65617 Regional Profile: Common Market for Eastern and Southern Africa (COMESA) © 2012 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 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. 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Copies of Doing Business 2012: Doing Business in a More Transparent World, Doing Business 2011: Making a Difference for Entrepreneurs, Doing Business 2010: Reforming through Difficult Times, Doing Business 2009, Doing Business 2008, Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Business in 2005: Removing Obstacles to Growth and Doing Business in 2004: Understanding Regulations may be downloaded at www.doingbusiness.org. ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 3 CONTENTS Introduction ......................................................................................................................................................................4 The business environment..............................................................................................................................................5 Starting a business........................................................................................................................................................ 11 Dealing with construction permits ............................................................................................................................ 20 Getting electricity ......................................................................................................................................................... 27 Registering property .................................................................................................................................................... 32 Getting credit ................................................................................................................................................................ 40 Protecting investors ..................................................................................................................................................... 45 Paying taxes ................................................................................................................................................................... 52 Trading across borders ................................................................................................................................................ 59 Enforcing contracts....................................................................................................................................................... 71 Resolving insolvency .................................................................................................................................................... 78 Data notes ...................................................................................................................................................................... 84 Resources on the Doing Business website ................................................................................................................ 88 Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 4 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, 2011 (except for regulations. It measures and tracks changes in the paying taxes indicators, which cover the period regulations affecting 10 areas in the life cycle of a January–December 2010). 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 and infrastructure services (other than those related to resolving insolvency. 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 183 economies, from Afghanistan to Zimbabwe, of institutions—are not directly studied by Doing over time. The data set covers 46 economies in Sub- Business. The indicators refer to a specific type of Saharan Africa, 32 in Latin America and the Caribbean, business, generally a local limited liability company 24 in East Asia and the Pacific, 24 in Eastern Europe operating in the largest business city. Because and Central Asia, 18 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 the Common Market for Eastern and More information is available in the full report. Doing Southern Africa (COMESA). It also shows the regional Business 2012 presents the indicators, analyzes their average, the best performance globally for each relationship with economic outcomes and indicator and data for the following comparator recommends regulatory reforms. The data, along with regions: Eastern Europe and Central Asia (ECA), information on ordering the Doing Business 2012 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 5 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 1 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 183 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 2012: 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. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 6 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 the 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. In some cases 2 or more economies share the top ranking on an indicator. Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 7 THE BUSINESS ENVIRONMENT Figure 1.3 How the Common Market for Eastern and Southern Africa (COMESA) ranks on Doing Business topics Regional average ranking Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 8 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing The absolute values of the indicators tell another part business tells only part of the story, so do changes in of the story (table 1.1). Policy makers can learn much that ranking. Yearly movements in rankings can by comparing the indicators for their economy with provide some indication of changes in an economy’s those for the lowest- and highest-scoring economies regulatory environment for firms, but they are always in the region as well as those for the best performers relative. An economy’s ranking might change because globally. These comparisons may reveal unexpected of developments in other economies. An economy that strengths in an area of business regulation—such as a implemented business regulation reforms may fail to regulatory process that can be completed with a small rise in the rankings (or may even drop) if it is passed number of procedures in a few days and at a low cost. by others whose business regulation reforms had a more significant impact as measured by Doing Business. Table 1.1 Summary of Doing Business indicators for the Common Market for Eastern and Southern Africa (COMESA) Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 182 (Eritrea) 8 (Rwanda) 110 1 (New Zealand) (rank) Procedures (number) 16 (Uganda) 2 (Rwanda) 9 1 (Canada)* Time (days) 90 (Zimbabwe) 3 (Rwanda) 33 1 (New Zealand) Cost (% of income per 551.4 (Congo, Dem. 3.6 (Mauritius) 87.9 0 (Denmark)* capita) Rep.) Paid-in Min. Capital (% 434.0 (Djibouti) (13 Economies*) 70.2 (82 Economies*) of income per capita) Dealing with 1 (Hong Kong SAR, Construction Permits 167 (Malawi) 37 (Kenya) 110 China) (rank) Procedures (number) 22 (Burundi)* 8 (Kenya) 15 5 (Denmark) Time (days) 614 (Zimbabwe) 95 (Swaziland) 185 26 (Singapore)* Cost (% of income per 6,154.3 (Zimbabwe) 30.3 (Seychelles) 1174.3 1.1 (Qatar) capita) Getting Electricity 179 (Madagascar) 44 (Mauritius) 123 1 (Iceland) (rank) Procedures (number) 7 (Egypt, Arab Rep.) 3 (Comoros) 5 3 (Germany)* Time (days) 450 (Madagascar) 30 (Rwanda) 134 17 (Germany) Cost (% of income per 34,477.0 (Burundi) 328.5 (Mauritius) 6947.3 0 (Japan) capita) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 9 Lowest regional Best regional Best global Indicator Regional average performance performance performance Registering Property 178 (Eritrea) 41 (Sudan) 104 3 (New Zealand) (rank) Procedures (number) 13 (Uganda) 4 (Seychelles)* 7 1 (Portugal)* Time (days) 94 (Burundi) 9 (Sudan) 47 1 (Portugal) Cost (% of property 13.0 (Djibouti) 0.8 (Egypt, Arab Rep.) 6.6 0 (Slovak Republic) value) Getting Credit (rank) 177 (Djibouti) 8 (Zambia) 113 1 (United Kingdom)* Strength of legal rights 1 (Djibouti) 10 (Kenya) 5 10 (New Zealand)* index (0-10) Depth of credit 1 (Djibouti)* 6 (Rwanda)* 2 6 (Japan)* information index (0-6) Public registry coverage 0.1 (Madagascar) 49.8 (Mauritius) 3.1 86.2 (Portugal) (% of adults) Private bureau coverage 3.0 (Uganda) 43.2 (Swaziland) 3.8 100 (New Zealand)* (% of adults) Protecting Investors 179 (Djibouti) 13 (Mauritius) 99 1 (New Zealand) (rank) Extent of disclosure 0 (Sudan) 8 (Burundi)* 5 10 (France)* index (0-10) Extent of director 1 (Comoros)* 9 (Rwanda) 5 9 (Singapore)* liability index (0-10) Ease of shareholder 0 (Djibouti) 10 (Kenya) 5 10 (New Zealand)* suits index (0-10) Strength of investor 2.3 (Djibouti) 7.7 (Mauritius) 4.8 9.7 (New Zealand) protection index (0-10) Paying Taxes (rank) 166 (Kenya) 11 (Mauritius) 84 8 (Canada) Payments (number per 49 (Zimbabwe) 7 (Mauritius) 28 4 (Norway) year) Time (hours per year) 433 (Egypt, Arab Rep.) 76 (Seychelles) 203 59 (Luxembourg) Trading Across 174 (Burundi) 21 (Mauritius) 128 1 (Singapore) Borders (rank) Documents to export 10 (Eritrea)* 4 (Madagascar) 7 2 (France) (number) 5 (Hong Kong SAR, Time to export (days) 53 (Zimbabwe) 12 (Egypt, Arab Rep.) 31 China)* Cost to export (US$ per 3280 (Zimbabwe) 613 (Egypt, Arab Rep.) 1913 450 (Malaysia) container) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 10 Lowest regional Best regional Best global Indicator Regional average performance performance performance Documents to import 12 (Eritrea) 5 (Seychelles)* 8 2 (France) (number) Time to import (days) 73 (Zimbabwe) 12 (Egypt, Arab Rep.) 37 4 (Singapore) Cost to import (US$ per 5101 (Zimbabwe) 689 (Mauritius) 2471 435 (Malaysia) container) Enforcing Contracts 172 (Burundi) 39 (Rwanda) 118 1 (Luxembourg) (rank) Time (days) 1225 (Djibouti) 230 (Rwanda) 656 150 (Singapore) 151.8 (Congo, Dem. Cost (% of claim) 15.2 (Ethiopia) 52.5 0.1 (Bhutan) Rep.) Procedures (number) 53 (Sudan) 24 (Rwanda) 39 21 (Ireland)* Resolving Insolvency 166 (Congo, Dem. Rep.) 63 (Uganda) 130 1 (Japan) (rank) Time (years) 5.2 (Congo, Dem. Rep.) 1.7 (Mauritius) 3.1 0.4 (Ireland) Cost (% of estate) 50 (Rwanda) 9 (Zambia) 23 1 (Singapore)* Recovery rate (cents on 1.2 (Congo, Dem. Rep.) 40.2 (Uganda) 17.7 92.7 (Japan) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. * 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 11 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 can 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 additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and No prior contact with officials formally operate an industrial or commercial business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must Official costs only, no bribes deposit before registration (or within 3 months). The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost Paid-in minimum capital (% of income and paid-in minimum capital requirement. per capita) To make the data comparable across economies, Deposited in a bank or with a notary before Doing Business uses several assumptions about the registration (or within 3 months) business and the procedures. It assumes that all information is readily available to the entrepreneur • Conducts general commercial or industrial and that there has been no prior contact with activities. officials. It also assumes that all government and • Has a start-up capital of 10 times income per nongovernment entities involved in the process capita. function without corruption. And it assumes that the business: • Has a turnover of at least 100 times income per capita. • Is a limited liability company, located in the largest business city. • Does not qualify for any special benefits. • Has between 10 and 50 employees. • Does not own real estate. • Is 100% domestically owned. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 12 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in the 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 the Common Market for Eastern and Southern Africa (COMESA) rank on the ease of starting a business Source: Doing Business database. The indicators underlying the rankings may be more and the paid-in minimum capital requirement (figure revealing. Data collected by Doing Business show what 2.2). Comparing these indicators across the region and it takes to start a business in each economy in the with averages both for the region and for comparator region: the number of procedures, the time, the cost regions can provide useful insights. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 13 STARTING A BUSINESS Figure 2.2 What it takes to start a business in economies in the Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 14 STARTING A BUSINESS Time (days) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 15 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 16 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 17 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 the Common Market for Eastern and reducing or eliminating minimum capital requirements. Southern 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 the 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 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. 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. 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. 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. The Democratic Republic of Congo eased business start-up DB2011 Congo, Dem. Rep. by eliminating procedures, including the company seal. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 18 DB Year Economy Reform DB2011 Egypt, Arab Rep. Egypt reduced the cost to start a business. Reforms at the company registry and the streamlining of DB2010 Ethiopia procedures have made it easier to start a business. Company start-up was eased by the removal of the minimum DB2010 Egypt, Arab Rep. capital requirement. Business start-up was simplified by streamlining procedures DB2010 Madagascar at the one-stop shop and eliminating the stamp duty and minimum capital requirement. Business start-up was eased by eliminating a notarization requirement; introducing standardized memorandums of association; enabling online publication; consolidating name DB2010 Rwanda checking, registration fee payment, tax registration, and company registration procedures; and shortening the time required to process completed applications. Start-up is also easier: name verification for a new company is DB2009 Mauritius now done online. The start-up burden was eased by abolishing the professional DB2009 Madagascar tax and facilitating publication. The time required to open a business was reduced, thanks to DB2009 Kenya improvements in communication between agencies and the upgrading of the registry. Starting a business was made easier by reducing the paid-in DB2009 Egypt, Arab Rep. minimum capital requirement by more than 80%, abolishing bar association fees, and automating tax registration. The one-stop shop was reorganized through process reengineering and computerization and the operation of the DB2009 Zambia Zambia Revenue Authority was improved by creating a customer service center. 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. 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). Five procedures were eliminated. A centralized database links the company registry with tax, DB2008 Mauritius social security, and local authorities. Business registration takes place in one week. 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. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 19 Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 20 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 time and money, many builders opt out. They may (number) 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 is better off. Completing all required notifications and receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking on the ease of dealing with Does not include time spent gathering construction permits is the simple average of the information percentile rankings on its component indicators: Each procedure starts on a separate day procedures, time and cost. Procedure completed once final document is To make the data comparable across economies, received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of income per capita) • Is a limited liability company operating in Official costs only, no bribes the construction business and located in • Will be connected to water, sewerage the largest business city. (sewage system, septic tank or their • Is domestically owned and operated. equivalent) and a fixed telephone line. The connection to each utility network will be 10 • Has 60 builders and other employees. meters (32 feet, 10 inches) long. The warehouse: • Will be used for general storage, such as of • Is a new construction (there was no books or stationery (not for goods requiring previous construction on the land). special conditions). • Has complete architectural and technical • Will take 30 weeks to construct (excluding all plans prepared by a licensed architect. delays due to administrative and regulatory requirements). Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 21 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in the 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 the Common Market for Eastern and Southern Africa (COMESA) rank on the ease of dealing with construction permits Source: Doing Business database. 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. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 22 DEALING WITH CONSTRUCTION PERMITS Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in the Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 23 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 24 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 25 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 the Common Market for Eastern adequate allocation of resources are especially and 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 the 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 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. 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. Construction permits were made easier by issuing executive DB2010 Egypt, Arab Rep. articles for the 2008 construction law and eliminating most preapprovals for construction permits. DB2010 Kenya The cost of getting construction permits was increased. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 26 DB Year Economy Reform A severe administrative backlog has substantially increased DB2009 Zimbabwe the cost of procedures relating to construction permits and led to delays for approvals. A new building code introduced in 2008 is aimed at reducing the procedures and time required to deal with construction DB2009 Egypt, Arab Rep. permits by establishing a single window for processing construction-related approvals. Construction permitting was streamlined for the second year in a row by combining the applications for location clearance and a building permit in a single form and introducing a DB2009 Rwanda single application form for water, sewerage, and electricity connections. This reduced both the number of procedures and the time required for dealing with construction permits. Issuance of a unique Building and Land Use Permit was DB2008 Mauritius simplified: instead of two separate permits, introducing statutory time limits and recalculating the cost formula. Decentralization of the administrative system, which divided Kigali into three districts, and the privatization of water and DB2008 Rwanda electricity company Electrogaz, have reduced building permit and utilities connection time. An ambitious licensing reform program was launched which has led to the elimination of 110 business licenses and the simplification of eight, reducing the time and cost of DB2008 Kenya obtaining building licenses and registering a company. At the end of the program, more than 600 of the 1300 licenses will be simplified or eliminated. DB2008 Egypt, Arab Rep. The cost of dealing with licences was reduced. 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 27 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 warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information • Is located in the economy’s largest Reflects the time spent in practice, with little business city, in an area where other follow-up and no prior contact with officials warehouses are located. Cost required to complete each procedure (% • Is not in a special economic zone where of income per capita) the connection would be eligible for subsidization or faster service. Official costs only, no bribes • Has road access. The connection works Excludes value added tax 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: • Involves installing one electricity meter. The monthly electricity consumption will be 0.07 • Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 28 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in the 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 the Common Market for Eastern and Southern Africa (COMESA) rank on the ease of getting electricity Source: Doing Business database. 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. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 29 GETTING ELECTRICITY Figure 4.2 What it takes to get an electricity connection in economies in the Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 30 GETTING ELECTRICITY Time (days) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 31 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 32 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 again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with property title to the buyer’s name. The transaction the municipality) is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or resell it. The ranking on the ease of registering Does not include time spent gathering property is the simple average of the percentile information rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is To make the data comparable across economies, received several assumptions about the parties to the 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. The property will be transferred • Is located in a periurban commercial zone, in its entirety. and no rezoning is required. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 33 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in the 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 the Common Market for Eastern and Southern Africa (COMESA) rank on the ease of registering property Source: Doing Business database. The indicators underlying the rankings may be more time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to complete a property transfer in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 34 REGISTERING PROPERTY Figure 5.2 What it takes to register property in economies in the Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 35 REGISTERING PROPERTY Time (days) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 36 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 37 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 the Common Market for Eastern and limits for procedures and setting low fixed fees. Many Southern Africa (COMESA) (table 5.1)? have cut the time required substantially—enabling Table 5.1 How have economies in the Common Market for Eastern and Southern Africa (COMESA) made registering property easier—or not? By Doing Business report year DB Year Economy Reform 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. Malawi eased property transfers by cutting the wait for DB2011 Malawi consents and registration of legal instruments by half. The Democratic Republic of Congo reduced by half the DB2011 Congo, Dem. Rep. property transfer tax to 3% of the property value. The government has simplified property transfers by DB2010 Ethiopia decentralizing administrative tasks to sub-cities and merging procedures performed by the land registry and municipalities. Transferring a property was made more costly by making use DB2010 Madagascar of a notary mandatory for property transactions. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 38 DB Year Economy Reform The cost of transferring a property was lowered by 15 percent DB2010 Zimbabwe of the value of the property. Property registration was made easier by setting a limit of 15 DB2010 Mauritius days to obtain final property titles from the land registry. Property registration was simplified by decreasing the DB2010 Rwanda number of days required to transfer a property. The time and cost to register a property also fell. A new fixed registration fee was introduced, and centralization of the tax DB2009 Rwanda service reduced the time to obtain a certificate of good standing. The operation of the land registry was improved through development of its human and technical capacity. This DB2009 Madagascar reduced the total time required to register property by two months. It also abolished the stamp duty, among other taxes, which helped reduce the total cost to register property. Simplified administrative procedures for registering property DB2009 Egypt, Arab Rep. and new time limits have reduced the time to transfer property in Cairo. The transfer of property was simplified by abolishing two procedures. It is no longer necessary to obtain a clearance DB2009 Mauritius certificate from the Waste Water Authority or a tax clearance certificate for municipal taxes. Improvements at the Land Registry office cut the time to DB2009 Zambia register property by almost half. The government reduced the property registration fee to 5% DB2008 Mauritius of property value. The cost of registering property was reduced by reducing the registration or transfer tax. These measures were in part DB2008 Burundi motivated by 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. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 39 DB Year Economy Reform 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. 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 40 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 legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private 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 the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine • Has 100 employees. the scope of the secured transactions system, • Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index • Is a private, limited liability company. (weighted at 62.5%). • Has its headquarters and only base of operations in the largest business city. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 41 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 the 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 the Common Market for Eastern and Southern Africa (COMESA) rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 42 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 the Common Market for credit information in economies in the Common Eastern and Southern Africa (COMESA)? Market 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) Source: Doing Business database. Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 43 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 the Common Market for Eastern and increase the scope, coverage and accessibility of and Southern Africa (COMESA) (table 6.1)? credit information, they can increase entrepreneurs’ Table 6.1 How have economies in the Common Market for Eastern and Southern Africa (COMESA) made getting credit easier—or not? By Doing Business report year DB Year Economy Reform 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. Uganda enhanced access to credit by establishing a new DB2011 Uganda private credit 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. Access to credit was improved by implementing a law on DB2010 Kenya credit bureaus that will provide a framework for a regulated, reliable system of sharing credit information. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 44 DB Year Economy Reform Access to credit information was improved by making it mandatory for banks and nonbank financial institutions DB2010 Zambia registered with the Bank of Zambia to use credit reference reports and provide data to the credit bureau. access to credit information was strengthened by allowing DB2010 Mauritius the licensing of private credit information bureaus and expanding the bureaus’ coverage to all credit facilities. Getting credit was made easier with a new secured transactions act and insolvency act to make secured lending more flexible, allowing a wider range of assets to be used as DB2010 Rwanda collateral and a general description of debts and obligations. In addition, out of court enforcement of collateral has become available to secured creditors, who also now have top priority within bankruptcy. Access to credit information has expanded with the addition DB2010 Egypt, Arab Rep. of retailers to the database of the private credit bureau. Thanks to new regulations issued by the Central Bank of DB2009 Egypt, Arab Rep. Egypt, borrowers have the right to inspect their data in the private credit bureau. Getting credit may be easier: after eliminating the minimum threshold for loan amounts, the public credit registry of the DB2009 Mauritius Central Bank of Mauritius now captures information on all credits extended by the financial system. The private credit bureau also deepened its database DB2008 Kenya coverage by adding retailers and utility companies as providers of information. 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 45 PROTECTING INVESTORS Investor protections matter 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 provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority shareholder protections against directors’ use of Available legal remedies (damages, repayment corporate assets for personal gain—or self-dealing. of profits, fines, imprisonment and rescission The indicators distinguish 3 dimensions of investor of the transaction) protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and shareholders’ ability to sue officers and directors for Ease of shareholder suits index (0–10) misconduct (ease of shareholder suits index). The Documents and information available during ranking on the strength of investor protection index is trial the simple average of the percentile rankings on these 3 indices. To make the data comparable across Access to internal corporate documents economies, a case study uses several assumptions (directly or through a government inspector) about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, • Is a publicly traded corporation listed on the extent of director liability and ease of economy’s most important stock exchange shareholder suits indices (or at least a large private company with multiple shareholders). • The price is higher than the going price for used • Has a board of directors and a chief executive trucks, but the transaction goes forward. 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 • Mr. James, a director and the majority members of the board of directors. shareholder of the company, proposes that the company purchase used trucks from another company he owns. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 46 PROTECTING INVESTORS Where do the region’s economies stand today? How strong are investor protections in economies in measure all aspects related to the protection of the Common Market for Eastern and Southern Africa minority investors, a higher ranking does indicate that (COMESA)? The global rankings of these economies on an economy’s regulations offer stronger investor the strength of investor protection index suggest an protections against self-dealing in the areas measured. answer (figure 7.1). While the indicator does not Figure 7.1 How economies in the Common Market for Eastern and Southern Africa (COMESA) rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 47 PROTECTING INVESTORS But the overall ranking on the strength of investor director liability and ease of shareholder suits indices protection index tells only part of the story. Economies may also be revealing (figure 7.2). Higher scores may offer strong protections in some areas but not indicate stronger investor protections. Comparing the others. So the scores recorded for economies in the scores across the region and with averages both for Common Market for Eastern and Southern Africa the region and for comparator regions can provide (COMESA) on the extent of disclosure, extent of useful insights. Figure 7.2 How strong are investor protections in economies in the Common Market for Eastern and Southern Africa (COMESA)? Strength of investor protection index (0–10) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 48 PROTECTING INVESTORS Extent of disclosure index (0–10) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 49 PROTECTING INVESTORS Extent of director liability index (0–10) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 50 PROTECTING INVESTORS Ease of shareholder suits index (0–10) Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 51 PROTECTING INVESTORS What are the changes over time? Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or revisions to court well-functioning courts and up-to-date procedural procedures. What investor protection reforms has rules that give minority investors the means to prove Doing Business recorded in the Common Market for their case and obtain a judgment within a reasonable Eastern and Southern Africa (COMESA) (table 7.1)? Table 7.1 How have economies in the Common Market for Eastern and Southern Africa (COMESA) strengthened investor protections—or not? By Doing Business report year DB Year Economy Reform 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. Swaziland strengthened investor protections by requiring greater corporate disclosure, higher standards of DB2011 Swaziland accountability for company directors and greater access to corporate information for minority investors. A new company law has strengthened investor protections by DB2010 Rwanda requiring greater corporate disclosure, director liability, and shareholder access to information. New listing rules for the Cairo Stock Exchange strengthened protections for minority shareholders: now an independent DB2009 Egypt, Arab Rep. body must assess transactions between interested parties before they are approved. 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 52 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 complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, 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 transactions made over the year. Information is Completing tax return forms, filing with also compiled on the frequency of filing and proper agencies payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is the simple average of the percentile rankings on Preparing separate tax accounting books, if its component indicators: number of annual required payments, time and total tax rate, with a threshold Total tax rate (% of profit before all taxes) 2 being applied to the total tax rate. To make the data comparable across economies, several Profit or corporate income tax assumptions about the business and the taxes and Social contributions and labor taxes paid by contributions are used. the employer • TaxpayerCo is a medium-size business that Property and property transfer taxes started operations on January 1, 2009. Dividend, capital gains and financial • The business starts from the same financial transactions taxes position in each economy. All the taxes and mandatory contributions paid during Waste collection, vehicle, road and other taxes the second year of operation are recorded. • Taxes and mandatory contributions include • Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company. • A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 53 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with information for assessing the tax compliance burden taxes in economies in the Common Market for Eastern for businesses (figure 8.1). The average ranking of the and Southern Africa (COMESA)—and how much do region and comparator regions provide a useful firms pay in taxes? The global rankings of these benchmark. economies on the ease of paying taxes offer useful Figure 8.1 How economies in the Common Market for Eastern and Southern Africa (COMESA) rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 54 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 the Common Market for Eastern and Southern Africa (COMESA)—and what are the total tax rates? Payments (number per year) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 55 PAYING TAXES Time (hours per year) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 56 PAYING TAXES Total tax rate (% of profit) Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 57 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. the 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 the Common Market for Eastern and Southern Africa (COMESA) made paying taxes easier—or not? By Doing Business report year DB Year Economy Reform 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. Burundi made paying taxes simpler by replacing the DB2011 Burundi transactions tax with a value added tax. DB2011 Mauritius Mauritius introduced a new corporate social responsibility 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. The Seychelles removed the tax-free threshold limit and DB2011 Seychelles lowered corporate income tax rates. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 58 DB Year Economy Reform 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. The tax burden on businesses was eased by introducing a 7 DB2010 Djibouti percent value added tax on the supply of goods and services, replacing the consumption tax. DB2010 Congo, Dem. Rep. The sales tax was raised from 13 percent to 15 percent. The corporate income tax rate was reduced by an average of DB2010 Sudan 15 percentage points and the capital gains tax by 5 percentage points, while the tax on labor has been abolished. Amendments were made to the Income Tax Act and Value Added Tax Act to update, strengthen, and remove ambiguities in these laws and enhance the effectiveness of DB2009 Zambia tax administration. In addition, the withholding tax on savings and deposit accounts was reduced from 25 percent to 15 percent. DB2009 Madagascar The corporate income tax was reduced to 25 percent. A three year program will harmonize the tax system, ultimately creating a single corporate tax rate and eliminate DB2008 Mauritius all tax credits and tax holidays except for newly registered companies. Hyperinflation and the government's critical need for DB2008 Zimbabwe revenues have led to an increase in prices and tax rates. The tax burden on companies was reduced by simplifying the DB2008 Seychelles tax structure and decreasing rates. 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 59 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 Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and importing a standard shipment of goods by ocean Inland transport and handling transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover procedural requirements such as documentation Port and terminal handling requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also cover trade logistics, including the time and cost of Cost required to export and import (US$ per inland transport to the largest business city. The container) ranking on the ease of trading across borders is All documentation the simple average of the percentile rankings on its 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 Official costs only, no bribes business and the traded goods. The business: • Do not require refrigeration or any other • Is of medium size and employs 60 people. special environment. • Is located in the periurban area of the • Do not require any special phytosanitary or economy’s largest business city. environmental safety standards other than • Is a private, limited liability company, accepted international standards. domestically owned, formally registered • Are one of the economy’s leading export or and operating under commercial laws and import products. regulations of the economy. • Are transported in a dry-cargo, 20-foot full The traded goods: container load. • Are not hazardous nor do they include military items. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 60 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in the across borders suggest an answer (figure 9.1). The Common Market for Eastern and Southern Africa average ranking of the region and comparator regions (COMESA) to export and import goods? The global provide a useful benchmark. rankings of these economies on the ease of trading Figure 9.1 How economies in the Common Market for Eastern and Southern Africa (COMESA) rank on the ease of trading across borders Source: Doing Business database. 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. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 61 TRADING ACROSS BORDERS Figure 9.2 What it takes to trade across borders in economies in the Common Market for Eastern and Southern Africa (COMESA) Documents to export (number) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 62 TRADING ACROSS BORDERS Time to export (days) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 63 TRADING ACROSS BORDERS Cost to export (US$ per container) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 64 TRADING ACROSS BORDERS Documents to import (number) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 65 TRADING ACROSS BORDERS Time to import (days) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 66 TRADING ACROSS BORDERS Cost to import (US$ per container) Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 67 TRADING ACROSS BORDERS What are the changes over time? In economies around the world, trading across borders systems. These changes help improve the 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 the Common Market for Eastern risk-based inspections and electronic data interchange and Southern Africa (COMESA) (table 9.1)? Table 9.1 How have economies in the 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 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. Swaziland reduced the time to import by implementing an DB2011 Swaziland electronic data interchange system for customs at its border posts. 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. 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. 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. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 68 DB Year Economy Reform 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. Implementation of a risk-based inspection regime and a post- DB2010 Malawi destination clearance program for preapproved traders has shortened the time for clearing goods. The introduction of electronic submissions of customs DB2010 Mauritius declarations and bills of lading has expedited trade. Participation by private companies in terminal handling at the DB2010 Congo, Dem. Rep. port of Matadi has improved services, reducing the time taken to handle cargo. By implementing administrative changes—such as increased operating hours and enhanced cooperation at the border, DB2010 Rwanda along with the removal of some documentation requirements for importers and exporters—Rwanda has improved trading times. Trading times were sped up through better customs DB2010 Uganda processes, increased operating hours at the port of Mombasa, and improved cooperation at the border. Trade has been expedited with improved customs clearance and the electronic connection of 10 customs offices— DB2010 Sudan enabling traders to file declarations remotely—and the addition of two scanners at the port of Sudan. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 69 DB Year Economy Reform The country sped trade by implementing an electronic data interchange system, a single window which interfaces with the existing customs system, the port, the private container DB2009 Madagascar terminal operator, the commercial banks, the Central Bank, and the Treasury, risk-based inspections, and port improvements. These changes cut the time to import by close to three weeks and the time to export by five days. Trade was facilitated by extending the opening hours of the customs border offices, implementing an electronic data DB2009 Rwanda interchange system, and introducing risk-based inspections. Together with growth in the transport sector, this reduced the time to import and export. The infrastructure at Massawa port was upgraded as well as DB2009 Eritrea the roads between Massawa and the capital, Asmara, facilitating trade. Port administration was improved and the number of documents required for exporting and importing was DB2009 Djibouti reduced. That cut the time needed to import, and the documents needed to import and export. The port of Alexandria continued to upgrade its facilities and DB2009 Egypt, Arab Rep. sped customs clearance, reducing the time to trade. Major trade reforms were implemented, reducing the overall time to import. The opening hours of customs and port authorities were extended, and the number of inspection DB2009 Kenya points between Nairobi and Mombasa port reduced. Kenya also introduced an electronic system allowing traders to submit their documents online. Port authorities implemented an electronic data interchange system and privatized port terminal handling, injecting much DB2008 Madagascar needed capital and operational expertise. These changes and a streamlining of documentation requirements helped increase productivity and reduce the export time. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 70 DB Year Economy Reform The cost of port and terminal handling was reduced by liberalizing the warehouse services sector. The increased competition led to a radical change in the way cost is DB2008 Rwanda calculated, effectively reducing it by 40%. Customs declaration points have also been increased to accelerate the process. A new risk management system has been implemented, DB2008 Mauritius accelerating the custom clearance process for regular law abiding importers. The time for cross-border trade was reduced mainly by implementing an E-manifest system that is helping to DB2008 Djibouti expedite the customs clearance process. Djibouti also opened the way for private participation in the provision of port services. New one-stop shops were launched for traders at the ports, DB2008 Egypt, Arab Rep. cutting the time to import and export. 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 71 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and What do the indicators cover? the judge or court officer Doing Business measures the efficiency of the Steps to file and serve the case judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its component indicators: procedures, time and cost. Time for trial and obtaining judgment The dispute in the case study involves the breach Time to enforce the judgment of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This distinguishes the case from simple debt No bribes enforcement. To make the data comparable across Average attorney fees economies, Doing Business uses several assumptions about the case: Court costs, including expert fees • The seller and buyer are located in the Enforcement costs economy’s largest business city. • The buyer orders custom-made goods, then fails to pay. • The dispute on the quality of the goods • The seller sues the buyer before a requires an expert opinion. competent court. • The judge decides in favor of the seller; there • The value of the claim is 200% of income is no appeal. per capita. • The seller enforces the judgment through a • The seller requests a pretrial attachment to public sale of the buyer’s movable assets. secure the claim. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 72 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial the ease of enforcing contracts suggest an answer dispute through the courts in economies in the (figure 10.1). The average ranking of the region and Common Market for Eastern and Southern Africa comparator regions provide a useful benchmark. (COMESA)? The global rankings of these economies on Figure 10.1 How economies in the Common Market for Eastern and Southern Africa (COMESA) rank on the ease of enforcing contracts Source: Doing Business database. 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. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 73 ENFORCING CONTRACTS Figure 10.2 What it takes to enforce a contract through the courts in economies in the Common Market for Eastern and Southern Africa (COMESA) Procedures (number) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 74 ENFORCING CONTRACTS Time (days) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 75 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 76 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 the Common Market introducing new technology. Lower-income economies for Eastern and Southern Africa (COMESA) (table 10.1)? often work on reducing backlogs by introducing Table 10.1 How have economies in the Common Market for Eastern and Southern Africa (COMESA) made enforcing contracts easier—or not? By Doing Business report year 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. 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. 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. A specialized commercial division of the supreme court was DB2010 Mauritius created, improving contract enforcement. Contract enforcement was expedited with the creation of DB2010 Egypt, Arab Rep. commercial courts. Court delays were reduced through a combination of better DB2010 Ethiopia case management and internal training, as well as an expanded role for enforcement judges. Commercial courts began operating in three locations, in DB2009 Rwanda Kigali and in the Northern and Southern Provinces, making it easier to enforce contracts. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 77 DB Year Economy Reform The commercial division of the Blantyre high court started DB2008 Malawi hearing cases as of May 2007. Two judges, specializing in commercial cases, have been appointed. Four years after being created on paper, specialized commercial courts started operating in Gombe in August DB2008 Congo, Dem. Rep. 2006 and in Kinshasa in November 2006. New court rules set strict deadlines, such as eight days, to appeal judgments. 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 78 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE 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 of insolvency proceedings involving domestic Fees of insolvency administrators entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial institutions. The data are derived from survey Assessors’ and auctioneers’ fees responses by local insolvency practitioners and Other related fees verified through a study of laws and regulations as well as public information on bankruptcy systems. Recovery rate for creditors (cents on the dollar) The ranking on the ease of resolving insolvency is based on the recovery rate, which is recorded as Measures the cents on the dollar recovered cents on the dollar recouped by creditors through by creditors reorganization, liquidation or debt enforcement Present value of debt recovered (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings function of time, cost and other factors, such as are deducted lending rate and the likelihood of the company continuing to operate. Depreciation of furniture is taken into account To make the data comparable across economies, Doing Business uses several assumptions about the Outcome for the business (survival or not) business and the case. It assumes that the affects the maximum value that can be company: recovered • Is a domestically owned, limited liability company operating a hotel. • Has 201 employees, 1 main secured creditor • Operates in the economy’s largest business and 50 unsecured creditors. city. • Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 79 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 the 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 the Common Market for Eastern and Southern Africa (COMESA) rank on the ease of resolving insolvency Source: Doing Business database. 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). Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 80 RESOLVING INSOLVENCY Figure 11.2 How efficient is the insolvency process in economies in the Common Market for Eastern and Southern Africa (COMESA) Time (years) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 81 RESOLVING INSOLVENCY Cost (% of estate) Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 82 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 83 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 the Common Market for Eastern and even viable businesses are liquidated. This is starting to Southern Africa (COMESA) (table 11.1)? Table 11.1 How have economies in the Common Market for Eastern and Southern Africa (COMESA) made resolving insolvency easier—or not? By Doing Business report year DB Year Economy Reform 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. A law was introduced limiting liquidator fees during DB2010 Malawi insolvency procedures. new insolvency law introduced a rehabilitation procedure for companies as an alternative to winding up and defines the DB2010 Mauritius rights and obligations of creditors and debtors—as well as sanctions for those who abuse the system. The process for dealing with distressed companies was DB2010 Rwanda improved with a new law aimed at streamlining reorganization. The new Borrower Protection Act will allow for a faster sale of DB2008 Mauritius immovable assets, significantly reducing the time it takes creditors to recover their debt. 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 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 84 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the protection of property rights—and their effect on ECONOMY CHARACTERISTICS businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of regulation, such as the number of procedures to start a Gross national income (GNI) per capita business or to register and transfer commercial property. Second, they gauge the time and cost of Doing Business 2012 reports 2010 income per capita achieving a regulatory goal or complying with as published in the World Bank’s World regulation, such as the time and cost to enforce a Development Indicators 2011. Income is calculated contract, go through bankruptcy or trade across using the Atlas method (current US$). For cost borders. Third, they measure the extent of legal indicators expressed as a percentage of income per protections of property, for example, the protections capita, 2010 GNI in U.S. dollars is used as the of investors against looting by company directors or denominator. Data were not available from the the range of assets that can be used as collateral World Bank for Afghanistan; Australia; The Bahamas; according to secured transactions laws. Fourth, a set of Bahrain; Brunei Darussalam; Canada; Cyprus; indicators documents the tax burden on businesses. Djibouti; the Islamic Republic of Iran; Kuwait; New Finally, a set of data covers different aspects of Zealand; Oman; Puerto Rico (territory of the United employment regulation. States); Qatar; Saudi Arabia; Suriname; Taiwan, China; the United Arab Emirates; West Bank and The data for all sets of indicators in Doing Business Gaza; and the Republic of Yemen. In these cases 3 2012 are for June 2011. GDP or GNP per capita data and growth rates from the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Methodology Unit were used. The Doing Business data are collected in a standardized way. To start, the Doing Business team, Region and income group with academic advisers, designs a questionnaire. The Doing Business uses the World Bank regional and questionnaire uses a simple business case to ensure income group classifications, available at comparability across economies and over time—with http://www.worldbank.org/data/countryclass. The assumptions about the legal form of the business, its World Bank does not assign regional classifications size, its location and the nature of its operations. to high-income economies. For the purpose of the Questionnaires are administered through more than Doing Business report, high-income OECD 9,028 local experts, including lawyers, business economies are assigned the “regional� classification consultants, accountants, freight forwarders, OECD high income. Figures and tables presenting government officials and other professionals routinely regional averages include economies from all administering or advising on legal and regulatory income groups (low, lower middle, upper middle requirements. These experts have several rounds of and high income). interaction with the Doing Business team, involving conference calls, written correspondence and visits by Population the team. For Doing Business 2012 team members Doing Business 2012 reports midyear 2010 visited 40 economies to verify data and recruit population statistics as published in World respondents. The data from questionnaires are Development Indicators 2011. subjected to numerous rounds of verification, leading to revisions or expansions of the information collected. 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 85 The Doing Business methodology offers several business lacks information or is unable to follow up advantages. It is transparent, using factual information promptly. Alternatively, the business may choose to about what laws and regulations say and allowing disregard some burdensome procedures. For both multiple interactions with local respondents to clarify reasons the time delays reported in Doing Business potential misinterpretations of questions. Having 2012 would differ from the recollection of representative samples of respondents is not an issue; entrepreneurs reported in the World Bank Enterprise Doing Business is not a statistical survey, and the texts Surveys or other perception surveys. of the relevant laws and regulations are collected and answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be Subnational Doing Business indicators collected in a large sample of economies. Because This year Doing Business published a subnational study standard assumptions are used in the data collection, for the Philippines and a regional report for Southeast comparisons and benchmarks are valid across Europe covering 7 economies (Albania, Bosnia and economies. Finally, the data not only highlight the Herzegovina, Kosovo, the former Yugoslav Republic of extent of specific regulatory obstacles to business but Macedonia, Moldova, Montenegro and Serbia) and 22 also identify their source and point to what might be cities. It also published a city profile for Juba, in the reformed. Republic of South Sudan. Information on the methodology for each Doing The subnational studies point to differences in Business topic can be found on the Doing Business business regulation and its implementation—as well as website at http://www.doingbusiness.org/methodology/. in the pace of regulatory reform—across cities in the same economy. For several economies subnational studies are now periodically updated to measure Limits to what is measured change over time or to expand geographic coverage The Doing Business methodology has 5 limitations that to additional cities. This year that is the case for the should be considered when interpreting the data. First, subnational studies in the Philippines; the regional the collected data refer to businesses in the economy’s report in Southeast Europe; the ongoing studies in largest business city and may not be representative of Italy, Kenya and the United Arab Emirates; and the regulation in other parts of the economy. To address projects implemented jointly with local think tanks in this limitation, subnational Doing Business indicators Indonesia, Mexico and the Russian Federation. were created (see the section on subnational Doing Besides the subnational Doing Business indicators, Business indicators). Second, the data often focus on a Doing Business conducted a pilot study this year on specific business form—generally a limited liability the second largest city in 3 large economies to assess company (or its legal equivalent) of a specified size— within-country variations. The study collected data for and may not be representative of the regulation on Rio de Janeiro in addition to São Paulo in Brazil, for other businesses, for example, sole proprietorships. Beijing in addition to Shanghai in China and for St. Third, transactions described in a standardized case Petersburg in addition to Moscow in Russia. scenario refer to a specific set of issues and may not represent the full set of issues a business encounters. Fourth, the measures of time involve an element of Changes in what is measured judgment by the expert respondents. When sources indicate different estimates, the time indicators The methodology for 3 of the Doing Business topics reported in Doing Business represent the median was updated this year—getting credit, dealing with values of several responses given under the construction permits and paying taxes. assumptions of the standardized case. First, for getting credit, the scoring of one of the 10 Finally, the methodology assumes that a business has components of the strength of legal rights index was full information on what is required and does not amended to recognize additional protections of waste time when completing procedures. In practice, secured creditors and borrowers. Previously the completing a procedure may take longer if the highest score of 1 was assigned if secured creditors Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 86 were not subject to an automatic stay or moratorium business and a new measure, the “distance to frontier.� on enforcement procedures when a debtor entered a While the ease of doing business ranking compares court-supervised reorganization procedure. Now the economies with one another at a point in time, the highest score of 1 is also assigned if the law provides distance to frontier measure shows how much the secured creditors with grounds for relief from an regulatory environment for local entrepreneurs in each automatic stay or moratorium (for example, if the economy has changed over time. movable property is in danger) or sets a time limit for Ease of doing business the automatic stay. The ease of doing business index ranks economies Second, because the ease of doing business index now from 1 to 183. For each economy the ranking is includes the getting electricity indicators, procedures, calculated as the simple average of the percentile time and cost related to obtaining an electricity rankings on each of the 10 topics included in the index connection were removed from the dealing with in Doing Business 2012: starting a business, dealing construction permits indicators. with construction permits, registering property, getting Third, a threshold has been introduced for the total tax credit, protecting investors, paying taxes, trading rate for the purpose of calculating the ranking on the across borders, enforcing contracts, resolving ease of paying taxes. All economies with a total tax insolvency and, new this year, getting electricity. The rate below the threshold (which will be calculated and employing workers indicators are not included in this adjusted on a yearly basis) will now receive the same year’s aggregate ease of doing business ranking. In ranking on the total tax rate indicator. The threshold is addition to this year’s ranking, Doing Business presents not based on any underlying theory. Instead, it is a comparable ranking for the previous year, adjusted meant to emphasize the purpose of the indicator: to for any changes in methodology as well as additions of 4 highlight economies where the tax burden on business economies or topics. is high relative to the tax burden in other economies. Construction of the ease of doing business index Giving the same ranking to all economies whose total tax rate is below the threshold avoids awarding Here is one example of how the ease of doing business economies in the scoring for having an unusually low index is constructed. In the Republic of Korea it takes 5 total tax rate, often for reasons unrelated to procedures, 7 days and 14.6% of annual income per government policies toward enterprises. For example, capita in fees to open a business. There is no minimum economies that are very small or that are rich in capital required. On these 4 indicators Korea ranks in th th rd natural resources do not need to levy broad-based the 18 , 14 , 53 and 0 percentiles. So on average st taxes. Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on th th getting credit, 25 percentile on paying taxes, 8 Data challenges and revisions th percentile on enforcing contracts, 7 percentile on resolving insolvency and so on. Higher rankings Most laws and regulations underlying the Doing indicate simpler regulation and stronger protection of Business data are available on the Doing Business property rights. The simple average of Korea’s website at http://www.doingbusiness.org. All the st percentile rankings on all topics is 21 . When all sample questionnaires and the details underlying the economies are ordered by their average percentile indicators are also published on the website. Questions on the methodology and challenges to data can be submitted through the website’s “Ask a Question� 4 In case of revisions to the methodology or corrections to the function at http://www.doingbusiness.org. underlying data, the data are back-calculated to provide a comparable time series since the year the relevant economy or topic was first included in the data set. The time series is available on the Ease of doing business and distance to Doing Business website (http://www.doingbusiness.org). The Doing Business report publishes yearly rankings for the year of publication frontier as well as the previous year to shed light on year-to-year developments. Six topics and more than 50 economies have been This year’s report presents results for 2 aggregate added since the inception of the project. Earlier rankings on the measures: the aggregate ranking on the ease of doing ease of doing business are therefore not comparable. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 87 rankings, Korea stands at 8 in the aggregate ranking investors). These correlations suggest that economies on the ease of doing business. rarely score universally well or universally badly on the indicators. More complex aggregation methods—such as principal components and unobserved components— Consider the example of Canada. It stands at 12 in the yield a ranking nearly identical to the simple average aggregate ranking on the ease of doing business. Its 5 used by Doing Business. Thus, Doing Business uses ranking is 3 on both starting a business and resolving the simplest method: weighting all topics equally and, insolvency, and 5 on protecting investors. But its within each topic, giving equal weight to each of the ranking is only 59 on enforcing contracts, 42 on 6 topic components. trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a Variation in performance across the indicator sets is specific area—for example, insolvency—it receives a not at all unusual. It reflects differences in the degree “no practice� mark. Similarly, an economy receives a of priority that government authorities give to “no practice� or “not possible� mark if regulation exists particular areas of business regulation reform and the but is never used in practice or if a competing ability of different government agencies to deliver regulation prohibits such practice. Either way, a “no tangible results in their area of responsibility. practice� mark puts the economy at the bottom of the Economies that improved the most across 3 or more ranking on the relevant indicator. Doing Business topics in 2010/11 The ease of doing business index is limited in scope. It Doing Business 2012 uses a simple method to calculate does not account for an economy’s proximity to large which economies improved the most in the ease of markets, the quality of its infrastructure services (other doing business. First, it selects the economies that in than services related to trading across borders and 2010/11 implemented regulatory reforms making it getting electricity), the strength of its financial system, easier to do business in 3 or more of the 10 topics the security of property from theft and looting, its 7 included in this year’s ease of doing business ranking. macroeconomic conditions or the strength of Thirty economies meet this criterion: Armenia, Burkina underlying institutions. Faso, Burundi, Cape Verde, the Central African Variability of economies’ rankings across topics Republic, Chile, Colombia, the Democratic Republic of Congo, Côte d’Ivoire, The Gambia, Georgia, Korea, Each indicator set measures a different aspect of the Latvia, Liberia, FYR Macedonia, Mexico, Moldova, business regulatory environment. The rankings of an Montenegro, Morocco, Nicaragua, Oman, Peru, economy can vary, sometimes significantly, across Russian Federation, São Tomé and Príncipe, Senegal, indicator sets. The average correlation coefficient Sierra Leone, Slovenia, the Solomon Islands, South between the 10 indicator sets included in the Africa and Ukraine. Second, Doing Business ranks these aggregate ranking is 0.36, and the coefficients economies on the increase in their ranking on the ease between any 2 sets of indicators range from 0.17 of doing business from the previous year using (between protecting investors and getting electricity) comparable rankings. to 0.57 (between starting a business and protecting Selecting the economies that implemented regulatory 5 reforms in at least 3 topics and improved the most in See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to the aggregate ranking is intended to highlight Do It� (World Bank, Washington, DC, 2005). Principal components economies with ongoing, broad-based reform and unobserved components methods yield a ranking nearly programs. identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the 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 importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA) 88 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/