) in 2019 from 29^th in 2018, South Sudan 185^{th (}with a DB score of 34.6%) which maintained the same ranking as in 2018, Tanzania 141^st (with a DB score of 54.5%) in 2019 from 144^th in 2018 and Uganda 116^th (with a DB score of 60.0%) in 2019 from 127^th in 2018 out of 190 economies and selected cities at the subnational and regional level. Burundi, Kenya, Tanzania and Uganda improved in rakings whereas Rwanda fell in ranking but still remained the best ranked country in EAC in 2020 and one of the only two countries in Africa among the top 50 in the world. Below we compare the EAC average with the averages of Southern African Development Community (SADC) and Middle East and North Africa (MENA) for 2018. By the time of compilation of this guide in June 2020, only the regional profile for Middle East and North Africa for 2019 (Doing Business 2020 Report) had been published and those for SADC and EAC were not yet published. The EAC region is an attractive investment destination due to the several key business reforms it has undertaken as demonstrated by the rankings below.

1. The Business Environment. For investors, knowing where economies stand in the aggregate ranking on the ease of doing business is useful. Also useful is to know how an economy ranks compared with other economies in the region and compared with the regional average. Another perspective is provided by the regional average rankings on the topics included in the ease of doing business ranking and the ease of doing business score. The ease of doing business score captures the gap of each economy from the best regulatory performance observed on each of the indicators across all economies in the Doing Business sample since 2005. An economy’s ease of doing business score is reflected on a scale from 0 to100, where 0 represents the lowest and100 represents the best performance. The ease of doing business ranking ranges from 1 to 190.

On the ease of doing business, EAC average rank is better than that of SADC whereas the average scores for the three regions (EAC, SADC and MENA) are in the range of 56.94-58.30. Thus, EAC is an attractive investment destination.

2. Starting a Business. This topic measures the number of procedures, time, cost and paid-in minimum capital requirement for a small to medium sized limited liability company to start up and formally operate in economy’s largest business city.

On the ease of starting a business, EAC average rank is better than that of SADC whereas the average scores for the three regions (EAC, SADC and MENA) are in the range of 79.82-82.00. Thus, EAC is an attractive investment destination.

3. Dealing with Construction Permits. This topic tracks the procedures, time and cost to build a warehouse—including obtaining necessary the licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining utility connections. In addition, the Dealing with Construction Permits indicator measures the building quality control index, evaluating the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements.

On the ease of dealing with construction permits, SADC and MENA have a better average rank than EAC whereas the average scores for the three regions (EAC, SADC and MENA) are in the range of 59.07-63.89. Thus, EAC is still an attractive investment destination.

4. Getting Electricity. This topic tracks the procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse. In addition to assessing efficiency of connection process, Reliability of supply and transparency of tariff index measures reliability of power supply and transparency of tariffs and the price of electricity.

On the ease of getting electricity, EAC average rank is better than that of SADC whereas the average scores for the three regions (EAC, SADC and MENA) are in the range of 48.45-69.45. Thus, EAC is an attractive investment destination.

5. Registering Property. This topic examines the steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered and free of title dispute. In addition, the topic also measures the quality of the land administration system in each economy. The quality of land administration index has five dimensions: reliability of infrastructure, transparency of information, geographic coverage, land dispute resolution, and equal access to property rights.

On the ease of registering property, EAC average rank is better than that of SADC whereas the average scores for the three regions (EAC, SADC and MENA) are in the range of 56.22-62.11. Thus, EAC is an attractive investment destination when it comes to registering and owning property.

6. Getting Credit. This topic explores two sets of issues—the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending.

On the ease of getting credit, EAC average rank is better than that of SADC and MENA. Thus, EAC is a very attractive investment destination when it comes to investors ease in accessing credit.

7. Protecting Minority Investors. This topic measures the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse. While the indicator does not measure, all aspects related to the protection of minority investors, a higher ranking does indicate that an economy’s regulations offer stronger investor protections against self-dealing in the areas measured.

On the ease of protecting minority investors, EAC average rank is better than that of SADC and MENA. Thus, EAC is a very attractive investment destination when it comes to minority investors seeking for investment opportunities.

8. Paying Taxes. This topic records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as measures the administrative burden in paying taxes and contributions.

On the ease of paying taxes, EAC and SADC have the same average rank. MENA has better simplified processes for paying taxes than EAC region.

9. Trading across Borders. Doing Business records the time and cost associated with the logistical process of exporting and importing goods. Doing Business measures, the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods.

On the ease of trading across borders, SADC and MENA have a better average rank than EAC whereas the average scores for the three regions (EAC, SADC and MENA) are in the range of 59.59-61.46. EAC still needs to have more reforms in this area, however despite this, EAC intra-trade volumes are still high.

10. Enforcing Contracts. The enforcing contracts indicator measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system.

On the ease of enforcing contracts, EAC average rank is better than that of SADC and MENA. Thus, EAC is a very attractive investment destination when it comes to enforcing business contracts.

11. Resolving Insolvency. Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic legal entities. These variables are used to calculate the recovery rate, which is recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings. To determine the present value of the amount recovered by creditors, Doing Business uses the lending rates from the International Monetary Fund, supplemented with data from central banks and the Economist Intelligence Unit.

On the ease of resolving insolvency, EAC average rank is better than that of SADC and MENA. Thus, EAC is a very attractive investment destination when it comes to handling insolvency matters.