WASHINGTON, September 8, 2004 – Botswana
and South Africa have developed the strongest investment climates
in Sub-Saharan Africa in recent years, but too few other African nations
are following suit and most continue to rank among the world’s least friendly
for business, according to a new report from the World Bank Group.
Doing Business in 2005: Removing Obstacles to Growth, a report cosponsored
by the World Bank and International Finance Corporation, the private sector
lending arm of the World Bank Group, finds that investment climate reforms,
while often simple, can help create job opportunities for women and young
people, encourage businesses to move into the formal economy, and promote
Between 2003 and 2004, for example, Ethiopia witnessed a jump of
48 percent business registrations after simplifying its entry procedures.
However, the report, which benchmarks regulatory performance and reforms
in 145 nations, finds that poor nations, through administrative procedures,
still make it two times harder than rich nations for entrepreneurs
to start, operate, or close a business, and businesses in poor nations
have less than half the property rights protections available to businesses
in rich countries.
African countries reformed the least of all regions over the past year
and still have the most regulatory obstacles to doing business. Sixteen
of the 20 countries with the most cumbersome business regulations and weakest
protection of property rights are in Africa. The Democratic Republic
of Congo, Angola, Burkina Faso, and Chad rank among the bottom five.
Chad, for example, still requires 19 procedures
to register a new business, as compared with two procedures in a country
such as Australia. In Congo, it takes 155 days to register a business.
In Angola, it takes more than three years to enforce a contract.
Worldwide, rich countries undertook three times as many investment climate
reforms as poor countries last year. European nations were especially
active in enacting reforms. The top 10 reformers for the most recent survey
year were Slovakia, Colombia, Belgium, Finland, India, Lithuania, Norway,
Poland, Portugal, and Spain.
Other findings related to Sub-Saharan African nations:
and South Africa ranked in the top quartile of the nations surveyed,
according to indicators on the ease of doing business.
of the 58 countries that reformed business regulation or strengthened the
protection of property rights in the last year, only eight were in Africa.
· Among the
African nations enacting reforms, Ethiopia improved the process
for starting a new business the most, by cutting the number of procedures
from eight to seven, the number of days from 44 to 32, and the administrative
cost of business startup by 80 percent. Still, it has the second-highest
minimum capital requirement in the world, trailing only Syria.
was the second-most effective reformer in Africa, slashing the time required
to start a business by a third, to 44 days. Benin, Democratic Republic
of Congo, Cote d’Ivoire, and Kenya also reformed entry regulation.
· Two other
reformers were Mozambique, where the public credit registry went
online and strengthened the quality of data, and Namibia, which
introduced more flexible work hours, making it easier for businesses to
· Several countries
enacted changes that worsened their investment climate. Malawi, Mauritania,
and Rwanda made it more expensive to start a business. Zimbabwe
hiked its capital duty from 1 percent to 20 percent and increased the license
application fee fourfold.
“Poor countries that desperately need new enterprises and jobs risk falling
even further behind rich ones who are simplifying regulation and making
their investment climates more business friendly,” said Michael Klein,
World Bank/IFC Vice President for Private Sector Development and IFC Chief
Doing Business in 2005 updates the work of last year’s report on five
sets of business environment indicators: starting a business, hiring
and firing workers, enforcing contracts, getting credit,
and closing a business; expands the research to 145 countries, and
adds two new indicators, registering property and protecting
investors. “This year, Doing Business gives policymakers an
even more powerful tool for measuring their regulatory performance in comparison
to other countries, learning from best practices globally, and prioritizing
reforms. Since last year, 13 countries, including Cape Verde, Gambia, and
Mauritius, have asked to be included in the Doing Business analysis,”
said Simeon Djankov, an author of the report.
The main research findings of Doing Business in 2005:
in poor countries face larger regulatory burdens than those in rich countries.
Poor countries impose higher costs on businesses to fire a worker, enforce
contracts, or file for registration; they impose more delays in going through
insolvency procedures, registering property, and starting a business; and
they afford fewer protections in terms of legal rights for borrowers and
lenders, contract enforcement, and disclosure requirements. In administrative
costs alone, there is a threefold difference between poor and rich nations.
The number of administrative procedures and the delays associated with
them are twice as high in poor countries.
payoffs from reform appear to be large. The report estimates
that an improvement from the bottom to the top quartile of countries in
the ease of doing business is associated with an additional 2.2 percentage
points in annual economic growth. An indication of the payoff comes from
Turkey and France, each of which saw new business registration increase
by 18 percent after the governments reduced the time and cost of starting
a business last year. Slovakia’s reform of collateral regulation helped
increase the flow of bank loans to the private sector by 10 percent. The
payoff comes because businesses waste less time and money on unnecessary
regulation and devote more resources to producing and marketing their goods
and because governments spend less on ineffective regulation and more on
regulation and weak property rights exclude the poor – especially women
and younger people – from doing business. The report finds
that weak property rights and heavy business regulation conspire to exclude
the poor from joining the formal economy. “Heavy regulation not only fails
to protect women, young people, and the poor – those it was intended to
serve – but often harms them,” said Caralee McLiesh, an author of the
report. Doing Business shows that countries with simpler regulations
can provide better social protections and a better economic climate for
business people, investors, and the general public. The report builds on
noted economist Hernando de Soto’s work, showing that while it is critical
to encourage registration of assets, it is as important – and harder –
to stop them from slipping back into the informal sector.
The top 20 economies in terms of ease of doing business are New Zealand,
United States, Singapore, Hong Kong/China, Australia, Norway, United Kingdom,
Canada, Sweden, Japan, Switzerland, Denmark, Netherlands, Finland, Ireland,
Belgium, Lithuania, Slovakia, Botswana, and Thailand.
The Doing Business project is the product of more than 3,000 local
experts – business consultants, lawyers, accountants, and government officials
– and leading academics, who provide methodological support and review.
The data, methodology, and names of contributors are publicly available
The full report is available online to journalists at the World Bank’s
Media Briefing Center http://media.worldbank.org/
Investment climate indicators and analysis, along with information on ordering
the report, are available on the Doing Business website: http://rru.worldbank.org/doingbusiness