Doing Business 2019 Eritrea Economy Profile Eritrea Page 1 Doing Business 2019 Eritrea Economy Profile of Eritrea Doing Business 2019 Indicators (in order of appearance in the document) Starting a business Procedures, time, cost and paid-in minimum capital to start a limited liability company Dealing with construction permits Procedures, time and cost to complete all formalities to build a warehouse and the quality control and safety mechanisms in the construction permitting system Getting electricity Procedures, time and cost to get connected to the electrical grid, and the reliability of the electricity supply and the transparency of tariffs Registering property Procedures, time and cost to transfer a property and the quality of the land administration system Getting credit Movable collateral laws and credit information systems Protecting minority investors Minority shareholders’ rights in related-party transactions and in corporate governance Paying taxes Payments, time, total tax and contribution rate for a firm to comply with all tax regulations as well as post-filing processes Trading across borders Time and cost to export the product of comparative advantage and import auto parts Enforcing contracts Time and cost to resolve a commercial dispute and the quality of judicial processes Resolving insolvency Time, cost, outcome and recovery rate for a commercial insolvency and the strength of the legal framework for insolvency Labor market regulation Flexibility in employment regulation and aspects of job quality Page 2 Doing Business 2019 Eritrea About Doing Business The Doing Business project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level. The Doing Business project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. Doing Business captures several important dimensions of the regulatory environment as it applies to local firms. It provides quantitative indicators on regulation for starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Doing Business also measures features of labor market regulation. Although Doing Business does not present rankings of economies on the labor market regulation indicators or include the topic in the aggregate ease of doing business score or ranking on the ease of doing business, it does present the data for these indicators. By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages economies to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each economy. In addition, Doing Business offers detailed subnational reports, which exhaustively cover business regulation and reform in different cities and regions within a nation. These reports provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas. Selected cities can compare their business regulations with other cities in the economy or region and with the 190 economies that Doing Business has ranked. The first Doing Business report, published in 2003, covered 5 indicator sets and 133 economies. This year’s report covers 11 indicator sets and 190 economies. Most indicator sets refer to a case scenario in the largest business city of each economy, except for 11 economies that have a population of more than 100 million as of 2013 (Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation and the United States) where Doing Business also collected data for the second largest business city. The data for these 11 economies are a population-weighted average for the 2 largest business cities. The project has benefited from feedback from governments, academics, practitioners and reviewers. The initial goal remains: to provide an objective basis for understanding and improving the regulatory environment for business around the world. More about Doing Business (PDF, 5MB) Page 3 Doing Business 2019 Eritrea Ease of Doing Business in DB 2019 Rank Region Sub-Saharan Africa 190 1 Eritrea Income Category Low income 189 DB 2019 Ease of doing business score Population 5,918,919 0 100 City Covered Asmara 23.07 DB 2019 Ease of Doing Business Score 0 100 77.88: Rwanda (Rank: 29) 70.31: Kenya (Rank: 61) 53.63: Tanzania (Rank: 144) 51.61: Regional Average (Sub-Saharan Africa) 49.06: Ethiopia (Rank: 159) 23.07: Eritrea (Rank: 189) Note: The ease of doing business score captures the gap of each economy from the best regulatory performance observed on each of the indicators across all economies in the Doing Business sample since 2005. An economy’s ease of doing business score is reflected on a scale from 0 to 100, where 0 represents the lowest and 100 represents the best performance. The ease of doing business ranking ranges from 1 to 190. Rankings on Doing Business topics - Eritrea 1 28 55 82 Rank 103 109 136 152 163 168 174 180 187 186 187 186 189 190 Starting Dealing Getting Registering Getting Protecting Paying Trading Enforcing Resolving a with Electricity Property Credit Minority Taxes across Contracts Insolvency Business Construction Investors Borders Permits Ease of Doing Business Score on Doing Business topics - Eritrea 100 80 Score 60 55.90 55.93 51.91 40 35.30 31.67 20 0.00 0.00 0.00 0.00 0.00 0 Starting Dealing Getting Registering Getting Protecting Paying Trading Enforcing Resolving a with Electricity Property Credit Minority Taxes across Contracts Insolvency Business Construction Investors Borders Permits Page 4 Doing Business 2019 Eritrea Starting a Business This topic measures the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-sized limited liability company to start up and formally operate in each economy’s largest business city. To make the data comparable across 190 economies, Doing Business uses a standardized business that is 100% domestically owned, has start-up capital equivalent to 10 times the income per capita, engages in general industrial or commercial activities and employs between 10 and 50 people one month after the commencement of operations, all of whom are domestic nationals. Starting a Business considers two types of local limited liability companies that are identical in all aspects, except that one company is owned by 5 married women and the other by 5 married men. The ranking of economies on the ease of starting a business is determined by sorting their scores for starting a business. These scores are the simple average of the scores for each of the component indicators. The most recent round of data collection for the project was completed in May 2018. See the methodology for more information. What the indicators measure Case study assumptions Procedures to legally start and formally operate To make the data comparable across economies, several assumptions about the a company (number) business and the procedures are used. It is assumed that any required information is readily available and that the entrepreneur will pay no bribes. • Preregistration (for example, name verification or reservation, notarization) The business: • Registration in the economy’s largest business - Is a limited liability company (or its legal equivalent). If there is more than one type city of limited liability company in the economy, the most common among domestic firms • Postregistration (for example, social security is chosen. Information on the most common form is obtained from incorporation registration, company seal) lawyers or the statistical office. - Operates in the economy’s largest business city. For 11 economies the data are • Obtaining approval from spouse to start a also collected for the second largest business city. business or to leave the home to register the company - The entire office space is approximately 929 square meters (10,000 square feet). - Is 100% domestically owned and has five owners, none of whom is a legal entity; • Obtaining any gender specific document for has a start-up capital of 10 times income per capita and has a turnover of at least company registration and operation or national 100 times income per capita. identification card - Performs general industrial or commercial activities, such as the production or sale of goods or services to the public. The business does not perform foreign trade Time required to complete each procedure activities and does not handle products subject to a special tax regime, for example, (calendar days) liquor or tobacco. It does not use heavily polluting production processes. • Does not include time spent gathering - Leases the commercial plant or offices and is not a proprietor of real estate and the information amount of the annual lease for the office space is equivalent to the income per • Each procedure starts on a separate day (2 capita. procedures cannot start on the same day) - Does not qualify for investment incentives or any special benefits. - Has at least 10 and up to 50 employees one month after the commencement of • Procedures fully completed online are recorded operations, all of whom are domestic nationals. as ½ day - Has a company deed that is 10 pages long. • Procedure is considered completed once final document is received The owners: • No prior contact with officials - Have reached the legal age of majority. If there is no legal age of majority, they are assumed to be 30 years old. Cost required to complete each procedure (% of - Are sane, competent, in good health and have no criminal record. income per capita) - Are married and the marriage is monogamous and registered with the authorities. - Where the answer differs according to the legal system applicable to the woman or • Official costs only, no bribes man in question (as may be the case in economies where there is legal plurality), the • No professional fees unless services required by answer used will be the one that applies to the majority of the population. law or commonly used in practice Paid-in minimum capital (% of income per capita) • Funds deposited in a bank or with third party before registration or up to 3 months after incorporation Page 5 Doing Business 2019 Eritrea Starting a Business - Eritrea Standardized Company Legal form Private Limited Liability Company Paid-in minimum capital requirement ERN 15,000 City Covered Asmara Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Procedure – Men (number) 13 7.4 4.9 1 (New Zealand) Time – Men (days) 84 23.3 9.3 0.5 (New Zealand) Cost – Men (% of income per capita) 23.7 44.4 3.1 0.0 (Slovenia) Procedure – Women (number) 13 7.6 4.9 1 (New Zealand) Time – Women (days) 84 23.4 9.3 0.5 (New Zealand) Cost – Women (% of income per capita) 23.7 44.4 3.1 0.0 (Slovenia) Paid-in min. capital (% of income per capita) 104.0 10.0 8.6 0.0 (117 Economies) Figure – Starting a Business in Eritrea and comparator economies – Ranking and Score DB 2019 Starting a Business Score 0 100 91.39: Rwanda (Rank: 51) 82.41: Kenya (Rank: 126) 78.52: Regional Average (Sub-Saharan Africa) 72.65: Tanzania (Rank: 163) 70.79: Ethiopia (Rank: 167) 51.91: Eritrea (Rank: 187) Note: The ranking of economies on the ease of starting a business is determined by sorting their scores for starting a business. These scores are the simple average of the scores for each of the component indicators. Page 6 Doing Business 2019 Eritrea Figure – Starting a Business in Eritrea – Procedure, Time and Cost Time (days) Cost (% of income per capita) 6 80 Cost (% of income per capita) 70 5 60 4 Time (days) 50 3 40 30 2 20 1 10 0 0 1 2 3 4 5 6 7 8 *9 10 11 12 13 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology ). For details on the procedures reflected here, see the summary below. Page 7 Doing Business 2019 Eritrea Details – Starting a Business in Eritrea – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Deposit initial capital in bank account 1 day no charge Agency : Commercial Bank The minimum capital requirement is ERN 15,000 for a private limited liability company and ERN 50,000 for a share company. 2 Search for a company name 2 days no charge Agency : Business License Office The search is conducted at the Business License Office. 3 Notarize company statutes 3 days ERN 715.2 Agency : Notary The memorandum and articles of association is signed by the shareholders before a notary, and a stamp duty is paid. 4 Register with the Commercial Registry 7 days no charge Agency : Business License Office To register with the Commercial Registry, five or six copies of the memorandum and articles of association must be submitted at the License Department of the Ministry of Trade and Industry. 5 Publish the incorporation notice in the official journal 33 days ERN 600 –1000 Agency : Ministry of Information An incorporation notice is published (in both Arabic and English) in the official journal, Hadas Eritrea, announcing the company incorporation. Protestors have 30 days to contest the company’s incorporation and name. 6 Apply for a tax identification number (TIN) 7 days no charge Agency : Inland Revenue Department Once the company registers at the Inland Revenue Department for the taxpayer identification number, it is recognized as a VAT taxpayer. 7 Obtain tax clearance from the Inland Revenue Department 1 day no charge Agency : Inland Revenue Department All new businesses must obtain tax clearance from the Inland Revenue Department. 8 Apply for a business license 14 days ERN 500 Agency : Ministry of Trade and Industry A business license application requires tax clearance and property title documents. The cost of the business license ranges from ERN 500 to ERN 1,000. 9 Receive inspection from the Ministry of Trade and Industry 7 days ERN 500 Agency : Ministry of Trade and Industry (simultaneous with The business license inspection, required for zoning purposes, may take only a previous procedure) day, but it also will take several days to set up an appointment. 10 Obtain approval from the local municipality 2 days ERN 100-500 Agency : Local municipality All new businesses must obtain approval from the local municipality. 11 Notify the Ministry of Labor and Human Welfare 1 day no charge Agency : Ministry of Labor and Human Welfare All companies must notify the Ministry of Labor and Human Welfare by completing the registration form and submitting it to the Ministry for approval. 12 Make a company seal 3 days ERN 400 Agency : Seal maker The practice is not regulated, but the seal typically includes the tax code for the company. 13 Apply for tax receipts from the Inland Revenue Department 10 days ERN 200 for 10 Agency : Inland Revenue Department packs of receipts The company may either print the receipts directly at the Inland Revenue Department or obtain permission to print them itself. Takes place simultaneously with previous procedure. Page 8 Doing Business 2019 Eritrea Dealing with Construction Permits This topic tracks the procedures, time and cost to build a warehouse—including obtaining necessary the licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining utility connections. In addition, the Dealing with Construction Permits indicator measures the building quality control index, evaluating the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements. The most recent round of data collection was completed in May 2018. See the methodology for more information What the indicators measure Case study assumptions Procedures to legally build a warehouse To make the data comparable across economies, several assumptions about the (number) construction company, the warehouse project and the utility connections are used. • Submitting all relevant documents and obtaining The construction company (BuildCo): all necessary clearances, licenses, permits and certificates - Is a limited liability company (or its legal equivalent) and operates in the economy’s largest business city. For 11 economies the data are also collected for the second • Submitting all required notifications and receiving largest business city. all necessary inspections - Is 100% domestically and privately owned; has five owners, none of whom is a • Obtaining utility connections for water and legal entity. Has a licensed architect and a licensed engineer, both registered with sewerage the local association of architects or engineers. BuildCo is not assumed to have any • Registering and selling the warehouse after its other employees who are technical or licensed experts, such as geological or completion topographical experts. - Owns the land on which the warehouse will be built and will sell the warehouse Time required to complete each procedure upon its completion. (calendar days) The warehouse: • Does not include time spent gathering information - Will be used for general storage activities, such as storage of books or stationery. - Will have two stories, both above ground, with a total constructed area of • Each procedure starts on a separate day— approximately 1,300.6 square meters (14,000 square feet). Each floor will be 3 though procedures that can be fully completed meters (9 feet, 10 inches) high and will be located on a land plot of approximately online are an exception to this rule 929 square meters (10,000 square feet) that is 100% owned by BuildCo, and the • Procedure is considered completed once final warehouse is valued at 50 times income per capita. document is received - Will have complete architectural and technical plans prepared by a licensed architect. If preparation of the plans requires such steps as obtaining further • No prior contact with officials documentation or getting prior approvals from external agencies, these are counted Cost required to complete each procedure (% of as procedures. income per capita) - Will take 30 weeks to construct (excluding all delays due to administrative and regulatory requirements). • Official costs only, no bribes The water and sewerage connections: Building quality control index (0-15) - Will be 150 meters (492 feet) from the existing water source and sewer tap. If there • Quality of building regulations (0-2) is no water delivery infrastructure in the economy, a borehole will be dug. If there is • Quality control before construction (0-1) no sewerage infrastructure, a septic tank in the smallest size available will be installed or built. • Quality control during construction (0-3) - Will have an average water use of 662 liters (175 gallons) a day and an average • Quality control after construction (0-3) wastewater flow of 568 liters (150 gallons) a day. Will have a peak water use of 1,325 liters (350 gallons) a day and a peak wastewater flow of 1,136 liters (300 • Liability and insurance regimes (0-2) gallons) a day. • Professional certifications (0-4) - Will have a constant level of water demand and wastewater flow throughout the year; will be 1 inch in diameter for the water connection and 4 inches in diameter for the sewerage connection. Page 9 Doing Business 2019 Eritrea Dealing with Construction Permits - Eritrea Standardized Warehouse Estimated value of warehouse ERN 720,838.60 City Covered Asmara Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Procedures (number) No Practice 14.7 12.7 None in 2017/18 Time (days) No Practice 145.7 153.1 None in 2017/18 Cost (% of warehouse value) No Practice 8.8 1.5 None in 2017/18 Building quality control index (0-15) No Practice 8.5 11.5 15.0 (3 Economies) Figure – Dealing with Construction Permits in Eritrea and comparator economies – Ranking and Score DB 2019 Dealing with Construction Permits Score 0 100 67.01: Rwanda (Rank: 106) 63.49: Kenya (Rank: 128) 58.59: Regional Average (Sub-Saharan Africa) 57.10: Tanzania (Rank: 150) 52.84: Ethiopia (Rank: 168) 0.00: Eritrea (Rank: 186) Note: The ranking of economies on the ease of dealing with construction permits is determined by sorting their scores for dealing with construction permits. These scores are the simple average of the scores for each of the component indicators. Figure – Dealing with Construction Permits in Eritrea – Procedure, Time and Cost Time (days) Cost (% of warehouse value) Cost (% of warehouse value) Time (days) 0 0.2 0.4 0.6 0.8 1 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology ). For details on the procedures reflected here, see the summary below. Page 10 Doing Business 2019 Eritrea Figure – Dealing with Construction Permits in Eritrea and comparator economies – Measure of Quality 15 14.0 12.0 Index score 10 9.0 8.5 7.0 5 0 No Practice Eritrea Ethiopia Kenya Rwanda Tanzania Sub-Saharan Africa Details – Dealing with Construction Permits in Eritrea – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs Takes place simultaneously with previous procedure. Page 11 Doing Business 2019 Eritrea Details – Dealing with Construction Permits in Eritrea – Measure of Quality Answer Score Building quality control index (0-15) No Practice Quality of building regulations index (0-2) No Practice How accessible are building laws and regulations in your economy? (0-1) Not easily 0.0 accessible. Which requirements for obtaining a building permit are clearly specified in the building . 0.0 regulations or on any accessible website, brochure or pamphlet? (0-1) Quality control before construction index (0-1) No Practice Which third-party entities are required by law to verify that the building plans are in By law, there is 0.0 compliance with existing building regulations? (0-1) no need to verify plans compliance. Quality control during construction index (0-3) No Practice What types of inspections (if any) are required by law to be carried out during construction? No inspections 0.0 (0-2) are legally required during construction.. Do legally mandated inspections occur in practice during construction? (0-1) Mandatory 0.0 inspections are not always done in practice during construction. Quality control after construction index (0-3) No Practice Is there a final inspection required by law to verify that the building was built in accordance Final inspection 0.0 with the approved plans and regulations? (0-2) is not required by law. Do legally mandated final inspections occur in practice? (0-1) Final inspection 0.0 does not always occur in practice. Liability and insurance regimes index (0-2) No Practice Which parties (if any) are held liable by law for structural flaws or problems in the building No party is held 0.0 once it is in use (Latent Defect Liability or Decennial Liability)? (0-1) liable under the law. Which parties (if any) are required by law to obtain an insurance policy to cover possible No party is 0.0 structural flaws or problems in the building once it is in use (Latent Defect Liability Insurance required by law or Decennial Insurance)? (0-1) to obtain insurance . Professional certifications index (0-4) No Practice What are the qualification requirements for the professional responsible for verifying that the . 0.0 architectural plans or drawings are in compliance with existing building regulations? (0-2) What are the qualification requirements for the professional who supervises the construction . 0.0 on the ground? (0-2) Page 12 Doing Business 2019 Eritrea Getting Electricity This topic measures the procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse. Additionally, the reliability of supply and transparency of tariffs index measures reliability of supply, transparency of tariffs and the price of electricity. The most recent round of data collection for the project was completed in May 2018. See the methodology for more information. What the indicators measure Case study assumptions Procedures to obtain an electricity connection To make the data comparable across economies, several assumptions about the (number) warehouse, the electricity connection and the monthly consumption are used. • Submitting all relevant documents and obtaining The warehouse: all necessary clearances and permits - Is owned by a local entrepreneur and is used for storage of goods. • Completing all required notifications and - Is located in the economy’s largest business city. For 11 economies the data are receiving all necessary inspections also collected for the second largest business city. • Obtaining external installation works and possibly - Is located in an area where similar warehouses are typically located and is in an purchasing material for these works area with no physical constraints. For example, the property is not near a railway. - Is a new construction and is being connected to electricity for the first time. • Concluding any necessary supply contract and obtaining final supply - Has two stories with a total surface area of approximately 1,300.6 square meters (14,000 square feet). The plot of land on which it is built is 929 square meters Time required to complete each procedure (10,000 square feet). (calendar days) The electricity connection: • Is at least 1 calendar day - Is a permanent one with a three-phase, four-wire Y connection with a subscribed • Each procedure starts on a separate day capacity of 140-kilo-volt-ampere (kVA) with a power factor of 1, when 1 kVA = 1 • Does not include time spent gathering kilowatt (kW). information - Has a length of 150 meters. The connection is to either the low- or medium-voltage distribution network and is either overhead or underground, whichever is more • Reflects the time spent in practice, with little common in the area where the warehouse is located and requires works that involve follow-up and no prior contact with officials the crossing of a 10-meter road (such as by excavation or overhead lines) but are all Cost required to complete each procedure (% of carried out on public land. There is no crossing of other owners’ private property income per capita) because the warehouse has access to a road. - Does not require work to install the internal wiring of the warehouse. This has • Official costs only, no bribes already been completed up to and including the customer’s service panel or • Value added tax excluded switchboard and the meter base. The reliability of supply and transparency of The monthly consumption: tariffs index (0-8) - It is assumed that the warehouse operates 30 days a month from 9:00 a.m. to 5:00 • Duration and frequency of power outages (0–3) p.m. (8 hours a day), with equipment utilized at 80% of capacity on average and that • Tools to monitor power outages (0–1) there are no electricity cuts (assumed for simplicity reasons) and the monthly energy consumption is 26,880 kilowatt-hours (kWh); hourly consumption is 112 kWh. • Tools to restore power supply (0–1) - If multiple electricity suppliers exist, the warehouse is served by the cheapest • Regulatory monitoring of utilities’ performance supplier. (0–1) - Tariffs effective in January of the current year are used for calculation of the price of electricity for the warehouse. Although January has 31 days, for calculation • Financial deterrents limiting outages (0–1) purposes only 30 days are used. • Transparency and accessibility of tariffs (0–1) Price of electricity (cents per kilowatt-hour)* • Price based on monthly bill for commercial warehouse in case study *Note: Doing Business measures the price of electricity, but it is not included in the ease of doing business score nor the ranking on the ease of getting electricity. Page 13 Doing Business 2019 Eritrea Getting Electricity - Eritrea Standardized Connection Price of electricity (US cents per kWh) 23.9 Name of utility Eritrean Electricity Authority City Covered Asmara Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Procedures (number) No Practice 5.2 4.5 3 (25 Economies) Time (days) No Practice 112.0 77.2 18 (3 Economies) Cost (% of income per capita) No Practice 3456.5 64.2 0.0 (3 Economies) Reliability of supply and transparency of tariff No Practice 1.6 7.5 8.0 (27 Economies) index (0-8) Figure – Getting Electricity in Eritrea and comparator economies – Ranking and Score DB 2019 Getting Electricity Score 0 100 78.72: Rwanda (Rank: 68) 76.80: Kenya (Rank: 75) 74.61: Tanzania (Rank: 83) 59.71: Ethiopia (Rank: 131) 49.00: Regional Average (Sub-Saharan Africa) 0.00: Eritrea (Rank: 187) Note: The ranking of economies on the ease of getting electricity is determined by sorting their scores for getting electricity. These scores are the simple average of the scores for all the component indicators except the price of electricity. Page 14 Doing Business 2019 Eritrea Figure – Getting Electricity in Eritrea – Procedure, Time and Cost Time (days) Cost (% of income per capita) Cost (% of income per capita) Time (days) 0 0.2 0.4 0.6 0.8 1 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology ). For details on the procedures reflected here, see the summary below. Figure – Getting Electricity in Eritrea and comparator economies – Measure of Quality 8 7 6 Index score 5 5 5 4 4 3 2 1.6 1 0 0 No Practice Eritrea Ethiopia Kenya Rwanda Tanzania Sub-Saharan Africa Page 15 Doing Business 2019 Eritrea Details – Getting Electricity in Eritrea – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs Takes place simultaneously with previous procedure. Page 16 Doing Business 2019 Eritrea Details – Getting Electricity in Eritrea – Measure of Quality Answer Reliability of supply and transparency of tariff index (0-8) No Practice Total duration and frequency of outages per customer a year (0-3) No Practice System average interruption duration index (SAIDI) 4320.0 System average interruption frequency index (SAIFI) 2000.0 What is the minimum outage time (in minutes) that the utility considers for the calculation of SAIDI/SAIFI N/A Mechanisms for monitoring outages (0-1) No Practice Does the distribution utility use automated tools to monitor outages? No Mechanisms for restoring service (0-1) No Practice Does the distribution utility use automated tools to restore service? No Regulatory monitoring (0-1) No Practice Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability of Yes supply? Financial deterrents aimed at limiting outages (0-1) No Practice Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages No exceed a certain cap? Communication of tariffs and tariff changes (0-1) No Practice Are effective tariffs available online? No Link to the website, if available online n.a Are customers notified of a change in tariff ahead of the billing cycle? Yes Note: If the duration and frequency of outages is 100 or less, the economy is eligible to score on the Reliability of supply and transparency of tariff index. If the duration and frequency of outages is not available, or is over 100, the economy is not eligible to score on the index. If the minimum outage time considered for SAIDI/SAIFI is over 5 minutes, the economy is not eligible to score on the index. Page 17 Doing Business 2019 Eritrea Registering Property This topic examines the steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered and free of title dispute. In addition, the topic also measures the quality of the land administration system in each economy. The quality of land administration index has five dimensions: reliability of infrastructure, transparency of information, geographic coverage, land dispute resolution, and equal access to property rights. The most recent round of data collection for the project was completed in May 2018. See the methodology for more information. What the indicators measure Case study assumptions Procedures to legally transfer title on To make the data comparable across economies, several assumptions about the immovable property (number) parties to the transaction, the property and the procedures are used. • Preregistration procedures (for example, The parties (buyer and seller): checking for liens, notarizing sales agreement, paying property transfer taxes) - Are limited liability companies (or the legal equivalent). - Are located in the periurban area of the economy’s largest business city. For 11 • Registration procedures in the economy's largest economies the data are also collected for the second largest business city. business city. - Are 100% domestically and privately owned. • Postregistration procedures (for example, filling - Have 50 employees each, all of whom are nationals. title with municipality) - Perform general commercial activities. Time required to complete each procedure The property (fully owned by the seller): (calendar days) - Has a value of 50 times income per capita, which equals the sale price. • Does not include time spent gathering - Is fully owned by the seller. information - Has no mortgages attached and has been under the same ownership for the past • Each procedure starts on a separate day - 10 years. though procedures that can be fully completed - Is registered in the land registry or cadastre, or both, and is free of title disputes. online are an exception to this rule - Is located in a periurban commercial zone, and no rezoning is required. - Consists of land and a building. The land area is 557.4 square meters (6,000 • Procedure is considered completed once final square feet). A two-story warehouse of 929 square meters (10,000 square feet) is document is received located on the land. The warehouse is 10 years old, is in good condition, has no • No prior contact with officials heating system and complies with all safety standards, building codes and legal requirements. The property, consisting of land and building, will be transferred in its Cost required to complete each procedure (% of entirety. property value) - Will not be subject to renovations or additional construction following the purchase. • Official costs only (such as administrative fees, - Has no trees, natural water sources, natural reserves or historical monuments of duties and taxes). any kind. - Will not be used for special purposes, and no special permits, such as for • Value Added Tax, Capital Gains Tax and illicit residential use, industrial plants, waste storage or certain types of agricultural payments are excluded activities, are required. - Has no occupants, and no other party holds a legal interest in it. Quality of land administration index (0-30) • Reliability of infrastructure index (0-8) • Transparency of information index (0–6) • Geographic coverage index (0–8) • Land dispute resolution index (0–8) • Equal access to property rights index (-2–0) Page 18 Doing Business 2019 Eritrea Registering Property - Eritrea Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Procedures (number) 11 6.2 4.7 1 (4 Economies) Time (days) 78 53.9 20.1 1 (New Zealand) Cost (% of property value) 9.0 7.6 4.2 0.0 (Saudi Arabia) Quality of the land administration index (0-30) 6.5 8.8 23.0 None in 2017/18 Figure – Registering Property in Eritrea and comparator economies – Ranking and Score DB 2019 Registering Property Score 0 100 93.70: Rwanda (Rank: 2) 55.97: Kenya (Rank: 122) 52.62: Regional Average (Sub-Saharan Africa) 51.33: Ethiopia (Rank: 144) 50.14: Tanzania (Rank: 146) 35.30: Eritrea (Rank: 180) Note: The ranking of economies on the ease of registering property is determined by sorting their scores for registering property. These scores are the simple average of the scores for each of the component indicators. Figure – Registering Property in Eritrea – Procedure, Time and Cost Time (days) Cost (% of property value) 6 70 5 Cost (% of property value) 60 4 50 Time (days) 40 3 30 2 20 1 10 0 0 1 *2 *3 *4 *5 6 7 8 9 10 11 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology ). For details on the procedures reflected here, see the summary below. Page 19 Doing Business 2019 Eritrea Figure – Registering Property in Eritrea and comparator economies – Measure of Quality 30 28.5 25 Index score 20 16.0 15 10 8.8 6.5 7.5 6.0 5 0 Eritrea Ethiopia Kenya Rwanda Tanzania Sub-Saharan Africa Details – Registering Property in Eritrea – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Obtain tax clearance from Inland Revenue 7 days ERN 15 Agency : Inland Revenue There are no costs involved unless there are unpaid taxes for the concerned building and other buildings owned by the owner. 2 Obtain non-objection from Commercial bank 1 day ERN 50 Agency : Commercial Bank of Eritrea There are only two banks in Eritrea and as part of due diligence, a non-objection clearance is obtained from both of them to show that there are no outstanding loans or other credits on the property. 3 Obtain non-objection clearance for unpaid loans from housing and 1 day ERN 20 commercial bank Agency : Housing and commercial bank 4 Obtain a tax clearance from the Municipality 1 day ERN 50; (25 ERN (1- Agency : Municipality 5 days); 50 ERN This is also part of the due diligence. The seller will provide proof that there are (express 1 day)) no outstanding property taxes 5 Obtain non-encumbrance certificate from the Cadastral Office 1 day ERN 15 Agency : Cadastral Office The clearance secures that the property is free from any mortgage and pledge. 6 Submit all registration documents and clearances to the Notary Public and 1 day no charge define tax to be paid Agency : Notary public office The Public Notary examines all the documents thoroughly, with all the clearances and delivers the documents, particularly the previous survey plan, to the Department of Infrastructure for new plan (from the previous owner to the new owner). 7 Creates a map of land 60 days no charge Agency : Dept. of Infrastructure The Department of Urban Development of the Ministry of Public Works, prepares a map and ensures compliance with all building regulations. The Department of Infrastructure sends the new map to the Public Notary, and the Public Notary, based on the declared price of agreement or on the recorded value in the computer (database), orders the buyer or any beneficiary to pay transfer taxes at the Municipality and at the Inland Revenue 8 Buyer pays tax at Municipality 1 day ERN 36,041.93; (5% Agency : Municipality for Municipality) The buyer pays the necessary tax at the Municipality. 9 Buyer pays tax at Inland Revenue 1 day ERN 28,833.54; (4% Agency : Inland Revenue of property value as The buyer pays the necessary tax at the Inland Revenue. valuated by committee) 10 The Public Notary approved the contract in front of the parties and two 1 day included in the 9% of witnesses property value Agency : Notary public office The Public Notary reads the content of the contract in front of the parties and witnesses. All parties must give their own free will for the contract to be effective. The Notary duly monitors the documents particularly whether the transfer payment is fully paid or not, and sends all the relevant documents to the Cadastral Office. Page 20 Doing Business 2019 Eritrea 11 Submit registration of title at the Cadastre 7 days ERN 150 Agency : Cadastral Office At this point in the process the buyer obtains full possession of the title. They give copies of the title to the Cadastre and the Municipality. Takes place simultaneously with previous procedure. Page 21 Doing Business 2019 Eritrea Details – Registering Property in Eritrea – Measure of Quality Answer Score Reliability of infrastructure index (0-8) 2.0 What is the institution in charge of immovable property registration? Cadastral Office In what format are the majority of title or deed records kept in the largest business city—in a Paper 0.0 paper format or in a computerized format (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, mortgages, restrictions No 0.0 and the like)? Institution in charge of the plans showing legal boundaries in the largest business city: Cadastral Office In what format are the majority of maps of land plots kept in the largest business city—in a Paper 0.0 paper format or in a computerized format (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing No 0.0 cadastral information (geographic information system)? Is the information recorded by the immovable property registration agency and the cadastral Different 1.0 or mapping agency kept in a single database, in different but linked databases or in separate databases but databases? linked Do the immovable property registration agency and cadastral or mapping agency use the Yes 1.0 same identification number for properties? Transparency of information index (0–6) 0.0 Who is able to obtain information on land ownership at the agency in charge of immovable Records are not 0.0 property registration in the largest business city? publicly available Is the list of documents that are required to complete any type of property transaction made Yes, in person 0.0 publicly available–and if so, how? Link for online access: Is the applicable fee schedule for any property transaction at the agency in charge of Yes, in person 0.0 immovable property registration in the largest business city made publicly available–and if so, how? Link for online access: Does the agency in charge of immovable property registration commit to delivering a legally No 0.0 binding document that proves property ownership within a specific time frame–and if so, how does it communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about a problem that No 0.0 occurred at the agency in charge of immovable property registration? Contact information: Are there publicly available official statistics tracking the number of transactions at the No 0.0 immovable property registration agency? Number of property transfers in the largest business city in 2017: Who is able to consult maps of land plots in the largest business city? Records are not 0.0 publicly available Is the applicable fee schedule for accessing maps of land plots made publicly available— Yes, in person 0.0 and if so, how? Link for online access: Does the cadastral or mapping agency commit to delivering an updated map within a No 0.0 specific time frame—and if so, how does it communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about a problem that No 0.0 occurred at the cadastral or mapping agency? Contact information: Page 22 Doing Business 2019 Eritrea Geographic coverage index (0–8) 0.0 Are all privately held land plots in the economy formally registered at the immovable property No 0.0 registry? Are all privately held land plots in the largest business city formally registered at the No 0.0 immovable property registry? Are all privately held land plots in the economy mapped? No 0.0 Are all privately held land plots in the largest business city mapped? No 0.0 Land dispute resolution index (0–8) 4.5 Does the law require that all property sale transactions be registered at the immovable Yes 1.5 property registry to make them opposable to third parties? Is the system of immovable property registration subject to a state or private guarantee? No 0.0 Is there a specific compensation mechanism to cover for losses incurred by parties who No 0.0 engaged in good faith in a property transaction based on erroneous information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property Yes 0.5 transaction (e.g., checking the compliance of contracts with requirements of the law)? If yes, who is responsible for checking the legality of the documents? Registrar; Notary; Does the legal system require verification of the identity of the parties to a property Yes 0.5 transaction? If yes, who is responsible for verifying the identity of the parties? Registrar; Notary; Is there a national database to verify the accuracy of identity documents? No 0.0 For a standard land dispute between two local businesses over tenure rights of a property Regional worth 50 times gross national income (GNI) per capita and located in the largest business Court/Zonal city, what court would be in charge of the case in the first instance? Court/Land Commission How long does it take on average to obtain a decision from the first-instance court for such a Between 1 and 2 2.0 case (without appeal)? years Are there any statistics on the number of land disputes in the first instance? No 0.0 Number of land disputes in the largest business city in 2017: Equal access to property rights index (-2–0) 0.0 Do unmarried men and unmarried women have equal ownership rights to property? Yes Do married men and married women have equal ownership rights to property? Yes 0.0 Page 23 Doing Business 2019 Eritrea Getting Credit This topic explores two sets of issues—the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending. The most recent round of data collection for the project was completed in May 2018. See the methodology for more information. What the indicators measure Case study assumptions Strength of legal rights index (0–12) Doing Business assesses the sharing of credit information and the legal rights of borrowers and lenders with respect to secured transactions through 2 sets of • Rights of borrowers and lenders through indicators. The depth of credit information index measures rules and practices collateral laws (0-10) affecting the coverage, scope and accessibility of credit information available • Protection of secured creditors’ rights through through a credit registry or a credit bureau. The strength of legal rights index bankruptcy laws (0-2) measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. For each economy it is first Depth of credit information index (0–8) determined whether a unitary secured transactions system exists. Then two case • Scope and accessibility of credit information scenarios, case A and case B, are used to determine how a nonpossessory security distributed by credit bureaus and credit registries interest is created, publicized and enforced according to the law. Special emphasis (0-8) is given to how the collateral registry operates (if registration of security interests is possible). The case scenarios involve a secured borrower, company ABC, and a Credit bureau coverage (% of adults) secured lender, BizBank. • Number of individuals and firms listed in largest In some economies the legal framework for secured transactions will allow only case credit bureau as a percentage of adult population A or case B (not both) to apply. Both cases examine the same set of legal provisions Credit registry coverage (% of adults) relating to the use of movable collateral. • Number of individuals and firms listed in credit Several assumptions about the secured borrower (ABC) and lender (BizBank) registry as a percentage of adult population are used: - ABC is a domestic limited liability company (or its legal equivalent). - ABC has up to 50 employees. - ABC has its headquarters and only base of operations in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city. - Both ABC and BizBank are 100% domestically owned. The case scenarios also involve assumptions. In case A, as collateral for the loan, ABC grants BizBank a nonpossessory security interest in one category of movable assets, for example, its machinery or its inventory. ABC wants to keep both possession and ownership of the collateral. In economies where the law does not allow nonpossessory security interests in movable property, ABC and BizBank use a fiduciary transfer-of-title arrangement (or a similar substitute for nonpossessory security interests). In case B, ABC grants BizBank a business charge, enterprise charge, floating charge or any charge that gives BizBank a security interest over ABC’s combined movable assets (or as much of ABC’s movable assets as possible). ABC keeps ownership and possession of the assets. Page 24 Doing Business 2019 Eritrea Getting Credit - Eritrea Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Strength of legal rights index (0-12) 0 5.2 6.1 12 (5 Economies) Depth of credit information index (0-8) 0 3.3 6.7 8 (42 Economies) Credit registry coverage (% of adults) 0 7.0 21.8 100.0 (4 Economies) Credit bureau coverage (% of adults) 0 8.9 65.3 100.0 (25 Economies) Figure – Getting Credit in Eritrea and comparator economies – Ranking and Score DB 2019 Getting Credit Score 0 100 95.00: Rwanda (Rank: 3) 90.00: Kenya (Rank: 8) 65.00: Tanzania (Rank: 60) 42.08: Regional Average (Sub-Saharan Africa) 15.00: Ethiopia (Rank: 175) 0.00: Eritrea (Rank: 186) Note: The ranking of economies on the ease of getting credit is determined by sorting their scores for getting credit. These scores are the sum of the scores for the strength of legal rights index and the depth of credit information index. Figure – Legal Rights in Eritrea and comparator economies 10 11 8 7 6 5.2 Index Score 5 5 4 3 3 2 1 0 0 Eritrea Ethiopia Kenya Rwanda Tanzania Sub-Saharan Africa Page 25 Doing Business 2019 Eritrea Details – Legal Rights in Eritrea Strength of legal rights index (0-12) 0 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and No enforcement of functional equivalents to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without No requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a No specific description of collateral? May a security right extend to future or after-acquired assets, and does it extend automatically to the products, proceeds and No replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be No secured between parties; and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is unified geographically and by No asset type, with an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional equivalents can be registered? No Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed No online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor defaults outside an insolvency No procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is liquidated? No Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization No procedure? Does the law protect secured creditors’ rights by providing clear grounds for relief from the stay and sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow No the secured creditor to sell the collateral through public auction or private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Figure – Credit Information in Eritrea and comparator economies 8 8 8 8 7 6 Index Score 5 4 3.3 3 2 1 0 0 0 Eritrea Ethiopia Kenya Rwanda Tanzania Sub-Saharan Africa Page 26 Doing Business 2019 Eritrea Details – Credit Information in Eritrea Depth of credit information index (0-8) Credit Credit Score bureau registry Are data on both firms and individuals distributed? No No 0 Are both positive and negative credit data distributed? No No 0 Are data from retailers or utility companies - in addition to data from banks and No No 0 financial institutions - distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries No No 0 that distribute more than 10 years of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per capita distributed? No No 0 By law, do borrowers have the right to access their data in the credit bureau or No No 0 credit registry? Can banks and financial institutions access borrowers’ credit information online No No 0 (for example, through an online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value-added service to help No No 0 banks and financial institutions assess the creditworthiness of borrowers? Total Score ("yes" to either public bureau or private registry) 0 Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of individuals 0 0 Number of firms 0 0 Total 0 0 Percentage of adult population 0 0 Page 27 Doing Business 2019 Eritrea Protecting Minority Investors This topic measures the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse. The most recent round of data collection for the project was completed in May 2018. See the methodology for more information. What the indicators measure Case study assumptions • Extent of disclosure index (0–10): Review and To make the data comparable across economies, a case study uses several approval requirements for related-party assumptions about the business and the transaction. transactions; Disclosure requirements for related- party transactions The business (Buyer): • Extent of director liability index (0–10): Ability - Is a publicly traded corporation listed on the economy’s most important stock of minority shareholders to sue and hold exchange. If there are fewer than ten listed companies or if there is no stock interested directors liable for prejudicial related- exchange in the economy, it is assumed that Buyer is a large private company with party transactions; Available legal remedies multiple shareholders. (damages, disgorgement of profits, fines, - Has a board of directors and a chief executive officer (CEO) who may legally act on imprisonment, rescission of the transaction) behalf of Buyer where permitted, even if this is not specifically required by law. • Ease of shareholder suits index (0–10): - Has a supervisory board in economies with a two-tier board system on which Mr. Access to internal corporate documents; James appointed 60% of the shareholder-elected members. Evidence obtainable during trial and allocation of - Has not adopted bylaws or articles of association that go beyond the minimum legal expenses requirements. Does not follow codes, principles, recommendations or guidelines that are not mandatory. • Extent of conflict of interest regulation index - Is a manufacturing company with its own distribution network. (0–10): Simple average of the extent of disclosure, extent of director liability and ease of The transaction involves the following details: shareholder indices - Mr. James owns 60% of Buyer, sits on Buyer’s board of directors and elected two • Extent of shareholder rights index (0-10): directors to Buyer’s five-member board. Shareholders’ rights and role in major corporate - Mr. James also owns 90% of Seller, a company that operates a chain of retail decisions hardware stores. Seller recently closed a large number of its stores. • Extent of ownership and control index (0-10): - Mr. James proposes that Buyer purchase Seller’s unused fleet of trucks to expand Governance safeguards protecting shareholders Buyer’s distribution of its food products, a proposal to which Buyer agrees. The price from undue board control and entrenchment is equal to 10% of Buyer’s assets and is higher than the market value. - The proposed transaction is part of the company’s principal activity and is not • Extent of corporate transparency index (0-10): outside the authority of the company. Corporate transparency on ownership stakes, - Buyer enters into the transaction. All required approvals are obtained, and all compensation, audits and financial prospects required disclosures made—that is, the transaction was not entered into fraudulently. • Extent of shareholder governance index (0– - The transaction causes damages to Buyer. Shareholders sue Mr. James and the 10): Simple average of the extent of shareholders executives and directors that approved the transaction. rights, extent of ownership and control and extent of corporate transparency indices • Strength of minority investor protection index (0–10): Simple average of the extent of conflict of interest regulation and extent of shareholder governance indices Page 28 Doing Business 2019 Eritrea Protecting Minority Investors - Eritrea Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Extent of disclosure index (0-10) 3.0 5.5 6.5 10 (13 Economies) Extent of director liability index (0-10) 0.0 3.5 5.3 10 (Cambodia) Ease of shareholder suits index (0-10) 5.0 5.5 7.3 10 (Djibouti) Extent of shareholder rights index (0-10) 5.0 4.6 6.4 10 (Kazakhstan) Extent of ownership and control index (0-10) 3.0 3.4 5.4 None in 2017/18 Extent of corporate transparency index (0-10) 3.0 4.1 7.6 10 (6 Economies) Figure – Protecting Minority Investors in Eritrea and comparator economies – Ranking and Score DB 2019 Protecting Minority Investors Score 0 100 78.33: Kenya (Rank: 11) 76.67: Rwanda (Rank: 14) 45.00: Tanzania (Rank: 131) 44.55: Regional Average (Sub-Saharan Africa) 31.67: Eritrea (Rank: 174) 28.33: Ethiopia (Rank: 178) Note: The ranking of economies on the strength of minority investor protections is determined by sorting their scores for protecting minority investors. These scores are the simple average of the scores for the extent of conflict of interest regulation index and the extent of shareholder governance index. Figure – Protecting Minority Investors in Eritrea and comparator economies – Measure of Quality Eritrea 3 0 3 3 5 5 Ethiopia 4 0 3 3 5 2 Kenya 5 10 10 6 7 9 Rwanda 7 9 8 9 8 5 Tanzania 5 6 2 2 4 8 OECD high income 7.4 5.5 6.5 5.2 6.3 7.4 Sub-Saharan Africa 4.3 3.6 5.6 3.4 4.7 5.6 0 5 10 15 20 25 30 35 40 45 50 Sub-Indicator Score Extent of corporate transparency index (0-10) Extent of director liability index (0-10) Extent of disclosure index (0-10) Extent of ownership and control index (0-10) Extent of shareholder rights index (0-10) Ease of shareholder suits index (0-10) Page 29 Doing Business 2019 Eritrea Details – Protecting Minority Investors in Eritrea – Measure of Quality Answer Score Extent of conflict of interest regulation index (0-10) 2.7 Extent of disclosure index (0-10) 3.0 Whose decision is sufficient to approve the Buyer-Seller transaction? (0-3) Board of 2.0 directors excluding interested members Must an external body review the terms of the transaction before it takes place? (0-1) No 0.0 Must Mr. James disclose his conflict of interest to the board of directors? (0-2) Existence of a 1.0 conflict without any specifics Must Buyer disclose the transaction in periodic filings (e.g. annual reports)? (0-2) No disclosure 0.0 obligation Must Buyer immediately disclose the transaction to the public? (0-2) No disclosure 0.0 obligation Extent of director liability index (0-10) 0.0 Can shareholders representing 10% of Buyer's share capital sue for the damage the No 0.0 transaction caused to Buyer? (0-1) Can shareholders hold Mr. James liable for the damage the transaction caused to Buyer? (0- Not liable 0.0 2) Can shareholders hold the other directors liable for the damage the transaction caused to Not liable 0.0 Buyer (0-2) Must Mr. James pay damages for the harm caused to Buyer upon a successful claim by No 0.0 shareholders? (0-1) Must Mr. James repay profits made from the transaction upon a successful claim by No 0.0 shareholders? (0-1) Is Mr. James disqualified upon a successful claim by shareholders? (0-1) No 0.0 Can a court void the transaction upon a successful claim by shareholders? (0-2) Only in case of 0.0 fraud or bad faith Ease of shareholder suits index (0-10) 5.0 Before suing, can shareholders representing 10% of Buyer's share capital inspect the No 0.0 transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant and witnesses at trial? (0-3) Any relevant 3.0 document Can the plaintiff request categories of documents from the defendant without identifying No 0.0 specific ones? (0-1) Can the plaintiff directly question the defendant and witnesses at trial? (0-2) No 0.0 Is the level of proof required for civil suits lower than that of criminal cases? (0-1) Yes 1.0 Can shareholder plaintiffs recover their legal expenses from the company? (0-2) Yes if successful 1.0 Extent of shareholder governance index (0-10) 3.7 Extent of shareholder rights index (0-10) 5.0 Does the sale of 51% of Buyer's assets require shareholder approval? No 0.0 Can shareholders representing 10% of Buyer's share capital call for a meeting of Yes 1.0 shareholders? Must Buyer obtain its shareholders’ approval every time it issues new shares? Yes 1.0 Do shareholders automatically receive preemption rights every time Buyer issues new Yes 1.0 shares? Page 30 Doing Business 2019 Eritrea Must shareholders approve the election and dismissal of the external auditor? Yes 1.0 Are changes to the rights of a class of shares only possible if the holders of the affected Yes 1.0 shares approve? Assuming that Buyer is a limited company, does the sale of 51% of its assets require No 0.0 member approval? Assuming that Buyer is a limited company, can members representing 10% call for a No 0.0 meeting of members? Assuming that Buyer is a limited company, must all or almost all members consent to add a No 0.0 new member? Assuming that Buyer is a limited company, must a member first offer to sell their interest to No 0.0 the existing members before they can sell to non-members? Extent of ownership and control index (0-10) 3.0 Is it forbidden to appoint the same individual as CEO and chairperson of the board of Yes 1.0 directors? Must the board of directors include independent and nonexecutive board members? No 0.0 Can shareholders remove members of the board of directors without cause before the end Yes 1.0 of their term? Must the board of directors include a separate audit committee exclusively comprising board No 0.0 members? Must a potential acquirer make a tender offer to all shareholders upon acquiring 50% of No 0.0 Buyer? Must Buyer pay declared dividends within a maximum period set by law? No 0.0 Is a subsidiary prohibited from acquiring shares issued by its parent company? Yes 1.0 Assuming that Buyer is a limited company, must Buyer have a mechanism to resolve No 0.0 disagreements among members? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to No 0.0 all shareholders upon acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer distribute profits within a maximum No 0.0 period set by law? Extent of corporate transparency index (0-10) 3.0 Must Buyer disclose direct and indirect beneficial ownership stakes representing 5%? No 0.0 Must Buyer disclose information about board members’ primary employment and Yes 1.0 directorships in other companies? Must Buyer disclose the compensation of individual managers? No 0.0 Must a detailed notice of general meeting be sent 21 days before the meeting? No 0.0 Can shareholders representing 5% of Buyer’s share capital put items on the general meeting No 0.0 agenda? Must Buyer's annual financial statements be audited by an external auditor? Yes 1.0 Must Buyer disclose its audit reports to the public? No 0.0 Assuming that Buyer is a limited company, must members meet at least once a year? Yes 1.0 Assuming that Buyer is a limited company, can members representing 5% put items on the No 0.0 meeting agenda? Assuming that Buyer is a limited company, must Buyer's annual financial statements be No 0.0 audited by an external auditor? Page 31 Doing Business 2019 Eritrea Paying Taxes This topic records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as the administrative burden of paying taxes and contributions and complying with postfiling procedures (VAT refund and tax audit). The most recent round of data collection for the project was completed in May 2018 covering for the Paying Taxes indicator calendar year 2017 (January 1, 2017 – December 31, 2017). See the methodology for more information. What the indicators measure Case study assumptions Tax payments for a manufacturing company in Using a case scenario, Doing Business records taxes and mandatory contributions a 2017 (number per year adjusted for electronic medium size company must pay in a year, and measures the administrative burden and joint filing and payment) of paying taxes, contributions and dealing with postfiling processes. Information is also compiled on frequency of filing and payments, time taken to comply with tax • Total number of taxes and contributions paid or laws, time taken to comply with the requirements of postfiling processes and time withheld, including consumption taxes (value waiting. added tax, sales tax or goods and service tax) • Method and frequency of filing and payment To make data comparable across economies, several assumptions are used: - TaxpayerCo is a medium-size business that started operations on January 1, 2016. Time required to comply with 3 major taxes It produces ceramic flowerpots and sells them at retail. All taxes and contributions (hours per year) recorded are paid in the second year of operation (calendar year 2017). Taxes and • Collecting information, computing tax payable mandatory contributions are measured at all levels of government. • Preparing separate tax accounting books, if The VAT refund process: required - In June 2017, TaxpayerCo. makes a large capital purchase: the value of the • Completing tax return, filing with agencies machine is 65 times income per capita of the economy. Sales are equally spread per month (1,050 times income per capita divided by 12) and cost of goods sold are • Arranging payment or withholding equally expensed per month (875 times income per capita divided by 12). The machinery seller is registered for VAT and excess input VAT incurred in June will be Total tax and contribution rate (% of commercial fully recovered after four consecutive months if the VAT rate is the same for inputs, profits) sales and the machine and the tax reporting period is every month. Input VAT will • Profit or corporate income tax exceed Output VAT in June 2017. • Social contributions, labor taxes paid by The corporate income tax audit process: employer - An error in calculation of income tax liability (for example, use of incorrect tax • Property and property transfer taxes depreciation rates, or incorrectly treating an expense as tax deductible) leads to an • Dividend, capital gains, financial transactions incorrect income tax return and a corporate income tax underpayment. TaxpayerCo. taxes discovered the error and voluntarily notified the tax authority. The value of the underpaid income tax liability is 5% of the corporate income tax liability • Waste collection, vehicle, road and other taxes due. TaxpayerCo. submits corrected information after the deadline for submitting the annual tax return, but within the tax assessment period. Postfiling Index • Time to comply with a VAT refund (hours) • Time to obtain a VAT refund (weeks) • Time to comply with a corporate income tax correction (hours) • Time to complete a corporate income tax correction (weeks) Page 32 Doing Business 2019 Eritrea Paying Taxes - Eritrea Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Payments (number per year) 30 37.4 11.2 3 (Hong Kong SAR, China) Time (hours per year) 216 280.6 159.4 49 (Singapore) Total tax and contribution rate (% of profit) 83.7 46.8 39.8 26.1% (32 Economies) Postfiling index (0-100) 93.12 54.63 84.41 None in 2017/18 Figure – Paying Taxes in Eritrea and comparator economies – Ranking and Score DB 2019 Paying Taxes Score 0 100 84.55: Rwanda (Rank: 35) 72.37: Kenya (Rank: 91) 63.26: Ethiopia (Rank: 130) 57.52: Regional Average (Sub-Saharan Africa) 55.90: Eritrea (Rank: 152) 50.85: Tanzania (Rank: 167) Note: The ranking of economies on the ease of paying taxes is determined by sorting their scores for paying taxes. These scores are the simple average of the scores for each of the component indicators, with a threshold and a nonlinear transformation applied to one of the component indicators, the total tax and contribution rate. The threshold is defined as the total tax and contribution rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax and contribution rate below this threshold receive the same score as the economy at the threshold. Figure – Paying Taxes in Eritrea and comparator economies – Measure of Quality 100 93.12 80 63.68 Index score 62.03 60 51.56 54.63 48.39 40 20 0 Eritrea Ethiopia Kenya Rwanda Tanzania Sub-Saharan Africa Page 33 Doing Business 2019 Eritrea Details – Paying Taxes in Eritrea Tax or Payments Notes on Time Statutory Tax base Total tax Notes on mandatory (number) Payments (hours) tax rate and TTCR contribution contribution rate (% of profit) Sales tax 12.0 96.0 5% purchases 73.66 Corporate 1.0 24.0 30% taxable profit 8.09 income tax Municipality 1.0 4% taxable profit 1.08 tax on earnings Municipality 1.0 1.85 per land area 0.45 tax on land square meter Municipality 1.0 1.75 per building area 0.36 tax on square meter property Garbage fee 1.0 0.4 per building area 0.08 square meter Vehicle tax 1.0 fixed fee 0.03 Personal 12.0 96.0 0.00 withheld income tax Totals 30 216 83.7 Page 34 Doing Business 2019 Eritrea Details – Paying Taxes in Eritrea – Tax by Type Taxes by type Answer Profit tax (% of profit) 9.2 Labor tax and contributions (% of profit) 0 Other taxes (% of profit) 74.6 Page 35 Doing Business 2019 Eritrea Details – Paying Taxes in Eritrea – Measure of Quality Answer Score Postfiling index (0-100) 93.12 VAT refunds Does VAT exist? No Does a VAT refund process exist per the case study? N/A Restrictions on VAT refund process N/A Percentage of cases exposed to a VAT audit (%) Not applicable Is there a mandatory carry forward period? Not Applicable Time to comply with VAT refund (hours) No VAT No VAT Time to obtain a VAT refund (weeks) No VAT No VAT Corporate income tax audits Does corporate income tax exist? Yes Percentage of cases exposed to a corporate income tax audit (%) 0% - 24% Time to comply with a corporate income tax correction (hours) 9.0 86.24 Time to complete a corporate income tax correction (weeks) No tax audit per 100 case study scenario Notes: Names of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. The postfiling index is the average of the scores on time to comply with VAT refund, time to obtain a VAT refund, time to comply with a corporate income tax correction and time to complete a corporate income tax correction. N/A = Not applicable. Page 36 Doing Business 2019 Eritrea Trading across Borders Doing Business records the time and cost associated with the logistical process of exporting and importing goods. Doing Business measures the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods. The most recent round of data collection for the project was completed in May 2018. See the methodology for more information. What the indicators measure Case study assumptions Documentary compliance To make the data comparable across economies, a few assumptions are made about the traded goods and the transactions: • Obtaining, preparing and submitting documents during transport, clearance, inspections and port Time: Time is measured in hours, and 1 day is 24 hours (for example, 22 days are or border handling in origin economy recorded as 22×24=528 hours). If customs clearance takes 7.5 hours, the data are • Obtaining, preparing and submitting documents recorded as is. Alternatively, suppose documents are submitted to a customs agency required by destination economy and any transit at 8:00a.m., are processed overnight and can be picked up at 8:00a.m. the next day. economies The time for customs clearance would be recorded as 24 hours because the actual • Covers all documents required by law and in procedure took 24 hours. practice, including electronic submissions of Cost: Insurance cost and informal payments for which no receipt is issued are information excluded from the costs recorded. Costs are reported in U.S. dollars. Contributors Border compliance are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. Contributors are private sector • Customs clearance and inspections experts in international trade logistics and are informed about exchange rates. • Inspections by other agencies (if applied to more than 20% of shipments) Assumptions of the case study: - For all 190 economies covered by Doing Business, it is assumed a shipment is in a • Handling and inspections that take place at the warehouse in the largest business city of the exporting economy and travels to a economy’s port or border warehouse in the largest business city of the importing economy. - It is assumed each economy imports 15 metric tons of containerized auto parts (HS Domestic transport 8708) from its natural import partner—the economy from which it imports the largest • Loading or unloading of the shipment at the value (price times quantity) of auto parts. It is assumed each economy exports the warehouse or port/border product of its comparative advantage (defined by the largest export value) to its • Transport between warehouse and port/border natural export partner—the economy that is the largest purchaser of this product. Shipment value is assumed to be $50,000. • Traffic delays and road police checks while - The mode of transport is the one most widely used for the chosen export or import shipment is en route product and the trading partner, as is the seaport or land border crossing. - All electronic information submissions requested by any government agency in connection with the shipment are considered to be documents obtained, prepared and submitted during the export or import process. - A port or border is a place (seaport or land border crossing) where merchandise can enter or leave an economy. - Relevant government agencies include customs, port authorities, road police, border guards, standardization agencies, ministries or departments of agriculture or industry, national security agencies and any other government authorities. Page 37 Doing Business 2019 Eritrea Trading across Borders - Eritrea Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Time to export: Border compliance (hours) No Practice 97.3 12.5 1 (19 Economies) Cost to export: Border compliance (USD) No Practice 605.8 139.1 0 (19 Economies) Time to export: Documentary compliance (hours) No Practice 72.8 2.4 1 (26 Economies) Cost to export: Documentary compliance (USD) No Practice 168.8 35.2 0 (20 Economies) Time to import: Border compliance (hours) No Practice 126.3 8.5 0 (25 Economies) Cost to import: Border compliance (USD) No Practice 684.3 100.2 0 (28 Economies) Time to import: Documentary compliance (hours) No Practice 97.7 3.4 1 (30 Economies) Cost to import: Documentary compliance (USD) No Practice 283.5 24.9 0 (30 Economies) Figure – Trading across Borders in Eritrea and comparator economies – Ranking and Score DB 2019 Trading Across Borders Score 0 100 74.98: Rwanda (Rank: 88) 68.06: Kenya (Rank: 112) 56.00: Ethiopia (Rank: 154) 53.59: Regional Average (Sub-Saharan Africa) 20.21: Tanzania (Rank: 183) 0.00: Eritrea (Rank: 189) Note: The ranking of economies on the ease of trading across borders is determined by sorting their scores for trading across borders. These scores are the simple average of the scores for the time and cost for documentary compliance and border compliance to export and import. Figure – Trading across Borders in Eritrea – Time and Cost Time (hours) Cost (USD) 1.2 1.2 1 1 Time (hours) Cost (USD) 0.8 0.8 0.6 0.6 0.4 0.4 0.2 0.2 0 0 No No No No Practice Practice Practice Practice Export Export Import Import - - - - Border Documentary Border Documentary Compliance Compliance Compliance Compliance Page 38 Doing Business 2019 Eritrea Details – Trading across Borders in Eritrea Characteristics Export Import Product HS 09 : Coffee, tea, matï and spices No practice Trade partner Egypt China Border No practice No practice Distance (km) No practice No practice Domestic transport time (hours) No practice No practice Domestic transport cost (USD) No practice No practice Details – Trading across Borders in Eritrea – Components of Border Compliance Time to Complete (hours) Associated Costs (USD) Export: Clearance and inspections required No practice No practice by customs authorities Export: Clearance and inspections required No Practice No practice by agencies other than customs Export: Port or border handling No practice No practice Import: Clearance and inspections required No practice No practice by customs authorities Import: Clearance and inspections required No practice No practice by agencies other than customs Import: Port or border handling No practice No practice Page 39 Doing Business 2019 Eritrea Details – Trading across Borders in Eritrea – Trade Documents Page 40 Doing Business 2019 Eritrea Enforcing Contracts The enforcing contracts indicator measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system. The most recent round of data collection was completed in May 2018. See the methodology for more information. What the indicators measure Case study assumptions Time required to enforce a contract through the The dispute in the case study involves the breach of a sales contract between 2 courts (calendar days) domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt • Time to file and serve the case enforcement. • Time for trial and to obtain the judgment To make the data comparable across economies, Doing Business uses several • Time to enforce the judgment assumptions about the case: Cost required to enforce a contract through the - The dispute concerns a lawful transaction between two businesses (Seller and courts (% of claim) Buyer), both located in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city. • Attorney fees - The buyer orders custom-made goods, then fails to pay alleging that the goods are • Court fees not of adequate quality. - The value of the dispute is 200% of the income per capita or the equivalent in local • Enforcement fees currency of USD 5,000, whichever is greater. - The seller sues the buyer before the court with jurisdiction over commercial cases Quality of judicial processes index (0-18) worth 200% of income per capita or $5,000. • Court structure and proceedings (-1-5) - The seller requests the pretrial attachment of the defendant’s movable assets to secure the claim. • Case management (0-6) - The dispute on the quality of the goods requires an expert opinion. • Court automation (0-4) - The judge decides in favor of the seller; there is no appeal. • Alternative dispute resolution (0-3) - The seller enforces the judgment through a public sale of the buyer’s movable assets. Page 41 Doing Business 2019 Eritrea Enforcing Contracts - Eritrea Standardized Case Claim value ERN 76,900 Court name Asmara Community Court City Covered Asmara Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Time (days) 490 655.1 582.4 None in 2017/18 Cost (% of claim value) 16.6 42.3 21.2 None in 2017/18 Quality of judicial processes index (0-18) 3.0 6.7 11.5 None in 2017/18 Figure – Enforcing Contracts in Eritrea and comparator economies – Ranking and Score DB 2019 Enforcing Contracts Score 0 100 62.77: Ethiopia (Rank: 60) 61.66: Tanzania (Rank: 64) 59.54: Rwanda (Rank: 78) 58.27: Kenya (Rank: 88) 55.93: Eritrea (Rank: 103) 48.87: Regional Average (Sub-Saharan Africa) Note: The ranking of economies on the ease of enforcing contracts is determined by sorting their scores for enforcing contracts. These scores are the simple average of the scores for each of the component indicators. Figure – Enforcing Contracts in Eritrea – Time and Cost Time (days) Cost (% of claim value) 700 82.7 655.1 90 Cost (% of claim value) 600 582.4 80 530 515 490 70 500 465 Time (days) 60 400 50 41.8 42.3 300 40 230 30 200 21.2 16.6 15.2 14.3 20 100 10 0 0 Eritrea Ethiopia Kenya OECD Rwanda Sub-Saharan Tanzania high Africa income Page 42 Doing Business 2019 Eritrea Figure – Enforcing Contracts in Eritrea and comparator economies – Measure of Quality Eritrea 1.5 0 1.5 Ethiopia 1.5 1 0 4.5 Kenya 2 2 0.5 4.5 Rwanda 2.5 5 4 3 Tanzania 1.5 1.5 0 3 OECD high income 2.5 3.1 2.3 3.6 Sub-Saharan Africa 2.2 1.1 0.3 3.1 0 2 4 6 8 10 12 14 16 Sub-Indicator Score Alternative dispute resolution (0-3) Case management (0-6) Court automation (0-4) Court structure and proceedings (-1-5) Details – Enforcing Contracts in Eritrea Indicator Time (days) 490 Filing and service 40 Trial and judgment 270 Enforcement of judgment 180 Cost (% of claim value) 16.6 Attorney fees 9 Court fees 3.6 Enforcement fees 4 Quality of judicial processes index (0-18) 3.0 Court structure and proceedings (-1-5) 1.5 Case management (0-6) 0.0 Court automation (0-4) 0.0 Alternative dispute resolution (0-3) 1.5 Page 43 Doing Business 2019 Eritrea Details – Enforcing Contracts in Eritrea – Measure of Quality Answer Score Quality of judicial processes index (0-18) 3.0 Court structure and proceedings (-1-5) 1.5 1. Is there a court or division of a court dedicated solely to hearing commercial cases? No 0.0 2. Small claims court 0.0 2.a. Is there a small claims court or a fast-track procedure for small claims? No 2.b. If yes, is self-representation allowed? n.a. 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes, but manual 0.5 5. Does a woman's testimony carry the same evidentiary weight in court as a man's? Yes 0.0 Case management (0-6) 0.0 1. Time standards 0.0 1.a. Are there laws setting overall time standards for key court events in a civil No case? 1.b. If yes, are the time standards set for at least three court events? n.a. 1.c. Are these time standards respected in more than 50% of cases? n.a. 2. Adjournments 0.0 2.a. Does the law regulate the maximum number of adjournments that can be No granted? 2.b. Are adjournments limited to unforeseen and exceptional circumstances? No 2.c. If rules on adjournments exist, are they respected in more than 50% of cases? n.a. 3. Can two of the following four reports be generated about the competent court: (i) time to No 0.0 disposition report; (ii) clearance rate report; (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques used before the No 0.0 competent court? 5. Are there any electronic case management tools in place within the competent court for No 0.0 use by judges? 6. Are there any electronic case management tools in place within the competent court for No 0.0 use by lawyers? Court automation (0-4) 0.0 1. Can the initial complaint be filed electronically through a dedicated platform within the no 0.0 competent court? 2. Is it possible to carry out service of process electronically for claims filed before the No 0.0 competent court? 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.0 4.a Are judgments rendered in commercial cases at all levels made available to the No general public through publication in official gazettes, in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme No court level made available to the general public through publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 1.5 1. Arbitration 1.0 Page 44 Doing Business 2019 Eritrea 1.a. Is domestic commercial arbitration governed by a consolidated law or No consolidated chapter or section of the applicable code of civil procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public No order or public policy—that cannot be submitted to arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the courts? Yes 2. Mediation/Conciliation 0.5 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or No consolidated chapter or section of the applicable code of civil procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation No (i.e., if mediation or conciliation is successful, a refund of court filing fees, income tax credits or the like)? Page 45 Doing Business 2019 Eritrea Resolving Insolvency Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic legal entities. These variables are used to calculate the recovery rate, which is recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings. To determine the present value of the amount recovered by creditors, Doing Business uses the lending rates from the International Monetary Fund, supplemented with data from central banks and the Economist Intelligence Unit. The most recent round of data collection was completed in May 2018. See the methodology for more information. What the indicators measure Case study assumptions Time required to recover debt (years) To make the data on the time, cost and outcome comparable across economies, several assumptions about the business and the case are used: • Measured in calendar years • Appeals and requests for extension are included - A hotel located in the largest city (or cities) has 201 employees and 50 suppliers. The hotel experiences financial difficulties. Cost required to recover debt (% of debtor’s - The value of the hotel is 100% of the income per capita or the equivalent in local estate) currency of USD 200,000, whichever is greater. - The hotel has a loan from a domestic bank, secured by a mortgage over the hotel’s • Measured as percentage of estate value real estate. The hotel cannot pay back the loan, but makes enough money to • Court fees operate otherwise. • Fees of insolvency administrators In addition, Doing Business evaluates the quality of legal framework applicable to • Lawyers’ fees judicial liquidation and reorganization proceedings and the extent to which best • Assessors’ and auctioneers’ fees insolvency practices have been implemented in each economy covered. • Other related fees Outcome • Whether business continues operating as a going concern or business assets are sold piecemeal Recovery rate for creditors • Measures the cents on the dollar recovered by secured creditors • Outcome for the business (survival or not) determines the maximum value that can be recovered • Official costs of the insolvency proceedings are deducted • Depreciation of furniture is taken into account • Present value of debt recovered Strength of insolvency framework index (0- 16) • Sum of the scores of four component indices: • Commencement of proceedings index (0-3) • Management of debtor’s assets index (0-6) • Reorganization proceedings index (0-3) • Creditor participation index (0-4) Page 46 Doing Business 2019 Eritrea Resolving Insolvency - Eritrea Indicator Eritrea Sub-Saharan OECD high Best Regulatory Africa income Performance Recovery rate (cents on the dollar) 0.0 20.3 70.5 None in 2017/18 Time (years) No Practice 2.9 1.7 0.4 (Ireland) Cost (% of estate) No Practice 22.7 9.3 1.0 (Norway) Outcome (0 as piecemeal sale and 1 as going 0 .. .. .. concern) Strength of insolvency framework index (0-16) 0.0 6.4 11.9 None in 2017/18 Figure – Resolving Insolvency in Eritrea and comparator economies – Ranking and Score DB 2019 Resolving Insolvency Score 0 100 57.41: Kenya (Rank: 57) 57.20: Rwanda (Rank: 58) 39.04: Tanzania (Rank: 117) 30.80: Regional Average (Sub-Saharan Africa) 30.53: Ethiopia (Rank: 148) 0.00: Eritrea (Rank: 168) Note: The ranking of economies on the ease of resolving insolvency is determined by sorting their scores for resolving insolvency. These scores are the simple average of the scores for the recovery rate and the strength of insolvency framework index. Figure – Resolving Insolvency in Eritrea – Time and Cost Time (years) Cost (% of estate) 5 35 4.5 29.0 30 Cost (% of estate) 4 Time (years) 22.0 22.7 22.0 25 3.0 2.9 3.0 3 20 2.5 14.5 2 1.7 15 9.3 10 1 5 0 0 No Ethiopia Kenya OECD Rwanda Sub-Saharan Tanzania Practice high Africa Eritrea income Page 47 Doing Business 2019 Eritrea Figure – Resolving Insolvency in Eritrea and comparator economies – Measure of Quality Eritrea 4 2 1 0 Ethiopia 2 2 1 0 Kenya 4 3 3 3 Rwanda 5 3 4 3 Tanzania 4 3 1 1 OECD high income 5.3 2.8 2.2 1.9 Sub-Saharan Africa 4.1 2.3 1 0.5 0 2 4 6 8 10 12 14 16 Sub-Indicator Score Management of debtor's assets index (0-6) Commencement of proceedings index (0-3) Creditor participation index (0-4) Reorganization proceedings index (0-3) Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice.” Figure – Resolving Insolvency in Eritrea and comparator economies – Recovery Rate Recovery rate(cents on the dollar) 100 80 60 40 31.2 27.7 19.2 20.3 20.3 20 0.0 0 Eritrea Ethiopia Kenya Rwanda Tanzania Sub-Saharan Africa Page 48 Doing Business 2019 Eritrea Details – Resolving Insolvency in Eritrea Indicator Answer Score Proceeding No Practice According to the research conducted by the team, there were no foreclosure, liquidation or reorganization proceedings filed in the country in the last 12 months. Due to this circumstance, it is not possible to assess the time, the cost or the outcome associated with the insolvency scenario described in the case study. Outcome piecemeal sale According to the research conducted by the team, there were no foreclosure, liquidation or reorganization proceedings filed in the country in the last 12 months. Due to this circumstance, it is not possible to assess the time, the cost or the outcome associated with the insolvency scenario described in the case study. Time (in years) No Practice According to the research conducted by the team, there were no foreclosure, liquidation or reorganization proceedings filed in the country in the last 12 months. Due to this circumstance, it is not possible to assess the time, the cost or the outcome associated with the insolvency scenario described in the case study. Cost (% of No Practice According to the research conducted by the team, there were no foreclosure, liquidation or estate) reorganization proceedings filed in the country in the last 12 months. Due to this circumstance, it is not possible to assess the time, the cost or the outcome associated with the insolvency scenario described in the case study. Recovery rate 0.0 (cents on the dollar) Page 49 Doing Business 2019 Eritrea Details – Resolving Insolvency in Eritrea – Measure of Quality Answer Score Strength of insolvency framework index (0-16) 0.0 Commencement of proceedings index (0-3) 2.0 What procedures are available to a DEBTOR when commencing insolvency proceedings? (b) Debtor may 0.5 file for liquidation only Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? (b) Yes, but a 0.5 creditor may file for liquidation only What basis for commencement of the insolvency proceedings is allowed under the (a) Debtor is 1.0 insolvency framework? generally unable to pay its debts as they mature Management of debtor's assets index (0-6) 4.0 Does the insolvency framework allow the continuation of contracts supplying essential goods No 0.0 and services to the debtor? Does the insolvency framework allow the rejection by the debtor of overly burdensome No 0.0 contracts? Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0 Does the insolvency framework allow avoidance of undervalued transactions? Yes 1.0 Does the insolvency framework provide for the possibility of the debtor obtaining credit after Yes 1.0 commencement of insolvency proceedings? Does the insolvency framework assign priority to post-commencement credit? (b) Yes over 1.0 ordinary unsecured creditors but not over secured creditors Reorganization proceedings index (0-3) 0.0 Which creditors vote on the proposed reorganization plan? N/A 0.0 Does the insolvency framework require that dissenting creditors in reorganization receive at No 0.0 least as much as what they would obtain in a liquidation? Are the creditors divided into classes for the purposes of voting on the reorganization plan, No 0.0 does each class vote separately and are creditors in the same class treated equally? Creditor participation index (0-4) 1.0 Does the insolvency framework require approval by the creditors for selection or No 0.0 appointment of the insolvency representative? Does the insolvency framework require approval by the creditors for sale of substantial No 0.0 assets of the debtor? Does the insolvency framework provide that a creditor has the right to request information No 0.0 from the insolvency representative? Does the insolvency framework provide that a creditor has the right to object to decisions Yes 1.0 accepting or rejecting creditors' claims? Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice.” Page 50 Doing Business 2019 Eritrea Labor Market Regulation Doing Business presents detailed data for the labor market regulation indicators on the Doing Business website (http://www.doingbusiness.org). The report does not present rankings of economies on these indicators or include the topic in the aggregate ease of doing business score or ranking on the ease of doing business. The most recent round of data collection was completed in May 2018. See the methodology for more information. What the indicators measure Case study assumptions Hiring To make the data comparable across economies, several assumptions about the (i) whether fixed-term contracts are prohibited for worker and the business are used. permanent tasks; (ii) maximum cumulative duration of fixed-term contracts; (iii) length of the The worker: probationary period; (iv) minimum wage. - Is a cashier in a supermarket or grocery store, age 19, with one year of work experience. Working hours - Is a full-time employee. (i) maximum number of working days allowed per - Is not a member of the labor union, unless membership is mandatory. week; (ii) premiums for work: at night, on a weekly rest day and overtime; (iii) whether there are The business: restrictions on work at night, work on a weekly rest - Is a limited liability company (or the equivalent in the economy). day and for overtime work; (iv) whether - Operates a supermarket or grocery store in the economy’s largest business city. nonpregnant and nonnursing women can work For 11 economies the data are also collected for the second largest business city. same night hours as men; (v) length of paid annual - Has 60 employees. leave. - Is subject to collective bargaining agreements if such agreements cover more than 50% of the food retail sector and they apply even to firms that are not party to them. Redundancy rules - Abides by every law and regulation but does not grant workers more benefits than (i) whether redundancy can be basis for terminating those mandated by law, regulation or (if applicable) collective bargaining workers; (ii) whether employer needs to notify agreements. and/or get approval from third party to terminate 1 redundant worker and a group of 9 redundant workers; (iii) whether law requires employer to reassign or retrain a worker before making worker redundant; (iv) whether priority rules apply for redundancies and reemployment. Redundancy cost (i) notice period for redundancy dismissal; (ii) severance payments due when terminating a redundant worker. Job quality (i) whether law mandates equal remuneration for work of equal value and nondiscrimination based on gender in hiring; (ii) whether law mandates paid or unpaid maternity leave; (iii) length of paid maternity leave; (iv) whether employees on maternity leave receive 100% of wages; (v) availability of five fully paid days of sick leave a year; (vi) eligibility requirements for unemployment protection. Page 51 Doing Business 2019 Eritrea Labor Market Regulation - Eritrea Details – Labor Market Regulation in Eritrea Answer Hiring Fixed-term contracts prohibited for permanent tasks? Yes Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study (US$/month) 0.0 Ratio of minimum wage to value added per worker 0.0 Maximum length of probationary period (months) 3.0 Working hours Standard workday 8.0 Maximum number of working days per week 6.0 Premium for night work (% of hourly pay) 0.0 Premium for work on weekly rest day (% of hourly pay) 0.0 Premium for overtime work (% of hourly pay) 25.0 Restrictions on night work? No Whether nonpregnant and nonnursing women can work the same night hours as men Yes Restrictions on weekly holiday? No Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 14.0 Paid annual leave for a worker with 5 years of tenure (working days) 19.0 Paid annual leave for a worker with 10 years of tenure (working days) 24.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in working days) 19.0 Redundancy rules Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? No Third-party approval if one worker is dismissed? No Third-party notification if nine workers are dismissed? No Third-party approval if nine workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Redundancy cost Notice period for redundancy dismissal for a worker with 1 year of tenure 2.0 Notice period for redundancy dismissal for a worker with 5 years of tenure 3.0 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure) 3.1 Severance pay for redundancy dismissal for a worker with 1 year of tenure 2.0 Page 52 Doing Business 2019 Eritrea Severance pay for redundancy dismissal for a worker with 5 years of tenure 10.0 Severance pay for redundancy dismissal for a worker with 10 years of tenure 25.0 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure) 12.3 Job quality Equal remuneration for work of equal value? No Gender nondiscrimination in hiring? No Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 60.0 Receive 100% of wages on maternity leave? Yes Five fully paid days of sick leave a year? Yes Unemployment protection after one year of employment? No Minimum contribution period for unemployment protection (months)? n.a. Page 53 Doing Business 2019 Eritrea Business Reforms in Eritrea In the past year, Doing Business observed a peaking of reform activity worldwide. From June 2, 2017, to May 1, 2018, 128 economies implemented a record 314 regulatory reforms improving the business climate. Reforms inspired by Doing Business have been implemented by economies in all regions. The following are reforms implemented since Doing Business 2008. = Doing Business reform making it easier to do business. = Change making it more difficult to do business. DB2016 Getting Electricity: The Eritrean Electricity Authority stopped processing new electrical connections for the private sector in Asmara. DB2009 Trading across Borders: Eritrea made trading across borders easier by upgrading infrastructure at Massawa port as well as the roads between Massawa and Asmara. Meanwhile, increased efficiency among banks reduced the time required to open a letter of credit. DB2008 Starting a Business: In Eritrea starting a business became more difficult because of greater delays in completing certain procedures. Page 54 Doing Business 2019 Eritrea Page 55