83401 Regional Profile: Common Market for Eastern and Southern Africa (COMESA) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 2 (COMESA) © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. 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Cover design: The Word Express Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 3 (COMESA) CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 12 Dealing with construction permits........................................................................................... 22 Getting electricity ....................................................................................................................... 30 Registering property .................................................................................................................. 37 Getting credit .............................................................................................................................. 46 Protecting investors ................................................................................................................... 52 Paying taxes ................................................................................................................................ 60 Trading across borders .............................................................................................................. 68 Enforcing contracts .................................................................................................................... 80 Resolving insolvency .................................................................................................................. 87 Data notes ................................................................................................................................... 94 Resources on the Doing Business website .............................................................................. 99 Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 4 (COMESA) INTRODUCTION Doing Business sheds light on how easy or difficult it is Organization for the Harmonization of Business Law in for a local entrepreneur to open and run a small to Africa (OHADA) and OECD High Income. The data in medium-size business when complying with relevant this report are current as of June 1, 2013 (except for regulations. It measures and tracks changes in the paying taxes indicators, which cover the period regulations affecting 11 areas in the life cycle of a January–December 2012). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, areas important to business—such as an economy’s getting credit, protecting investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and employing workers. trading across borders and getting electricity), the In a series of annual reports Doing Business presents security of property from theft and looting, the quantitative indicators on business regulations and the transparency of government procurement, protection of property rights that can be compared macroeconomic conditions or the underlying strength across 189 economies, from Afghanistan to Zimbabwe, of institutions—are not directly studied by Doing over time. The data set covers 47 economies in Sub- Business. The indicators refer to a specific type of Saharan Africa, 33 in Latin America and the Caribbean, business, generally a local limited liability company 25 in East Asia and the Pacific, 25 in Eastern Europe operating in the largest business city. Because and Central Asia, 20 in the Middle East and North standard assumptions are used in the data collection, Africa and 8 in South Asia, as well as 31 OECD high- comparisons and benchmarks are valid across income economies. The indicators are used to analyze economies. The data not only highlight the extent of economic outcomes and identify what reforms have obstacles to doing business; they also help identify the worked, where and why. source of those obstacles, supporting policy makers in designing regulatory reform. This regional profile presents the Doing Business indicators for economies in Common Market for More information is available in the full report. Doing Eastern and Southern Africa (COMESA). It also shows Business 2014 presents the indicators, analyzes their the regional average, the best performance globally relationship with economic outcomes and for each indicator and data for the following recommends regulatory reforms. The data, along with comparator regions: Europe and Central Asia (ECA), information on ordering the Doing Business 2014 Economic Community of West African States report, are available on the Doing Business website at (ECOWAS), Middle East and North Africa (MENA), http://www.doingbusiness.org. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 5 (COMESA) THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s The ranking on each topic is the simple average of regulatory environment for business, a good place to the percentile rankings on its component start is to find out how it compares with the indicators (see the data notes for more details). regulatory environment in other economies. Doing The aggregate ranking on the ease of doing Business provides an aggregate ranking on the ease business benchmarks each economy’s of doing business based on indicator sets that performance on the indicators against that of all measure and benchmark regulations applying to other economies in the Doing Business sample domestic small to medium-size businesses through (figure 1.1). While this ranking tells much about their life cycle. Economies are ranked from 1 to 189 the business environment in an economy, it does by the ease of doing business index. For each not tell the whole story. The ranking on the ease of economy the index is calculated as the ranking on the doing business, and the underlying indicators, do simple average of its percentile rankings on each of not measure all aspects of the business the 10 topics included in the index in Doing Business environment that matter to firms and investors or 2014: starting a business, dealing with construction that affect the competitiveness of the economy. permits, getting electricity, registering property, Still, a high ranking does mean that the getting credit, protecting investors, paying taxes, government has created a regulatory environment trading across borders, enforcing contracts and conducive to operating a business. resolving insolvency. Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 6 (COMESA) THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands regional average (figure 1.2). Another perspective is in the aggregate ranking on the ease of doing business is provided by the regional average rankings on the topics useful. Also useful is to know how it ranks compared with included in the ease of doing business index (figure 1.3). other economies in the region and compared with the Figure 1.2 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of doing business *The economy with the best performance globally is included as a benchmark. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 7 (COMESA) THE BUSINESS ENVIRONMENT Figure 1.3 How Common Market for Eastern and Southern Africa (COMESA) ranks on Doing Business topics Regional average ranking Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 8 (COMESA) Figure 1.4 How far has Common Market for Eastern and Southern Africa (COMESA) come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average a region is from the best performance achieved by any region on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 9 (COMESA) THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing more significant impact as measured by Doing business tells only part of the story, so do changes in Business. that ranking. Yearly movements in rankings can The absolute values of the indicators tell another part provide some indication of changes in an economy’s of the story (table 1.1). Policy makers can learn much regulatory environment for firms, but they are always by comparing the indicators for their economy with relative. An economy’s ranking might change because those for the lowest- and highest-scoring economies of developments in other economies. An economy that in the region as well as those for the best performers implemented business regulation reforms may fail to globally. These comparisons may reveal unexpected rise in the rankings (or may even drop) if it is passed strengths in an area of business regulation—such as a by others whose business regulation reforms had a regulatory process that can be completed with a small number of procedures in a few days and at a low cost. Table 1.1 Summary of Doing Business indicators for Common Market for Eastern and Southern Africa (COMESA) Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 188 (Eritrea) 9 (Rwanda) 115 1 (New Zealand) (rank) Procedures (number) 15 (Uganda) 2 (Rwanda)* 8 1 (New Zealand)* Time (days) 90.0 (Zimbabwe) 2.0 (Rwanda) 28.4 1.0 (New Zealand) Cost (% of income per 200.1 (Congo, Dem. 3.6 (Mauritius) 62.4 0.0 (Slovenia) capita) Rep.) Paid-in Min. Capital (% 909.1 (Congo, Dem. 0.0 (13 Economies*) 82.0 0.0 (112 Economies*) of income per capita) Rep.) Dealing with 1 (Hong Kong SAR, Construction Permits 189 (Eritrea) 44 (Comoros) 118 China) (rank) 6 (Hong Kong SAR, Procedures (number) 21 (Egypt, Arab Rep.) 9 (Kenya)* 14 China) Time (days) 496.0 (Zimbabwe) 95.0 (Swaziland) 169.1 26.0 (Singapore) Cost (% of income per 3,055.6 (Zimbabwe) 22.9 (Seychelles) 811.2 1.1 (Qatar) capita) Getting Electricity 187 (Madagascar) 48 (Mauritius) 130 1 (Iceland) (rank) Procedures (number) 7 (Egypt, Arab Rep.) 3 (Comoros) 5 3 (10 Economies*) Time (days) 450 (Madagascar) 30 (Rwanda) 131 17 (Germany) Cost (% of income per 23,025.1 (Congo, Dem. 281.1 (Mauritius) 5,492.6 0.0 (Japan) capita) Rep.) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 10 (COMESA) Lowest regional Best regional Best global Indicator Regional average performance performance performance Registering Property 189 (Libya) 8 (Rwanda) 107 1 (Georgia) (rank) Procedures (number) 11 (Uganda) 3 (Rwanda) 7 1 (4 Economies*) Time (days) 78.0 (Eritrea) 9.0 (Sudan) 42.2 1.0 (New Zealand)* Cost (% of property 12.8 (Djibouti) 0.2 (Rwanda) 6.0 0.0 (5 Economies*) value) Getting Credit (rank) 186 (Eritrea)* (3 Economies*) 114 1 (Malaysia)* Strength of legal 1 (Libya) 10 (Kenya) 5 10 (10 Economies*) rights index (0-10) Depth of credit 1 (5 Economies*) 6 (3 Economies*) 4 6 (31 Economies*) information index (0-6) Public registry 0.1 (Ethiopia)* 69.2 (Mauritius) 9.8 100.0 (Portugal)* coverage (% of adults) Private bureau 3.7 (Zimbabwe) 41.6 (Swaziland) 14.1 100.0 (22 Economies*) coverage (% of adults) Protecting Investors 187 (Libya) 12 (Mauritius) 109 1 (New Zealand) (rank) Extent of disclosure 0 (Sudan) 8 (Burundi)* 4 10 (10 Economies*) index (0-10) Extent of director 1 (4 Economies*) 9 (Rwanda) 5 10 (Cambodia) liability index (0-10) Ease of shareholder 0 (Djibouti) 10 (Kenya) 5 10 (3 Economies*) suits index (0-10) Strength of investor 1.7 (Libya) 7.7 (Mauritius) 4.6 9.7 (New Zealand) protection index (0-10) Paying Taxes (rank) 176 (Congo, Dem. Rep.) 13 (Mauritius) 98 1 (United Arab Emirates) Payments (number per 3 (Hong Kong SAR, 49 (Zimbabwe) 8 (Mauritius) 30 year) China)* 12 (United Arab Time (hours per year) 889 (Libya) 76 (Seychelles) 239 Emirates) Trading Across 176 (Malawi) 12 (Mauritius) 134 1 (Singapore) Borders (rank) Documents to export 10 (Malawi)* 4 (Mauritius) 7 2 (Ireland)* (number) Time to export (days) 53 (Zimbabwe) 10 (Mauritius) 30 6 (5 Economies*) Cost to export (US$ per 3,765 (Zimbabwe) 625 (Egypt, Arab Rep.) 1,956 450 (Malaysia) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 11 (COMESA) Lowest regional Best regional Best global Indicator Regional average performance performance performance container) Documents to import 12 (Eritrea) 5 (3 Economies*) 9 2 (Ireland)* (number) Time to import (days) 71 (Zimbabwe) 10 (Mauritius) 36 4 (Singapore) Cost to import (US$ 5,660 (Zimbabwe) 675 (Seychelles) 2,564 440 (Singapore) per container) Enforcing Contracts 177 (Congo, Dem. 40 (Rwanda) 127 1 (Luxembourg) (rank) Rep.)* Time (days) 1,225 (Djibouti) 230 (Rwanda) 664 150 (Singapore) 147.6 (Congo, Dem. Cost (% of claim) 15.2 (Ethiopia) 51.4 0.1 (Bhutan) Rep.) Procedures (number) 53 (Sudan) 23 (Rwanda) 40 21 (Singapore)* Resolving Insolvency (3 Economies*) 61 (Mauritius) 128 1 (Japan) (rank) Time (years) 5.2 (Congo, Dem. Rep.) 1.7 (Mauritius) 3.0 0.4 (Ireland) Cost (% of estate) 30 (Burundi)* 9 (Zambia) 21 1 (Norway) Recovery rate (cents on 0.0 (3 Economies*) 41.0 (Mauritius) 20.6 92.8 (Japan) the dollar) * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 12 (COMESA) STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for INDICATORS MEASURE business owners and employees. Legal entities outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An Registration in the economy’s largest additional benefit comes with limited liability business city companies. These limit the financial liability of company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. registration, company seal) Where governments make this process easy, more Time required to complete each procedure entrepreneurs start businesses in the formal sector, (calendar days) creating more good jobs and generating more Does not include time spent gathering revenue for the government. information What do the indicators cover? Each procedure starts on a separate day (2 procedures cannot start on the same day). Doing Business measures the ease of starting a Procedures that can be fully completed business in an economy by recording all online are an exception to this rule. procedures officially required or commonly done in practice by an entrepreneur to start up and Procedure considered completed once final document is received formally operate an industrial or commercial business—as well as the time and cost required to No prior contact with officials complete these procedures. It also records the paid-in minimum capital that companies must Cost required to complete each procedure deposit before registration. The ranking on the (% of income per capita) ease of starting a business is the simple average of Official costs only, no bribes the percentile rankings on the 4 component No professional fees unless services required indicators: procedures, time, cost and paid-in by law minimum capital requirement. Paid-in minimum capital (% of income To make the data comparable across economies, per capita) Doing Business uses several assumptions about the business and the procedures. It assumes that all Funds deposited in a bank or with a notary before registration (or within 3 months) information is readily available to the entrepreneur and that there has been no prior contact with • Conducts general commercial or industrial officials. It also assumes that the entrepreneur will activities. pay no bribes. And it assumes that the business: • Has a start-up capital of 10 times income per • Is a 100% domestically owned limited liability capita and has a turnover of at least 100 times company, located in the largest business city. income per capita. • Has between 10 and 50 employees. • Does not qualify for any special benefits. • Does not own real estate. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 13 (COMESA) STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in suggest an answer (figure 2.1). The average ranking of Common Market for Eastern and Southern Africa the region and comparator regions provide a useful (COMESA) to start a business? The global rankings of benchmark. these economies on the ease of starting a business Figure 2.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 14 (COMESA) STARTING A BUSINESS The indicators underlying the rankings may be more cost and the paid-in minimum capital requirement revealing. Data collected by Doing Business show (figure 2.2). Comparing these indicators across the what it takes to start a business in each economy in region and with averages both for the region and for the region: the number of procedures, the time, the comparator regions can provide useful insights. Figure 2.2 What it takes to start a business in economies in Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 15 (COMESA) STARTING A BUSINESS Time (days) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 16 (COMESA) STARTING A BUSINESS Cost (% of income per capita) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 17 (COMESA) STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 18 (COMESA) STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making satisfaction and savings and more registered it easier to start a business—streamlining procedures businesses, financial resources and job opportunities. by setting up a one-stop shop, making procedures What business registration reforms has Doing Business simpler or faster by introducing technology, and recorded in Common Market for Eastern and Southern reducing or eliminating minimum capital requirements. Africa (COMESA) (table 2.1)? Many have undertaken business registration reforms in stages—and often as part of a larger regulatory reform program. Among the benefits have been greater firm Table 2.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) made starting a business easier—or not? By Doing Business report year DB year Economy Reform The minimum capital required to start a business was cut DB2008 Egypt, Arab Rep. from EGP 50,000 to EGP 1,000, and halved start-up time and cost. Eritrea made the process of starting a business more difficult DB2008 Eritrea by taking more time to process different procedures of establishing a new business. An ambitious licensing reform program was launched which has led to the elimination of 110 business licenses and the DB2008 Kenya simplification of eight, reducing the time and cost of obtaining building licenses and registering a company. Business registration was reduced to just eight days, DB2008 Madagascar streamlining operations at the one stop shop (GUIDE). Mauritius made starting a business faster by implementing a DB2008 Mauritius centralized database linking the company registry with tax, social security, and local authorities. Paid in minimum capital was reduced by 20%, and cost was DB2009 Egypt, Arab Rep. reduced as a result of bar association fees’ abolishment and time was cut due to tax registration automation. Improvement at the registry and better communication DB2009 Kenya between relevant agencies resulted in substantial time reduction. Professional tax was abolished reducing the cost and online DB2009 Madagascar publication cut time. On-line reforms further simplified registration process and DB2009 Mauritius formalities were streamlined reducing the number of procedures. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 19 (COMESA) DB year Economy Reform The revamping of the company registry and the creation of a DB2009 Zambia one-stop shop resulted in tremendous time reduction. Egypt has eased the business start- up process by abolishing DB2010 Egypt, Arab Rep. the minimum capital requirement. Ethiopia reforms at the registry and streamlining of DB2010 Ethiopia procedures improved the registration process easing the process of new business start-up. Madagascar simplified business start-up through the streamlining of procedures at the one stop shop, elimination DB2010 Madagascar of stamp duty and elimination of the minimum capital requirement. Rwanda simplified the start-up process by eliminating the notarization requirement, introduction of standardized memoranda of association, making publication on-line, DB2010 Rwanda consolidation of name-checking, registration fee payment, tax registration and company registration procedures, and reducing the time required to process completed applications. The Democratic Republic of Congo eased business start-up DB2011 Congo, Dem. Rep. by eliminating procedures, including the company seal. DB2011 Egypt, Arab Rep. Egypt reduced the cost to start a business. Kenya eased business start-up by reducing the time it takes to get the memorandum and articles of association stamped, DB2011 Kenya merging the tax and value added tax registration procedures and digitizing records at the registrar. Uganda made it more difficult to start a business by DB2011 Uganda increasing the trade licensing fees. Zambia eased business start-up by eliminating the minimum DB2011 Zambia capital requirement. Zimbabwe eased business start-up by reducing registration DB2011 Zimbabwe fees and speeding up the name search process and company and tax registration. Comoros made the process of starting a business more DB2012 Comoros difficult by increasing the minimum capital requirement. The Democratic Republic of Congo made business start-up DB2012 Congo, Dem. Rep. faster by reducing the time required to complete company registration and obtain a national identification number. Madagascar eased the process of starting a business by eliminating the minimum capital requirement, but also made DB2012 Madagascar it more difficult by introducing the requirement of obtaining a tax identification number. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 20 (COMESA) DB year Economy Reform Rwanda made starting a business easier by reducing the DB2012 Rwanda business registration fees. Uganda introduced changes that added time to the process of obtaining a business license, slowing business start-up. But DB2012 Uganda it simplified registration for a tax identification number and for value added tax by introducing an online system. Burundi made starting a business easier by eliminating the requirements to have company documents notarized, to DB2013 Burundi publish information on new companies in a journal and to register new companies with the Ministry of Trade and Industry. The Comoros made starting a business easier and less costly by replacing the requirement for a copy of the founders’ DB2013 Comoros criminal records with one for a sworn declaration at the time of the company’s registration and by reducing the fees to incorporate a company. The Democratic Republic of Congo made starting a business DB2013 Congo, Dem. Rep. easier by appointing additional public notaries. Madagascar made starting a business easier by allowing the DB2013 Madagascar one-stop shop to deal with the publication of the notice of incorporation. Burundi made starting a business easier by allowing registration with the Ministry of Labor at the one-stop shop DB2014 Burundi and by speeding up the process of obtaining the registration certificate. Comoros made starting a business easier by eliminating the DB2014 Comoros requirement to deposit the minimum capital in a bank before incorporation. The Democratic Republic of Congo made starting a business more complicated by increasing the minimum capital DB2014 Congo, Dem. Rep. requirement. At the same time, it made the process easier by reducing the time and by eliminating the requirement to obtain a certificate confirmi Djibouti made starting a business easier by simplifying DB2014 Djibouti registration formalities and eliminating the minimum capital requirement for limited liability companies. Madagascar made starting a business more difficult by DB2014 Madagascar increasing the cost to register with the National Center for Statistics. Rwanda made starting a business easier by reducing the time DB2014 Rwanda required to obtain a registration certificate. Swaziland made starting a business easier by shortening the DB2014 Swaziland administrative processing times for registering a new business and obtaining a trading license. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 21 (COMESA) DB year Economy Reform Zambia made starting a business easier by raising the DB2014 Zambia threshold at which value added tax registration is required. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 22 (COMESA) DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse (number) time and money, many builders opt out. They may pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, sewerage and a land telephone line Doing Business records the procedures, time and cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a simple completion (if required for use as collateral or commercial warehouse in the economy’s main city, for transfer of warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure completed once final document is Doing Business uses several assumptions about the received business and the warehouse, including the utility No prior contact with officials connections. The business: Cost required to complete each procedure (% of income per capita) • Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city. • Will be connected to water, sewerage (sewage system, septic tank or their • Is domestically owned and operated. equivalent) and a fixed telephone line. • Has 60 builders and other employees. • The connection to each utility network will be The warehouse: 10 meters (32 feet, 10 inches) long. • Is a new construction (there was no • Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions). • Has complete architectural and technical plans prepared by a licensed architect or • Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 23 (COMESA) DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in with construction permits suggest an answer (figure Common Market for Eastern and Southern Africa 3.1). The average ranking of the region and (COMESA) to legally build a warehouse? The global comparator regions provide a useful benchmark. rankings of these economies on the ease of dealing Figure 3.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 24 (COMESA) DEALING WITH CONSTRUCTION PERMITS The indicators underlying the rankings may be more of procedures, the time and the cost (figure 3.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to comply with formalities to build a averages both for the region and for comparator warehouse in each economy in the region: the number regions can provide useful insights. Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 25 (COMESA) DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 26 (COMESA) DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) * Indicates a “no practice” mark. See the data notes for details. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 27 (COMESA) DEALING WITH CONSTRUCTION PERMITS What are the changes over time? Smart regulation ensures that standards are met while worked on consolidating permitting requirements. making compliance easy and accessible to all. What construction permitting reforms has Doing Coherent and transparent rules, efficient processes and Business recorded in Common Market for Eastern and adequate allocation of resources are especially Southern Africa (COMESA) (table 3.1)? important in sectors where safety is at stake. Construction is one of them. In an effort to ensure building safety while keeping compliance costs reasonable, governments around the world have Table 3.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) made dealing with construction permits easier—or not? By Doing Business report year DB year Economy Reform Egypt made obtaining construction permits less expensive DB2008 Egypt, Arab Rep. by reducing the fee for building registeration. Kenya made obtaining construction permits easier by implementing licensing reform, which simplified the DB2008 Kenya procedures. Also, the government improved the efficiency of permit issuance. The cost of telephone connection has been reduced as well. Mauritius made obtaining construction permits easier by combining procedures of getting development permit and DB2008 Mauritius building permit, and it also set up an official time frame to process the permit application. Rwanda made obtaining construction permits easier by decentralizing the permit system which reduced the total time of getting a building permit and an occupancy permit. DB2008 Rwanda Meanwhile, the total time to obtain electricity connection was decreased. The government also set up the requirement for waste management facilities and proper sewerage. Zambia made dealing with construction permits easier by DB2008 Zambia reducing the time to obtain utility connections Zimbabwe made obtaining construction permits more difficult by imposing inspections by Chief Building Inspector DB2008 Zimbabwe or Deputy Chief Inspecptor, which would take longer time. It also increased the fees due to inflation. Meanwhile, it is more time consuming to obtain water connections from local Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 28 (COMESA) DB year Economy Reform authorities. Egypt passed a new building code in 2008 that aims to DB2009 Egypt, Arab Rep. establish a single window for processing construction related approvals and reduce procedures and time. Rwanda streamlined project clearances for the second year in a row by combining the processes for obtaining a location DB2009 Rwanda clearance and building permit in a single application form. Rwanda also introduced a single application form for water, sewerage and electricity connections Instability and severe administrative backlog led to increase DB2009 Zimbabwe of costs for all construction permit related procedures by USD 14,851.7 and delays in approvals by 474 days. Egypt continued to ease the process of dealing with construction permits with the issuance of the Executive DB2010 Egypt, Arab Rep. Articles of the 2008 Construction Law, and eliminating most pre-approvals for construction permits. Kenya has increased the cost of dealing with construction DB2010 Kenya permit process. Dealing with construction permits became easier in the Democratic Republic of Congo thanks to a reduction in the DB2011 Congo, Dem. Rep. cost of a building permit from 1% of the estimated construction cost to 0.6% and a time limit for issuing building permits. Rwanda made dealing with construction permits easier by passing new building regulations at the end of April 2010 DB2011 Rwanda and implementing new time limits for the issuance of various permits. Burundi made dealing with construction permits easier by DB2012 Burundi reducing the cost to obtain a geotechnical study. The Democratic Republic of Congo reduced the DB2012 Congo, Dem. Rep. administrative costs of obtaining a construction permit. Djibouti made dealing with construction permits costlier by DB2012 Djibouti increasing the fees for inspections and the building permit and adding a new inspection in the preconstruction phase. DB2013 Burundi Burundi made obtaining a construction permit easier by eliminating the requirement for a clearance from the Ministry Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 29 (COMESA) DB year Economy Reform of Health and reducing the cost of the geotechnical study. Malawi made dealing with construction permits more DB2013 Malawi expensive by increasing the cost to obtain the plan approval and to register the property. Burundi made dealing with construction permits easier by DB2014 Burundi establishing a one-stop shop for obtaining building permits and utility connections. Rwanda made dealing with construction permits easier and less costly by reducing the building permit fees, DB2014 Rwanda implementing an electronic platform for building permit applications and streamlining procedures. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 30 (COMESA) GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized Obtaining external installation works and warehouse, as well as the time and cost to possibly purchasing material for these works complete them. These procedures include Concluding any necessary supply contract and applications and contracts with electricity utilities, obtaining final supply clearances from other agencies and the external and final connection works. The ranking on the Time required to complete each procedure ease of getting electricity is the simple average of (calendar days) the percentile rankings on its component Is at least 1 calendar day indicators: procedures, time and cost. To make the Each procedure starts on a separate day data comparable across economies, several assumptions are used. Does not include time spent gathering information The warehouse: Reflects the time spent in practice, with little • Is located in the economy’s largest follow-up and no prior contact with officials business city, in an area where other Cost required to complete each procedure (% warehouses are located. of income per capita) • Is not in a special economic zone where Official costs only, no bribes the connection would be eligible for subsidization or faster service. Excludes value added tax • Has road access. The connection works involve the crossing of a road or roads but are carried out on public land. • Is 150 meters long. • Is a new construction being connected to • Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either • Has 2 stories, both above ground, with a overhead or underground, whichever is more total surface of about 1,300.6 square common in the economy and in the area meters (14,000 square feet), and is built on where the warehouse is located. The length a plot of 929 square meters (10,000 square of any connection in the customer’s private feet). domain is negligible. The electricity connection: • Requires crossing of a 10-meter road but all the works are carried out in a public land, so • Is a 3-phase, 4-wire Y, 140-kilovolt-ampere there is no crossing into other people's (kVA) (subscribed capacity) connection. private property. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 31 (COMESA) • Involves installing one electricity meter. The monthly electricity consumption will be 0.07 gigawatt-hour (GWh). The internal electrical wiring has been completed. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 32 (COMESA) GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in getting electricity suggest an answer (figure 4.1). The Common Market for Eastern and Southern Africa average ranking of the region and comparator regions (COMESA) to connect a warehouse to electricity? The provide a useful benchmark. global rankings of these economies on the ease of Figure 4.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 33 (COMESA) GETTING ELECTRICITY The indicators underlying the rankings may be more time and the cost (figure 4.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to get a new electricity connection in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Figure 4.2 What it takes to get an electricity connection in economies in Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 34 (COMESA) GETTING ELECTRICITY Time (days) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 35 (COMESA) GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 36 (COMESA) GETTING ELECTRICITY What are the changes over time? Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic connection costs reasonable, governments around the operations. In many economies the connection world have worked to consolidate requirements for process is complicated by the multiple laws and obtaining an electricity connection. What reforms in regulations involved—covering service quality, general getting electricity has Doing Business recorded in safety, technical standards, procurement practices and Common Market for Eastern and Southern Africa internal wiring installations. In an effort to ensure (COMESA) (table 4.1)? Table 4.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) made getting electricity easier—or not? By Doing Business report year DB year Economy Reform In Ethiopia delays in providing new connections made getting DB2012 Ethiopia electricity more difficult. Rwanda made getting electricity easier by reducing the cost DB2013 Rwanda of obtaining a new connection. Burundi made getting electricity easier by eliminating the electricity utility’s monopoly on the sale of materials needed DB2014 Burundi for new connections and by dropping the processing fee for new connections. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 37 (COMESA) REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal Procedures to legally transfer title on again. And where property is informal or poorly immovable property (number) administered, it has little chance of being accepted as collateral for loans—limiting access to Preregistration procedures (for example, finance. checking for liens, notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration procedures in the economy’s Doing Business records the full sequence of largest business city procedures necessary for a business to purchase Postregistration procedures (for example, filing property from another business and transfer the title with the municipality) property title to the buyer’s name. The transaction Time required to complete each procedure is considered complete when it is opposable to (calendar days) third parties and when the buyer can use the property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile Each procedure starts on a separate day. rankings on its component indicators: procedures, Procedures that can be fully completed online time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are No prior contact with officials used. Cost required to complete each procedure (% The parties (buyer and seller): of property value) • Are limited liability companies, 100% Official costs only, no bribes domestically and privately owned. No value added or capital gains taxes included • Are located in the periurban area of the economy’s largest business city. • Have 50 employees each, all of whom are nationals. • Has no mortgages attached and has been under the same ownership for the past 10 • Perform general commercial activities. years. The property (fully owned by the seller): • Consists of 557.4 square meters (6,000 square • Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000 square feet). The warehouse is in good • Is registered in the land registry or condition and complies with all safety cadastre, or both, and is free of title standards, building codes and legal disputes. requirements. There is no heating system. The • Is located in a periurban commercial zone, property will be transferred in its entirety. and no rezoning is required. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 38 (COMESA) REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in suggest an answer (figure 5.1). The average ranking of Common Market for Eastern and Southern Africa the region and comparator regions provide a useful (COMESA) to transfer property? The global rankings of benchmark. these economies on the ease of registering property Figure 5.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of registering property Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 39 (COMESA) REGISTERING PROPERTY The indicators underlying the rankings may be more the time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show indicators across the region and with averages both what it takes to complete a property transfer in each for the region and for comparator regions can economy in the region: the number of procedures, provide useful insights. Figure 5.2 What it takes to register property in economies in Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 40 (COMESA) REGISTERING PROPERTY Time (days) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 41 (COMESA) REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice” mark. See the data notes for details. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 42 (COMESA) REGISTERING PROPERTY What are the changes over time? Economies worldwide have been making it easier for buyers to use or mortgage their property earlier. What entrepreneurs to register and transfer property—such property registration reforms has Doing Business as by computerizing land registries, introducing time recorded in Common Market for Eastern and Southern limits for procedures and setting low fixed fees. Many Africa (COMESA) (table 5.1)? have cut the time required substantially—enabling Table 5.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) made registering property easier—or not? By Doing Business report year DB year Economy Reform Burundi made registering property cheaper by reducing the registration fee. These measures were in part motivated by DB2008 Burundi the desire of these countries to pass the Millennium Challenge Corporation eligibility threshold. Property registration was sped up by improving efficiency at DB2008 Djibouti the Service des Domaines. The cost of registering property was reduced from 3% of the DB2008 Egypt, Arab Rep. property value to a low fixed fee. The introduction of competition among land valuers (allowing DB2008 Kenya private practitioners) led to a faster turnaround of one week instead of one month for a land valuation. Mauritius made registering property cheaper by reducing the DB2008 Mauritius property registration fee. Zimbabwe made registering property more expensive by DB2008 Zimbabwe increasing the conveyancers fees. Burundi made registering property cheaper by reducing the registration fee. These measures were in part motivated by DB2009 Burundi the desire of these countries to pass the Millennium Challenge Corporation eligibility threshold. Egypt simplified administrative procedures, reorganized the DB2009 Egypt, Arab Rep. business workflow between the real estate registry and the Egyptian Surveying Authority (ESA) and introduced time limits Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 43 (COMESA) DB year Economy Reform in several procedures. These reforms decreased the time to transfer a property in Cairo from 193 to 72 days. Madagascar reformed its Land Registry, more staff was hired, more computers were added and the number of offices increased. In addition, Madagascar abolished two taxes and DB2009 Madagascar removed the mandatory stamps duty on documents. As a result, the number of procedures to register a property went down from 8 to 7, time was reduced by 60 days and cost by 4.04%. Mauritius abolished two procedures, the requirement to obtain clearance certificate from the Waste Water Authority DB2009 Mauritius and to obtain a tax clearance certificate for municipal taxes. This reform has reduced the number of procedures required to transfer property in Mauritius from 6 to 4. Rwanda abolished the 6% registration fee and replaced it with a flat rate of RWF 20,000 (about $34), regardless of the property value. Rwanda also created a new centralized service DB2009 Rwanda in the tax authority to speed up the process of issuing the certificate of good standing. As a result, the cost to transfer a property was reduced by 8.81% and the number of days by 56, from 371 days to 315. Zambia computerized its land registry and set up a customer service center to eliminate the backlog of registration DB2009 Zambia requests. As a result, the time required to register a property in Zambia is reduced from 70 to 39 days. Ethiopia decentralized administrative tasks to sub cities, DB2010 Ethiopia merging procedures done at the Land registry and municipality thus easing property transfers procedures. Madagascar made it more costly to transfer a property by DB2010 Madagascar introducing the mandatory use of notary for property transactions. Mauritius has made it easier to register property by setting a DB2010 Mauritius statutory time limit of 15 days to obtain the final property title from the Land Registry Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 44 (COMESA) DB year Economy Reform Rwanda continued to ease the registration of property by DB2010 Rwanda decreasing the number of days required to transfer a property. Zimbabwe has reduced the cost to transfer a property by 15% DB2010 Zimbabwe of the value of the property. The Democratic Republic of Congo reduced by half the DB2011 Congo, Dem. Rep. property transfer tax to 3% of the property value. Malawi eased property transfers by cutting the wait for DB2011 Malawi consents and registration of legal instruments by half. Malawi made property registration slower by no longer DB2012 Malawi sustaining last year’s time improvement in Compliance Certificate processing times at the Ministry of Lands. Rwanda made transferring property more expensive by DB2012 Rwanda enforcing the checking of the capital gains tax. Swaziland made transferring property quicker by streamlining DB2012 Swaziland the process at the land registry. Uganda increased the efficiency of property transfers by DB2012 Uganda establishing performance standards and recruiting more officials at the land office. Zambia made registering property more costly by increasing DB2012 Zambia the property transfer tax rate. Burundi made property transfers faster by establishing a DB2013 Burundi statutory time limit for processing property transfer requests at the land registry. The Comoros made it easier to transfer property by reducing DB2013 Comoros the property transfer tax. Mauritius made property transfers faster by implementing an DB2013 Mauritius electronic information management system at the Registrar- General’s Department. DB2013 Uganda Uganda made transferring property more difficult by Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 45 (COMESA) DB year Economy Reform introducing a requirement for property purchasers to obtain an income tax certificate before registration, resulting in delays at the Uganda Revenue Authority and the Ministry of Finance. At the same time, Uganda made it easier by digitizing records at the title registry, increasing efficiency at the assessor’s office and making it possible for more banks to accept the stamp duty payment. Burundi made transferring property easier by creating a one- DB2014 Burundi stop shop for property registration. Malawi made transferring property easier by reducing the DB2014 Malawi stamp duty. Rwanda made transferring property easier by eliminating the requirement to obtain a tax clearance certificate and by DB2014 Rwanda implementing the web-based Land Administration Information System for processing land transactions. Uganda made transferring property easier by eliminating the DB2014 Uganda need to have instruments of land transfer physically embossed to certify payment of the stamp duty. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 46 (COMESA) GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the borrowers and lenders’ rights in collateral and bankruptcy laws. Credit information Strength of legal rights index (0–10) systems enable lenders to view a potential borrower’s financial history (positive or negative)— Protection of rights of borrowers and lenders valuable information to consider when assessing through collateral laws risk. And they permit borrowers to establish a good Protection of secured creditors’ rights through credit history that will allow easier access to credit. bankruptcy laws Sound collateral laws enable businesses to use their assets, especially movable property, as security to Depth of credit information index (0–6) generate capital—while strong creditors’ rights Scope and accessibility of credit information have been associated with higher ratios of private distributed by public credit registries and sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit information index measures rules and practices Private credit bureau coverage (% of adults) affecting the coverage, scope and accessibility of Number of individuals and firms listed in credit information available through a public credit largest private credit bureau as percentage of registry or a private credit bureau. The strength of adult population legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the • Has up to 100 employees. secured transactions system, involving a secured • Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and • Is a private, incorporated, limited liability the strength of legal rights index. company. • Has its headquarters and only base of operations in the largest business city. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 47 (COMESA) GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and rankings of these economies on the ease of getting collateral and bankruptcy laws in economies in credit suggest an answer (figure 6.1). The average Common Market for Eastern and Southern Africa ranking of the region and comparator regions provide (COMESA) facilitate access to credit? The global a useful benchmark. Figure 6.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 48 (COMESA) GETTING CREDIT Another way to assess how well regulations and particular score on the strength of legal rights index. institutions support lending and borrowing in the Figure 6.3 shows the same thing for the depth of credit region is to look at the distribution of its economies by information index. Higher scores indicate stronger their scores on the getting credit indicators. Figure 6.2 legal rights for borrowers and lenders and more credit shows how many economies in the region received a information. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How extensive—and how accessible—is and lenders in economies in Common Market for credit information in economies in Common Market Eastern and Southern Africa (COMESA)? for Eastern and Southern Africa (COMESA)? Number of economies in region with each score on strength Number of economies in region with each score on depth of of legal rights index (0–10) credit information index (0–6) Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 49 (COMESA) GETTING CREDIT What are the changes over time? When economies strengthen the legal rights of lenders access to credit. What credit reforms has Doing and borrowers under collateral and bankruptcy laws, Business recorded in Common Market for Eastern and and increase the scope, coverage and accessibility of Southern Africa (COMESA) (table 6.1)? credit information, they can increase entrepreneurs’ Table 6.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) made getting credit easier—or not? By Doing Business report year DB year Economy Reform Egypt eased the access to credit information by creating a new private credit bureau. The new credit bureau will DB2008 Egypt, Arab Rep. distribute negative data about consumers and firms. It is guaranteed by law that borrowers can access the credit information stored in the private bureau. The private credit bureau also deepened its database DB2008 Kenya coverage by adding retailers and utility companies as providers of information. Borrowers have the right to inspect the data stored in the private credit bureau, thanks to new regulations from the DB2009 Egypt, Arab Rep. Central bank of Egypt. Allowing borrowers to check their data helps improve the quality and accuracy of credit information in Egypt The public credit registry in Mauritius eliminated the minimum loan requirement threshold to report credits in DB2009 Mauritius March 2007. The credit registry now captures information on all credits extended by the financial system. Access to credit information in Egypt has expanded with the DB2010 Egypt, Arab Rep. addition of retailers to the database of the private credit bureau, I-score. Kenya improved its access to credit by passing and implementing a law on credit bureaus that will provide a DB2010 Kenya framework for a regulated and reliable system of credit information sharing. Mauritius has strengthened access to credit information by DB2010 Mauritius allowing the licensing of private credit information bureaus, and by expanding the coverge of the bureau to all credit Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 50 (COMESA) DB year Economy Reform facilities. Rwanda made it easier to get credit with a new Secured Transactions Act and a new Insolvency Act to make secured lending more flexible, allowing a wider range of assets to be used as collateral and a general description of debts and DB2010 Rwanda obligations. Furthermore, out of court enforcement of collateral is now available to secured creditors who also now have absolute priority within bankruptcy. A new collateral registry has been created. Zambia strengthened access to credit information by making it mandatory for banks and non-bank financial instituitions DB2010 Zambia registered with Bank of Zambia to use credit reference reports and provide data to the Bureau. Rwanda enhanced access to credit by allowing borrowers the right to inspect their own credit report and mandating that DB2011 Rwanda loans of all sizes be reported to the central bank’s public credit registry. Uganda enhanced access to credit by establishing a new DB2011 Uganda private credit bureau. Access to credit in Comoros was improved through amendments to the OHADA Uniform Act on Secured Transactions that broaden the range of assets that can be DB2012 Comoros used as collateral (including future assets), extend the security interest to the proceeds of the original asset and introduce the possibility of out-of-court enforcement. Madagascar improved its credit information system by eliminating the minimum threshold for loans included in the DB2012 Madagascar database and making it mandatory for banks to share credit information with the credit bureau. Malawi improved its credit information system by passing a DB2012 Malawi new law allowing the creation of a private credit bureau. In Rwanda the private credit bureau started to collect and distribute information from utility companies and also started DB2012 Rwanda to distribute more than 2 years of historical information, improving the credit information system. Ethiopia improved access to credit information by DB2013 Ethiopia establishing an online platform for sharing such information and by guaranteeing borrowers’ right to inspect their Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 51 (COMESA) DB year Economy Reform personal data. Mauritius improved access to credit information by starting to DB2013 Mauritius collect payment information from retailers and beginning to distribute both positive and negative information. The Democratic Republic of Congo strengthened its secured transactions system by adopting the OHADA (Organization DB2014 Congo, Dem. Rep. for the Harmonization of Business Law in Africa) Uniform Act on Secured Transactions. The new law broadens the range of assets that can be us Djibouti strengthened its secured transactions system by DB2014 Djibouti adopting a new commercial code, which broadens the range of movable assets that can be used as collateral. Mauritius improved access to credit information by DB2014 Mauritius expanding the scope of credit information and increasing the coverage of the historical data distributed from 2 years to 3. Rwanda strengthened its secured transactions system by providing more flexibility on the types of debts and DB2014 Rwanda obligations that can be secured through a collateral agreement. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 52 (COMESA) PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be Extent of disclosure index (0–10) reluctant to provide funding to companies through the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor Available legal remedies (damages, protections: transparency of related-party disgorgement of profits, fines, imprisonment transactions (extent of disclosure index), liability for and rescission of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during (ease of shareholder suits index). The ranking Access to internal corporate documents on the strength of investor protection index is the (directly or through a government inspector) simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of • Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). • The price is higher than the going price for used trucks, but the transaction goes forward. • Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of • All required approvals are obtained, and all Buyer where permitted, even if this is not required disclosures made, though the specifically required by law. transaction is prejudicial to Buyer. The transaction involves the following details: • Shareholders sue the interested parties and the members of the board of directors. • Mr. James, a director and the majority shareholder of the company, proposes that the company purchase used trucks from another company he owns. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 53 (COMESA) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 54 (COMESA) PROTECTING INVESTORS Where do the region’s economies stand today? How strong are investor protections against self- the indicator does not measure all aspects related to dealing in economies in Common Market for Eastern the protection of minority investors, a higher ranking and Southern Africa (COMESA)? The global rankings of does indicate that an economy’s regulations offer these economies on the strength of investor stronger investor protections against self-dealing in protection index suggest an answer (figure 7.1). While the areas measured. Figure 7.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 55 (COMESA) PROTECTING INVESTORS But the overall ranking on the strength of investor shareholder suits indices may also be revealing (figure protection index tells only part of the story. Economies 7.2). Higher scores indicate stronger investor may offer strong protections in some areas but not protections. Comparing the scores across the region others. So the number of economies in Common on the strength of investor protection index and with Market for Eastern and Southern Africa (COMESA) that averages both for the region and for comparator have a certain score recorded on the extent of regions can provide useful insights. disclosure, extent of director liability and ease of Figure 7.2 How strong are investor protections in economies in Common Market for Eastern and Southern Africa (COMESA)? Strength of investor protection index (0–10) Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 56 (COMESA) PROTECTING INVESTORS Extent of disclosure index (0–10) Extent of director liability index (0–10) Number of economies in region with each score on extent of Number of economies in region with each score on extent of disclosure index (0–10) director liability index (0–10) Note: Higher scores indicate greater disclosure. Note: Higher scores indicate greater liability of directors. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 57 (COMESA) PROTECTING INVESTORS Ease of shareholder suits index (0–10) Number of economies in region with each score on ease of shareholder suits index (0–10) Note: Higher scores indicate greater powers of shareholders to challenge the transaction. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 58 (COMESA) PROTECTING INVESTORS What are the changes over time? Economies with the strongest protections of minority protections may move ahead on different fronts—such investors from self-dealing require detailed disclosure as through new or amended company laws, securities and define clear duties for directors. They also have regulations or revisions to court procedures. What well-functioning courts and up-to-date procedural investor protection reforms has Doing Business rules that give minority shareholders the means to recorded in Common Market for Eastern and Southern prove their case and obtain a judgment within a Africa (COMESA) (table 7.1)? reasonable time. So reforms to strengthen investor Table 7.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) strengthened investor protections—or not? By Doing Business report year DB year Economy Reform Egypt strengthened investor protections by requiring that an DB2009 Egypt, Arab Rep. independent body (auditor) assess transactions between interested parties as a prior step to approval. Rwanda adopted a new company law that strengthened investor protections by requiring greater corporate DB2010 Rwanda disclosure, director liability and shareholder access to information. Swaziland strengthened investor protections by requiring greater corporate disclosure, higher standards of accountability for company directors and greater access to DB2011 Swaziland corporate information for minority investors. Swaziland reduced the time to import by implementing an electronic data interchange system for customs at its border posts. Burundi strengthened investor protections by introducing new requirements for the approval of transactions between interested parties, by requiring greater corporate disclosure DB2012 Burundi to the board of directors and in the annual report and by making it easier to sue directors in cases of prejudicial transactions between interested parties. The Democratic Republic of Congo strengthened investor DB2014 Congo, Dem. Rep. protections by adopting the OHADA Uniform Act on Commercial Companies and Economic Interest Groups, which Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 59 (COMESA) DB year Economy Reform introduces additional approval and disclosure requirements for related-party transactions and Rwanda strengthened investor protections through a new law DB2014 Rwanda allowing plaintiffs to cross-examine defendants and witnesses with prior approval of the questions by the court. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 60 (COMESA) PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic or joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector— Total number of taxes and contributions paid, including consumption taxes (value added tax, where businesses pay no taxes at all. sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit) payments, time and total tax rate, with a threshold 1 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes • TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes • The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during • Taxes and mandatory contributions include the second year of operation are recorded. corporate income tax, turnover tax and all labor taxes and contributions paid by the • Taxes and mandatory contributions are company. measured at all levels of government. • A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 61 (COMESA) PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with on the ease of paying taxes offer useful information for taxes in economies in Common Market for Eastern and assessing the tax compliance burden for businesses Southern Africa (COMESA)—and how much do firms (figure 8.1). The average ranking of the region and pay in taxes? The global rankings of these economies comparator regions provide a useful benchmark. Figure 8.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of paying taxes Note: For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 62 (COMESA) PAYING TAXES The indicators underlying the rankings may be more as well as the total tax rate (figure 8.2). Comparing revealing. Data collected by Doing Business show what these indicators across the region and with averages it takes to comply with tax regulations in each both for the region and for comparator regions can economy in the region—the number of payments per provide useful insights. year and the time required to prepare and file taxes— Figure 8.2 How easy is it to pay taxes in economies in Common Market for Eastern and Southern Africa (COMESA)—and what are the total tax rates? Payments (number per year) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 63 (COMESA) PAYING TAXES Time (hours per year) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 64 (COMESA) PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 65 (COMESA) PAYING TAXES What are the changes over time? Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Common Market for Eastern and Southern Africa Many have lowered tax rates. Changes have brought (COMESA) (table 8.1)? Table 8.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) made paying taxes easier—or not? By Doing Business report year DB year Economy Reform Mauritius reduced the tax burden for companies by reducing DB2008 Mauritius CIT DB2008 Seychelles No impact on Doing Business 2008 indicators. Zimbabwe increased the tax on check transaction and DB2008 Zimbabwe introduced a new, more burdensome form for the payment of CIT Capital gains tax was abolished effective 1 January 2008. Effective 1 January 2008, corporate income tax is reduced DB2009 Madagascar from 30% to 25%, and several taxes, for example proessional tax and stamp duty, have been abolished. VAT rate has been increased from 18% to 20% Effective 2008, amendments will be made to the Income Tax Act in order to update, strengthen, and remove ambiguities in these laws and to enhance the effectiveness of tax administration. The depreciation allowance for capital DB2009 Zambia equipment will be reduced from 100% to 25% per annum. Ring-fencing introduced for capital expenditure on new projects, and only deductible sfter production starts. The VAT Act will be substantively amended and the rate of VAT will be reduced to between 16.5% and 15%. Congo, Dem. Rep. has sought to increase its tax revenue by DB2010 Congo, Dem. Rep. raising sales tax from 13% to 15%. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 66 (COMESA) DB year Economy Reform Djibouti eased the burden of paying taxes on businesses by DB2010 Djibouti introducing VAT of 7% on the supply of goods and services to replace the consumption tax The new tax law in Sudan has reduced the tax burden on business by reducing the corporate tax rate by an average of DB2010 Sudan 15% and the capital gains tax by 5% on average, while the tax on labor has been abolished. Burundi made paying taxes simpler by replacing the DB2011 Burundi transactions tax with a value added tax. Kenya increased the administrative burden of paying taxes by DB2011 Kenya requiring quarterly filing of payroll taxes. DB2011 Madagascar Madagascar continued to reduce corporate tax rates. DB2011 Mauritius Mauritius introduced a new corporate social responsibility tax. The Seychelles removed the tax-free threshold limit and DB2011 Seychelles lowered corporate income tax rates. Zimbabwe reduced the corporate income tax rate from 30% to 25%, lowered the capital gains tax from 20% to 5% and DB2011 Zimbabwe simplified the payment of corporate income tax by allowing quarterly payment through commercial banks. Burundi made paying taxes easier for companies by reducing DB2012 Burundi the payment frequency for social security contributions from monthly to quarterly. The Democratic Republic of Congo made paying taxes easier DB2012 Congo, Dem. Rep. for firms by replacing the sales tax with a value added tax. Rwanda reduced the frequency of value added tax filings by DB2012 Rwanda companies from monthly to quarterly. The Seychelles made paying taxes less costly for firms by DB2012 Seychelles eliminating the social security tax. DB2013 Ethiopia Ethiopia introduced a social insurance contribution. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 67 (COMESA) DB year Economy Reform Kenya made paying taxes faster for companies by enhancing DB2013 Kenya electronic filing systems. Malawi introduced a mandatory pension contribution for DB2013 Malawi companies. DB2013 Swaziland Swaziland introduced value added tax. Burundi made paying taxes less costly for companies by DB2014 Burundi reducing corporate income tax rate. The Democratic Republic of Congo made paying taxes more costly for companies by increasing the employers' social DB2014 Congo, Dem. Rep. security contribution rate—though it also reduced the corporate income tax rate. Egypt made paying taxes more costly for companies by DB2014 Egypt, Arab Rep. increasing the corporate income tax rate. Madagascar made paying taxes easier and less costly for companies by training taxpayers in the use of the online DB2014 Madagascar system for value added tax declarations and by reducing the corporate income tax rate. Rwanda made paying taxes easier and less costly for companies by fully rolling out its electronic filing system to DB2014 Rwanda the majority of businesses and by reducing the property tax rate and business trading license fee. The Seychelles made paying taxes more complicated for DB2014 Seychelles companies by introducing a value added tax. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 68 (COMESA) TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to extra costs and delays for exporters and importers, Documents required to export and import stifling trade potential. Research shows that (number) exporters in developing countries gain more from Bank documents a 10% drop in their trading costs than from a Customs clearance documents similar reduction in the tariffs applied to their products in global markets. Port and terminal handling documents What do the indicators cover? Transport documents Doing Business measures the time and cost Time required to export and import (days) (excluding tariffs and the time and cost for sea Obtaining, filling out and submitting all the transport) associated with exporting and documents importing a standard shipment of goods by sea transport, and the number of documents necessary Inland transport and handling to complete the transaction. The indicators cover Customs clearance and inspections procedural requirements such as documentation Port and terminal handling requirements and procedures at customs and other regulatory agencies as well as at the port. They also Does not include sea transport time cover trade logistics, including the time and cost of inland transport to the largest business city. The Cost required to export and import (US$ per container) ranking on the ease of trading across borders is the simple average of the percentile rankings on its All documentation component indicators: documents, time and cost Inland transport and handling to export and import. Customs clearance and inspections To make the data comparable across economies, Port and terminal handling Doing Business uses several assumptions about the business and the traded goods. Official costs only, no bribes The business: • Do not require refrigeration or any other special environment. • Is of medium size and employs 60 people. • Do not require any special phytosanitary or • Is located in the periurban area of the environmental safety standards other than economy’s largest business city. accepted international standards. • Is a private, limited liability company, • Are one of the economy’s leading export or domestically owned, formally registered import products. and operating under commercial laws and regulations of the economy. • Are transported in a dry-cargo, 20-foot full container load. The traded goods: • Are not hazardous nor do they include military items. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 69 (COMESA) TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in Common suggest an answer (figure 9.1). The average ranking of Market for Eastern and Southern Africa (COMESA) to the region and comparator regions provide a useful export and import goods? The global rankings of these benchmark. economies on the ease of trading across borders Figure 9.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 70 (COMESA) TRADING ACROSS BORDERS The indicators underlying the rankings may be more documents, the time and the cost (figure 9.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to export or import a standard container of averages both for the region and for comparator goods in each economy in the region: the number of regions can provide useful insights. Figure 9.2 What it takes to trade across borders in economies in Common Market for Eastern and Southern Africa (COMESA) Documents to export (number) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 71 (COMESA) TRADING ACROSS BORDERS Time to export (days) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 72 (COMESA) TRADING ACROSS BORDERS Cost to export (US$ per container) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 73 (COMESA) TRADING ACROSS BORDERS Documents to import (number) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 74 (COMESA) TRADING ACROSS BORDERS Time to import (days) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 75 (COMESA) TRADING ACROSS BORDERS Cost to import (US$ per container) Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 76 (COMESA) TRADING ACROSS BORDERS What are the changes over time? In economies around the world, trading across borders systems. These changes help improve their trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Common Market for Eastern and risk-based inspections and electronic data interchange Southern Africa (COMESA) (table 9.1)? Table 9.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) made trading across borders easier—or not? By Doing Business report year DB year Economy Reform Djibouti eased trading across borders by implementign an e- DB2008 Djibouti manifest system. DB2008 Egypt, Arab Rep. Egypt eased trade by improving Customs administration. Madagascar made trading across borders easier by DB2008 Madagascar implementing an EDI system, improving port infrastructure, and streamlining document requirements. Mauritius eased trading across borders by implementing a DB2008 Mauritius new computerized risk management system for inspections. Rwanda has eased trading across borders by expediting the DB2008 Rwanda acceptance of customs declarations and by liberalizing the warehouse services market. Uganda eased trading across borders by extending the application of the Asycuda++ EDI system to 4 additional Customs stations, introducing a system linking banks to DB2008 Uganda customs (for payment of duties), and enhancing border cooperation along the Kenya–Uganda Border at Malaba through joint inspections. Port administration improvements and abolishing of DB2009 Djibouti documents decreased export and import documentation, as well as import time. DB2009 Egypt, Arab Rep. Egypt upgraded port facilities at Alexandria and speeded up Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 77 (COMESA) DB year Economy Reform customs clearance and greater competition in the banking sector led to a reduction in the time to open a letter of credit. Eritrea upgraded infrastructure at Massawa port as well as the DB2009 Eritrea roads between Massawa and Asmara, which greatly facilitated trade. The time required to open a Letter of Credit also fell. Kenya extended the opening hours of customs and port authorities and reduced the number of inspection points DB2009 Kenya between Nairobi and Mombasa. It also introduced an electronic system allowing traders to submit their documents online. Implementation of EDI, a single window, risk-based DB2009 Madagascar inspections, and improvement of port infrastructure led to a decrease in export and import time. Due to extended opening hours, implementation or DB2009 Rwanda improvement of EDI, risk-based inspections, transportation sector led to a decrease in export and import time. In Congo Dem. Rep., the participation of private companies in the terminal handling process at the port of Matadi has DB2010 Congo, Dem. Rep. improved the quality of service reducing the needed time to handle cargos. The implementation of a risk-based inspection regime and a DB2010 Malawi post-destination clearance program for pre-approved traders has reduced the delays for clearing goods in Malawi. Mauritius introduced the electronic submission of the DB2010 Mauritius customs declaration and bill of lading without requirement of physical copies, thus speeding up trade process. Rwanda has improved trading times with administrative changes such as increased operating hours and enhanced DB2010 Rwanda cooperation at the border along with the removal of some documentation requirements for importers and exporters. Sudan has sped up trading across borders with improved DB2010 Sudan customs clearance and the electronic connection of 10 customs offices with facilitation for traders to file their Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 78 (COMESA) DB year Economy Reform declaration remotely, and with the addition 2 new scanners at the Port of Sudan .nal. Uganda has sped up trading times with improved customs DB2010 Uganda processes, benefits from increased operating hours at the Port of Mombasa, and improved cooperation at the border. Egypt made trading easier by introducing an electronic DB2011 Egypt, Arab Rep. system for submitting export and import documents. Ethiopia made trading easier by addressing internal DB2011 Ethiopia bureaucratic inefficiencies. Kenya speeded up trade by implementing an electronic cargo tracking system and linking this system to the Kenya Revenue DB2011 Kenya Authority’s electronic data interchange system for customs clearance. Madagascar improved communication and coordination between customs and the terminal port operators through its DB2011 Madagascar single-window system (GASYNET), reducing both the time and the cost to export and import. Rwanda reduced the number of trade documents required and enhanced its joint border management procedures with DB2011 Rwanda Uganda and other neighbors, leading to an improvement in the trade logistics environment. Swaziland reduced the import time of trading across borders DB2011 Swaziland by implementing an electronic data interchange system for customs at its border posts. Zambia eased trade by implementing a one-stop border post with Zimbabwe, launching web-based submission of customs DB2011 Zambia declarations and introducing scanning machines at border posts. Djibouti made trading across borders faster by developing a DB2012 Djibouti new container terminal. The Seychelles made trading across borders faster by DB2012 Seychelles introducing electronic submission of customs documents. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 79 (COMESA) DB year Economy Reform Burundi reduced the time to trade across borders by enhancing its use of electronic data interchange systems, DB2013 Burundi introducing a more efficient system for monitoring goods going through transit countries and improving border coordination with neighboring transit countries. Trading across borders in Malawi became easier thanks to DB2013 Malawi improvements in customs clearance procedures and transport links between the port of Beira in Mozambique and Blantyre. Burundi made trading across borders easier by eliminating DB2014 Burundi the requirement for a preshipment inspection clean report of findings. Madagascar made trading across borders easier by rolling out DB2014 Madagascar an online platform linking trade operators with government agencies involved in the trade process and customs clearance. Rwanda made trading across borders easier by introducing an DB2014 Rwanda electronic single-window system at the border. Swaziland made trading across borders easier by streamlining DB2014 Swaziland the process for obtaining a certificate of origin. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 80 (COMESA) ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the Steps to enforce the judgment outcome of a long court dispute. What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case: • The seller and buyer are located in the economy’s largest business city. • The dispute on the quality of the goods requires an expert opinion. • The buyer orders custom-made goods, then fails to pay. • The judge decides in favor of the seller; there is no appeal. • The seller sues the buyer before a competent court. • The seller enforces the judgment through a public sale of the buyer’s movable assets. • The value of the claim is 200% of income per capita. • The seller requests a pretrial attachment to secure the claim. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 81 (COMESA) ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial enforcing contracts suggest an answer (figure 10.1). dispute through the courts in economies in Common The average ranking of the region and comparator Market for Eastern and Southern Africa (COMESA)? regions provide a useful benchmark. The global rankings of these economies on the ease of Figure 10.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 82 (COMESA) ENFORCING CONTRACTS The indicators underlying the rankings may also be procedures, the time and the cost (figure 10.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to enforce a contract through the courts in averages both for the region and for comparator each economy in the region: the number of regions can provide useful insights. Figure 10.2 What it takes to enforce a contract through the courts in economies in Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 83 (COMESA) ENFORCING CONTRACTS Time (days) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 84 (COMESA) ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 85 (COMESA) ENFORCING CONTRACTS What are the changes over time? Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Common Market for introducing new technology. Lower-income economies Eastern and Southern Africa (COMESA) (table 10.1)? often work on reducing backlogs by introducing Table 10.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) made enforcing contracts easier—or not? By Doing Business report year DB year Economy Reform In the Democratic Republic of Congo, the operation of the DB2008 Congo, Dem. Rep. commercial court made commercial dispute resolution more efficient. Malawi has made enforcing contracts easier by opening a DB2008 Malawi commercial court and hiring new judges. Commercial courts began operating in three locations, in DB2009 Rwanda Kigali, and Rwanda’s Northern and Southern province. Egypt eased the process of enforcing contracts by creating DB2010 Egypt, Arab Rep. commercial courts. A combination of backlog reduction, improved case management and internal training, as well as the expanded DB2010 Ethiopia role of the enforcement judge has been successful in reducing delays in the Ethiopian courts Mauritius set up a specialized commercial division of its DB2010 Mauritius Supreme Court, thus improving contract enforcement. Malawi simplified the enforcement of contracts by raising the DB2011 Malawi ceiling for commercial claims that can be brought to the magistrates court. Mauritius speeded up the resolution of commercial disputes DB2011 Mauritius by recruiting more judges and adding more courtrooms. Uganda continues to improve the efficiency of its court DB2011 Uganda system, greatly reducing the time to file and serve a claim. Zambia improved contract enforcement by introducing an electronic case management system in the courts that DB2011 Zambia provides electronic referencing of cases, a database of laws, real-time court reporting and public access to court records. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 86 (COMESA) DB year Economy Reform Kenya introduced a case management system that will help DB2012 Kenya increase the efficiency and cost-effectiveness of commercial dispute resolution. The Seychelles expanded the jurisdiction of the lower court, DB2012 Seychelles increasing the time required to enforce contracts. Rwanda made enforcing contracts easier by implementing an DB2013 Rwanda electronic filing system for initial complaints. Mauritius made enforcing contracts easier by liberalizing the DB2014 Mauritius profession of ushers, providing competitive options for litigants to enforce binding decisions. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 87 (COMESA) RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through reorganization, liquidation or debt enforcement Recovery rate for creditors (cents on the (foreclosure) proceedings. The recovery rate is a dollar) function of time, cost and other factors, such as Measures the cents on the dollar recovered lending rate and the likelihood of the company by creditors continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account • Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered • Operates in the economy’s largest business city. • Has 201 employees, 1 main secured • Has a higher value as a going concern—and creditor and 50 unsecured creditors. that the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 88 (COMESA) RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies comparator regions provide a useful benchmark for in Common Market for Eastern and Southern Africa assessing the efficiency of insolvency proceedings. (COMESA)? The global rankings of these economies on Speed, low costs and continuation of viable businesses the ease of resolving insolvency suggest an answer characterize the top-performing economies. (figure 11.1). The average ranking of the region and Figure 11.1 How economies in Common Market for Eastern and Southern Africa (COMESA) rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 89 (COMESA) RESOLVING INSOLVENCY The indicators underlying the rankings may be more Comparing these indicators across the region and with revealing. Data collected by Doing Business show the averages both for the region and for comparator average time and cost required to resolve insolvency regions can provide useful insights. as well as the average recovery rate (figure 11.2). Figure 11.2 How efficient is the insolvency process in economies in Common Market for Eastern and Southern Africa (COMESA) Time (years) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 90 (COMESA) RESOLVING INSOLVENCY Cost (% of estate) Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 91 (COMESA) RESOLVING INSOLVENCY Recovery rate (cents on the dollar) * Indicates a “no practice” mark. See the data notes for details. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 92 (COMESA) RESOLVING INSOLVENCY What are the changes over time? A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Common Market for Eastern and Southern even viable businesses are liquidated. This is starting to Africa (COMESA) (table 11.1)? Table 11.1 How have economies in Common Market for Eastern and Southern Africa (COMESA) made resolving insolvency easier—or not? By Doing Business report year DB year Economy Reform Mauritius adopted legislation that made the process of sale DB2008 Mauritius of immovable property after default on a credit agreement more efficient and less susceptible to abuse by creditors. Malawi introduced a new law limiting the liquidator's fees DB2010 Malawi during insolvency procedures. A new insolvency law in Mauritius introduces a rehabilitation procedure for companies as an alternative to winding up, and DB2010 Mauritius defines the rights and obligations of creditors and debtors and sanctions for those who abuse the system. Rwanda improved the process of dealing with distressed DB2010 Rwanda companies with a new law that aims at streamlining reorganization procedures. Burundi amended its commercial code to establish DB2012 Burundi foreclosure procedures. Malawi adopted new rules providing clear procedural DB2012 Malawi requirements and time frames for winding up a company. Uganda strengthened its insolvency process by clarifying rules on the creation of mortgages, establishing the duties of DB2013 Uganda mortgagors and mortgagees, defining priority rules, providing remedies for mortgagors and mortgagees and establishing the powers of receivers. Zambia strengthened its insolvency process by introducing further qualification requirements for receivers and DB2013 Zambia liquidators and by establishing specific duties and remuneration rules for them. The Democratic Republic of Congo made resolving insolvency DB2014 Congo, Dem. Rep. easier by adopting the OHADA Uniform Act Organizing Collective Proceedings for Wiping Off Debts. The law allows Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 93 (COMESA) DB year Economy Reform an insolvent debtor to file for preventive settlement, legal redress or liquidation Djibouti made resolving insolvency easier through its new commercial code, which allows an insolvent debtor to file for DB2014 Djibouti preventive settlement, legal redress or liquidation and sets out clear rules on the steps and procedures for each of the alternatives a Mauritius made resolving insolvency easier by introducing guidelines for out-of-court restructuring and standardizing DB2014 Mauritius the process of registration, suspension and removal of insolvency practitioners. Rwanda made resolving insolvency easier through a new law clarifying the standards for beginning insolvency proceedings; DB2014 Rwanda preventing the separation of the debtor’s assets during reorganization proceedings; setting clear time limits for the submission of a Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 94 (COMESA) DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information 2 The data for paying taxes refer to January – December 2012. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 95 (COMESA) about what laws and regulations say and allowing reasons the time delays reported in Doing Business multiple interactions with local respondents to clarify 2014 would differ from the recollection of potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation—as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited Changes in what is measured liability company (or its legal equivalent) of a specified size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 96 (COMESA) completed online in just a few hours. This change business and the distance to frontier measure. The affects the time indicator for starting a business, ease of doing business ranking compares economies dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business. 3 For getting electricity the rule that each procedure must take a minimum of 1 day still applies because in practice there are no More complex aggregation methods—such as cases in which procedures can be fully completed online in less than principal components and unobserved components— a day. For example, even though in some cases it is possible to yield a ranking nearly identical to the simple average apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 97 (COMESA) 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly identical to that from the simple average method because both since 2003 or the first year the indicator was collected. 5 these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA 98 (COMESA) the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. RESOURCES ON THE DOING BUSINESS WEBSITE Current features Business reforms News on the Doing Business project Short summaries of DB2014 business reforms, lists http://www.doingbusiness.org of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics /entrepreneurship/ Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/