COMPARING REGULATION IN ZANZIBAR WITH 183 ECONOMIES GLOBALLY 74678 COMPARING REGULATION IN ZANZIBAR WITH 183 ECONOMIES GLOBALLY A COPUBLICATION OF THE WORLD BANK AND THE INTERNATIONAL FINANCE CORPORATION © 2010 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, D.C. 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. A publication of the World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. 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Additional copies of the Doing Business global reports: Doing Business 2010: Reforming through Difficult Times; Doing Business 2009; Doing Business 2008; Doing Business 2007: How to Reform; Doing Business in 2006: Creating Jobs; Doing Business in 2005: Removing Obstacles to Growth; and Doing Business in 2004: Understanding Regulations, may be obtained at www.doingbusiness.org. About the Investment Climate Advisory Services of the World Bank Group The Investment Climate Advisory Services of the World Bank Group helps governments implement reforms to improve their business environment, and encourage and retain investment, thus fostering competitive markets, growth, and job creation. Funding is provided by the World Bank Group (IFC, MIGA, and the World Bank) and over fifteen donor partners working through the multi-donor FIAS platform. Contents About Doing Business and Doing Business in Zanzibar 2010 is a measure the regulations affecting 9 stages Doing Business in Zanzibar 2010 1 new subnational report of the Doing of the life of a business: starting a busi- Overview 6 Business series on the sub-Saharan Afri- ness, dealing with construction permits, Starting a business 10 can region, following the subnational registering property, getting credit, pro- Dealing with construction permits 13 Doing Business reports on Nigeria and tecting investors, paying taxes, trading Kenya. It measures business regulations across borders, enforcing contracts and Registering property 16 and their enforcement in the region of closing a business.* Data in Doing Busi- Getting credit 19 Zanzibar, represented by Zanzibar Town. ness in Zanzibar 2010 are current as of Protecting investors 22 Doing Business series currently covers March 1, 2010. Paying taxes 25 183 economies around the world. The indicators are used to analyze Comparisons with mainland Tanza- economic outcomes and identify what Trading across borders 27 nia (represented by Dar es Salaam), small reforms have worked, where and why. Enforcing contracts 30 island economies, and the rest of the Other areas important to business—such Closing a business 33 world are based on the indicators in Doing as country’s proximity to large markets, Business in 2010: Reforming Through Diffi- quality of infrastructure services (other Data notes 36 cult Times, the seventh in a series of than services related to trading across Doing Business indicators 47 annual reports published by the World borders), the security of property from Bank and the International Finance Cor- theft and looting, the transparency of Indicator details 49 poration. The indicators in Doing Business government procurement, macroeco- Annex: employing workers 57 in Zanzibar 2010 are also comparable nomic conditions or the underlying Acknowledgments 59 with the data in other subnational Doing strength of institutions—are not directly Business reports. All subnational Doing studied by Doing Business. Business data and reports are available at This report was prepared by the http://subnational.doingbusiness.org. World Bank Group. The report was Doing Business investigates the regu- requested by the Ministry of Finance and lations that enhance business activity Economic Affairs of the Government of and those that constrain it. Doing Busi- Zanzibar, which served as the govern- ness presents quantitative indicators to ment counterpart. * In addition to the 9 indicators mentioned, Doing Business has been measuring the employing workers indicator since 2004. Currently, this indicator is going through methodological revisions. While these revisions are ongoing, the Employing Workers data will be presented without any scoring and it will not be tabulated in the calculation of overall ease of doing business ranking for Zanzibar. For more details, please see Annex: employing workers at the end of this report. 1 About Doing entry and exit of firms, and flexibility in redeploying resources, make it easier cularly in federal states and large econo- mies present marked differences within a Business and to stop doing things for which demand has weakened and to start doing new single country. In recognizing the interest of governments in these variations, the Doing Business things. Clarification of property rights Doing Business report has complemen- and strengthening of market infrastruc- ted its global indicators with subnational in Zanzibar 2010 ture (such as credit information and studies in Brazil, China, Colombia, India, collateral systems) can contribute to con- Indonesia, Kenya, Mexico, Nigeria, Philip- fidence as investors and entrepreneurs pines and others. Doing Business has also look to rebuild. begun a program on small islands that are Until very recently, however, there independent states. were no globally available indicator sets for monitoring such microeconomic WHAT DOING BUSINESS IN factors and analyzing their relevance. ZANZIBAR 2010 COVERS The first efforts, in the 1980s, drew on perceptions data from expert or busi- Doing Business in Zanzibar 2010 provi- In 1664 William Petty, an adviser to ness surveys. Such surveys are useful des a quantitative measure of the natio- England’s Charles II, compiled the first gauges of economic and policy condi- nal, and local regulations for starting known national accounts. He made 4 tions. But their reliance on perceptions a business, dealing with construction entries. On the expense side, “food, and their incomplete coverage of poor permits, registering property, getting housing, clothes and all other necessa- countries constrain their usefulness for credit, protecting investors, paying taxes, ries” were estimated at £40 million. Natio- analysis. trading across borders enforcing con- nal income was split among 3 sources: £8 The Doing Business project, laun- tracts and closing a business—as they million from land, £7 million from other ched 8 years ago, goes one step further. It apply to domestic small and medium- personal estates and £25 million from looks at domestic small and medium-size size companies. labor income. companies and measures the regulations A fundamental premise of Doing In later centuries estimates of country applying to them through their life cycle. Business is that economic activity requi- income, expenditure and material inputs Doing Business and the standard cost res good rules. These include rules that and outputs became more abundant. But model initially developed and applied establish and clarify property rights and it was not until the 1940s that a systematic in the Netherlands are, today, the only reduce the costs of resolving disputes, framework was developed for measuring national income and expenditure, under standard tools used across a broad range rules that increase the predictability of the direction of British economist John of jurisdictions to measure the impact economic interactions and rules that Maynard Keynes. As the methodology of government rule-making on business provide contractual partners with core became an international standard, com- activity.1 protections against abuse. The objective parisons of countries’ financial positions The first Doing Business report, is: regulations designed to be efficient, to became possible. Today the macroecono- published in 2003, covered 5 indicator be accessible to all who need to use them mic indicators in national accounts are sets in 133 economies. This year’s report, and to be simple in their implementa- standard in every country. Doing Business 2010, covers 10 groups tion. Accordingly, some Doing Business Governments committed to the eco- of indicators in 183 economies. The pro- indicators give a higher score for more nomic health of their country and oppor- ject has benefited from feedback from regulation, such as stricter disclosure tunities for its citizens now focus on governments, academics, practitioners requirements in related-party transac- more than macroeconomic conditions. and reviewers. The initial goal remains: tions. Some give a higher score for a They also pay attention to the laws, regu- to provide an objective basis for unders- simplified way of implementing existing lations and institutional arrangements tanding and improving the regulatory regulation, such as completing business that shape daily economic activity. environment for business. start-up formalities in a one-stop shop. The global financial crisis has In the Doing Business report, each Doing Business in Zanzibar 2010 renewed interest in good rules and regu- economy is represented by its largest busi- encompasses 2 types of data. The first lation. In times of recession, effective ness city—Dar es Salaam for Tanzania, for come from readings of laws and regula- business regulation and institutions can example, or Mumbai for India. Business tions. The second are time and motion support economic adjustment. Easy regulation and their enforcement, parti- indicators that measure the efficiency 2 DOING BUSINESS IN ZANZIBAR 2010 in achieving a regulatory goal (such as advance, more areas of economic In practice, entrepreneurs may spend granting the legal identity of a business). activity are being regulated. For considerable time finding out where to Within the time and motion indicators, example, the European Union’s body go and what documents to submit. Or cost estimates are recorded from official of laws (acquis) has now grown to no they may avoid legally required proce- fee schedules where applicable. Here, fewer than 14,500 rule sets. dures altogether—by not registering for Doing Business builds on Hernando de • Doing Business in Zanzibar 2010 mea- social security, for example. Soto’s pioneering work in applying the sures just 9 phases of a company’s life Where regulation is particularly time and motion approach first used cycle, through 9 specific indicators. onerous, levels of informality are higher. by Frederick Taylor to revolutionize the The indicator sets also do not cover all Informality comes at a cost: firms in production of the Model T Ford. De Soto aspects of regulation in the particular the informal sector typically grow more used the approach in the 1980s to show area. For example, the indicators on slowly, have poorer access to credit and the obstacles to setting up a garment fac- starting a business do not cover all employ fewer workers—and their wor- tory on the outskirts of Lima, Peru.2 aspects of commercial legislation. kers remain outside the protections of labor law.3 Doing Business in Zanzibar WHAT DOING BUSINESS IN BASED ON STANDARDIZED 2010 measures one set of factors that CASE SCENARIOS ZANZIBAR 2010 DOES NOT COVER help explain the occurrence of informa- The indicators analyzed in Doing Business lity and give policy makers insights into It is important to know the scope and in Zanzibar 2010 are based on standardi- potential areas of reform. Gaining a fuller limitations of Doing Business in Zanzibar zed case scenarios with specific assump- understanding of the broader business 2010 in order to interpret the results of tions, such as that the business is located environment, and a broader perspective this report. in Zanzibar Town. Economic indicators on policy challenges, requires combining commonly make limiting assumptions of insights from Doing Business in Zanzibar LIMITED IN SCOPE this kind. Inflation statistics, for exam- 2010 with data from other sources, such Doing Business in Zanzibar 2010 focu- ple, are often based on prices of consu- as the World Bank Enterprise Surveys.4 ses on 9 topics, with the specific aim of mer goods in a few urban areas. Such measuring the regulation and red tape assumptions allow global coverage and WHY THIS FOCUS relevant to the life cycle of a domes- enhance comparability, but they inevita- Doing Business in Zanzibar 2010 func- tic small to medium-size company. bly come at the expense of generality. tions as a kind of cholesterol test for Accordingly: In areas where regulation is com- the regulatory environment for domestic plex and highly differentiated, the stan- businesses. A cholesterol test does not • Doing Business in Zanzibar 2010 does dardized case used to construct each tell us everything about the state of our not measure all aspects of the busi- Doing Business in Zanzibar 2010 indica- health. But it does measure something ness environment that matter to firms tor needs to be carefully defined. Where important for our health. And it puts us or investors—or all factors that affect relevant, the standardized case assumes on watch to change behaviors in ways competitiveness. It does not, for exam- a limited liability company. This choice is that will improve not only our cholesterol ple, measure security, macroeconomic in part empirical: private, limited liability rating but also our overall health. stability, corruption, labor skills of the companies are the most prevalent busi- One way to test whether Doing Busi- population, the underlying strength ness form in most economies around the ness serves as a proxy for the broader of institutions or the quality of infra- world. The choice also reflects one focus business environment and for competiti- structure. Nor does it focus on regula- of Doing Business: expanding opportu- veness is to look at correlations between tions specific to foreign investment. nities for entrepreneurship. Investors the Doing Business rankings and other • Doing Business in Zanzibar 2010 does are encouraged to venture into business major economic benchmarks. The indi- not assess the strength of the financial when potential losses are limited to their cator set closest to Doing Business in what system or market regulations, both capital participation. it measures is the Organization for Eco- important factors in understanding nomic Co-operation and Development’s some of the underlying causes of the FOCUSED ON THE FORMAL SECTOR indicators of product market regulation; global financial crisis. In defining the indicators, Doing Business the correlation here is 0.75. The World • Doing Business does not cover all reg- in Zanzibar 2010 assumes that entrepre- Economic Forum’s Global Competitive- ulations, or all regulatory goals, in any neurs are knowledgeable about all regu- ness Index and IMD’s World Competi- city. As economies and technology lations in place and comply with them. tiveness Yearbook are broader in scope, ABOUT DOING BUSINESS AND DOING BUSINESS IN ZANZIBAR 3 but these too are strongly correlated with faster contract enforcement was associa- Salaam or between Zanzibar and other Doing Business (0.79 and 0.72, respec- ted with perceptions of greater judicial small island economies around the tively). These correlations suggest that fairness—suggesting that justice delayed world, both by indicator and in aggre- where peace and macroeconomic stabi- is justice denied.6 gate. Judgment is required in interpre- lity are present, domestic business regu- In the current global crisis policy- ting these measures for any city and in lation makes an important difference in makers face particular challenges. Both determining a sensible and politically economic competitiveness. developed and developing economies are feasible path for reform. A bigger question is whether the seeing the impact of the financial crisis Reviewing the Doing Business ran- issues on which Doing Business focu- flowing through to the real economy, kings in isolation may show unexpected ses matter for development and poverty with rising unemployment and income results. Some cities may rank unexpecte- reduction. The World Bank study Voices loss. The foremost challenge for many dly high on some indicators. And some of the Poor asked 60,000 poor people governments is to create new jobs and cities that have had rapid growth or around the world how they thought they economic opportunities. But many have attracted a great deal of investment may might escape poverty.5 The answers were limited fiscal space for publicly funded rank lower than others that appear to be unequivocal: women and men alike pin activities such as infrastructure inves- less dynamic. their hopes above all on income from tment or for the provision of publicly But for reform-minded local gov- their own business or wages earned in funded safety nets and social services. ernments, how much their indicators employment. Enabling growth—and Reforms aimed at creating a better inves- improve matters more than their abso- ensuring that poor people can participate tment climate, including reforms of busi- lute ranking. As cities develop, they in its benefits—requires an environment ness regulation, can be beneficial for strengthen and add to regulations to where new entrants with drive and good several reasons. Flexible regulation and protect investor and property rights. ideas, regardless of their gender or ethnic effective institutions, including efficient Meanwhile, they find more efficient ways origin, can get started in business and processes for starting a business and effi- to implement existing regulations and where good firms can invest and grow, cient insolvency or bankruptcy systems, cut outdated ones. One finding of Doing generating more jobs. can facilitate reallocation of labor and Business: dynamic and growing econo- Small and medium-size companies capital. And regulatory institutions and mies continually reform and update their are key drivers of competition, growth processes that are streamlined and acces- regulations and their way of implemen- and job creation, particularly in develo- sible can help ensure that, as businesses ting them, while many poor economies ping countries. But in these economies rebuild, barriers between the informal still work with regulatory systems dating up to 80% of economic activity takes and formal sectors are lowered, creating to the late 1800s. place in the informal sector. Firms may more opportunities for the poor. be prevented from entering the formal DOING BUSINESS— sector by excessive bureaucracy and DOING BUSINESS IN ZANZIBAR A USER’S GUIDE regulation. 2010 AS A BENCHMARKING Where regulation is burdensome EXERCISE Quantitative data and benchmarking and competition limited, success tends can be useful in stimulating debate about to depend more on whom you know Doing Business in Zanzibar 2010, in policy, both by exposing potential cha- than on what you can do. But where capturing some key dimensions of llenges and by identifying where policy regulation is transparent, efficient and regulatory regimes, can be useful for makers might look for lessons and good implemented in a simple way, it becomes benchmarking. Any benchmarking— practices. These data also provide a basis easier for any aspiring entrepreneurs, for individuals, firms or economies—is for analyzing how different policy appro- regardless of their connections, to ope- necessarily partial: it is valid and useful aches—and different policy reforms— rate within the rule of law and to benefit if it helps sharpen judgment, less so if it contribute to desired outcomes such as from the opportunities and protections substitutes for judgment. competitiveness, growth and greater that the law provides. Doing Business in Zanzibar 2010 employment and incomes. In this sense Doing Business values provides 2 approaches on the data it Seven years of Doing Business data good rules as a key to social inclusion. It collects: it presents “absolute” indicators have enabled a growing body of research also provides a basis for studying effects for each of the 9 regulatory topics it on how performance on Doing Business of regulations and their application. For addresses, and it provides comparisons indicators—and reforms relevant to those example, Doing Business 2004 found that between Zanzibar Town and Dar es indicators—relate to desired social and 4 DOING BUSINESS IN ZANZIBAR 2010 economic outcomes. Some 405 articles aimed at enhancing economic compe- as starting and legally operating a busi- have been published in peer-reviewed titiveness. The same can be said at the ness, into separate steps to ensure a bet- academic journals, and about 1,143 wor- subnational level. ter estimate of time. The time estimate king papers are available through Google In structuring their reform pro- for each step is given by practitioners Scholar.7 Among the findings: grams, governments use multiple data with significant and routine experience sources and indicators. And reformers in the transaction. • Lower barriers to start-up are associ- respond to many stakeholders and The Doing Business approach to data ated with a smaller informal sector. interest groups, all of whom bring impor- collection contrasts with that of enter- • Lower costs of entry encourage entre- tant issues and concerns into the reform prise or firm surveys, which capture preneurship, enhance firm productiv- debate. World Bank support to these often one-time perceptions and expe- ity and reduce corruption. reform processes is designed to encourage riences of businesses. A corporate lawyer • Simpler start-up translates into greater critical use of the data, sharpening judg- registering 100–150 businesses a year employment opportunities. ment and avoiding a narrow focus on will be more familiar with the process improving Doing Business rankings. than an entrepreneur, who will register HOW DO GOVERNMENTS USE a business only once or maybe twice. A DOING BUSINESS? METHODOLOGY AND DATA bankruptcy judge deciding dozens of cases a year will have more insight into A common first reaction is to doubt Doing Business in Zanzibar 2010 covers bankruptcy than a company that may the quality and relevance of the Doing Zanzibar Town as a representative of undergo the process. Business data. Yet the debate typically the Zanzibar region. The data are based proceeds to a deeper discussion explo- on central and local laws and regula- DEVELOPMENT OF THE METHODOLOGY ring the relevance of the data to the tions as well as administrative require- economy and areas where reform might ments. (For a detailed explanation of the The methodology for calculating each make sense. Doing Business in Zanzibar 2010 metho- indicator is transparent, objective and Most reformers start out by seeking dology, see the Data notes section on easily replicable. Leading academics colla- examples, and Doing Business helps in page 36). borate in the development of the indica- this. For example, Saudi Arabia used tors, ensuring academic rigor. Seven of the company law of France as a model INFORMATION SOURCES FOR the background papers underlying the THE DATA for revising its own. Many countries in indicators have been published in lea- Africa look to Mauritius—the region’s Most of the indicators are based on laws ding economic journals. strongest performer on Doing Business and regulations. In addition, most of the Doing Business uses a simple ave- indicators—as a source of good practi- cost indicators are backed by official fee raging approach for weighting sub- ces for reform. In the words of Egypt’s schedules. Doing Business respondents indicators and calculating rankings. Minister of Investment, Dr. Mahmoud both fill out written surveys and provide Other approaches were explored, inclu- Mohieldin: references to the relevant laws, regu- ding using principal components and lations and fee schedules, aiding data unobserved components. The principal What I like about Doing Business... is checking and quality assurance. components and unobserved compo- that it creates a forum for exchanging For some indicators part of the nents approaches turn out to yield results knowledge. It’s no exaggeration to say that cost component (where fee schedules nearly identical to those of simple avera- we checked the top ten in every indicator are lacking) and the time component ging. The tests show that each set of indi- and we just asked them, “How did you do are based on actual practice rather than cators provides new information. The it?” If there is any advantage to starting late in anything, it’s that you can learn the law on the books. This introduces a simple averaging approach is therefore from others. degree of subjectivity. The Doing Business robust to such tests. approach has therefore been to work Over the past 7 years there has with legal practitioners or professionals IMPROVEMENTS TO THE METHODOLOGY AND DATA been much activity by governments in who regularly undertake the transac- REVISIONS reforming the regulatory environment tions involved. Following the standard for domestic businesses. Most reforms methodological approach for time and The methodology has undergone conti- relating to Doing Business topics were motion studies, Doing Business breaks nual improvement over the years. Chan- nested in broader programs of reform down each process or transaction, such ges have been made mainly in response to ABOUT DOING BUSINESS AND DOING BUSINESS IN ZANZIBAR 5 country suggestions. In accordance with 6. World Bank. 2003. Doing Business in 2004: Understanding Regulation. Wash- the Doing Business methodology, these ington D.C.: The World Bank Group. changes have been incorporated into the 7. http://scholar.google.com Doing Business in Zanzibar 2010. For starting a business, for example, the minimum capital requirement can be an obstacle for potential entrepreneurs. Initially, Doing Business measured the required minimum capital regardless of whether it had to be paid up front or not. In many economies only part of the minimum capital has to be paid up front. To reflect the actual potential barrier to entry, the paid-in minimum capital has been used since 2004. All changes in methodology are explained in the Data notes section of this report as well as on the Doing Busi- ness website. In addition, data time series for each indicator and city are available on the website. The website also makes available all original data sets used for background papers. Information on data corrections is provided in the Data notes and on the website. A transparent complaint proce- dure allows anyone to challenge the data. If errors are confirmed after a data veri- fication process, they are expeditiously corrected. 1. The standard cost model is a quantitative methodology for determining the admin- istrative burdens that regulation imposes on businesses. The method can be used to measure the effect of a single law or of selected areas of legislation or to perform a baseline measurement of all legislation in a country. 2. De Soto, Hernando. 2000. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. New York: Basic Books. 3. Schneider, Friedrich. 2005. “The Informal Sector in 145 Countries.” Department of Economics, Linz University. 4. http://www.enterprisesurveys.org 5. Narayan Deepa, Chambers Robert, Kaul Shah Meera, Petesch Patti. 2000. Voices of the Poor: Crying Out for Change. Wash- ington D.C.: The World Bank Group. 6 liberalizing the island economy and FIGURE 1.1 Overview promoting its resources for global mar- How Zanzibar compares globally on the ease of doing business kets. In 1992, it established the Zanzibar Global ranking (1–183) Investment Promotion Agency (ZIPA), 1 Singapore the Commission for Tourism, and the (EASIEST) New Zealand Free Economic Zones Authority. In 1998, 20 Zanzibar’s Free Ports and Ports Author- Mauritius 40 Bahrain ity Act was introduced. In 2000, the Cyprus government launched its 2020 vision, 60 Rwanda where it laid down major objectives, with 80 The Bahamas “poverty eradication” topping the list.4 A series of government plans have fol- 100 Jamaica lowed in order to focus on education, Maldives 120 health, agriculture, tourism, infrastruc- Kenya ture, trade, and good governance to help 140 Over the years, Zanzibar went through reduce poverty. Dar es Salaam (131) 160 successive invasions and built a unique Doing Business studies business culture. Persian, Arab, Dutch, British, regulations from the perspective of a 180 Zanzibar Town (155) and other settlers left their marks on the small to medium-size domestic firm. A 183 (MOST DIFFICULT) Côte d'Ivoire archipelago at various points in history. fundamental premise of Doing Business Burundi Despite its relatively small size, invad- is that economic activity requires good Central African Republic ing powers used Zanzibar as a trading rules. These include rules that establish Source: Doing Business database. hub for Eastern and Central Africa for and clarify property rights and reduce centuries. Spices, ivory, and gold were the the costs of resolving disputes, rules that Salaam to the semi-autonomous region major trading goods. increase the predictability of economic of Zanzibar. The archipelago is repre- Today, agriculture and tourism are outcomes and provide contractual part- sented by Zanzibar Town. the main pillars of the economy. Cloves ners with core protections against abuse. Compared to the 183 economies remain the most important export, The objective: regulations designed to measured by Doing Business, Zanzibar although Zanzibar started losing its be efficient, accessible to all and simple would rank 155th on the ease of doing worldwide leadership in clove production in their implementation. Subnational business (figure 1.1). Behind its relatively 4 decades ago. Tourism has emerged Doing Business reports—such as Doing low aggregate ranking, however, there is as the flagship of the modern Zanzibar Business in Zanzibar 2010—go one a lot of variation on a topic-by-topic basis economy. According to government data, step further to compare the regulatory (figure 1.2). For enforcing contracts, for the services sector now represents 51% environment across locations within one example, Zanzibar would rank an im- of GDP,1 with tourism-related activities country or region (and against 183 world pressive 37th out of 183 economies and contributing most significantly to sector economies), creating powerful incentives 2nd among 35 small island economies,5 growth. The government’s vision regard- for reform. Such benchmarking stimu- trailing only Singapore. This indicator ing tourism is for Zanzibar “to become lates policy debate by revealing potential looks at 3 main stages in the evolution of one of the top tourism destinations of challenges and identifying where na- a commercial dispute before local courts: the Indian Ocean, offering an up-market, tional and local policymakers can look filing and service, trial and judgment, high quality product across the board.”2 for lessons and good practices. Dar es and enforcement of judgment. Resolving Challenges remain, however. Despite Salaam, the city with the highest econo- a commercial dispute in Zanzibar Town’s steady economic growth during the last mic activity and the largest population courts takes 39 procedures, 469 days, and decade,3 Zanzibar struggles with pov- in the United Republic of Tanzania, rep- costs 12.6% of the claim value—which erty, income inequality, inflation, lack resents the country in the global Doing is 1 procedure and 7 days longer than in of proper infrastructure, and a rapidly Business report. Since local business Dar es Salaam, but less expensive by 1.7% increasing population. regulations and their enforcement differ of average income per capita. Since the mid 1980s, the Zanzibar within Tanzania, Doing Business in Zan- On the ease of dealing with con- government has undertaken several am- zibar 2010 expands the benchmarking struction permits, Zanzibar Town would bitious steps aimed at improving and of 9 Doing Business topics beyond Dar es rank 66th and come out ahead of Dar OVER VIE W 7 FIGURE 1.2 Zanzibar’s global ranking on Doing Business topics—Zanzibar Town, Dar es Salaam and small island economies compared NEW SAUDI NEW GLOBAL SINGAPORE ZEALAND HONG KONG SAR, CHINA ARABIA MALAYSIA ZEALAND MALDIVES SINGAPORE LUXEMBOURG JAPAN BEST 37 66 Average- small island economies 103 105 Dar es Salaam 155 154 Zanzibar Town 167 162 170 Most difficult 183 (183) Ease of Starting a Dealing with Registering Getting Protecting Paying Trading Enforcing Closing a doing business business construction property credit investors taxes across borders contracts business permits Source: Doing Business database. es Salaam (178th). Dealing with con- rank only 30th among 35 small island lack of a strong legal framework explains struction permits in Zanzibar takes 65 economies. the poor performance. Both areas are days, 17 procedures, and costs 522% of On the ease of starting a business governed by the Companies Act Decree income per capita, on average. Obtain- and registering property, Zanzibar would of 1953 (Chapter 153 of the Laws of Zan- ing all the necessary clearances to build rank 162nd and 170th, respectively. The zibar), which does not stipulate sufficient a warehouse and connect it to utilities is relatively poor performance is mostly due investment protections and bankruptcy cheaper and less time-consuming than to the high number of procedures and the proceedings. The Insolvency Decree in Dar es Salaam, but more than twice high costs associated with them. Starting (Chapter 20 of the Laws of Zanzibar) as expensive as in the average small a business requires 10 steps, 2 more than only applies to physical persons and not island economy (202% of income per the global average. It costs 71.5% of to firms. Since 1964, no bankruptcy cases capita). This is mostly due to utilities income per capita, almost twice as have been reported, apart from some connections, which are expensive and much as the global average. While the voluntary winding ups. take half of the total time to deal with process of incorporation is simple at construction permits. In fact, connecting the Registrar of Companies, numerous REGIONAL ECONOMIES ARE to the electricity grid takes 30 days and post-incorporation procedures end up REFORMING—WHAT GETS MEASURED GETS DONE costs around 470% of average income making the process quite burdensome. per capita. Meanwhile, registering property requires Benchmarking exercises like Doing Busi- Globally, for paying taxes and trad- 10 procedures, 4 more than the global ness identify potential challenges and ing across borders, Zanzibar would rank average. At the same time, it costs 20.2% areas for improvement. They also inspire 103rd and 105th, respectively. The large of property value, more than triple the governments to reform in areas measured number of entities involved in tax col- global average of 6%. Prior to registra- by Doing Business. Since 2004, Doing lection makes paying taxes burdensome tion with the Registry of Documents, a Business has recorded more than 1,000 for entrepreneurs. Taxes have to be paid property transfer has to be approved by reforms in Doing Business indicators. separately to the Tanzania Revenue several authorities—including the local In sub-Saharan Africa, 29 of 46 Authority (TRA), the Zanzibar Revenue Sheha, the District Council, and the Dis- economies reformed in Doing Business Board (ZRB), and municipal authorities. trict Commissioner. areas in 2008/09, implementing 67 re- Meanwhile, for trading across borders, On the ease of protecting investors, forms. Rwanda, with 7 reforms, became Zanzibar Town scores better than Dar es getting credit, and closing a business, the first sub-Saharan African country to Salaam. However, due to the high num- Zanzibar would rank 154th, 167th, and lead the world in Doing Business reforms ber of documents required to import or 183rd, respectively. In the case of protect- (table 1.1). In the past year, it introduced export from the island, Zanzibar would ing investors and closing a business, the a new company law that simplified 8 DOING BUSINESS IN ZANZIBAR 2010 TABLE 1.1 The top 10 economies that improved the most on the ease of doing business in 2008/2009 Dealing with Trading Starting a construction Employing Registering Getting Protecting Paying across Enforcing Closing a Economy business permits workers property credit investors taxes borders contracts business Rwanda ✔ ✔ ✔ ✔ ✔ ✔ ✔ Kyrgyz Republic ✔ ✔ ✔ ✔ ✔ ✔ ✔ Macedonia, FYR ✔ ✔ ✔ ✔ ✔ ✔ ✔ Belarus ✔ ✔ ✔ ✔ ✔ ✔ United Arab Emirates ✔ ✔ ✔ Moldova ✔ ✔ ✔ Columbia ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Tajikistan ✔ ✔ ✔ ✔ ✔ Egypt, Arab Rep. ✔ ✔ ✔ ✔ Liberia ✔ ✔ ✔ Note: Economies are ranked on the number and impact of reforms. First, Doing Business selects the economies that implemented reforms making it easier to do business in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank on the ease of doing business from the previous year. The larger the improvement, the higher the ranking as a Doing Business reformer. Source: Doing Business database. business start-up and strengthened mi- amended several laws to allow for the cre- Business indicators by the time of the sec- nority shareholder protections. Entre- ation of a licensed private credit bureau ond report.6 Furthermore, 28 out of the preneurs can now start a business with and expanded the bureau’s coverage to 31 states (that is, 90%) had implemented just 2 procedures and 3 days. Reforms all credit facilities, improving the ranking reforms by the third report.7 Similarly, also included measures to speed up trade on the ease of getting credit by 3 places. Doing Business in Colombia 2010 showed and property registration. Delays at the In addition, Mauritius passed a new in- that 13 out of the 21 cities benchmarked borders were reduced thanks to longer solvency law, establishing a rehabilitation for the second time had introduced at operating hours and simpler require- procedure for companies as an alternative least one reform in the areas measured ments for documents. Reforms removed to winding up. The law sets clear time lim- by Doing Business. The city of Neiva is bottlenecks at the property registry and at its, defines the rights and obligations of one telling example. Neiva was the worst- the Rwanda Revenue Authority, reducing creditors and debtors and outlines sanc- performing city in Colombia in 2008.8 In the time required to register property by tions for those who abuse the system. response, the mayor decided to set up an 255 days. “anti–red tape” committee that brought Tanzania also reformed. In 2006, it COMPARING BUSINESS REGULA- together the municipality, chamber of abolished the license fee for small and TIONS AT THE SUBNATIONAL AND commerce, business associations, and REGIONAL LEVEL medium-size enterprises. The system for representatives of national agencies, such license categories was simplified, reducing Comparisons among cities within the as the police and the tax authority. This the number of different licensed activities same country or region can be strong driv- committee meets every month to propose from 15 to just 2. The new Companies ers for improvement. That was the case in changes to the regulatory environment Act made the company seal optional and Mexico where a subnational study bench- and monitor progress. The city launched the computerization of tax and business marked 12 states in 2005. The study gen- a one-stop shop for business registration, registration made start-up faster. erated competition to improve as different which connected the municipal and state Among small island economies, local governing bodies had a difficult time governments, eliminating 11 procedures, Mauritius stood out by implementing explaining why it took longer or cost more including obtaining sanitation and fire reforms in 6 Doing Business indicators to do business in their city as compared department certificates. Thanks to this during 2008/09 improving its global rank to the neighboring city. The second and and other Doing Business reforms, Neiva from 24 to 17. The property registry was third benchmarking exercises expanded became the economy that improved the made fully electronic, and strict statu- the analysis to all 31 Mexican states and most the ease of doing business in Doing tory limits were introduced for property updated the indicators for the first 12. Business in Colombia 2010. registration making the entire process Out of the 12 original states, 9 (75%) had The government of Zanzibar can 6 months shorter. The island adopted or implemented reforms related to the Doing follow the example of consistent Doing OVER VIE W 9 Business reformers in the region and globally. These committed reformers fol- low a long-term agenda and continuously push forward. They include all relevant stakeholders in the process, set specific goals, institutionalize the reform effort and regularly monitor the progress there- after. The reforms are comprehensive, thus increasing the chances of impact and success. 1. The Revolutionary Government of Zanzibar. January 2007. Zanzibar Strategy for Growth and Reduction of Poverty (ZSGRP), http://www.unpei.org/PDF/ TZ-zanzibar-strategy-growth-poverty- reduction.pdf/. 2. Zanzibar Commission for Tourism. See http://www.zanzibartourism.net/. 3. According to the United Nations Statistics Division (UNSD) of the Department of Economic and Social Affairs (DESA), Zanzibar has seen an average annual growth of 8% in nominal GDP per capita. See http://data.un.org for more information. 4. The Revolutionary Government of Zanzibar. January 2000. Vision 2020. 5. For the purpose of this report, the 35 small island economies include Zanzibar and 34 Small Island Developing States (SIDS) measured by Doing Business. 6. World Bank. 2006. Doing Business in Mexico 2007. Washington, D.C.: World Bank Group. 7. World Bank. 2008. Doing Business in Mexico 2009. Washington, D.C.: World Bank Group. 8. World Bank. 2010. Doing Business in Colombia 2010. Washington, D.C.: World Bank Group. 10 FIGURE 2.2 Starting a tions with authorities. The time and cost required to complete each procedure are How Zanzibar compares globally and with other small island economies on business calculated, as well as the minimum capi- tal that must be paid in (figure 2.1). the ease of starting a business Global ranking (1–183) In Zanzibar it takes 10 procedures, 28 1 New Zealand (EASIEST) days, and costs 72% of Zanzibar’s income Mauritius 20 Jamaica per capita to comply with all registration requirements to set up a limited liability 40 company and start to operate. While in- Maldives 60 corporation with the Registrar General’s Bahrain Office in Zanzibar is relatively simple 80 Seychelles and takes less than one week (6 days), 100 the post-incorporation procedures—such Fiji Dominican Republic as preparing a company seal, applying 120 Dar es Salaam (120) for all required tax numbers from the 140 Enabling easier, faster, and more afford- Tanzania Revenue Authority (TRA) and Timor-Leste able business entry is essential for private the Zanzibar Revenue Board (ZRB), 160 Zanzibar Town (162) sector development. In countries where obtaining a business license, registering Comoros 180 Suriname entry procedures are straightforward and with the Zanzibar Social Security Fund 183 (MOST Guinea-Bissau DIFFICULT) inexpensive, more businesses operate in (ZSSF) and with the National Insurance Note: Rankings are the average of the economy ranking on the the formal sector. But if entrepreneurs Corporation, and submitting employees’ procedures time, cost and paid-in minimum capital for starting a business. See Data notes for details. find such procedures overly burdensome contracts at the Labour Commission— Source: Doing Business database. or expensive, some may resort to corrup- take up to 18 days to complete. tion to expedite the process—and others In Dar es Salaam, the same process online. Following the registration, the will choose to run their businesses in the takes 2 more procedures (12) and 1 more Commercial Registry automatically in- informal sector. day (29), but it is substantially cheaper forms the tax, social security, and local The data on starting a business inves- (36.8% of Tanzania’s income per cap- authorities about company formation tigates procedures that a typical domestic ita). Another difference between Dar es and grants them access to all company small or medium-size company needs to Salaam and Zanzibar Town is that the information through a central business complete to start operations legally. These former does not require minimum capi- registration database. Once informed by include obtaining all necessary permits tal, while the latter requires TZS 1 million the registry, local authorities contact the and licenses, and completing all required (US$ 772), which represents 156.5% of companies to inform them of fees and registrations, verifications, and notifica- Zanzibar’s income per capita. In start- any other requirements based on the ac- FIGURE 2.1 ing a business, Zanzibar Town would tivity of the company. The entire process Starting a business: getting a local rank 162nd out of 183 economies mea- requires just 5 procedures, takes 6 days, limited liability company up and sured by Doing Business, while Dar es and costs 4.1% of country’s income per running Salaam ranks 120th (figure 2.2). Start- capita. In comparison, business start-ups Rankings are based on 4 subindicators ing a company in Zanzibar is also more in Zanzibar are faster than the small Preregistration, As % of income per registration and cumbersome than in most other small island economy average but more expen- capita, no bribes included postregistration island economies, where starting a busi- sive (figure 2.3). (in calendar days) ness takes, on average, 8 procedures, 61 The first bottleneck in starting a 25% 25% Time Cost days and costs 46% of income per capita. business in Zanzibar lies within the ZRB, Zanzibar would rank 31st compared with where the entrepreneur has to first obtain 25% 25% 34 other small island economies mea- the business license and then apply for Procedures Paid-in sured by the Doing Business. the Value Added Tax (VAT). These 2 pro- minimum Procedure is capital Among small island economies, cedures add up to 10 days and represent a completed when starting a business is easiest in Singapore third of the total time to start a company. final document is received Funds deposited in a bank or with and Mauritius. Since October 2006, ap- Another bottleneck lies within the ZSSF, a notary before registration, as % of income per capita plications for incorporation and registra- where obtaining a registration number Note: See Data notes for details. tion in Mauritius have been processed takes 7 days. To apply for a certificate of STARTING A BUSINESS 11 FIGURE 2.3 WHAT TO REFORM? Starting a business in selected small island economies: Zanzibar is relatively fast but expensive CONSIDER ELIMINATING LICENSES Time (days) Cost (% of income per capita) FOR COMPANIES THAT DO NOT POSE Singapore ENVIRONMENTAL OR HEALTH RISKS Mauritius Currently, following registration at the Jamaica Registrar General’s Office in Zanzibar Maldives Town, new companies must also obtain a Dominican Republic Cape Verde business license from one of the following 28 days 72% bodies: Municipality (small traders), ZRB Zanzibar Town Average-small (medium-size businesses), or Zanzibar island economies Trinidad and Tobago Investment Promotion Authority (large Papua New Guinea companies and foreign investors). The Solomon Islands process of obtaining a license can be Timor-Leste Haiti confusing at times, as many business are Guinea-Bissau not certain which authority has the juris- 0 30 60 90 120 150 180 210 240 270 300 330 360 diction over issuing the license for their Source: Doing Business database. type of company. Currently, obtaining a license for a medium-size company at the incorporation an entrepreneur has to pay capita increases total factor productivity ZRB costs about TZS 20,000 (US$ 15). TZS 311,908 (US$ 241), which represents by an estimated 22%.1 Simpler and faster One approach to faciliate licensing almost 70% of the total cost to start a business entry makes it easier for work- would be to limit the requirement to business (figure 2.4). ers and capital to move across sectors certain industries that may pose envi- There are numerous reasons for when economies experience economic ronemntal or health risks, while eliminat- governments to facilitate formal incor- shocks. A recent study of 28 sectors in ing it for other businesses not opearting poration of companies. Legal entities 55 countries found that sector employ- in such licensed industries. Alternatively, outlive their founders. Resources are ment reallocation is smoother in coun- the process could start with eliminating often pooled as shareholders join forces tries where starting a business is faster.2 the licencing requirement for small busi- to start a company. And companies have Finally, if it is easy to set up a company, nesses. A registration certificate issued access to services and institutions ranging businesses that might otherwise operate by the Registrar General’s Office could be from courts to commercial banks. Easier in the informal sector are more likely deemed sufficient for small businesses start-up is also correlated with higher to legalize their operations. Formally to operate. productivity among existing firms. A registered businesses grow larger and recent study of 97 countries finds that re- contribute to the government revenues ducing entry costs by 90% of income per through the taxes they pay.3 FIGURE 2.4 Starting up a company in Zanzibar is complex Procedures Time (days) Cost (% of income per capita) 1. Apply for clearance of the proposed company name 30 Obtain registration number at the 80 at the Registrar of Companies Zanzibar Social Security 2. Apply for a certificate of incorporation at the 27 Fund (ZSSF) Registrar of Companies 70 24 3. Order a company seal 60 4. Obtain Tax Identification Number (TIN) from the 21 Time Tanzania Revenue Authority (TRA) Cost 50 5. Obtain a business license from the Zanzibar 18 Revenue Board (ZRB) 15 Apply for a certificate of 40 6. Apply for VAT at the Zanzibar Revenue Board (ZRB) incorporation at the 7. Register for the workmen’s compensation 12 Registrar of Companies 30 insurance at the National Insurance Corporation Apply for VAT at the (or alternative insurance policy) 9 Zanzibar Revenue Board (ZRB) 20 8. Obtain registration number at the Zanzibar Social 6 Security Fund (ZSSF) 3 10 9. Apply for Pay As You Earn (PAYE) at the Tanzania Revenue Authority 0 0 10. Submit employees’ contracts at the Labour 1 2 3 4 5 6 7 8 9 10 Commission of Zanzibar Source: Doing Business database. 12 DOING BUSINESS IN ZANZIBAR 2010 MAKE COMPANY SEAL OPTIONAL application form in order to eliminate a The company seal adds 3 days to the time need for completing different forms with and TZS 60,000 (US$ 46) to TZS 100,000 duplicating information. (US$ 77) to the cost to set up a limited li- Although Zanzibar Investment Pro- ability company. Moreover, the applicant motion Authority (ZIPA) already acts as or his lawyer must travel to Dar es Salaam, a one-stop shop, its services are limited as no seals are made in Zanzibar. to foreign and/or large investors. It is In the past, official seals were used important that small and medium-size to authenticate the authority of the seal domestic enterprises could also take ad- bearer to represent a firm, and played an vantage of the benefits of single-access important role in ensuring the legitimacy point for company registration. Among of business transactions. However, the small island economies, Mauritius pro- usefulness of company seals has always vides a successful example. Its one-stop been limited by the ease of forging them. shop links the commercial registry, tax Now, with the availability of digital signa- and local authorities through a central tures that cost nothing and are difficult electronic database. to forge, and the widespread practice of sending documents electronically, com- pany seals are largely obsolete. The aboli- tion of company seals, together with a 1. Barseghyan, Levon. 2008. “Entry digital signature law that validates and Costs and Cross-Country Differences in Productivity and Output.” Journal regulates the use of digital signatures, of Economic Growth 13 (2): 145-67. would facilitate electronic business trans- 2. Ciccone, Antonio, and Elias Papaioannou. actions, reduce forgeries, and cut down 2007. “Red Tape and Delayed Entry.” on costs and bureaucratic delay. A similar Journal of the European Economic Association 5 (2-3): 444-58. requirement was in place in Mainland 3. Djankov, Simeon, Rafael La Porta, Tanzania until the passing of the Business Florencio Lopez-de-Silanes and Andrei Activities Registration Act in 2006, which Shleifer. 2002. “The Regulation of Entry.” made otaining a seal optional. Similar Quarterly Journal of Economics 117 (1): 1-37. provisions should be made in the pro- cess of amending the Companies Decree, Chapter 153. CREATE A SINGLE-ACCESS POINT FOR ALL REGISTRATION REQUIREMENTS FOR COMPANIES Currently, numerous agencies are in- volved in registration process of new companies, including Registrar Gener- al’s Office, TRA, ZRB, ZSSF, and Labour Commission of Zanzibar. In order to re- duce the number of procedures cost and time, one of these agencies—for example Registrar General’s Office—could serve as a single-access point for company reg- istration. In other words, one designated agency would accept applications from potential businesses and ensure that the required information is shared with other concerned agencies. This reform would also require the introduction of a single 13 Dealing with FIGURE 3.2 Dealing with construction permits: permits as measured by Doing Business (figure 3.3). building a warehouse construction Rankings are based on 3 subindicators The most time-consuming proce- dures take place during the preconstruc- permits Days to build a warehouse in main city As % of income per capita, no bribes included tion stage and when connecting to utilities (figure 3.4). Obtaining a building permit 33.3% 33.3% from the Urban Development Control Time Cost Authority (UDCA) takes an average of 30 days. After the application has been 33.3% submitted, the drawings are examined by Procedures various UDCA officials to assess the vi- ability of the project from specific points of Procedure is completed when final document view—such as, impact on the surrounding is received; construction permits, inspections and utility connections included area, structural soundness, and respect Note: See Data notes for details. for building regulations. Once all internal Striking the right balance between safety clearances have been granted, the project and efficiency in the building sector regu- Surveys and Doing Business data found that undergoes final scrutiny from the UDCA lations has been a challenge for many more cumbersome and costly procedures review committee, a body chaired by the countries. Good regulations promote are associated with an increased prob- Director of the Zanzibar Municipality that public safety, increase revenue for the ability of informal payments in exchange convenes only once a month and provides government and make the permitting for construction permits (figure 3.1). In the authorization to build. process more transparent and approach- Tanzania, 1 entrepreneur out of 2 expects Procedures during the construc- able both for those who use it and those to pay informal fees to public officials in tion and post-construction phases are who administer it. On the other hand, order to get things done.2 generally faster and less expensive. burdensome regulations may push the Doing Business looks at construc- construction sector into the informal tion permits as an example of licensing FIGURE 3.3 economy, thus undermining their pri- regulations that businesses face. It mea- How Zanzibar compares globally and mary purpose. sures the number of procedures, time, with other small island economies on the ease of dealing with construction By some estimates, 60–80% of con- and cost required for a business in the permits struction projects in developing coun- construction industry to obtain the nec- Global ranking (1–183) tries are undertaken without a building essary approvals to build a commercial Hong Kong SAR, China permit because the approval process is warehouse and connect it to electricity, 1 Singapore (EASIEST) too complex or oversight too lax.1 An water, sewerage, and telecommunication Maldives 20 analysis based on World Bank Enterprise services (figure 3.2). It assumes that the Bahrain warehouse is to be used for storage of 40 Mauritius FIGURE 3.1 Share of firms that expect to give gifts nonhazardous goods and is located in the Jamaica 60 in exchange for construction permits peri-urban area of the city. Zanzibar Town (66), Comoros In order to obtain the necessary 80 % Timor-Leste 30 approvals and utility connections to 100 Dominican Republic build a commercial warehouse in Zan- Suriname 20 zibar Town, an entrepreneur needs to 120 go through 17 procedures that take 65 10 140 days and cost 522% of Zanzibar’s in- come per capita. The same process in Dar 160 0 es Salaam is more expensive and time- Least Most 180 Dar es Salaam (178) difficult difficult consuming, requiring 22 procedures, 328 183 (MOST Economies ranked by ease of dealing Eritrea days and 3,281% of Tanzania’s income DIFFICULT) with construction permits, quintiles Note: Relationships are significant at the 1% level and remain per capita. Compared globally, Zanzibar Note: Rankings are the average of the economy rankings on the significant when controlling for income per capita. procedures, time and cost to comply with formalities to build would rank 66th out of 183 economies a warehouse. See Data notes for details. Source: Doing Business database; World Bank Enterprise Survey database. on the ease of dealing with construction Source: Doing Business database. 14 DOING BUSINESS IN ZANZIBAR 2010 FIGURE 3.4 Obtaining a building permit and connecting to electricity—the biggest bottlenecks Procedures Time (days) Cost (% of income per capita) 1. Submit an application for the building permit at the Electricity connection-related procedures Town Planning Section of the Zanzibar Municipality 70 Telephone connection 600 2. Pay building permit fees and obtain a building permit from the Urban Development Control Authority (UDCA) 521.8% 60 3. Receive a routine supervision inspection from the 500 Zanzibar Municipality 4. Notify the Zanzibar Municipality of completion of 50 construction and receive an inspection Obtain building permit 400 5. Obtain a completion certificate from the Zanzibar Municipality 40 6. Apply for electricity connection at the Zanzibar Procedures related to water and sewerage connection 300 Electricity Company (ZECO) 7. Receive an inspection from ZECO to assess the cost of 30 electricity connection 8. Pay the fees for electricity connection 200 20 9. Obtain electricity connection 10. Obtain an application form for water connection from the Zanzibar Water Authority (ZAWA) 10 100 11. Obtain authorization from the local Sheha 12. Receive an inspection from ZAWA 0 0 13. Pay water connection fee to ZAWA 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 14. Obtain water connection from ZAWA 15. Apply for telephone connection at the Tanzania = cost as % of income per capita Telecommunication Company Limited (TTCL) = time for construction procedures = time for utility connections 16. Receive an inspection from TTCL Source: Doing Business database. 17. Pay fees and obtain telephone connection from TTCL As construction progresses, the Munici- certificate of completion is required by of connecting to water and sewerage is pality sends inspectors to check compli- law, it is not always obtained due to low unnecessarily complicated. Before re- ance with the given permit and building public awareness and poor enforcement questing a connection from the Zanzibar regulations. Once the warehouse is com- capacity by the Municipal Authority. Water Authority (ZAWA), the entrepre- pleted, the entrepreneur is supposed to Connection to utilities takes ap- neur must receive a specific authorization notify the Municipal Authority and obtain proximately half of the total time to deal from the Sheha, the officer in charge of a certificate of completion. Although the with construction permits. The process local ward (Shehia). The most burden- FIGURE 3.5 some step, however, is connection to the Procedures, time, and cost to deal with construction permits in Zanzibar and electricity grid—an endeavor that takes selected small island economies 30 days and is by far the most expensive procedure, amounting by itself to around Dar es Salaam 3,281 470% of the island’s income per capita. Dealing with construction permits in the average small island economy Dar es Salaam 328 measured by Doing Business is con- Zanzibar Town 522 siderably cheaper than in Zanzibar Dar es Salaam 22 (figure 3.5). In the average small island economy, dealing with construction permits cost 202% of income per capita Zanzibar Town 17 compared to 522% in Zanzibar. Some island economies rank amongst the top Average-small 14 170 202 global performers on this indicator— island economies including Singapore (ranked 2nd), Singapore, 11 Singapore 20 St. Vincent and St. Vincent and the Grenadines (ranked St. Vincent and Belize 18 the Grenadines, Belize the Grenadines 74 3rd), and Belize (ranked 4th). Singa- St. Vincent and 7 Belize 66 the Grenadines Zanzibar Town 65 Cost pore, in particular, has developed a (% of income per capita) state-of-the-art system for construction Singapore 25 permits through incremental improve- ments. Today, 99% percent of Singa- Time pore’s applications for construction (days) Procedures permits are processed electronically (number) Source: Doing Business database. through the city-state’s construction DEALING WITH CONSTRUC TION PERMITS 15 and real estate network. Furthermore, the UDCA and subsequently cleared Water Authority (ZAWA). In addition, the authority issuing planning permis- by a review committee chaired by the water conn ection costs should be more sions optimized its internal process Director of the Municipality. Currently, transparent. Currently, the lack of a clear of review and analysis of applications the review committee convenes only once fee schedule for water connections results while setting internal targets for reduc- a month. Increasing the frequency of into uncertainty for investors. ZAWA has ing the approval time from 3 to 2 weeks. its meetings—introducing, for instance, plans to develop a transparent schedule Similar targets were set for technical bimonthly or weekly sessions—would of fees for connection services: efforts clearances from the ministry of envi- reduce the processing time for building should be made to speed the process up. ronment, the civil defense force, and permits. the transportation authority. These au- thorities now respond within 10 days. PUBLICLY DISPLAY INFORMATION AND PROVIDE APPLICATION FORMS As a result, Singapore’s entrepreneurs 1. Moullier, Thomas. 2009. Reforming Build- FREE OF CHARGE can obtain a certificate of completion ing Permits: Why Is It Important and within 10 days and all required con- Entrepreneurs and builders need to What Can IFC Really Do? International Finance Corporation. Washington, D.C.: struction permits within 15 days. In have a clear understanding of how the World Bank Group. addition, the agency that provides ac- construction-permit process works. In- 2. World Bank. 2006. Enterprise Surveys: cess to power, water and sewage has ac- formation and application forms should Corruption (http://www.enterprisesurveys celerated delivery of utility services. All be readily available. At the moment, .org/). 3 utilities can be obtained within just Zanzibari entrepreneurs need to spend 7 days. In total, obtaining all construc- a considerable amount of time on the tion permits and utility connections in phone or visiting public offices in order Singapore requires 11 steps, 25 days, to figure out required documents and and costs just 19.9% of Singapore’s fees. Moreover, they are asked to pay a fee income per capita. in order to obtain the necessary forms to apply for building permit and water con- WHAT TO REFORM? nection. In many countries, information and forms are free and available for all IMPROVE THE ELECTRICITY DELIVERY those who need it. In 2001, the municipal SYSTEM authorities of Riga (Latvia) distributed Obtaining an electricity connection in a step-by-step guide with a list of re- Zanzibar is particularly expensive. It costs quired documents and flowcharts show- approximately TZS 3,000,000 (US$ 2,315) ing which offices to visit, when, and with and accounts for almost 90% of the total what documents. This simple reform cut cost of dealing with construction permits. 2 months off the process and gave build- In spite of this, black-outs still force en- ers more confidence in the construction- trepreneurs to rely on generators and al- permit process. Authorities in Zanzibar locate additional resources to buy diesel. should follow suit. In order to tackle the black-out problem, state authorities should improve the elec- SIMPLIFY THE PROCESS FOR OBTAINING A WATER CONNECTION tricity delivery system and increase the AND DEVELOP A CLEAR FEE reliability of its network. SCHEDULE INCREASE THE FREQUENCY OF THE In the process of obtaining a water connec- URBAN DEVELOPMENT CONTROL tion, the applicant is required to receive AUTHORITY REVIEW MEETINGS an authorization from a local Sheha. Such The lengthiest administrative step faced authorization—which aims to prove the by entrepreneurs building a warehouse identity of the applicant—adds TZS 2,000 and connecting it to utilities in Zanzibar (US$ 2) and extra time to the process. is obtaining a building permit. Upon Whenever possible, this requirement submission, each application is examined should be eliminated or incorporated in by a number of technical officers within the application process with the Zanzibar 16 Registering requires 10 procedures which take about 39 days and cost 20.2% of property value. FIGURE 4.2 How Zanzibar compares globally and with other small island economies on property It would rank 170th out of 183 economies measured, which places it in the bottom the ease of registering property Global ranking (1–183) 10% globally (figure 4.2). In comparison, Saudi Arabia 1 in Dar es Salaam, a property transfer (EASIEST) Singapore requires 9 procedures which take 73 days 20 Bahrain but cost much less—just 4.4% of prop- erty value—ranking ahead of Zanzibar 40 Fiji Town at 145th place. Compared to 34 60 Seychelles other small island economies measured Mauritius by Doing Business, Zanzibar falls in the 80 bottom third and would rank 27th. To transfer a property title, an entre- Comoros 100 preneur has to visit the local Sheha, the Dominican Republic Efficient and reliable property registra- District Council, and the District Com- 120 Jamaica tion systems are important for economic missioner. Each of these procedures is 140 growth: they protect property rights, facil- a source of delay and high costs. The Dar es Salaam (145) itate transactions in land, and enable land entrepreneur has to wait 5 days to get the 160 Suriname to be used as collateral for a loan. With a approval from the local Sheha, 5 days for Zanzibar Town (170) formal title, entrepreneurs have an incen- approval from the District Council, and 183 (MOST DIFFICULT) Timor-Leste, Maldives tive to invest in their property and can use another 3 days from the District Com- their immovable asset to obtain credit and missioner. These add up to 13 days which Note: Rankings are the average of the economy ranking on the procedures, time, and cost for a business to purchase, transfer, and expand. Land title registration should be represent one third of the total time register property from another business. See Data notes for details. Source: Doing Business database. simple, reliable, prompt, and affordable. to transfer a property title in Zanzibar To assess the ease of registering prop- (figure 4.3). erty, Doing Business records the proce- The District Council charges 10% dures necessary for a business to purchase of the underlying property value to au- places in the world to transfer property. a property and to transfer the property thorize the approval. This fee represents The only economies where it costs more title to the buyer’s name. The time and almost half of the total cost to transfer are the Syrian Arab Republic (28% of costs—expressed as percentage of prop- a property in Zanzibar. Although the property value), Chad (22.7%), Nigeria erty value—are calculated (figure 4.1). signature of the District Council is not (20.9%), Comoros (20.8%), and Senegal Zanzibar is one of the most difficult required according to the sale form, it (20.6%). places in the world to register property. It has become a standard practice to obtain Since the late 1980s, the govern- such an approval before the application is ment of Zanzibar has undertaken efforts FIGURE 4.1 Registering property: transfer of accepted by the District Commissioner. to strengthen property rights. To this property between 2 local companies In addition to this 10% charge, several end, a series of laws related to land and Rankings are based on 3 subindicators other fees are added before the transfer property registration have been enacted.1 Days to transfer property As % of property value, is complete—5% of the property value However, the titles and contracts regard- no bribes included charged by the Zanzibar Land Transfer ing land matters continue to be regis- Board for the Certificate of Approval, tered with the Registry of Documents, 33.3% 33.3% 1% of the property value required by the according to the Registration of Docu- Time Cost Registry of Documents for the Stamp ments Decree, Chapter 99/1919, dating Duty, 1% of the property value charged from the time of the British Protectorate. 33.3% Procedures by the Tanzania Revenue Authority Prior to registration at the Registry of (TRA) for valuation inspection, and a Documents, the transfer must also be final charge averaging 3% by lawyers approved by local authorities, including Steps to check encumbrances, obtain clearance for the execution and notarization of the Sheha, District Council, and District certificates, prepare deed and transfer title so that the property can be occupied, sold or used as collateral the sales agreement. With all these fees, Commissioner. For immovable proper- Note: See Data notes for details. Zanzibar is one of the most expensive ties, the procedures at the Registry of REGISTERING PROPERT Y 17 FIGURE 4.3 It costs 20.2% of the property value to register and transfer property in Zanzibar Procedures Time (days) Cost (% of property value) 1. Conduct a search at the Land Registry 40 25 2. Receive a valuation inspection from the Tanzania Obtain and pay the Certificate of Approval of Titles at the Zanzibar Land Revenue Authority 36 Transfer Board 3. Execution and notarization of the sale agreement 32 20 4. Obtain a property transfer form from the Zanzibar Land Transfer Board 28 5. Obtain approval of the transaction from the local 24 15 Sheha 6. Obtain approval of the transaction from the District 20 Council 16 10 7. Obtain approval of the transaction from the District Local authorities' procedures: Commissioner 12 5. Obtain approval of the transaction 8. Obtain and pay the Certificate of Approval of Titles from the local Sheha at the Zanzibar Land Transfer Board 8 6. Obtain approval of the transaction 5 9. Obtain a Capital Gains Tax Clearance Certificate from the District Council 4 from the Tanzania Revenue Board 7. Obtain approval of the transaction from the District Commissioner 10. Submit documents, pay for registration, and obtain 0 0 the Sales Deed registered at the Registry of 1 2 3 4 5 6 7 8 9 10 Documents, Registrar’s General Office Source: Doing Business database. Documents are not computerized, and Economies that score well on the ease property. Other small island economies that the means for locating information and of registering property tend to have simple manage property registration well include registering properties are outdated. In procedures, low transfer taxes, fixed regis- Bahrain and Palau (figure 4.4). addition, there is no storage security tration fees, computerized registries, and Formal property titles help promote system; therefore, all records run the time limits for administrative procedures. the transfer of land, encourage investment, risk of being lost. The current system Singapore stands out amongst small is- and give entrepreneurs access to formal offers incomplete legal protections. land economies as the easiest to transfer credit markets.2 Informal titles cannot be Registration under the Registration of a property title. There, an online system used as security in obtaining loans, which Documents Decree guarantees neither ti- links lawyers to all the relevant government limits financing opportunities for busi- tling nor the physical inspection of prop- agencies involved in property registration. nesses. Many governments have recog- erties. It simply operates as a proof that a In Singapore, it takes 3 procedures, 5 days, nized this and started extensive property transfer document has been registered. and 2.8% of property value to register a titling programs. But bringing assets into the formal sector is not sufficient. The more difficult and costly it is to formally FIGURE 4.4 Registering property in selected small island economies: Zanzibar relatively fast transfer property, the greater the chances but the most expensive that formalized titles will quickly become informal again. Making property regis- Cost (% of property value) 5 10 15 20 tries efficient ensures that formal titles are more valuable—for getting credit, invest- Singapore Palau ing, and generating growth. Eliminating Mauritius unnecessary obstacles to registering and Bahrain transferring property is, therefore, impor- Guyana tant for economic development. 39 days Zanzibar 20.2% Jamaica Average - small WHAT TO REFORM? island economies Fiji Cape Verde COMPUTERIZE THE LAND REGISTRY Grenada Title searches and registration are still Trinidad and Tobago done manually in Zanzibar. This causes Suriname Guinea-Bissau delays. Computerization would digitalize Solomon Islands files and these would no longer have to Haiti be physically handled. This would ex- Time (days) 0 50 100 150 200 250 300 350 400 450 pedite property registration and reduce Source: Doing Business database. the danger of losing documents. This 18 DOING BUSINESS IN ZANZIBAR 2010 would also be the first step in a more INTRODUCE FLAT FEES INSTEAD OF ambitious reform linking all registries in PERCENTAGE-BASED FEES the country and allowing users to make Replacing the current fee system with online registrations. Zambia computer- fixed fees reduces the incentive for ized its land registry and set up a customer property owners to either undervalue service center to eliminate the backlog of their plots or not register their property registration requests. The time to register altogether. In 2007, the Arab Republic property fell from 70 days to 39 days of Egypt introduced a low fixed fee for between 2007 and 2008. Saudi Arabia stamp duty replacing the 3% registra- became the best performer in the world tion fee. This led to a boom of property by computerizing procedures in 2007, registrations that increased government making it possible to register property revenues by 39% six months after the with 2 procedures and 2 days.3 reform.4 In 2008, Rwanda replaced the 6% stamp duty with a low flat fee. In Zan- ELIMINATE THE REQUIREMENT TO zibar, the introduction of flat fees by both OBTAIN THE DISTRICT COUNCIL’S central and local authorities would go APPROVAL FOR A PROPERTY TRANSFER beyond simply cutting the cost to register Under the current system of register- property: with a flat fee, there would be ing property transfers with the Registrar no need to have the property assessed by of Documents, applicants pay 10% of the TRA at the time of sale. This would the property value as a fee to obtain speed up the registration process and an approval from the District Council. significantly reduce the time needed to Although the signature of the District register property. Council is officially not required accord- ing to the sale form, it has become a stan- dard practice to obtain such an approval before the application is accepted by the 1. These laws include: Land Adjudica- tion Act No. 8/1989, Land Survey Act District Commissioner. The Registry of No. 9/1989, The Registered Land Act Documents received several complaints No. 10/1990, The Land Tenure Act No. about this practice, which had become 12/1992, The Land Tribunal Act No. 7/1994, The Land Transfer Act No. particularly common in Zanzibar’s West- 8/1994. ern District. By adding a cost of 10% 2. Miceli, Thomas, and Joseph Kieyah. 2003. of property value, this procedure makes “The Economics of Land Title Reform.” Zanzibar one of the most costly places to Journal of Comparative Economics transfer a property title. 31 (2): 246-56. 3. World Bank. 2008. Doing Business 2009. Washington, D.C.: The World Bank REDUCE THE NUMBER OF FEES Group. Currently, a property buyer must pay fees 4. World Bank. 2007. Doing Business 2008. for 9 out of the 10 procedures required Washington, D.C.: The World Bank to register property in Zanzibar. The fees Group. range from fixed charges for application forms to percentage-based charges levied by various collecting authorities, which are all competing for the same narrow tax base. To reduce the number of fees collected dur- ing property registration, the central and local governments could consider deep structural reforms that would broaden the tax base and clearly identify which author- ity is in charge of property-related taxes. 19 Getting and accessibility of credit information available through public credit registries FIGURE 5.2 How Zanzibar compares globally and with other small island economies on credit and private credit bureaus. The second— the “strength of legal rights index”— the ease of getting credit Global ranking (1–183) measures the degree to which collateral 1 Malaysia and bankruptcy laws protect the rights of (EASIEST) Singapore borrowers and lenders (figure 5.1). 20 Considering these 2 indexes, Zan- 40 zibar would rank 167th on the ease of Fiji getting credit amongst the 183 economies 60 measured by Doing Business. Compared Dominican Republic to other small island economies, Zanzibar 80 would rank 30th out of 35 (figure 5.2). Dar es Salaam (87), Bahrain Zanzibar’s performance on this indicator 100 is relatively poor compared to Mainland 120 In many developing economies, limited Tanzania, at 87th place, or Rwanda—the access to credit is considered a major con- top reforming economy for Doing Busi- Suriname 140 straint to firms’ operations.1 The lack of ness 2010—ranked 61th. Seychelles, Maldives credit-information systems is one obsta- Despite the existence of a securities 160 Zanzibar Town (167), cle. Another problem is a legal framework registry in Zanzibar—the Registrar Gen- Comoros that does not ensure creditors’ rights eral’s Office—information is not central- Timor-Leste 183 (MOST or that prevents businesses from using ized nor indexed by grantor’s name, mak- DIFFICULT) Palau certain assets as collateral. In contrast, ing it hard to obtain quality information Note: Rankings are based on the sum of the strength of legal rights index and the depth of credit information index. countries where credit registries exist on the movable assets used as collateral. See Data notes for details. and where effective collateral laws are This could be reflected in higher interest Source: Doing Business database. in place, financial institutions are more rates or fees, making them often pro- likely to lend. hibitively high for small and medium-size as utility companies).2 Banks, retailers, Doing Business covers 2 aspects businesses. and telecommunication companies also of the regulations that affect the avail- Similarly, laws that do not enact share positive and negative credit infor- ability of credit: 1) the quality of credit strong creditors’ rights make lenders mation. As a result, Trinidad and Tobago’s information and 2) the strength of the less willing to lend. Zanzibar’s credit sys- credit bureau contains information on legal rights of borrowers and lenders. The tem limits the type of assets that can be almost 42% of country’s adult popula- first—the “depth of credit information pledged as collateral (account receivables tion.3 In the Dominican Republic, lenders index”—measures the coverage, quality, or future- or after-acquired assets are not also benefit from a well-developed credit admissible as collateral). Furthermore, se- information system. Between 2005 and FIGURE 5.1 cured creditors’ priority over other types of 2006, the country abolished consumer Getting credit: collateral rules and creditors may not be adequately protected. consent requirements for giving data to credit information These constraints mean Zanzibar scores credit bureaus and implemented proce- Rankings are based on 2 subindicators only 3 points out of the 10 possible in the dures for consumers to verify their data. Regulations on 62.5% “strength of legal rights index, in contrast Public and private credit registry records nonpossessory Strength of with Mainland Tanzania—8 out of 10—or make historical information available on security interests legal rights index (0–10) Singapore—10 out of 10 (figure 5.3). all bank loans as well as credit infor- in movable property In recent years, many small island mation from non-financial institutions 37.5% Depth of credit economies have made efforts to expand for both individuals and companies. Of information index access to credit. For example, Trinidad all small island economies measured by (0–6) and Tobago, a financial hub in the Carib- Doing Business, Singapore has the most Scope, quality and accessibility bean where it is easier to access credit, effective collateral laws. It enacted non- of credit information through public and private credit registries boasts a credit information system that possessory interest on movable property Note: Private bureau coverage and public registry coverage are extended the sources of credit informa- and allows using account receivables and measured but do not count for the rankings. See Data notes for details. tion to non-financial institutions (such inventory as collateral without requiring 20 DOING BUSINESS IN ZANZIBAR 2010 FIGURE 5.3 Zanzibar cannot take any direct action Credit information and legal rights for borrowers and lenders in Zanzibar and in this respect, but it can advocate for a selected small island economies prompt establishment of a credit infor- Dominican Rep. 6 mation system across Tanzania. Singapore 10 OVERHAUL THE SYSTEM OF Fiji, Singapore 4 REGISTRATION OF MOVABLE PROPERTY Jamaica, Dar es Salaam 8 Mauritius 3 Lenders in Zanzibar typically consider borrowers’ reputation and prefer to secure loans with their salaries. Using movable Average-small island 0.9 property as collateral in Zanzibar is rare. 5.5 economies Mauritius 5 Jamaica, Maldives, Seychelles, Dar es Salaam This could change if a well-functioning Zanzibar Town 0 Maldives, Seychelles 4 collateral registry—where lenders could Credit information Dominican Rep., index (0-6) verify existing rights to the collateral 3 Zanzibar Town and alert others of their priority—were in place. While all transfers of property rights on immovable property must be recorded Strength of legal rights at the Registry of Documents of the Reg- index (0-10) istrar’s General Office, registration of liens Source: Doing Buisness database. on movable property is voluntary. Thus, a lender has no guarantee that there are specific descriptions of the assets. There borrowers—can greatly expand access no previous secured interests on a bor- is also a unified registry system in place to credit. By sharing credit information, rower’s assets since they may have not with indexed information by type of as- registries help lenders assess risk and been registered there. In addition, even sets and borrowers as well as out-of-court allocate credit more efficiently. That frees if they are registered, records are difficult enforcement mechanisms for the collec- entrepreneurs from having to rely on to consult, as they are indexed by year of tion of debts. Not surprisingly, Singapore personal connections alone when trying the agreements rather than the name of obtained the highest possible score—10 to obtain credit. Although the Zanzibar’s the borrower. out of 10—on the legal rights of borrow- Registrar General’s Office keeps track of Best international practices show ers and lenders index.4 documents like mortgages, sales deeds that in order to facilitate lenders using As discussed above, in countries and general agreements, the system does movable property as collateral to se- where credit registries and effective col- not cover all types of assets. In addition, cure loans, it is essential that there is a lateral laws are still lacking, banks make the system is not computerized nor is it central collateral registry where all en- fewer loans.5 New evidence suggests that centralized, making it hard to obtain reli- cumbrances over movable property are establishing strong legal rights and new able information on a borrower’s credit recorded. It is important that such a credit registries may also reduce income history and to enforce security interests registry contains information on all types inequality. Small firms and individual against third parties. Some information of loans and movable assets, central- women, who face the biggest hurdles in can be shared between banks on special ized in one location (some exceptions accessing credit, are the ones who gain request. This, however, makes checking a may apply). It is also important that most when collateral laws and credit in- borrower’s credit history an onerous and such a registry be indexed by the name formation support lending decisions.6 unsure undertaking that raises transac- of the borrower, rather than by date of tions costs for the banks—resulting ulti- the pledge, to facilitate comprehensive WHAT TO REFORM? mately in an increase in the cost of credit data on the debtor’s movable assets that in Zanzibar. have been used as collateral. Countries FACILITATE ESTABLISHMENT OF There have been efforts to establish a increasingly recognize the value of such A CREDIT BUREAU credit bureau to operate across Tanzania. registries. Credit registries—institutions that col- However, the date of bureau’s opening Setting up collateral registries—or, lect and distribute credit information on remains uncertain. The government of unifying and improving existing ones—is GE T TING CREDIT 21 a very common reform that has been and Nataliya Mylenko. 2003. “Credit Reporting and Financing Constraints.” implemented across the world. Countries Policy Research Working Paper 3142. like Croatia, France, India, and Microne- World Bank, Washington, D.C. sia have moved in that direction—even implementing sophisticated Web-based collateral registries that allow creditors to check for existing liens on line. STRENGTHEN THE LEGAL RIGHTS OF CREDITORS BY GRANTING THEM REASONABLE PRIORITY, BOTH WITHIN AND OUTSIDE OF BANKRUPTCY PROCEEDINGS With an operational, modern and com- prehensive collateral registry, secured creditors can obtain information on claims that were registered before and predict with more confidence their rank- ing over other types of creditors. Once a creditor’s interest has been registered, it should have the highest reasonable prior- ity over the asset it has taken as collateral against other types of claims—such as state income taxes and labor claims— which may have come into existence after the secured creditor has registered her security interest over that particular asset. Providing secured creditors with the highest level of priority possible based on the “first register, first priority” principle could encourage more credit to be avail- able to entrepreneurs at better terms. 1. World Bank. 2006. Enterprise Surveys: Finance (http://www.enterprisesurveys. org/). 2. World Bank. 2008. Doing Business 2009. Washington D.C: The World Bank Group. 3. World Bank. 2009. Doing Business 2010 Reforming Through Difficult Times. Washington D.C.: The World Bank Group. 4. Ibid. 5. Sorge, Marco, and Chendi Zhang. 2007. “Credit Information Quality and Corporate Debt Maturity: Theory and Evidence.” University of Sheffield, England. 6. World Bank. 2004. Doing Business in 2005: Removing Obstacles to Growth. Washington, D.C. and Love, Inessa, 22 Protecting FIGURE 6.1 Protecting investors: minority FIGURE 6.2 Figure 6.2 How Zanzibar compares shareholder rights in related-party globally and with other small island investors transactions economies on the ease of protecting investors Rankings are based on 3 subindicators Requirements on approval Liability of CEO Global ranking (1–183) and disclosure of and board of directors related-party in a related-party 1 New Zealand (EASIEST) Singapore transactions 33.3% transaction 33.3% Extent 20 Mauritius Extent of of director disclosure liability index index 40 Fiji 33.3% 60 Ease of shareholder Dominican Republic, suits index Seychelles, Bahrain 80 Maldives , Jamaica Type of evidence that can be collected Dar es Salaam (93) before and during the trial 100 Companies grow by raising capital, which Note: See Data notes for details. can be achieved through bank loans or by 120 selling shares of the company to equity ments of related-party transactions, the Comoros, Timor-Leste 140 investors. Selling shares allows a com- extent of the obligations for company pany to expand without providing col- directors, and the access to evidence by Zanzibar Town (154) 160 lateral or repaying bank loans. Investors, minority shareholders before and during however, are concerned with corporate the trial (figure 6.1). A high ranking on 180 Suriname governance and look for legal protections. the strength of investor protection index 183 (MOST Afghanistan DIFFICULT) If investors doubt that they could prevent shows that an economy’s regulations offer Note: Rankings are based on the strength of investor company insiders from running off with strong investor protection against self- protection index. See Data notes for details. their money, they tend to invest in fewer dealing. The indicator is not a measure of Source: Doing Business database. companies in which they take majority the dynamism of capital markets or of the stakes.1 A recent study finds that the pres- protections for foreign investors. situation is better than in Senegal (165th), ence of legal and regulatory protection In Zanzibar, corporate governance but compares negatively with South Africa for investors explains up to 73% of the and protection of minority sharehold- (10th) and Mauritius (12th). decision to invest. In contrast, company ers are regulated by Chapter 153 of the According to the law, shareholders characteristics explain only 4% to 22%.2 Company Decree Act of 1953 and re- in Mainland Tanzania enjoy greater levels Because of this, governments and busi- lated court rules. This law, dating back to of protection than their counterparts in nesses should have an interest in reforms pre-independence times, fails to address Zanzibar. While their ability to sue of- that strengthen investor protection. many issues affecting today’s businesses. ficers and directors is similar, the Com- Regulations against self-dealing— As a result, shareholders have few instru- pany Act of 2005 provides shareholders in i.e., the use of corporate assets by com- ments to defend their investments from Dar es Salaam with more instruments for pany insiders for personal gain—are corporate governance failures. holding directors liable for misconduct particularly important in developing Because of this, Zanzibar scores only and offers greater disclosure of related- economies where corporate ownership 3.7 points out of 10 on the Doing Business party transactions. tends to be highly concentrated.3 The “strength of investor protection index”. Zanzibar scores just 2 points out of most common examples of self-dealing Compared globally, Zanzibar would rank 10 on the “extent of disclosure index”. are transactions between company insid- 154th out of 183 economies, 21st among Related-party transactions are hardly ers and other companies they control 46 sub-Saharan countries, and 29th transparent. Even though the board of and typically involve sales of goods and among 35 small island economies. Minor- directors must be informed of a poten- services to the company at inflated prices ity shareholders in Zanzibar are protected tial conflict of interest, all material facts or purchases from it at excessively low from directors’ misuse of corporate assets relating to interests in the transaction prices. for personal gain as much as in the Repub- are not required. The board of directors The Doing Business investor protec- lic of Congo, Cote d’Ivoire, and the islands approves the transaction, the interested tion index assesses the disclosure require- of Sao Tome and Principe (figure 6.2). The party is allowed to vote, and shareholders PROTEC TING INVESTORS 23 have no say in the matter. There are no FIGURE 6.3 case of self-dealing, company directors New company law in Rwanda external reviews of the transaction before are beholden to the company for dam- strengthens investor protection it takes place. Moreover, the transaction ages caused and must repay any prof- Protecting investors does not need to be disclosed in the Improvement its made from the transaction. In this 9 annual report. (index 0–10) simple reform, Rwanda has defined a The island scores only 1 point out of clear set of duties for directors which 10 on the “director liability index” which 2009 7 make them easier to sue in cases of mis- measures the ability of shareholders to conduct: when liable, they must compen- sue officers and directors for misconduct. 5 sate the company. In Rwanda, adoption Actions against officers with conflicts of and implementation of this reform cost interest can only be undertaken if it is 3 US$ 250,000. It has moved the country’s proven that the officers failed to disclose 2008 2 overall “protecting investors” ranking their conflict of interest to the board and 1 from 170th to an impressive 27th world- approved the transaction fraudulently. wide. This positive change is likely to in- The same principle applies to the board Extent of Extent of Ease of crease the private sector’s access to finance disclosure director shareholder of directors itself. Neither a company’s index liability index suits index and foster economic growth (figure 6.4). officers nor its board can be held liable Source: Doing Business database. for negligence, not even if the transaction WHAT TO REFORM? in question proved to be unfair or preju- and witnesses directly and do not need dicial for the company. The court may to submit questions beforehand. REQUIRE SHAREHOLDERS’ APPROVAL void the transaction only in the case of All in all, minority shareholders in OF RELATED-PARTY TRANSACTIONS fraud. Unless found guilty of fraud, direc- Zanzibar are not protected as they should Currently, the vote of the board of di- tors are unlikely to pay the damages for be. In order to improve investor protec- rectors is legally sufficient to approve the harm caused to the company, much tions, policy-makers should seek inspira- related-party transactions for firms in less repay the profits made of the transac- tion from their African neighbors. An Zanzibar. Moreover, directors that have a tion or be sentenced to jail. interesting example comes from Rwanda, conflict of interest in the transaction are Scoring 8 points out of 10 on the a country that has recently reformed its allowed to vote. In order to better protect “ease of shareholder suits index”, Zanzi- company law (figure 6.3). In Rwanda, minority investors, large related-party bar facilitates the gathering of evidence conflicts of interests and related-party transactions—for instance, transactions guaranteed to minority shareholders be- transactions are now disclosed to the that represent more than 5% of the assets fore and during the trial. Its score on board of directors and published in the of the company—should be approved in this index is among the highest on the annual report. Shareholders can access a shareholders’ meeting. In any case, self- continent, comparable to South Africa. internal corporate documents directly or interested directors should be banned In Zanzibar, the standard of proof re- through a government inspector. In the from the approval process. quired for civil trials is lower than what’s FIGURE 6.4 required for criminal cases. Shareholders More investor protections associated with greater access for firms to equity markets are not entitled to inspect transaction and faster stock turnover documents before filing the suit but, Perceived difficulty in access to equity Turnover of stocks traded (%) when holding at least 10% of the shares Most 75 of the company, they can request the ap- difficult pointment of a government inspector to 50 investigate a related-party transaction. Moreover, court rules allow shareholder 25 plaintiffs to access a wide range of infor- Least mation from defendants and witnesses. difficult 0 Access to such documents is guaranteed Least Most Least Most protection protection protection protection by the fact that the plaintiffs can obtain Economies ranked by Economies ranked by strength of investor protection index, quintiles strength of investor protection index, quintiles categories of documents without identi- fying documents specifically. During the Note: Relationships are significant at the 1% and 5% level respectively and remain significant when controlling for income per capita. Economies are ranked on the perceived difficulty in financing through local equity market, with 134 being the most difficult. trial, plaintiffs can question defendants Source: Doing Business database; WEF (2008); World Bank, World Development Indicators database. 24 DOING BUSINESS IN ZANZIBAR 2010 REQUEST AN INDEPENDENT Zanzibar. However, regulations should ASSESSMENT OF THE TRANSACTION grant shareholders the right to inspect BEFORE APPROVAL all company documents if they suspect In order to reduce the risk of self-dealing, misdoings by directors, with some excep- an independent auditor should review the tions—for example, to protect corporate terms and conditions of a related-party secrets. This could help maintain a bal- transaction before it is approved. The ance between the needs of managers auditor’s report should evaluate the main to operate without overly burdensome terms of the transaction, and present an intrusion by shareholders, and the needs opinion on whether or not the transac- of shareholders to monitor management tion is being concluded at market terms. actions. INCREASE DISCLOSURE OBLIGATIONS TO THE BOARD OF DIRECTORS AND IN THE ANNUAL REPORT Managers and directors should disclose 1. Dahya, Jay, Orlin Dimitrov and John to the board any personal interest they McConnell. 2008. “Dominant Shareholders, Corporate Boards, and have in the operations of the company. Corporate Value: A Cross-Country This disclosure should not only state the Analysis.” Journal of Financial existence of any conflict of interests, but Economics 87 (1): 73–100. also the nature of such interest and the 2. Doidge, Craig, Andrew Karolyi and René M. Stulz. 2007. “Why Do Countries extent to which the person stands to gain Matter So Much for Corporate personally from company actions. Ad- Governance?” Journal of Financial ditionally, annual reports should include Economics 86 (1): 1–39. detailed information about related-party 3. Djankov, Simeon, Rafael La Porta, transactions. In order to increase share- Florencio López-de-Silanes and Andrei Shleifer. 2008. “The Law and holders’ access to management dealings, Economics of Self-Dealing.” Journal of the annual report should disclose the Financial Economics 88 (3): 430–65. nature of the interests and the extent to which each party stands to gain person- ally from company actions. STATE CLEARLY, IN THE LAW, DIRECTORS’ DUTIES TO ACT APPROPRIATELY WHEN OPERATING THE COMPANY The law should require that directors exer- cise appropriate diligence, care, and loyalty, and that they should make well informed decisions when running the company. They should also avoid conflicts of interests and always put the interest of the corpora- tion before those of individual directors or other individuals. In the case of prejudicial related-party transactions, directors should pay damages caused to the company and pay back any profits made in violation of their duties to the corporation. ALLOW SHAREHOLDERS GREATER ACCESS TO COMPANY DOCUMENTS Currently, the law does not allow ac- cess to internal corporate documents in 25 Paying mandatory taxes and contributions, and 3) the total tax rate, expressed as percent- FIGURE 7.2 How Zanzibar compares globally and with other small island economies on taxes age of commercial profit (figure 7.1).2 In Zanzibar Town, a typical medium- the ease of paying taxes Global ranking (1–183) size company makes 48 payments, pays 1 Maldives 40.8% of its commercial profit in taxes, (EASIEST) Singapore and spends 158 hours per year on tax com- 20 Mauritius pliance—including 26 hours for corporate Timor-Leste income taxes, 60 hours for labor taxes, and 40 Seychelles 72 hours for the value added tax (VAT). In Comoros 60 Dar es Salaam the number of payments is Dominican Republic the same, but the time required and the 80 Fiji tax rate are higher at 172 hours and 45.2%, respectively. The main differences between 100 Zanzibar Town (103) the tax burden in Dar es Salaam and Zanzi- Taxes are vital for every economy. Without bar Town are the apprenticeship tax (which 120 Dar es Salaam (120) them, there would be no available funds is 1% lower in Zanzibar Town) and the city 140 to provide essential services that help service levy (which is just 0.1% of commer- businesses and society be productive and cial profits in Zanzibar Town as opposed 160 thrive. Yet high tax rates and burdensome to 5.3% in Dar es Salaam). On the ease of tax administrations are consistently ranked paying taxes overall, Zanzibar would rank Jamaica 183 (MOST Belarus among the main obstacles to doing busi- 103rd out of 183 economies, while Main- DIFFICULT) Note: Rankings are the average of the economy rankings on ness by entrepreneurs.1 Where taxes are land Tanzania ranks 120th (figure 7.2). the number of payments, time and total tax rate. See Data notes for details. high and difficult to file and public service In Zanzibar, complying with tax re- Source: Doing Business database. benefits appear to be lacking, many busi- quirements is complicated by the mul- nesses choose to remain informal and not tiplicity of entities responsible for tax rate in small island economies is 37.2%, pay. One way to enhance tax compliance is collection. The corporate income tax compared to the global average of 48.3%. to simplify the process of paying them. is considered a Union matter and, as The Maldives are the global leader on this Doing Business measures the effective such, falls under the administration of indicator with the lowest tax administra- tax that a medium-size company must Tanzania Revenue Authority (TRA). On tion burden. Maldivian companies make pay and the administrative burden associ- the other hand, the Zanzibar House of one single property-transfer tax payment ated with it. Three areas are measured: Representatives regulates island taxes, per year, which amounts to just 9.1% of a 1) the number of payments, 2) the time which are under the administration of company’s commercial profit (figure 7.3). to prepare and file tax returns and pay all the Zanzibar Revenue Board (ZRB). In Although the focus of tax reforms addition, businesses are subject to local is often on tax rates, the administrative FIGURE 7.1 taxes regulated by municipal, town, and burden associated with tax compliance Paying taxes: tax compliance for district councils. The existence of many is equally important for entrepreneurs. a local manufacturing company tax-collecting entities requires businesses Efficient tax systems tend to have simpler Rankings are based on 3 subindicators to deal with procedures that vary consid- tax arrangements, combining straightfor- Number of hours Firm tax liability per year to prepare, as % of profits before erably from one agency to another. ward compliance procedures with clear file returns all taxes borne Tax payment methods in Zanzibar are laws. For example, in Sweden, an entre- and pay taxes outdated and burdensome. Taxpayers must preneur must make only 2 payments a 33.3% 33.3% personally visit the ZRB in order to have their year, although she’s paying for several Time Total tax returns reviewed. Then, they must pay taxes each time. Most taxes are paid tax rate the ZRB cashier either in cash or via bank jointly or filed online. In 2009, Mexico 33.3% draft: it is not possible to transfer payments was the runner-up business reformer in Payments to the ZRB through the banking system. Doing Business areas, thanks to its in- Zanzibar, like many other small is- troduction of electronic filing systems Number of tax payments per year land economies, has a relatively low total for payroll taxes, property taxes, and so- Note: See Data notes for details. tax rate. In fact, the average total tax cial security payments. This reduced the 26 DOING BUSINESS IN ZANZIBAR 2010 FIGURE 7.3 CONSIDER INTRODUCING Number of payments, time, and total tax rate in Zanzibar and selected small island ELECTRONIC FILING AND economies PAYMENT SYSTEMS FOR SOCIAL SECURITY CONTRIBUTIONS Jamaica 72 Electronic filing and payment systems are now available in 70 countries worldwide. Jamaica 414 Filing and paying taxes electronically offers advantages to taxpayers. Taxpayers Zanzibar Town, can complete necessary documentation 48 Dar es Salaam Jamaica 51.3 online and file faster, reducing interac- tions with tax authorities. If properly Dar es Salaam 45.2 implemented and adopted by businesses, Average - Dar es Salaam 172 Zanzibar Town 40.8 small island 28 160 37.2 electronic tax systems speed up process- economies Zanzibar Town 158 ing, improve data collection, and reduce error rates. In the United States, the error Singapore 84 Singapore 27.8 rate was less than 1% in 2009 for elec- tronically prepared and filed returns, but Singapore 5 Maldives 0 Maldives 1 about 20% for paper returns. Time Payments (hours) While electronic filing and payment Maldives 9.1 (number) is beneficial to taxpayers, it takes time and intensive public relations efforts for wide- Tax rate spread usage to take root. Many firms do (% of profits) not have the hardware or software, or they Source: Doing Business database. lack the knowledge to utilize electronic systems. In addition, limited access to the number of separate payments required tions, and VAT each month of the year. Internet may be an obstacle. However, per year from 27 to just 6. In addition to those monthly payments, there are tools that governments can use they must pay corporate income tax to support taxpayers. Peru and South WHAT TO REFORM? 5 times each year. To simplify the tax Africa provide free software. In Azer- INTRODUCE A SINGLE TAXPAYER regime, social security contributions baijan, several computer stations were IDENTIFICATION NUMBER AND A could be reduced to bi-monthly pay- installed across the country for use by SINGLE TAX ADMINISTRATION ments (6 per year, as in Mexico) while small and medium-size businesses that ENTITY corporate income taxes could be made lack access to computer facilities. In addi- Currently, there is no single taxpayer biannual or even just once a year (as in tion, Azerbaijan’s government distributed identification number. Every taxpayer South Africa) for companies that would free software to taxpayers 6 months before has 2 separate numbers: a TIN (Taxpayer prefer this arrangement. implementing the new online system. Not Identification Number) obtained from Reducing the frequency of filings only did this give taxpayers precious time the TRA and a VAT (Value Added Tax) decreases the bureaucratic burden for to familiarize themselves with online pro- number obtained from the ZRB. Having businesses. The government could also cedures, it also allowed users to provide a single number would reduce discrep- lower its processing costs for reviewing feedback to the government on how to ancies between the records of the two and confirming the additional filings. make the software more user-friendly. agencies. Tax administration would be It is important to note that this would simplified even further if the TRA and the have cash-flow implications for both ZRB were merged into one single revenue government and taxpayers. Thus, such an authority in charge of all tax payments. exercise should be preceded by an analysis 1. According to World Bank Enterprise of how the reduced number of payments Surveys, firms in 90% of countries surveyed REDUCE THE NUMBER OF TAX rank tax compliance among the top FILINGS AND CONSIDER REDUCING can be synchronized with projected cash- 5 obstacles to doing business. World Bank. THE NUMBER OF TAX PAYMENTS FOR flow needs. The reduction in the number 2006. Enterprise Surveys: Regulations and FIRMS THAT PREFER TO PAY LESS of payments could be voluntary for those Tax (http://www.enterprisesurveys.org/). FREQUENTLY 2. Commercial profits are net profits before companies that prefer it—others may still taxes. Currently, firms must pay and file labor choose to pay taxes more frequently to taxes (PAYE), social security contribu- avoid cash-flow problems. 27 Trading the goods at the factory to departing from the port of exit. For imports, pro- FIGURE 8.2 How Zanzibar compares globally and with other small island economies on across cedures range from the vessel’s arrival at the port of entry to the cargo’s delivery at the ease of trading across borders borders the factory warehouse. The procedures and costs required to Global ranking (1–183) 1 Singapore (EASIEST) export and import a container vary glob- 20 Mauritius ally. Compared to 183 economies mea- Bahrain sured by Doing Business, Zanzibar would 40 Dominican Republic rank 105th on the ease of trading across borders—slightly ahead of Mainland 60 Tanzania, which ranks 108th. Zanzibar 80 would rank behind most small island Timor-Leste economies, including Singapore (ranked Seychelles 100 Suriname 1st globally), Mauritius (19th), and the The benefits of trade are well document- Dominican Republic (36th) (figure 8.2). 120 Zanzibar Town (105) Dar es Salaam (108) ed—as are the damages caused by obsta- Economies that facilitate cross-border 140 cles to trade. Tariffs, quotas, and distances trade require fewer documents so traders Maldives from large markets increase the cost of spend less time on bureaucratic approvals. Comoros 160 trading goods or prevent it altogether. In They also allow traders to submit those recent years, global and regional agree- documents electronically, often even be- 183 (MOST Afghanistan ments have brought down many trade fore the goods arrive at the port. They DIFFICULT) barriers. Yet Africa’s share of global trade limit physical inspections to the riskiest Note: Rankings are the average of the country rankings on the documents, time and cost required to import and export. is smaller than it was 25 years ago. The cargo. And many have fast-track clearance See Data notes for details. Source: Doing Business database. reason is simple: many African entrepre- procedures for selected companies, audit- neurs face numerous procedural hurdles ing their shipments only after clearance. to import or export goods. Through Zanzibar’s port of Malindi, the cost of importing is US$ 1,192. These In order to assess the procedural ob- traders need 7 documents for exports and costs include document preparation, cus- stacles to trade, Doing Business compiles 8 documents for imports. In comparison, toms clearance and technical control, port all requirements for trading a standard traders in Dar es Salaam need only 5 and terminal handling, and inland trans- shipment of goods by ocean transport. documents for exports and 7 for imports. portation. While trading costs in Zanzi- Every procedure, its associated docu- Singapore—the easiest place to trade glob- bar Town are slightly lower than in Dar ments, time, and costs are recorded for ally—requires just 4 documents from im- es Salaam (where exports cost US$ 1,262 exporting and importing (figure 8.1). For porters as well as exporters (figure 8.3). and imports cost US$ 1,475), they remain exports, procedures range from packing On average, exporting from Zanzi- high compared to the top performers bar takes 22 days while importing takes among other small island economies. In FIGURE 8.1 29 days. The main bottlenecks in the Singapore, for example, trading the same Trading across borders: exporting process are document preparation and cargo costs about half of what it costs in and importing by ocean transport port and terminal handling (figure 8.4). Zanzibar—just US$ 456 for exports and Rankings are based on 3 subindicators All documents required Document preparation, Trading to and from Zanzibar Town is US$ 439 for imports. by customs and customs clearance and slightly faster than Dar es Salaam, where For small island economies, trade is other agencies technical control, port and terminal handling, exporting takes 24 days and importing often critical. The close proximity of cities 33.3% 33.3% inland transport 31 days. However, Zanzibar lags behind to ports and their small cargo volumes and handling Documents Time to most other small island economies. In can speed inland transportation and cus- to export export and import and import Singapore, for instance, a similar ship- toms clearance. Some economies, such ment is exported in 5 days and imported as Singapore, have used their reliance on 33.3% Cost to export in 3 days. In the Dominican Republic, sea transportation to their advantage and and import another island economy, exporting takes become trade hubs for the region. Where 9 days and importing 10 days. the trade environment is more favorable, US$ per 20-foot container, no bribes or tariffs included The cost of exporting a standard businesses tend to be better positioned Note: See Data notes for details. shipment from Zanzibar is US$ 844 while to take advantage of new opportunities, 28 DOING BUSINESS IN ZANZIBAR 2010 FIGURE 8.3 Procedures, time and cost to export and import in Zanzibar and selected small island economies 31 Dar es Salaam 29 Zanzibar Town 8 Maldives 24 Dar es Salaam Maldives 9 Maldives 1,348 1,262 Dar es Salaam 1,475 Dar es Salaam 7 Zanzibar Town 22 Zanzibar Town 8 Zanzibar Town Average - 21 Maldives Dominican Rep, 1,348 Maldives 6 20 1,090 7 21 1,265 small island Dar es Salaam Maldives economies 6 Mauritius 20 1,192 Zanzibar Town Dominican Rep 916 Dominican Rep 844 Zanzibar Town Mauritius and 1,150 Dominican Rep 5 737 Mauritius 14 Mauritius Dar es Salaam 4 Singapore 14 Mauritius 10 Dominican Rep 689 Mauritius 456 Singapore 4 Singapore 9 Dominican Rep 439 Singapore Document to 3 Singapore export Document to (number) 5 Singapore import Cost to export Time to import (US$ per container) (number) (days) Cost to import (US$ per container) Time to export (days) Source: Doing Business database. to grow and create jobs. But the more efforts on improving trade efficiency and volumes of trade; they boost government time-consuming cross-border trade is, lowering costs in order to develop a com- revenues, too. In another East African the less likely entrepreneurs will be able petitive edge in trade. economy, Uganda, reforms to improve its to reach international markets in a timely While many trade-facilitation initia- customs administration and reduce cor- fashion. Low trading costs are essential, tives focus on lowering tariffs, burden- ruption helped increase customs revenues too, in order to make local products more some regulations also negatively affect by 24% between 2007 and 2008.4 In Zan- competitive in foreign markets. At the trade. When many agencies are involved zibar, where the port of Malindi is already same time, entrepreneurs benefit from in importing and exporting procedures, an important source of revenue, reforms having extra money to spend on hiring the probability of delays increases. One to facilitate trade would have a significant employees or investing in technology. For study estimates that each additional day positive impact on the islands’ budget. a number of reasons, trade is an engine that a product is delayed prior to being for growth that can help create wealth shipped reduces trade activity by more WHAT TO REFORM? and reduce poverty. than 1%.1 This is equivalent to an econ- REDUCE THE NUMBER OF In Zanzibar, trade is an integral part omy distancing itself from its trade part- DOCUMENTS REQUIRED AND of the archipelago’s economy. In fact, ners by about 70 km, on average. Delays SIMPLIFY PROCEDURES most capital, intermediate and consumer have an even greater impact on the export In order to limit bureaucratic hurdles to goods are imported. Zanzibar’s exports of time-sensitive goods—such as per- trade, the agencies involved in the clear- consist almost entirely of cloves and ishable agricultural products. For these, ance of goods exported and imported marine products. Establishing efficient each extra day of delay reduces trade could reduce their documentary require- procedures to import and export is neces- volumes by 3.5%.2 Another study by the ments. Currently, 7 documents are re- sary to participate in the global economy. Organization for Economic Co-operation quired for exports and 8 for imports, Prior to Tanzania’s harmonization of cus- and Development (OECD) finds that a making document preparation by far toms rates, lower tariffs offered by Zan- 6.3% reduction in time delays or an 11% the most time-consuming part of the zibar’s port of Malindi attracted a higher reduction in the number of documents trade process in Zanzibar. In fact, pa- volume of international trade (after which, required could increase trade flows in perwork alone consumes 13 days for goods were re-exported to Mainland Tan- Africa by a robust 10%.3 traders—nearly 60% of the total time zania). Now, without the advantage of The potential benefits of easing trade to export and 45% of the total time to lower tariffs, Zanzibar should focus its across borders are not limited to higher import. In contrast, Singapore requires TRADING ACROSS BORDERS 29 FIGURE 8.4 access to trade documents. Currently, Over the longer term, the development Time to export in Zanzibar: document preparation and ports and terminal traders have to submit different docu- of a new port, as planned at Mpiga Duri, handling take the most time ments in different places, which is cum- may be necessary to meet growing trade bersome and slow. An electronic single volumes. For the short term, a review and Hard infrastructure window could consolidate many of the mapping of port and terminal handling Soft infrastructure documents into a few essential ones and processes could help identify sources of Ports and terminal handling link the approving authorities to provide delays and help optimize Zanzibar’s exist- (7 days) approvals simultaneously. This would re- ing port’s operations. duce the need for paper documentation, eliminate document duplication, and im- prove efficiency of the trade clearance Inland transportation and handling (1 day) process. 1. Person, Maria, 2008. “Trade Facilitation and Customs clearance and Many other countries have been the EU-ACP Economic Partnership Agree- technical control ments.” Journal of Economic Integration 23 (1 day) successful at this. Singapore’s govern- (3): 518–46. ment established the world’s first na- 2. Djankov, Simeon, Caroline Freund, and tional single window (TradeNet) in 1989 Cong Pham. 2006. “Trading on Time.” by bringing together more than 35 bor- World Bank Policy ResearchWorking Paper Documents preparation No. 3909. (9 days) der agencies. TradeNet has now been 3. Wilson, Norbert. 2009. “Examining adapted in Ghana, Madagascar, Mauri- the Effect of Certain Customs and tius, Panama, and Saudi Arabia. Another Administrative Procedures on Trade.” In African economy, Senegal, undertook a Organisation for Economic Co-operation and Development (OECD), Overcoming similar reform in 2008. Various agents Border Bottlenecks: The Costs and involved in the clearance process—such Benefits of Trade Facilitation. Paris: as customs authorities, customs brokers, OECD. Bank-related documents (4 days) banks, the treasury, importers, and sev- 4. World Bank. 2009. Doing Business 2010: Reforming through Difficult Times. eral government ministries—have been Washington, DC: World Bank Group. Source: Doing Business database. linked together through an electronic single window for document submis- just 4 documents (a bill of lading, a sion. Traders no longer need to visit each commercial invoice, a customs declara- of these entities to obtain the required tion, and a packing list), all of which can clearances. Instead, they can fill out a be assembled in just 1 day. single form. The government of Zanzibar should explore ways to streamline documentary IMPROVE PORT EFFICIENCY requirements in the interest of saving Zanzibar, as an archipelago, has only one time and money. For a limited number of entry and exit point for bulk cargo—its products, a health or technical standard main seaport Malindi. Despite a recent certificate could be required to safeguard rehabilitation of the port, its handling public safety. Any other information capacity has not been expanded and the could be consolidated in the customs- existing infrastructure is inefficient. The declaration form. average delay associated with port and IMPLEMENT A SINGLE WINDOW FOR terminal handling in Malindi is 7 days for DOCUMENT SUBMISSION exports and 13 days for imports. Zanzibar could introduce a system whereby The port of Malindi is one of the all trade-related documents could be ob- main sources of revenue for the gov- tained and submitted in one place. This ernment of Zanzibar. The Zanzibar Port would enable all border-clearing agencies Authority has lost billions of shillings (customs, port authorities, health and because large cargo vessels and tankers technical standard agencies, banks, tax cannot be docked in Malindi and are authorities, etc.) to have simultaneous diverted to Dar es Salaam’s port instead. 30 Enforcing FIGURE 9.1 Enforcing contracts: resolving a respectively). Disputes below TZS 1 million are handled by Primary Courts, where no commercial dispute through courts contracts Rankings are based on 3 subindicators Days to resolve a Attorney, court and legal representation is required and cases are resolved more efficiently. However, the commercial sale dispute enforcement costs majority of commercial cases in Zanzibar before the court as % of claim value fall under the competence of the District or the Regional Magistrate Courts, where 33.3% 33.3% there are backlogs due to the high volume Time Cost of cases and other factors—such as, nu- merous legal appeals, adjournments, and 33.3% dilatory practices often resorted to by the Procedures parties. Not surprisingly, 78% of the total time required for enforcing a contract in Steps to file claim, obtain judgment and enforce it Zanzibar belongs to the trial stage (365 Note: See Data notes for details. days). Additionally, due to the fact that The primary role of a nation’s judiciary is claims tried before these courts require to enhance justice, fairness, and equality. economies, the same commercial dispute legal representation and expert testimonies, But efficient courts can do much more: would be resolved faster. they are substantially more expensive than they can help the economy grow. In the The efficiency of Zanzibar’s judiciary those tried in Zanzibar’s Primary Courts. absence of efficient courts, firms tend to in resolving commercial disputes varies Zanzibar and other small island econ- undertake fewer new investments and depending on which court has jurisdiction omies could look at Singapore, a leader in business transactions preferring to enter over the case. Jurisdiction is determined by the area of commercial dispute resolution. commercial agreements with business monetary thresholds on the claim value. In Singapore’s court system, all documents partners known from previous dealings. According to the assumptions of the Doing can be filed electronically and each case Doing Business measures the effi- Business case study for this indicator,1 the can be monitored online from the moment ciency of the judicial system in resolving standardized dispute would correspond to it is filed until a decision is delivered. On a standardized commercial dispute. The Zanzibar’s District Magistrate Court, which average, commercial disputes are resolved data includes number of procedures, time has jurisdiction over cases between TZS in just 5 months in Singapore. Other is- and cost required to file a case, conduct a 1 and 5 million (US$ 771 and US$ 3,859, land economies that have successfully trial, and enforce a judgment (figure 9.1). FIGURE 9.2 In Zanzibar Town, resolving a com- Procedures, time, and cost to enforce a contract in Zanzibar and selected small island economies mercial dispute in court takes 39 proce- dures, 469 days, and costs 12.6% of the Maldives claim value (figure 9.2). Compared to 41 Jamaica 45.6 183 economies benchmarked worldwide, Average- small island 40 681 41.4 Zanzibar Town would rank 37th on the economies 39 665 ease of enforcing contracts indicator— Zanzibar Town 38 Maldives 35 slightly behind Dar es Salaam, which Dar es Salaam 655 is ranked 31st (figure 9.3). Also, com- Jamaica pared to 34 other small island economies Jamaica Zanzibar Town 469 Singapore 25.8 462 measured by Doing Business, Zanzibar Singapore 21 Dar es Salaam would rank 2nd—surpassed only by Sin- gapore, where it takes just 21 procedures, Maldives 16.5 Dar es Salaam 14.3 150 days, and costs 25.8% of the claim Zanzibar Town 12.6 value. Zanzibar boasts a comprehensive fee schedule for proceedings in courts— Singapore 150 the Rules of Court (Prescribed Fees), Rules 2000—which helps make it the Procedures Cost cheapest island economy in the world (number) (% of claim) in which to resolve a commercial dis- Time (days) pute. However, in 10 other small island Source: Doing Business database. ENFORCING CONTRAC TS 31 FIGURE 9.3 courts is an alternative for economies of Congo, Ghana, Mozambique, Nigeria, How Zanzibar compares globally and with other small island economies on without a significant number of com- and Rwanda. Countries with specialized the ease of enforcing contracts mercial claims. courts resolve commercial disputes about Global ranking (1–183) Currently, the courts in Zanzi- 30% faster than those that do not have 1 Luxembourg bar have jurisdiction over commercial, them.4 Most recently, in 2009, Mauritius (EASIEST) civil and criminal cases. As Zanzibar’s set its first specialized commercial court Singapore 20 economy continues to grow and attract and, after just 5 months, it had adjudi- Dar es Salaam (31) investment, a specialized commercial cated 62% of its cases.5 40 Zanzibar Town (37) section—or even a separate commercial 60 court—is recommended to help ensure REVISE MONETARY THRESHOLDS Fiji that commercial disputes are resolved THAT GUIDE JURISDICTION Mauritius OF COURTS 80 quickly and efficiently. Instituting such Seychelles courts would allow judges to acquire more According to practitioners in Zanzibar, 100 knowledge on commercial issues, thereby there are few cases worth less than TZS Dominican Republic increasing the quality (and the quantity) 1 million that go to court at all. Since the 120 Bahrain first instance courts only handle cases of their output. Commercial courts can Jamaica worth less than TZS 1 million, a large also follow special, expedited rules to 140 reduce the amount of time needed to number of cases—ranging from TZS 1 to Comoros enforce a standard contract. 30 million—end up in the District or Re- 160 In Mainland Tanzania, commer- gional Magistrate Courts where trials are 183 (MOST Suriname cial courts are operating with branches more expensive and take longer. Revis- DIFFICULT) Timor-Leste in Dar es Salaam and Arusha. How- ing monetary thresholds and jurisdiction Note: Rankings are the average of the economy ever, these commercial courts only have rules could help to reallocate cases and rankings on the procedures, time and cost to resolve a commercial dispute through the courts. jurisdiction over higher value claims— distribute them more equitably amongst See Data notes for details. Source: Doing Business database. TZS 40 million (US$ 30,869) and TZS the courts, thereby reducing backlogs and 50 million (US$ 38,587) for movable and speeding up proceedings. Some coun- introduced electronic filing and online ac- immovable assets, respectively. These tries, like Jordan, have successfully re- cess to courts’ documents include Fiji, St. commercial courts are also limited by formed by raising the threshold for cases Lucia, and Tonga. In Tonga, computeriza- the fact that claims tried before them are heard by its first instance courts in order tion cut the average time to enforce a con- about 10 times as expensive as civil claims to better distribute caseloads amongst the tract from 510 to 350 days in a single year. tried before Tanzania’s High Court. court system.6 Courts serve businesses best when If Zanzibar were to create a special- they are fast, affordable, and fair. Studies of ized commercial court, it should con- INTRODUCE ALTERNATIVE DISPUTE the effects of court reforms find that when sider establishing lower thresholds than RESOLUTION MECHANISMS contracts can be enforced quickly and at a those found in Mainland Tanzania. This Another way to ease the burden on low cost, small businesses get better finan- would allow more cases to be heard be- courts and judges is to enact alternative cial terms on loans.2 Other research finds fore the commercial court, benefitting dispute resolution mechanisms—partic- that new technologies are adopted faster small and medium-size businesses. Many ularly for simple commercial disputes when courts are efficient.3 The efficiency economies—such as Germany, India, Swit- that do not require complex procedures of a court system is also a major consider- zerland and the United Kingdom—allow or large amounts of evidence. The exist- ation affecting foreign investment. all commercial disputes to be heard by ing rules of Civil Procedure in Zanzibar commercial courts, regardless of their do not provide for alternative dispute WHAT TO REFORM? monetary value. resolution mechanisms. However, in Introducing commercial courts or some countries like Peru, attempts to ESTABLISH SPECIALIZED COMMERCIAL COURTS OR specialized commercial sections within resolve disputes are required in order to COMMERCIAL SECTIONS WITHIN courts has been one of the most popular even initiate litigation. Establishing al- EXISTING COURTS reforms in sub-Saharan Africa in recent ternative dispute resolution mechanisms Countries around the world have benefit- years. Over the past 5 years, 6 countries is a promising initiative. In Ghana, for ted from establishing specialized com- have set up commercial courts or com- example, an alternative dispute resolu- mercial courts. Setting up specialized mercial sections within existing courts— tion system became part of its newly es- commercial sections within existing Burkina Faso, the Democratic Republic tablished Commercial Court. As a result, 32 DOING BUSINESS IN ZANZIBAR 2010 many cases are now resolved through mandatory arbitration/mediation in- stead of going to trial, reducing the backlog in Ghana’s courts. In Tonga, new court rules introduced mediation back in 2007. Today, most litigants consent to mediation and 8 in 10 cases reach settlement out of court.7 In 2009, Alge- ria enacted new procedural rules that introduced non-mandatory arbitration and mediation. IMPOSE STRICT RULES ON ADJOURNMENTS AND TIME LIMITS FOR PROCEEDINGS The delays observed in Zanzibar’s District and Regional Magistrate Courts are often due to dilatory practices by the parties. One way of resolving this problem is to enhance judges’ and magistrates’ pow- ers and control over such practices—for example, by allowing them to impose fines for frivolous adjournments or ter- minate proceedings due to inactivity by the parties. In addition, court rules could establish strict procedural deadlines and hold judges and magistrates responsible for their enforcement. 1. The value of the claim according to the Doing Business case study amounts to 200% GNI per capita, or approximately TZS 1,277,643. 2. Quian, Jun, and Philip Strahan. 2006. “How Laws and Institutions Shape Financial Contracts.” Wharton Financial Institutions Center, Philadelphia. 3. Cooley, Thomas, Ramon Marimon and Vincenzo Quadrini. 2004. “Aggregate Consequences of Limited Contract Enforceability.” Journal of Political Economy 112 (4): 817-47. 4. World Bank. 2008. Doing Business 2009. Washington D.C: The World Bank Group. 5. World Bank. 2009. Doing Business 2010 Reforming Through Difficult Times. Washington D.C: The World Bank Group. 6. Ibid. 7. Ford, Anthony, and Oliver Lorenz. 2008. “Enforcing Contracts Quickly, with Help from Neighbors.” In World Bank, Celebrating Reform 2008. Washington, DC: World Bank Group and U.S. Agency for International Development. 33 Closing a Figure 10.1 Closing a business: time, cost and out- Figure 10.2 How Zanzibar compares globally and come of bankruptcy of a local company with other small island economies on business Rankings are based on 1 subindicator the ease of closing a business Recovery rate is a function of time, cost and other factors Global ranking (1–183) such as lending rate and the likelihood 1 of the company Japan (EASIEST) continuing Singapore to operate 20 Jamaica 100% Bahrain 40 Recovery rate 60 Mauritius 80 Note: Time and cost do not count separately for the ranking. See Data notes for details. 100 Dar es Salaam (113) Efficient bankruptcy laws encourage would rank among the bottom 27 econo- 120 Fiji entrepreneurs. The freedom to fail, and mies on this indicator (figure 10.2). In- 140 Dominican Republic to do so in an efficient way, puts peo- solvency procedures are more common Suriname ple and capital to their most productive in Mainland Tanzania, where they take 160 Comoros, Seychelles, uses. But in countries where bankruptcy an average of 3 years and cost 22% of the Timor-Leste, procedures are inefficient, insolvency estate value. Creditors are expected to re- 183 (MOST Zanzibar Town DIFFICULT) (NO PRACTICE) proceedings may drag on for years, pre- cover about 21.3% of the estate in the end. Note: Rankings are based on the recovery rate: how many cents venting assets and human capital from These results rank Mainland Tanzania in on the dollar claimants (creditors, tax authorities and employees) recover from the insolvent firm. See Data notes for details. being reallocated to better uses. Good 113th place out of 183 economies. Source: Doing Business database. bankruptcy regimes achieve 3 goals. Closing a business is still governed First, they maximize the total proceeds by the Companies Act Decree of 1953, Looking back over the centuries, received by creditors, shareholders, em- Chapter 153 of the laws of Zanzibar. In the English bankruptcy law of 1732 ployees, and other stakeholders. Second, the post-independence history of Zanzibar, was the first modern insolvency law. In they rehabilitate viable businesses and there have only been a few cases of volun- 1800, the United States introduced its close unviable ones. Third, they establish tary winding ups,1 all of which took place first bankruptcy law, which essentially a clear priority ranking of creditors for since 2002. Insolvency Decree, Chapter 20 copied the English law. France, Ger- repayment. Countries with laws meet- of the Laws of Zanzibar is another piece of many, and Spain then adopted their first ing these 3 objectives achieve higher legislation which can be used by creditors bankruptcy laws in the early nineteenth recovery rates than countries without to recover their debts, but it applies only to century. A wave of bankruptcy reforms such laws. private individuals. Nevertheless, no cases brought reorganization procedures to Doing Business constructs 3 sub- of bankruptcy have been reported since the United States, Italy, France, United indicators to measure the efficiency of Zanzibar achieved independence in 1964. Kingdom, New Zealand, Australia, and insolvency proceedings: 1) the time the According to the Doing Business methodol- Canada—just to name a few adopters. process takes, 2) the cost to go through ogy, Zanzibar is classified as a “no practice” Compared to the pace of reforms in the process, and 3) the recovery rate— economy in the area of closing a business.2 other areas of the business environment, i.e., how much of the insolvent estate is While the formal closing of a busi- few bankruptcy reforms currently take recovered by stakeholders taking into ness is inefficient or non-existent in many place in countries around the world. It account the time, cost, depreciation of small island economies, some of them do is not that reforms are not needed. First, assets, and the final outcome of the insol- enjoy the benefits of good insolvency reg- bankruptcy reforms are complex: they vency proceedings (figure 10.1). ulations. In Singapore, for example, insol- usually involve making changes not only Zanzibar, along with 12 other small vency proceedings are completed in just in the bankruptcy rules, but also in the island economies, is among the poor- over 9 months, at a cost of 1% of estate rules of civil procedure and the adminis- est performers in the area of closing a value, allowing creditors to recoup over tration of the judiciary. In some countries, business—indicating that formal bank- 91 cents on dollar (figure 10.3). As a re- it might even involve establishing the first ruptcy procedures are rarely or never sult, Singapore ranks second globally and bankruptcy law. That may take years. Sec- used on the islands. Globally, Zanzibar first amongst small island economies. ond, in many countries, a large number of 34 DOING BUSINESS IN ZANZIBAR 2010 Figure 10.3 longed delays can cause business assets Time, cost, and recovery rate for closing a business in Zanzibar and selected small island economies to lose their value and negatively affect firms’ ability to continue functioning as viable enterprises. Within a commercial Singapore 91 Zanzibar Town court, 1 or 2 judges could be designated to (NO PRACTICE) handle insolvency cases, allowing them to Maldives 6.7 develop specialized expertise in this area. Zanzibar Town Jamaica 65 (NO PRACTICE) REVISE INSOLVENCY LEGISLATION TO CONFORM TO INTERNATIONAL LEADING PRACTICES, INCLUDING THE INTRODUCTION OF UP-TO-DATE REORGANIZATION PROVISIONS Dar es Salaam 3 Average - small A comprehensive evaluation of current 2.9 23.2 Dar es Salaam 21 island economies Dar es Salaam legislation is recommended to identify 22 Maldives 18 measures that could bring Zanzibar’s in- Jamaica 18 Zanzibar Town solvency legislation into line with in- (NO PRACTICE) 0 Jamaica 1.1 Recovery rate ternational leading practices. Not least (cents on the dollar) Singapore 0.8 among these measures would be pro- visions for the efficient reorganization Maldives 4 or restructuring of distressed companies Time (years) that would allow the continued operation Singapore 1 of the underlying business. Many juris- Cost dictions, including the United Kingdom, (% of estate) Rwanda, Singapore, and South Africa Source: Doing Business database. have reformed their insolvency legisla- businesses operate in the informal sector orderly exit. If an analysis of business tion in recent years to improve such or are family-owned and so bankruptcy is exits in Zanzibar illustrates that the cur- reorganization procedures. not a priority reform. rent insolvency system does not respond Efficient bankruptcy regimes that to the needs of debtors or creditors on the ADOPT GUIDELINES THAT FACILITATE deal effectively with troubled businesses ground, it is important to identify what OUT-OF-COURT WORKOUTS help entrepreneurs get access to credit, alternative methods are preferred and In light of the previous recommendation, which would allow them to start new why. It is likely that these mechanisms do out-of-court guidelines have been intro- businesses.3 Easier exit means easier not provide the predictability, transpar- duced in many countries—including the entry. A functioning bankruptcy system ency, and efficiency of a sound insolvency United Kingdom, Indonesia, and Turkey. reassures creditors that if things go wrong system. Until such problems are clearly These guidelines enable debtors and cred- they have a secured mechanism to get identified, it is difficult to design reforms itors to undertake the informal restruc- their money back. As a result of this reas- that will affect practice on the ground. It turing process by negotiating options that surance, they are more likely to lend and is therefore recommended that a review can later be approved in court. This helps to require less collateral than they would is undertaken in order to try to answer ease the burden on courts while increas- otherwise—stimulating the flow of credit 3 questions: 1) why the current insol- ing the likelihood that companies will to small and medium-size firms. vency system is not being used; 2) what restructure their debt if there is still a alternatives are being used in its place by chance of rescuing the business. WHAT TO REFORM? both debtors and creditors; and 3) what mechanisms can be implemented to ad- CONSIDER WHETHER PROVISIONS UNDERTAKE A REVIEW OF THE dress these problems. SHOULD BE IMPLEMENTED TO INSOLVENCY SYSTEM IN ORDER TO SPECIFICALLY ADDRESS THE NEEDS UNDERSTAND WHY THERE ARE SO OF MICRO, SMALL, AND MEDIUM-SIZE FEW INSOLVENCY PROCEEDINGS IN TRAIN DESIGNATED JUDGES TO ENTERPRISES THAT HAVE FALLEN ZANZIBAR HANDLE INSOLVENCY CASES INTO BANKRUPTCY In any vibrant market economy, busi- The efficient processing of insolvency Few insolvency regimes provide mecha- nesses fail and need a mechanism for cases is extremely important because pro- nisms that assist in flexible and cheap CLOSING A BUSINESS 35 restructuring of debt or bankruptcies for laws are rarely applied in practice. The small business entities, even though they development of court practice would often comprise the majority of businesses increase creditor and debtor confidence and contribute to an economy by their in- in Zanzibar’s formal bankruptcy proceed- novation, employment of domestic labor, ings. and entrepreneurship. It might be useful to examine different mechanisms that are used elsewhere in relation to the restructuring and exiting of micro, small 1. The approximate official number of all winding up cases in Zanzibar is 7. Doing and medium-size enterprises—although Business does not consider winding up a tailored approach would most likely be cases when measuring the closing a required to address the specific needs of business indicator. such enterprises in Zanzibar. 2. If an economy has had fewer than 5 cases a year over the past 5 years involving a judicial reorganization, judicial DEVELOP AND IMPLEMENT AN liquidation, or debt enforcement INSOLVENCY PRACTITIONER procedure, the economy receives a “no REGULATORY FRAMEWORK practice” mark. This means that creditors One of the main prerequisites to creating a are unlikely to recover their debt through the legal process (in or out of court). fully functioning insolvency system is the 3. La Porta, Rafael, Florencio Lopez-de- development of the insolvency practitio- Silanes, and Andrei Shleifer. 1999. ner profession. Insolvency practitioners “Ownership Structures Around the play a key role in reorganization and World,” Journal of Finance, December, liquidation proceedings, as they often Volume 54. No. 2, 471-517. supervise or take over the management of companies undergoing bankruptcy. It is important to establish and enforce professional standards for insolvency practitioners—for example, through li- censing, training, ethical guidelines, and national standards of professional con- duct. Mechanisms to monitor insolvency practitioners and to investigate any viola- tions should also be introduced. INCREASE THE CAPACITY OF INSTITUTIONS THAT IMPLEMENT THE INSOLVENCY FRAMEWORK The institutions that implement insol- vency frameworks should include both courts and regulatory agencies. The scar- city of insolvency cases in Zanzibar sug- gests that enterprises facing difficulties do not resort to the judicial system, pre- ferring instead to deal with insolvency through unofficial channels. Even though Zanzibar has legislation in place to gov- ern judicial proceedings for companies experiencing financial difficulties— such as Companies Act Decree of 1953, Chapter 153, and the Insolvency Decree, Chapter 20 of the Laws of Zanzibar—those 36 Data notes ECONOMY CHARACTERISTICS GROSS NATIONAL INCOME (GNI) PER CAPITA Doing Business in Zanzibar 2010 reports 2008 income per capita for Zanzibar, United Republic of Tanzania, as published in the United Nations Statistics Division (UNSD) in November, 2009. Income is calculated using the Atlas method (current US$). For cost indicators expressed as a percentage of income per capita, 2008 GNI in local currency units is used as the denominator. Zanzibar’s GNI per capita in 2008 = US$ 493 EXCHANGE RATE The exchange rate used in this report is 1 US$ = 1295.78 TZS (Tanzanian Shillings) REGION AND INCOME GROUP Doing Business uses the World Bank regional and income group classifications, available at http://www.worldbank.org/data/countryclass. The indicators presented and analyzed in government officials and other professionals for example, sole proprietorships. Second, Doing Business in Zanzibar 2010 measure routinely administering or advising on legal transactions described in a standardized case business regulation and the protection of and regulatory requirements. These experts scenario refer to a specific set of issues and property rights—and their effect on busi- have several rounds of interaction with the may not represent the full set of issues a busi- nesses, especially small and medium-size do- Subnational Doing Business team, through ness encounters. Third, the measures of time mestic firms. First, the indicators document face-to-face interviews, conference calls, writ- involve an element of judgment by the expert the degree of regulation, such as the number ten correspondence and visits by the team. respondents. When sources indicate different of procedures to start a business, to construct For Doing Business in Zanzibar 2010 the team estimates, the time indicators reported in a warehouse or to register and transfer com- members visited Zanzibar two times to recruit Doing Business in Zanzibar 2010 represent mercial property. Second, they gauge regula- respondents, verify data and meet with local the median values of several responses given tory outcomes, such as the time and cost to government officials. The data from surveys under the assumptions of the standardized enforce a contract, go through bankruptcy are subjected to numerous tests for robust- case. or trade across borders. Third, they measure ness, which lead to revisions or expansions of Finally, the methodology assumes that the extent of legal protections of property, for the information collected. a business has full information on what example, the protections of investors against The Doing Business methodology offers is required and does not waste time when looting by company directors or the range of several advantages. It is transparent, using completing procedures. In practice, com- assets that can be used as collateral according factual information about what laws and regu- pleting a procedure may take longer if the to secured transactions laws. Finally, a set of lations say and allowing multiple interactions business lacks information or is unable to indicators documents the tax burden on busi- with local respondents to clarify potential follow up promptly. Alternatively, the busi- nesses. For details on how the rankings on misinterpretations of questions. Having rep- ness may choose to disregard some bur- these indicators are constructed, see Ease of resentative samples of respondents is not an densome procedures. For both reasons the Doing Business, page 46. issue, as the texts of the relevant laws and reg- time delays reported in Doing Business in The data for all sets of indicators in ulations are collected and answers checked for Zanzibar 2010 would differ from the recol- Doing Business in Zanzibar 2010 are as of accuracy. The methodology is inexpensive and lection of entrepreneurs reported in the March 2010. The data for paying taxes refer to easily replicable, so data can be collected in a World Bank Enterprise Surveys or other January–December 2008. large sample of economies. Because standard perception surveys. assumptions are used in the data collection, METHODOLOGY comparisons and benchmarks are valid across STARTING A BUSINESS The Doing Business in Zanzibar 2010 data are economies. Finally, the data not only highlight collected in a standardized way, following the the extent of specific regulatory obstacles to Doing Business records all procedures that are methodology developed by the Doing Busi- doing business but also identify their source officially required for an entrepreneur to start ness team. To start, the Doing Business team, and point to what might be reformed. up and formally operate an industrial or com- with academic advisers, designs a survey. mercial business. These include obtaining all The survey uses a simple business case to en- LIMITS TO WHAT IS MEASURED necessary licenses and permits and complet- sure comparability across economies and over The Doing Business methodology applied to ing any required notifications, verifications or time—with assumptions about the legal form Doing Business in Zanzibar 2010 has 4 limita- inscriptions for the company and employees of the business, its size, its location and the tions that should be considered when inter- with relevant authorities. nature of its operations. Then, the survey is preting the data. First, the data often focus on After a study of laws, regulations and customized to the particular case of Zanzibar. a specific business form—generally a limited publicly available information on business Surveys are administered through more than liability company (or its legal equivalent) of entry, a detailed list of procedures is de- 90 local experts, including lawyers, business a specified size—and may not be representa- veloped, along with the time and cost of consultants, accountants, freight forwarders, tive of the regulation on other businesses, complying with each procedure under nor- DATA NOTES 37 mal circumstances and the paid-in minimum same building but in different offices are fastest procedure is chosen. It is assumed capital requirements. Subsequently, local in- counted as separate procedures. If founders that the entrepreneur does not waste time corporation lawyers and government officials have to visit the same office several times and commits to completing each remaining complete and verify the data. for different sequential procedures, each is procedure without delay. The time that the en- Information is also collected on the se- counted separately. The founders are assumed trepreneur spends on gathering information is quence in which procedures are to be com- to complete all procedures themselves, with- ignored. It is assumed that the entrepreneur pleted and whether procedures may be carried out middlemen, facilitators, accountants or is aware of all entry regulations and their out simultaneously. It is assumed that any lawyers, unless the use of such a third party sequence from the beginning but has had no required information is readily available and is mandated by law. If the services of profes- prior contact with any of the officials. that all agencies involved in the start-up pro- sionals are required, procedures conducted by cess function without corruption. If answers such professionals on behalf of the company COST by local experts differ, inquiries continue until are counted separately. Each electronic pro- Cost is recorded as a percentage of the econo- the data are reconciled. cedure is counted separately. If 2 procedures my’s income per capita. It includes all official To make the data comparable across can be completed through the same website fees and fees for legal or professional services economies, several assumptions about the but require separate filings, they are counted if such services are required by law. Fees for business and the procedures are used. as 2 procedures. purchasing and legalizing company books are Both pre- and post incorporation pro- included if these transactions are required by ASSUMPTIONS ABOUT THE BUSINESS cedures that are officially required for an law. The company law, the commercial code The business: entrepreneur to formally operate a business and specific regulations and fee schedules • Is a limited liability company. If there is are recorded. are used as sources for calculating costs. In more than one type of limited liability Procedures required for official corre- the absence of fee schedules, a government company in the economy, the limited spondence or transactions with public agen- officer’s estimate is taken as an official source. liability form most popular among do- cies are also included. For example, if a In the absence of a government officer’s es- mestic firms is chosen. Information on company seal or stamp is required on official timate, estimates of incorporation lawyers the most popular form is obtained from documents, such as tax declarations, obtain- are used. If several incorporation lawyers incorporation lawyers or the statistical ing the seal or stamp is counted. Similarly, if provide different estimates, the median re- office. a company must open a bank account before ported value is applied. In all cases the cost • Operates in the economy’s largest registering for sales tax or value added tax, excludes bribes. business city. this transaction is included as a procedure. • Is 100% domestically owned and has 5 Shortcuts are counted only if they fulfill 4 cri- PAID-IN MINIMUM CAPITAL owners, none of whom is a legal entity. teria: they are legal, they are available to the The paid-in minimum capital requirement re- • Has start-up capital of 10 times income general public, they are used by the majority flects the amount that the entrepreneur needs per capita at the end of 2008, paid in cash. of companies, and avoiding them causes sub- to deposit in a bank or with a notary before • Performs general industrial or commer- stantial delays. registration and up to 3 months following in- cial activities, such as the production or sale to the public of products or Only procedures required of all busi- corporation and is recorded as a percentage of services. The business does not perform nesses are covered. Industry-specific proce- the economy’s income per capita. The amount foreign trade activities and does not dures are excluded. For example, procedures is typically specified in the commercial code handle products subject to a special tax to comply with environmental regulations are or the company law. Many economies have regime, for example, liquor or tobacco. included only when they apply to all businesses a minimum capital requirement but allow It is not using heavily polluting produc- conducting general commercial or industrial businesses to pay only a part of it before tion processes. activities. Procedures that the company under- registration, with the rest to be paid after the • Leases the commercial plant and offices goes to connect to electricity, water, gas and first year of operation. In Italy in June 2009, and is not a proprietor of real estate. waste disposal services are not included. the minimum capital requirement for limited • Does not qualify for investment incentives liability companies was €10,000, of which at or any special benefits. TIME least €2,500 was payable before registration. • Has at least 10 and up to 50 employees Time is recorded in calendar days. The The paid-in minimum capital recorded for 1 month after the commencement of measure captures the median duration that Italy is therefore €2,500, or 9.7% of income operations, all of them nationals. incorporation lawyers indicate is necessary per capita. In Mexico the minimum capital • Has a turnover of at least 100 times to complete a procedure with minimum requirement was 50,000 pesos, of which one- income per capita. follow-up with government agencies and no fifth needed to be paid before registration. The • Has a company deed 10 pages long. extra payments. It is assumed that the mini- paid-in minimum capital recorded for Mexico mum time required for each procedure is is therefore 10,000 pesos, or 8.9% of income PROCEDURES 1 day. Although procedures may take place per capita. A procedure is defined as any interaction of simultaneously, they cannot start on the same the company founders with external parties day (that is, simultaneous procedures start on The data details on starting a business can (for example, government agencies, lawyers, consecutive days). A procedure is considered be found for each economy at http://www. auditors or notaries). Interactions between completed once the company has received the doingbusiness.org by selecting the economy in company founders or company officers and final document, such as the company registra- the drop-down list. This methodology was de- employees are not counted as procedures. tion certificate or tax number. If a procedure veloped in Djankov and others (2002) and is Procedures that must be completed in the can be accelerated for an additional cost, the adopted here with minor changes. 38 DOING BUSINESS IN ZANZIBAR 2010 DEALING WITH CONSTRUCTION ASSUMPTIONS ABOUT THE protection system is required by law, it is PERMITS WAREHOUSE assumed that the water demand specified The warehouse: below also covers the water needed for Doing Business records all procedures required fire protection. • Will be used for general storage activities, for a business in the construction industry to such as storage of books or stationery. The • Has an average water use of 662 liters (175 build a standardized warehouse. These proce- warehouse will not be used for any goods gallons) a day and an average wastewater requiring special conditions, such as food, flow of 568 liters (150 gallons) a day. dures include submitting all relevant project- specific documents (for example, building chemicals or pharmaceuticals. • Has a peak water use of 1,325 liters (350 • Has 2 stories, both above ground, with gallons) a day and a peak wastewater flow plans and site maps) to the authorities; obtain- a total surface of approximately 1,300.6 of 1,136 liters (300 gallons) a day. ing all necessary clearances, licenses, permits square meters (14,000 square feet). Each • Will have a constant level of water and certificates; completing all required noti- floor is 3 meters (9 feet, 10 inches) high. demand and wastewater flow throughout fications; and receiving all necessary inspec- the year. tions. Doing Business also records procedures • Has road access and is located in the for obtaining connections for electricity, water, periurban area of the economy’s largest The telephone connection: business city (that is, on the fringes of the sewerage and a fixed land line. Procedures • Is 10 meters (32 feet, 10 inches) from the city but still within its official limits). necessary to register the property so that it main telephone network. • Is not located in a special economic or can be used as collateral or transferred to • Is a fixed land line. industrial zone. The zoning requirements another entity are also counted. The survey for warehouses are met by building in an divides the process of building a warehouse PROCEDURES area where similar warehouses can be into distinct procedures and calculates the found. A procedure is any interaction of the compa- time and cost of completing each procedure in • Is located on a land plot of 929 square ny’s employees or managers with external par- practice under normal circumstances. meters (10,000 square feet) that is 100% ties, including government agencies, notaries, Information is collected from experts in owned by BuildCo and is accurately regis- the land registry, the cadastre, utility compa- construction licensing, including architects, tered in the cadastre and land registry. nies, public and private inspectors and tech- construction lawyers, construction firms, • Is a new construction (there was no previ- nical experts apart from in-house architects utility service providers and public officials ous construction on the land). and engineers. Interactions between company who deal with building regulations, includ- • Has complete architectural and technical employees, such as development of the ware- ing approvals and inspections. To make the plans prepared by a licensed architect. house plans and inspections conducted by data comparable across economies, several as- • Will include all technical equipment employees, are not counted as procedures. sumptions about the business, the warehouse required to make the warehouse fully Procedures that the company undergoes to project and the utility connections are used. operational. connect to electricity, water, sewerage and • Will take 30 weeks to construct (exclud- telephone services are included. All proce- ASSUMPTIONS ABOUT THE ing all delays due to administrative and CONSTRUCTION COMPANY dures that are legally or in practice required regulatory requirements). for building a warehouse are counted, even if The business (BuildCo): they may be avoided in exceptional cases. ASSUMPTIONS ABOUT THE UTILITY • Is a limited liability company. CONNECTIONS • Operates in the economy’s largest busi- TIME ness city. The electricity connection: Time is recorded in calendar days. The mea- • Is 100% domestically and privately • Is 10 meters (32 feet, 10 inches) from the sure captures the median duration that local owned. main electricity network. experts indicate is necessary to complete a • Has 5 owners, none of whom is a legal • Is a medium-tension, 3-phase, 4-wire Y, procedure in practice. It is assumed that the entity. 140-kVA connection. Three-phase service minimum time required for each procedure is available in the construction area. • Is fully licensed and insured to carry out is 1 day. Although procedures may take place construction projects, such as building • Will be delivered by an overhead service, simultaneously, they cannot start on the same warehouses. unless overhead service is not available in day (that is, simultaneous procedures start the periurban area. • Has 60 builders and other employees, on consecutive days). If a procedure can be all of them nationals with the technical • Consists of a simple hookup unless instal- accelerated legally for an additional cost, the expertise and professional experience lation of a private substation (transform- er) or extension of network is required. fastest procedure is chosen. It is assumed necessary to obtain construction permits that BuildCo does not waste time and com- and approvals. • Requires the installation of only one electricity meter. mits to completing each remaining procedure • Has at least 1 employee who is a licensed without delay. The time that BuildCo spends architect and registered with the local • BuildCo is assumed to have a licensed electrician on its team to complete the on gathering information is ignored. It is as- association of architects. internal wiring for the warehouse. sumed that BuildCo is aware of all building • Has paid all taxes and taken out all neces- requirements and their sequence from the sary insurance applicable to its general business activity (for example, accidental The water and sewerage connection: beginning. insurance for construction workers and • Is 10 meters (32 feet, 10 inches) from the existing water source and sewer tap. COST third-person liability insurance). • Owns the land on which the warehouse is • Does not require water for fire protection Cost is recorded as a percentage of the econ- built. reasons; a fire extinguishing system (dry omy’s income per capita. Only official costs system) will be used instead. If a wet fire are recorded. All the fees associated with DATA NOTES 39 completing the procedures to legally build ASSUMPTIONS ABOUT THE PROPERTY each procedure is 1 day. Although procedures a warehouse are recorded, including those The property: may take place simultaneously, they cannot associated with obtaining land use approv- • Has a value of 50 times income per capita. start on the same day. It is assumed that the als and preconstruction design clearances; The sale price equals the value. buyer does not waste time and commits to receiving inspections before, during and after • Is fully owned by the seller. completing each remaining procedure with- construction; getting utility connections; and out delay. If a procedure can be accelerated for • Has no mortgages attached and has been registering the warehouse property. Nonre- under the same ownership for the past 10 an additional cost, the fastest legal procedure curring taxes required for the completion of years. available and used by the majority of property the warehouse project also are recorded. The • Is registered in the land registry or cadas- owners is chosen. If procedures can be under- building code, information from local experts tre, or both, and is free of title disputes. taken simultaneously, it is assumed that they and specific regulations and fee schedules are • Is located in a periurban commercial are. It is assumed that the parties involved are used as sources for costs. If several local part- zone, and no rezoning is required. aware of all regulations and their sequence ners provide different estimates, the median • Consists of land and a building. The land from the beginning. Time spent on gathering reported value is used. area is 557.4 square meters (6,000 square information is not considered. feet). A 2-story warehouse of 929 square The data details on dealing with construction COST meters (10,000 square feet) is located on permits can be found for each economy at the land. The warehouse is 10 years old, Cost is recorded as a percentage of the prop- http://www.doingbusiness.org by selecting the is in good condition and complies with erty value, assumed to be equivalent to 50 economy in the drop-down list. all safety standards, building codes and times income per capita. Only official costs other legal requirements. The property of required by law are recorded, including fees, REGISTERING PROPERTY land and building will be transferred in its transfer taxes, stamp duties and any other pay- entirety. ment to the property registry, notaries, public Doing Business records the full sequence of pro- • Will not be subject to renovations or ad- agencies or lawyers. Other taxes, such as capi- ditional building following the purchase. cedures necessary for a business (buyer) to pur- tal gains tax or value added tax, are excluded chase a property from another business (seller) • Has no trees, natural water sources, from the cost measure. Both costs borne by natural reserves or historical monuments and to transfer the property title to the buyer’s the buyer and those borne by the seller are in- of any kind. name so that the buyer can use the property for cluded. If cost estimates differ among sources, • Will not be used for special purposes, and expanding its business, use the property as col- the median reported value is used. no special permits, such as for residential lateral in taking new loans or, if necessary, sell use, industrial plants, waste storage or the property to another business. The process certain types of agricultural activities, are The data details on registering property can starts with obtaining the necessary documents, required. be found for each economy at http://www. such as a copy of the seller’s title if necessary, • Has no occupants (legal or illegal), and no doingbusiness.org by selecting the economy in and conducting due diligence if required. The other party holds a legal interest in it. the drop-down list. transaction is considered complete when it is opposable to third parties and when the buyer PROCEDURES GETTING CREDIT can use the property, use it as collateral for a A procedure is defined as any interaction bank loan or resell it. of the buyer or the seller, their agents (if an Doing Business constructs measures of the Every procedure required by law or agent is legally or in practice required) or legal rights of borrowers and lenders and the necessary in practice is included, whether it the property with external parties, includ- sharing of credit information. The first set of is the responsibility of the seller or the buyer ing government agencies, inspectors, notaries indicators describes how well collateral and or must be completed by a third party on and lawyers. Interactions between company bankruptcy laws facilitate lending. The second their behalf. Local property lawyers, notaries officers and employees are not considered. set measures the coverage, scope, quality and and property registries provide information All procedures that are legally or in practice accessibility of credit information available on procedures as well as the time and cost to required for registering property are recorded, through public and private credit registries. complete each of them. even if they may be avoided in exceptional The data on the legal rights of borrowers To make the data comparable across cases. It is assumed that the buyer follows the and lenders are gathered through a survey of economies, several assumptions about the fastest legal option available and used by the financial lawyers and verified through analy- parties to the transaction, the property and majority of property owners. Although the sis of laws and regulations as well as public the procedures are used. buyer may use lawyers or other professionals sources of information on collateral and bank- where necessary in the registration process, it ruptcy laws. The data on credit information ASSUMPTIONS ABOUT THE PARTIES is assumed that it does not employ an outside sharing are built in 2 stages. First, banking su- The parties (buyer and seller): facilitator in the registration process unless pervision authorities and public information • Are limited liability companies. legally or in practice required to do so. sources are surveyed to confirm the presence • Are located in the periurban area of the of public credit registries and private credit in- TIME formation bureaus. Second, when applicable, economy’s largest business city. • Are 100% domestically and privately Time is recorded in calendar days. The measure a detailed survey on the public or private owned. captures the median duration that property credit registry’s structure, law and associated • Have 50 employees each, all of whom are lawyers, notaries or registry officials indicate rules is administered to the credit registry. nationals. is necessary to complete a procedure. It is Survey responses are verified through several • Perform general commercial activities. assumed that the minimum time required for rounds of follow-up communication with re- 40 DOING BUSINESS IN ZANZIBAR 2010 spondents as well as by contacting third par- requiring a specific description of the • More than 2 years of historical data are ties and consulting public sources. The survey secured assets. distributed. Registries that erase data on data are confirmed through teleconference • The law allows a business to grant a defaults as soon as they are repaid obtain calls or on-site visits in all economies. nonpossessory security right in substan- a score of 0 for this indicator. tially all of its assets, without requiring a • Data on loans below 1% of income per STRENGTH OF LEGAL RIGHTS INDEX specific description of the secured assets. capita are distributed. A registry must • A security right may extend to future or have a minimum coverage of 1% of the The strength of legal rights index measures after-acquired assets and may extend adult population to score a 1 for this the degree to which collateral and bankruptcy indicator. automatically to the products, proceeds or laws protect the rights of borrowers and replacements of the original assets. • By law, borrowers have the right to access lenders and thus facilitate lending. Two case their data in the largest registry in the • General description of debts and obliga- scenarios are used to determine the scope of economy. tions is permitted in collateral agree- the secured transactions system, involving a ments and in registration documents, The index ranges from 0 to 6, with higher secured borrower, the company ABC, and a so that all types of obligations and debts values indicating the availability of more credit secured lender, BizBank. can be secured by stating a maximum information, from either a public registry or a Several assumptions about the secured rather than a specific amount between private bureau, to facilitate lending decisions. If borrower and lender are used: the parties. the registry is not operational or has coverage of • ABC is a domestic, limited liability • A collateral registry is in operation that is less than 0.1% of the adult population, the score company. unified geographically and by asset type on the depth of credit information index is 0. • ABC has its headquarters and only base and that is indexed by the name of the In Turkey, for example, both a public of operations in the economy’s largest grantor of a security right. and a private registry operate. Both distribute business city. • Secured creditors are paid first (for positive and negative information (a score of • To fund its business expansion plans, example, before general tax claims and employee claims) when a debtor defaults 1). The private bureau distributes data only ABC obtains a loan from BizBank for outside an insolvency procedure. on individuals, but the public registry cov- an amount up to 10 times income per capita in local currency. • Secured creditors are paid first (for ers firms as well as individuals (a score of 1). example, before general tax claims and The public and private registries share data • Both ABC and BizBank are 100% domestically owned. employee claims) when a business is among financial institutions only; no data are liquidated. collected from retailers or utilities (a score of The case scenarios also involve assumptions. • Secured creditors are not subject to 0). The private bureau distributes more than 2 In case A, as collateral for the loan, ABC an automatic stay or moratorium on years of historical data (a score of 1). The public grants BizBank a nonpossessory security in- enforcement procedures when a debtor registry collects data on loans of $3,493 (44% terest in one category of revolving movable enters a court-supervised reorganiza- of income per capita) or more, but the private assets, for example, its accounts receivable tion procedure. bureau collects information on loans of any or its inventory. ABC wants to keep both • The law allows parties to agree in a col- value (a score of 1). Borrowers have the right possession and ownership of the collateral. lateral agreement that the lender may to access their data in both the private and the In economies in which the law does not enforce its security right out of court. public registry (a score of 1). Summing across allow nonpossessory security interests in The index ranges from 0 to 10, with higher the indicators gives Turkey a total score of 5. movable property, ABC and BizBank use a scores indicating that collateral and bank- fiduciary transfer-of-title arrangement (or a ruptcy laws are better designed to expand PUBLIC CREDIT REGISTRY COVERAGE similar substitute for nonpossessory security access to credit. The public credit registry coverage indicator interests). reports the number of individuals and firms In case B, ABC grants BizBank a busi- DEPTH OF CREDIT INFORMATION INDEX listed in a public credit registry with infor- ness charge, enterprise charge, floating charge mation on repayment history, unpaid debts or any charge or combination of charges that The depth of credit information index mea- or credit outstanding from the past 5 years. gives BizBank a security interest over ABC’s sures rules affecting the scope, accessibility The number is expressed as a percentage of combined assets (or as much of ABC’s assets and quality of credit information available the adult population (the population aged as possible). ABC keeps ownership and pos- through either public or private credit regis- 15 and above in 2008 according to the World session of the assets. tries. A score of 1 is assigned for each of the Bank’s World Development Indicators). A pub- The strength of legal rights index in- following 6 features of the public registry or lic credit registry is defined as a database cludes 8 aspects related to legal rights in col- the private credit bureau (or both): managed by the public sector, usually by the lateral law and 2 aspects in bankruptcy law. A • Both positive credit information (for central bank or the superintendent of banks score of 1 is assigned for each of the following example, loan amounts and pattern of on- that collects information on the creditworthi- features of the laws: time repayments) and negative informa- ness of borrowers (persons or businesses) in • Any business may use movable assets as tion (for example, late payments, number and amount of defaults and bankruptcies) the financial system and makes it available collateral while keeping possession of to financial institutions. If no public registry the assets, and any financial institution are distributed. • Data on both firms and individuals are operates, the coverage value is 0. may accept such assets as collateral. • The law allows a business to grant a non- distributed. PRIVATE CREDIT BUREAU COVERAGE possessory security right in a single cat- • Data from retailers, trade creditors or egory of revolving movable assets (such as utility companies as well as financial The private credit bureau coverage indica- accounts receivable or inventory), without institutions are distributed. tor reports the number of individuals and DATA NOTES 41 firms listed by a private credit bureau with • Is a food manufacturer. 0 is assigned if no disclosure is required; 1 information on repayment history, unpaid • Has its own distribution network. if a general disclosure of the existence of a debts or credit outstanding from the past 5 conflict of interest is required without any years. The number is expressed as a percent- ASSUMPTIONS ABOUT THE specifics; 2 if full disclosure of all material TRANSACTION facts relating to Mr. James’s interest in the age of the adult population (the population • Mr. James is Buyer’s controlling sharehold- Buyer-Seller transaction is required. aged 15 and above in 2008 according to the World Bank’s World Development Indicators). er and a member of Buyer’s board of direc- • Whether it is required that an external tors. He owns 60% of Buyer and elected 2 body, for example, an external auditor, re- A private credit bureau is defined as a private directors to Buyer’s 5-member board. view the transaction before it takes place. firm or nonprofit organization that maintains A score of 0 is assigned if no; 1 if yes. a database on the creditworthiness of borrow- • Mr. James also owns 90% of Seller, a company that operates a chain of retail The index ranges from 0 to 10, with higher ers (persons or businesses) in the financial hardware stores. Seller recently closed a values indicating greater disclosure. In Po- system and facilitates the exchange of credit large number of its stores. land, for example, the board of directors must information among banks and financial in- • Mr. James proposes that Buyer purchase approve the transaction and Mr. James is not stitutions. Credit investigative bureaus and Seller’s unused fleet of trucks to expand allowed to vote (a score of 2). Buyer is required credit reporting firms that do not directly Buyer’s distribution of its food products, a to disclose immediately all information affect- facilitate information exchange among banks proposal to which Buyer agrees. The price ing the stock price, including the conflict of in- and other financial institutions are not con- is equal to 10% of Buyer’s assets and is terest (a score of 2). In its annual report Buyer sidered. If no private bureau operates, the higher than the market value. must also disclose the terms of the transaction coverage value is 0. • The proposed transaction is part of the and Mr. James’s ownership in Buyer and Seller company’s ordinary course of business (a score of 2). Before the transaction Mr. The data details on getting credit can be found and is not outside the authority of the James must disclose his conflict of interest to for each economy at http://www.doingbusiness. company. the other directors, but he is not required to org by selecting the economy in the drop- • Buyer enters into the transaction. All provide specific information about it (a score down list. This methodology was developed in required approvals are obtained, and all required disclosures made (that is, the of 1). Poland does not require an external Djankov, McLiesh and Shleifer (2007) and is body to review the transaction (a score of 0). transaction is not fraudulent). adopted here with minor changes. Adding these numbers gives Poland a score of • The transaction is unfair to Buyer. Shareholders sue Mr. James and the other 7 on the extent of disclosure index. PROTECTING INVESTORS parties that approved the transaction. EXTENT OF DIRECTOR LIABILITY Doing Business measures the strength of mi- EXTENT OF DISCLOSURE INDEX INDEX nority shareholder protections against direc- The extent of director liability index has 7 The extent of disclosure index has 5 compo- tors’ misuse of corporate assets for personal components: nents: gain. The indicators distinguish 3 dimensions • Whether a shareholder plaintiff is able • What corporate body can provide legally of investor protection: transparency of related- to hold Mr. James liable for damage the sufficient approval for the transaction. party transactions (extent of disclosure index), A score of 0 is assigned if it is the CEO Buyer-Seller transaction causes to the liability for self-dealing (extent of director li- or the managing director alone; 1 if the company. A score of 0 is assigned if Mr. ability index) and shareholders’ ability to sue board of directors or shareholders must James cannot be held liable or he can be officers and directors for misconduct (ease of vote and Mr. James is permitted to vote; held liable only for fraud or bad faith; 1 shareholder suits index). The data come from 2 if the board of directors must vote and if Mr. James can be held liable only if he a survey of corporate lawyers and are based Mr. James is not permitted to vote; 3 if influenced the approval of the transaction shareholders must vote and Mr. James is or was negligent; 2 if Mr. James can be on securities regulations, company laws and not permitted to vote. held liable when the transaction is unfair court rules of evidence. or prejudicial to the other shareholders. To make the data comparable across • Whether immediate disclosure of the transaction to the public, the regula- • Whether a shareholder plaintiff is able economies, several assumptions about the to hold the approving body (the CEO or business and the transaction are used. tor or the shareholders is required. A score of 0 is assigned if no disclosure is board of directors) liable for the damage the transaction causes to the company. ASSUMPTIONS ABOUT THE BUSINESS required; 1 if disclosure on the terms of the transaction is required but not A score of 0 is assigned if the approving The business (Buyer): on Mr. James’s conflict of interest; 2 if body cannot be held liable or it can be • Is a publicly traded corporation listed on disclosure on both the terms and Mr. held liable only for fraud or bad faith; 1 if the economy’s most important stock ex- James’s conflict of interest is required. the approving body can be held liable for change. If the number of publicly traded negligence; 2 if the approving body can be • Whether disclosure in the annual report held liable when the transaction is unfair companies listed on that exchange is less is required. A score of 0 is assigned if no than 10, or if there is no stock exchange or prejudicial to the other shareholders. disclosure on the transaction is required; in the economy, it is assumed that Buyer 1 if disclosure on the terms of the transac- • Whether a court can void the transaction is a large private company with multiple tion is required but not on Mr. James’s upon a successful claim by a shareholder shareholders. conflict of interest; 2 if disclosure on both plaintiff. A score of 0 is assigned if rescis- • Has a board of directors and a chief ex- the terms and Mr. James’s conflict of inter- sion is unavailable or it is available only in ecutive officer (CEO) who may legally act est is required. case of fraud or bad faith; 1 if rescission is on behalf of Buyer where permitted, even available when the transaction is oppres- • Whether disclosure by Mr. James to the sive or prejudicial to the other sharehold- if this is not specifically required by law. board of directors is required. A score of ers; 2 if rescission is available when the 42 DOING BUSINESS IN ZANZIBAR 2010 transaction is unfair or entails a conflict • Whether the plaintiff can obtain PAYING TAXES of interest. categories of relevant documents from • Whether Mr. James pays damages for the the defendant without identifying each Doing Business records the taxes and manda- harm caused to the company upon a suc- document specifically. A score of 0 is tory contributions that a medium-size company cessful claim by the shareholder plaintiff. assigned if no; 1 if yes. must pay in a given year, as well as measures of A score of 0 is assigned if no; 1 if yes. • Whether shareholders owning 10% or the administrative burden of paying taxes and • Whether Mr. James repays profits made less of the company’s share capital can contributions. Taxes and contributions mea- from the transaction upon a successful request that a government inspector investigate the Buyer-Seller transaction sured include the profit or corporate income claim by the shareholder plaintiff. A score without filing suit in court. A score of 0 tax, social contributions and labor taxes paid by of 0 is assigned if no; 1 if yes. is assigned if no; 1 if yes. the employer, property taxes, property transfer • Whether fines and imprisonment can be • Whether shareholders owning 10% or taxes, dividend tax, capital gains tax, financial applied against Mr. James. A score of 0 is assigned if no; 1 if yes. less of the company’s share capital have transactions tax, waste collection taxes and the right to inspect the transaction vehicle and road taxes. • Whether shareholder plaintiffs are able to sue directly or derivatively for the damage documents before filing suit. A score of Doing Business measures all taxes and the transaction causes to the company. A 0 is assigned if no; 1 if yes. contributions that are government mandated score of 0 is assigned if suits are unavail- • Whether the standard of proof for civil (at any level—federal, state or local), apply to able or are available only for shareholders suits is lower than that for a criminal case. the standardized business and have an impact holding more than 10% of the company’s A score of 0 is assigned if no; 1 if yes. in its income statements. In doing so, Doing share capital; 1 if direct or derivative suits The index ranges from 0 to 10, with higher Business goes beyond the traditional definition are available for shareholders holding 10% values indicating greater powers of sharehold- of a tax: as defined for the purposes of govern- or less of share capital. ers to challenge the transaction. In Greece, for ment national accounts, taxes include only The index ranges from 0 to 10, with higher example, the plaintiff can access documents compulsory, unrequited payments to general values indicating greater liability of directors. that the defendant intends to rely on for his government. Doing Business departs from To hold Mr. James liable in Panama, for exam- defense and that directly prove facts in the this definition because it measures imposed ple, a plaintiff must prove that Mr. James influ- plaintiff ’s claim (a score of 2). The plaintiff charges that affect business accounts, not gov- enced the approving body or acted negligently can examine the defendant and witnesses ernment accounts. The main differences relate (a score of 1). To hold the other directors during trial, though only with prior approval to labor contributions and value added tax. liable, a plaintiff must prove that they acted of the questions by the court (a score of 1). The Doing Business measure includes gov- negligently (a score of 1). The unfair transac- The plaintiff must specifically identify the ernment-mandated contributions paid by the tion cannot be voided (a score of 0). If Mr. documents being sought (for example, the employer to a requited private pension fund James is found liable, he must pay damages (a Buyer-Seller purchase agreement of July 15, or workers’ insurance fund. The indicator score of 1) but he is not required to disgorge 2006) and cannot just request categories (for includes, for example, Australia’s compulsory his profits (a score of 0). Mr. James cannot be example, all documents related to the transac- superannuation guarantee and workers’ com- fined or imprisoned (a score of 0). Direct suits tion) (a score of 0). A shareholder holding 5% pensation insurance. It excludes value added are available for shareholders holding 10% of Buyer’s shares can request that a govern- taxes because they do not affect the account- or less of share capital (a score of 1). Adding ment inspector review suspected mismanage- ing profits of the business—that is, they are these numbers gives Panama a score of 4 on ment by Mr. James and the CEO without filing not reflected in the income statement. the extent of director liability index. suit in court (a score of 1). Any shareholder Doing Business uses a case scenario to can inspect the transaction documents before measure the taxes and contributions paid by EASE OF SHAREHOLDER SUITS INDEX deciding whether to sue (a score of 1). The a standardized business and the complexity The ease of shareholder suits index has 6 standard of proof for civil suits is the same as of an economy’s tax compliance system. This components: that for a criminal case (a score of 0). Adding case scenario uses a set of financial statements • What range of documents is available these numbers gives Greece a score of 5 on the and assumptions about transactions made to the shareholder plaintiff from the ease of shareholder suits index. over the year. Tax experts in each economy defendant and witnesses during trial. compute the taxes and mandatory contribu- A score of 1 is assigned for each of the STRENGTH OF INVESTOR PROTECTION INDEX tions due in their jurisdiction based on the following types of documents avail- standardized case study facts. Information is able: information that the defendant The strength of investor protection index is the has indicated he intends to rely on for also compiled on the frequency of filing and average of the extent of disclosure index, the payments as well as time taken to comply his defense; information that directly extent of director liability index and the ease with tax laws in an economy. The project was proves specific facts in the plaintiff ’s claim; any information relevant to of shareholder suits index. The index ranges developed and implemented in cooperation the subject matter of the claim; and from 0 to 10, with higher values indicating with PricewaterhouseCoopers. any information that may lead to the more investor protection. To make the data comparable across econ- discovery of relevant information. omies, several assumptions about the business • Whether the plaintiff can directly The data details on protecting investors can and the taxes and contributions are used. examine the defendant and witnesses be found for each economy at http://www. during trial. A score of 0 is assigned if doingbusiness.org by selecting the economy ASSUMPTIONS ABOUT THE BUSINESS no; 1 if yes, with prior approval of the in the drop-down list. This methodology was The business: questions by the judge; 2 if yes, without developed in Djankov, La Porta, Lopez-de- • Is a limited liability, taxable company. If prior approval. Silanes, and Schleifer (2008). there is more than one type of limited DATA NOTES 43 liability company in the economy, the lim- and contributions with the same name returns at the tax authority. Payment time ited liability form most popular among and agency, but charged at different rates considers the hours needed to make the pay- domestic firms is chosen. The most depending on the business, are counted as ment online or at the tax authorities. Where popular form is reported by incorporation the same tax or contribution. taxes and contributions are paid in person, lawyers or the statistical office. • The number of times the company pays the time includes delays while waiting. • Started operations on January 1, 2007. taxes and contributions in a year is the At that time the company purchased all number of different taxes or contributions TOTAL TAX RATE the assets shown in its balance sheet and multiplied by the frequency of pay- hired all its workers. ment (or withholding) for each one. The The total tax rate measures the amount of frequency of payment includes advance taxes and mandatory contributions borne by • Operates in the economy’s largest busi- ness city. payments (or withholding) as well as the business in the second year of operation, regular payments (or withholding). expressed as a share of commercial profit. • Is 100% domestically owned and has 5 owners, all of whom are natural persons. Doing Business 2010 reports the total tax TAX PAYMENTS rate for fiscal 2008. The total amount of taxes • Has a start-up capital of 102 times income per capita at the end of 2007. The tax payments indicator reflects the total borne is the sum of all the different taxes and number of taxes and contributions paid, the contributions payable after accounting for al- • Performs general industrial or commer- cial activities. Specifically, it produces method of payment, the frequency of pay- lowable deductions and exemptions. The taxes ceramic flowerpots and sells them at ment, the frequency of filing and the number withheld (such as personal income tax) or retail. It does not participate in foreign of agencies involved for this standardized case collected by the company and remitted to the trade (no import or export) and does not during the second year of operation. It includes tax authorities (such as value added tax, sales handle products subject to a special tax consumption taxes paid by the company, such tax or goods and service tax) but not borne by regime, for example, liquor or tobacco. as sales tax or value added tax. These taxes are the company are excluded. The taxes included • At the beginning of 2007, owns 2 plots traditionally collected from the consumer on can be divided into 5 categories: profit or cor- of land, 1 building, machinery, office behalf of the tax agencies. Although they do porate income tax, social contributions and equipment, computers and 1 truck and not affect the income statements of the com- labor taxes paid by the employer (in respect leases 1 truck. pany, they add to the administrative burden of which all mandatory contributions are in- • Does not qualify for investment incentives of complying with the tax system and so are cluded, even if paid to a private entity such or any benefits apart from those related to included in the tax payments measure. as a requited pension fund), property taxes, the age or size of the company. The number of payments takes into ac- turnover taxes and other taxes (such as mu- • Has 60 employees—4 managers, 8 as- count electronic filing. Where full electronic nicipal fees and vehicle and fuel taxes). sistants and 48 workers. All are nationals, filing and payment is allowed and it is used The total tax rate is designed to provide and 1 manager is also an owner. by the majority of medium-size businesses, a comprehensive measure of the cost of all • Has a turnover of 1,050 times income per the tax is counted as paid once a year even if the taxes a business bears. It differs from the capita. payments are more frequent. statutory tax rate, which merely provides • Makes a loss in the first year of operation. Where 2 or more taxes or contributions the factor to be applied to the tax base. In • Has a gross margin (pretax) of 20% are filed for and paid jointly using the same computing the total tax rate, the actual tax (that is, sales are 120% of the cost of form, each of these joint payments is counted payable is divided by commercial profit. goods sold). once. For example, if mandatory health insur- Commercial profit is essentially net • Distributes 50% of its net profits as ance contributions and mandatory pension profit before all taxes borne. It differs from dividends to the owners at the end of the contributions are filed for and paid together, the conventional profit before tax, reported second year. only one of these contributions would be in- in financial statements. In computing profit • Sells one of its plots of land at a profit at cluded in the number of payments. before tax, many of the taxes borne by a firm the beginning of the second year. are deductible. In computing commercial • Has annual fuel costs for its trucks equal TIME profit, these taxes are not deductible. Com- to twice income per capita. Time is recorded in hours per year. The indi- mercial profit therefore presents a clear pic- • Is subject to a series of detailed assump- cator measures the time taken to prepare, file ture of the actual profit of a business before tions on expenses and transactions to further standardize the case. All financial and pay 3 major types of taxes and contribu- any of the taxes it bears in the course of the statement variables are proportional to tions: the corporate income tax, value added fiscal year. 2006 income per capita. For example, the or sales tax and labor taxes, including payroll Commercial profit is computed as sales owner who is also a manager spends 10% taxes and social contributions. Preparation minus cost of goods sold, minus gross sala- of income per capita on traveling for the time includes the time to collect all informa- ries, minus administrative expenses, minus company (20% of this owner’s expenses tion necessary to compute the tax payable other expenses, minus provisions, plus capital are purely private, 20% are for entertaining and to calculate the amount payable. If sepa- gains (from the property sale) minus interest customers and 60% for business travel). rate accounting books must be kept for tax expense, plus interest income and minus com- ASSUMPTIONS ABOUT THE TAXES purposes—or separate calculations made— mercial depreciation. To compute the commer- AND CONTRIBUTIONS the time associated with these processes is cial depreciation, a straight-line depreciation included. This extra time is included only if method is applied, with the following rates: • All the taxes and contributions paid in the the regular accounting work is not enough to 0% for the land, 5% for the building, 10% for second year of operation (fiscal 2008) are recorded. A tax or contribution is consid- fulfill the tax accounting requirements. Filing the machinery, 33% for the computers, 20% ered distinct if it has a different name or time includes the time to complete all neces- for the office equipment, 20% for the truck is collected by a different agency. Taxes sary tax return forms and file the relevant and 10% for business development expenses. 44 DOING BUSINESS IN ZANZIBAR 2010 Commercial profit amounts to 59.4 times • Is domestically owned with no foreign the goods are included. These include costs for income per capita. ownership. documents, administrative fees for customs This methodology is consistent with the • Exports more than 10% of its sales. clearance and technical control, customs bro- Total Tax Contribution framework developed ker fees, terminal handling charges and inland ASSUMPTIONS ABOUT THE TRADED transport. The cost does not include customs by PricewaterhouseCoopers. This framework GOODS measures taxes that are borne by compa- tariffs and duties or costs related to ocean trans- nies and affect their income statements, as The traded product travels in a dry-cargo, 20- port. Only official costs are recorded. does Doing Business. But while Pricewater- foot, full container load. It weighs 10 tons and houseCoopers bases its calculation on data is valued at $20,000. The product: The data details on trading across borders can from the largest companies in the economy, • Is not hazardous nor does it include be found for each economy at http://www.do- Doing Business focuses on a standardized military items. ingbusiness.org by selecting the economy in the medium-size company. • Does not require refrigeration or any drop-down list. This methodology was devel- other special environment. oped in Djankov, Freund and Pham. (forthcom- The data details on paying taxes can be found • Does not require any special phytosani- ing) and is adopted here with minor changes. tary or environmental safety standards for each economy at http://www.doingbusiness. other than accepted international stan- org by selecting the economy in the drop- dards. ENFORCING CONTRACTS down list. This methodology was developed in Djankov, Ganser, McLiesh, Ramalho and DOCUMENTS Indicators on enforcing contracts measure Shleifer (forthcoming). the efficiency of the judicial system in re- All documents required per shipment to solving a commercial dispute. The data are export and import the goods are recorded. TRADING ACROSS BORDERS built by following the step-by-step evolution It is assumed that the contract has already of a commercial sale dispute before local been agreed upon and signed by both parties. Doing Business compiles procedural require- courts. The data are collected through study Documents required for clearance by govern- ments for exporting and importing a standard- of the codes of civil procedure and other court ment ministries, customs authorities, port ized cargo of goods by ocean transport. Every regulations as well as surveys completed by and container terminal authorities, health official procedure for exporting and importing local litigation lawyers (and, in a quarter of and technical control agencies and banks are the goods is recorded—from the contrac- the economies, by judges as well). The name taken into account. Since payment is by letter tual agreement between the 2 parties to the of the relevant court in each economy—the of credit, all documents required by banks for delivery of goods—along with the time and court in the largest business city with juris- the issuance of or securing a letter of credit cost necessary for completion. All documents diction over commercial cases worth 200% are also taken into account. Documents that needed by the trader to export or import the of income per capita—is published at http:// are renewed annually and that do not require goods across the border are also recorded. www.doingbusiness.org/ExploreTopics/En- renewal per shipment (for example, an annual For exporting goods, procedures range from forcingContracts/. tax clearance certificate) are not included. packing the goods at the warehouse to their ASSUMPTIONS ABOUT THE CASE departure from the port of exit. For importing TIME goods, procedures range from the vessel’s ar- • The value of the claim equals 200% of the The time for exporting and importing is re- rival at the port of entry to the cargo’s delivery economy’s income per capita. corded in calendar days. The time calculation at the warehouse. The time and cost for ocean • The dispute concerns a lawful transaction for a procedure starts from the moment it is transport are not included. Payment is made between 2 businesses (Seller and Buyer), initiated and runs until it is completed. If a by letter of credit, and the time, cost and docu- located in the economy’s largest business procedure can be accelerated for an additional city. Seller sells goods worth 200% of the ments required for the issuance or advising of cost and is available to all trading companies, economy’s income per capita to Buyer. a letter of credit are taken into account. the fastest legal procedure is chosen. Fast- After Seller delivers the goods to Buyer, Local freight forwarders, shipping track procedures applying to firms located in Buyer refuses to pay for the goods on the lines, customs brokers, port officials and an export processing zone are not taken into grounds that the delivered goods were not banks provide information on required account because they are not available to all of adequate quality. documents and cost as well as the time to trading companies. Ocean transport time is • Seller (the plaintiff ) sues Buyer (the complete each procedure. To make the data not included. It is assumed that neither the ex- defendant) to recover the amount under comparable across economies, several as- the sales agreement (that is, 200% of the porter nor the importer wastes time and that sumptions about the business and the traded economy’s income per capita). Buyer op- each commits to completing each remain- goods are used. poses Seller’s claim, saying that the quality ing procedure without delay. Procedures that of the goods is not adequate. The claim is ASSUMPTIONS ABOUT THE BUSINESS can be completed in parallel are measured disputed on the merits. as simultaneous. The waiting time between The business: • A court in the economy’s largest business procedures—for example, during unloading • Has 60 employees. city with jurisdiction over commercial of the cargo—is included in the measure. cases worth 200% of income per capita • Is located in the economy’s largest busi- ness city. COST decides the dispute. • Is a private, limited liability company. It • Seller attaches Buyer’s movable assets (for Cost measures the fees levied on a 20-foot con- example, office equipment, vehicles) prior does not operate in an export processing tainer in U.S. dollars. All the fees associated with to obtaining a judgment because Seller zone or an industrial estate with special export or import privileges. completing the procedures to export or import fears that Buyer may become insolvent. DATA NOTES 45 • Expert opinions are given on the quality COST building), using it as security for the bank of the delivered goods. If it is standard loan. Cost is recorded as a percentage of the claim, practice in the economy for each party • Has observed the payment schedule and to call its own expert witness, the par- assumed to be equivalent to 200% of income all other conditions of the loan up to now. ties each call one expert witness. If it is per capita. No bribes are recorded. Three types of costs are recorded: court costs, enforcement • Has a mortgage, with the value of the standard practice for the judge to appoint mortgage principal being exactly equal to an independent expert, the judge does costs and average attorney fees. the market value of the hotel. so. In this case the judge does not allow Court costs include all costs Seller opposing expert testimony. (plaintiff ) must advance to the court regard- ASSUMPTIONS ABOUT THE CASE • The judgment is 100% in favor of Seller: less of the final cost to Seller. Expert fees, if the judge decides that the goods are of The business is experiencing liquidity prob- required by law or necessary in practice, are adequate quality and that Buyer must pay lems. The company’s loss in 2008 reduced its included in court costs. Enforcement costs the agreed price. net worth to a negative figure. There is no cash are all costs Seller (plaintiff ) must advance to • Buyer does not appeal the judgment. The to pay the bank interest or principal in full, enforce the judgment through a public sale of judgment becomes final. due tomorrow. The business therefore defaults Buyer’s movable assets, regardless of the final • Seller takes all required steps for on its loan. Management believes that losses cost to Seller. Average attorneys fees are the prompt enforcement of the judgment. will be incurred in 2009 and 2010 as well. fees Seller (plaintiff ) must advance to a local The money is successfully collected attorney to represent Seller in the standard- The bank holds a floating charge against through a public sale of Buyer’s mov- the hotel in economies where floating charges ized case. able assets (for example, office equip- are possible. If the law does not permit a float- ment, vehicles). ing charge but contracts commonly use some The data details on enforcing contracts can PROCEDURES be found for each economy at http://www. other provision to that effect, this provision is doingbusiness.org by selecting the economy in specified in the lending contract. The list of procedural steps compiled for each The business has too many creditors to economy traces the chronology of a commer- the drop-down list. This methodology was de- veloped in Djankov and others (2003) and is negotiate an informal out-of-court workout. It cial dispute before the relevant court. A pro- has the following options: a judicial procedure cedure is defined as any interaction between adopted here with minor changes. aimed at the rehabilitation or reorganiza- the parties, or between them and the judge CLOSING A BUSINESS tion of the business to permit its continued or court officer. This includes steps to file the operation; a judicial procedure aimed at the case, steps for trial and judgment and steps Doing Business studies the time, cost and out- liquidation or winding-up of the company; or necessary to enforce the judgment. comes of bankruptcy proceedings involving a debt enforcement or foreclosure procedure The survey allows respondents to re- domestic entities. The data are derived from aimed at selling the hotel either piecemeal or cord procedures that exist in civil law but not survey responses by local insolvency practi- as a going concern, enforced either in court common law jurisdictions, and vice versa. tioners and verified through a study of laws (or through a government authority like a For example, in civil law countries the judge and regulations as well as public information debt collection agency) or out of court (for can appoint an independent expert, while in on bankruptcy systems. example, by appointing a receiver). common law countries each party submits a To make the data comparable across If an economy has had fewer than 5 cases list of expert witnesses to the court. To in- economies, several assumptions about the a year over the past 5 years involving a judicial dicate overall efficiency, 1 procedure is sub- business and the case are used. reorganization, judicial liquidation or debt en- tracted from the total number for economies forcement procedure, the economy receives a that have specialized commercial courts, ASSUMPTIONS ABOUT THE BUSINESS “no practice” mark. This means that creditors and 1 procedure for economies that allow The business: are unlikely to recover their debt through the electronic filing of court cases. Some pro- • Is a limited liability company. legal process (in or out of court). cedural steps that take place simultaneously • Operates in the economy’s largest busi- with or are included in other procedural TIME ness city. steps are not counted in the total number of • Is 100% domestically owned, with the Time for creditors to recover their debt is procedures. founder, who is also the chairman of recorded in calendar years. Information is the supervisory board, owning 51% (no collected on the sequence of procedures and TIME other shareholder holds more than 5% on whether any procedures can be carried Time is recorded in calendar days, counted of shares). out simultaneously. Potential delay tactics by from the moment the plaintiff files the lawsuit • Has downtown real estate, where it runs the parties, such as the filing of dilatory ap- in court until payment. This includes both the a hotel, as its major asset. The hotel is peals or requests for extension, are taken into days when actions take place and the waiting valued at 100 times income per capita or consideration. periods between. The average duration of dif- $200,000, whichever is larger. ferent stages of dispute resolution is recorded: • Has a professional general manager. COST the completion of service of process (time to • Has 201 employees and 50 suppliers, The cost of the proceedings is recorded as a file the case), the issuance of judgment (time each of which is owed money for the last percentage of the estate’s value. The cost is for the trial and obtaining the judgment) and delivery. calculated on the basis of survey responses by the moment of payment (time for enforce- • Borrowed from a domestic bank 5 years insolvency practitioners and includes court ment of judgment). ago (the loan has 10 years to full repay- fees as well as fees of insolvency practitioners, ment) and bought real estate (the hotel independent assessors, lawyers and accoun- 46 DOING BUSINESS IN ZANZIBAR 2010 tants. Respondents provide cost estimates research into what regulation constitutes from among the following options: less than binding constraints, what package of reforms 2%, 2–5%, 5–8%, 8–11%, 11–18%, 18–25%, is most effective and how these issues are 25–33%, 33–50%, 50–75% and more than shaped by the context of a country. The Doing 75% of the value of the business estate. Business indicators provide a new empirical data set that may improve understanding of RECOVERY RATE these issues. The recovery rate is recorded as cents on the dollar recouped by creditors through the bankruptcy, insolvency or debt enforcement proceedings. The calculation takes into ac- count whether the business emerges from the proceedings as a going concern as well as costs and the loss in value due to the time spent closing down. If the business keeps operat- ing, no value is lost on the initial claim, set at 100 cents on the dollar. If it does not, the initial 100 cents on the dollar are reduced to 70 cents on the dollar. Then the official costs of the insolvency procedure are deducted (1 cent for each percentage of the initial value). Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account, including the loss of value due to depreciation of the hotel furniture. Consistent with international accounting practice, the depreciation rate for furniture is taken to be 20%. The furniture is assumed to account for a quarter of the total value of assets. The recovery rate is the pres- ent value of the remaining proceeds, based on end-2007 lending rates from the International Monetary Fund’s International Financial Sta- tistics, supplemented with data from central banks. The recovery rate for economies with “no practice” is zero. For Doing Business 2010, 2007 lending rates are used to avoid effects of the global financial and economic crisis on data comparability over time. This methodology was developed in Djankov, Hart, McLiesh and Shleifer (2008). EASE OF DOING BUSINESS The ease of Doing Business is calculated as the ranking on the simple average of city percen- tile rankings on each of the 9 topics covered in Doing Business in Zanzibar 2010. The ranking on each topic is the simple average of the per- centile rankings on its component indicators. The ease of Doing Business index is lim- ited in scope. It does not account for a coun- try’s proximity to large markets, the quality of its infrastructure services (other than services related to trading across borders or construc- tion permits), the security of property from theft and looting, macroeconomic conditions or the strength of underlying institutions. There remains a large unfinished agenda for Doing Business indicators 48 DOING BUSINESS IN ZANZIBAR 2010 Global Zanzibar Town Small island economies Sub-Saharan best practice (Zanzibar) Dar es Salaam average* Africa average Ease of doing business (rank) 1–SINGAPORE 155 131 91 139 STARTING A BUSINESS (RANK) 1–NEW ZEALAND 162 120 87 126 Procedures (number) 1 10 12 8 9 Time (days) 1 28 29 61 46 Cost (% of income per capita) 0.4 71.5 36.8 45.6 99.7 Min. capital (% of income per capita) 0 156.5 0 45.2 144.7 DEALING WITH CONSTRUCTION 1–HONG KONG 66 178 51 117 PERMITS (RANK) SAR, CHINA Procedures (number) 7 17 22 14 17 Time (days) 67 65 328 170 259 Cost (% of income per capita) 18.7 521.8 3,281.3 201.7 1,925.6 REGISTERING PROPERTY (RANK) 1–SAUDI ARABIA 170 145 116 123 Procedures (number) 2 10 9 6 7 Time (days) 2 39 73 106 81 Cost (% of property value) 0 20.2 4.4 7.5 9.9 GETTING CREDIT (RANK) 1–MALAYSIA 167 87 113 120 Strength of legal rights index (0–10) 10 3 8 5.5 4.6 Depth of credit information index (0–6) 6 0 0 0.9 1.5 Public registry coverage (% of adults) 48.5 0 0 2.7 2.4 Private bureau coverage (% of adults) 82 0 0 6.2 4.5 PROTECTING INVESTORS (RANK) 1–NEW ZEALAND 154 93 80 113 Extent of disclosure index (0–10) 10 2 3 3.8 4.8 Extent of director liability index (0–10) 9 1 4 5.1 3.3 Ease of shareholder suits index (0–10) 10 8 8 6.6 5.1 Strength of investor protection index (0–10) 9.7 3.7 5 5.2 4.4 PAYING TAXES (RANK) 1–MALDIVES 103 120 67 112 Payments (number per year) 1 48 48 28 38 Time (hours per year) 0 158 172 160 306 Total tax rate (% of profit) 9.1 40.8 45.5 37.2 67.5 TRADING ACROSS BORDERS (RANK) 1–SINGAPORE 105 108 82 137 Documents to export (number) 4 7 5 6 8 Time to export (days) 5 22 24 20 34 Cost to export (US$ per container) 456 844 1,262 1,090 1,942 Documents to import (number) 4 8 7 7 9 Time to import (days) 3 29 31 21 39 Cost to import (US$ per container) 439 1,192 1,475 1,265 2,365 ENFORCING CONTRACTS (RANK) 1–LUXEMBOURG 37 31 113 117 Procedures (number) 26 39 38 40 39 Time (days) 321 469 462 681 644 Cost (% of claim) 9.7 12.6 14.3 41.4 49.3 CLOSING A BUSINESS (RANK) 1–JAPAN 183 113 122 127 Time (years) 0.6 No Practice 3 2.9 3.4 Cost (% of estate) 4 No Practice 22 23.2 20.1 Recovery rate (cents on the dollar) 92.5 No Practice 21 21 17 *This average includes 34 Small Island Developing States (SIDS) measured by Doing Business. Indicator details 50 DOING BUSINESS IN ZANZIBAR 2010 Salaam. Although a company seal is required by law, Procedure 10*. Submit employees’ Starting a business the vast majority of companies does not comply with this requirement. contracts at the Labour Commission of Zanzibar Zanzibar Town, Zanzibar Procedure 4*. Obtain Tax Identification Time: 1 day Standard company legal form: limited liability Number (TIN) from the Tanzania Revenue Cost: TZS 20,000 (TZS 2,000 per contract, company Authority (TRA) 10 employees) Paid-in minimum capital requirement: TZS 1,000,000 Time: 3 days Comments: Based on the Employment Data as of: March 2010 Act No. 11 of 2005, Section 46.1, every written Cost: No cost contract of service entered into between an Procedure 1. Apply for clearance of the Comments: The speed of registration has improved employer and an employee shall be attested to proposed company name at the Registrar substantially since 2008, when the numbers started by a labor officer. of Companies being generated locally. Previously the applications were forwarded to Dar es Salaam and the process Time: 1 day Cost: TZS 5,000 took about 3 months. Dealing with Comments: Requesting clearance of a proposed Procedure 5. Obtain a business license construction permits company name can be done either in person or by from the Zanzibar Revenue Board (ZRB) mail. Applicants submit a letter for name clearance, Zanzibar Town, Zanzibar Time: 3 days which the registry clears after making a search. Procedures to build a warehouse The registry search is to establish: Cost: TZS 20,000 Warehouse value: USD 250,813.32 = TZS 325,000,000 a. The availability or non availability of the Comments: Business licenses in Zanzibar are issued by 3 bodies depending on the type of company: Data as of: March 2010 requested name, and b. Desirability of the name. a. Municipality – small traders; Procedure 1. Submit application for the b. Zanzibar Revenue Board (ZRB) – medium and building permit at the Town Planning Procedure 2. Apply for a certificate large size domestic businesses; Section of the Zanzibar Municipality of incorporation at the Registrar c. Zanzibar Investment Promotion Authority (ZIPA) – of Companies large companies and foreign investors. Time: 1 day The time and cost presented above refer to the Cost: TZS 10,000 (TZS 5,000 for Technical Officers’ Time: 5 days Report and TZS 5,000 for Town Planning Form) process of obtaining a business license for a Cost: TZS 311,908 (TZS 4,800 + 0.1% of capital share medium size business, which would be issued Comments: BuildCo submits the drawings and increment above TZS 2 million + TZS 250 + 1% of by ZRB. building plans to the Town Planning Section of the capital share + TZS 15,000 + 3.5% of capital share) Zanzibar Municipality. BuildCo needs to obtain 2 Comments: The fees include: Procedure 6. Apply for VAT at the Zanzibar application forms: the Technical Officer’s Report and a. Nominal Share Capital Registration Fee for share Revenue Board (ZRB) the Town Planning Application Form. The cost for of capital above TZS 2 million: TZS 4,800 + 0.1% each form was recently increased from TZS 1,000 to Time: 7 days of the increment above TZS 2 million; TZS 5,000. b. Filing Fee: flat rate of TZS 250; Cost: No cost c. Stamp Duty: Comments: After obtaining a TIN, the applicant Procedure 2. Pay building permit fees and • On capital: 1% of capital writes a letter to the ZRB to obtain a VAT number. obtain a building permit from the Urban • On Memorandum: TZS 5,000 The registration process used to be lengthy, from Development Control Authority (UDCA) • On Articles of Association: TZS 5,000; 1 to 2 months, but nowadays the ZRB Deputy Commissioner can sign and the time has been Time: 30 days d. Form Fee: TZS 5,000; e. Legal Fee: 2–5% of capital. According to the Legal reduced to 1 week. Cost: TZS 100,000 (TZS 50,000 per floor) Practitioner’s Decree, any legal document must When the turnover of the business is below Comments: The fees for a building permit depend be prepared by a lawyer. The Decree also speci- $15,000 = TZS 18,778,500, the business may register on the number of stories and the purpose of the fies the fees, but they are obsolete. In practice, under hotel levy or operational levy or restaurant building. For a two-storey commercial building the lawyers charge between 2–5% of the value of levy instead of VAT. fee is TZS 100,000. capital for incorporation. The building plans are reviewed by the following A subscriber, secretary or the person named in the Procedure 7. Register for workmen’s technical officers: Articles of Association of the Company as director compensation insurance at the National a. Town Planning Officer; has to fill in the following forms: Insurance Corporation (or alternative b. Chief Engineer (Department of Construction); a. Form 1: Notice of Situation of Registered Office or insurance policy) c. Chief Drainage Officer; any change therein; Time: 1 day d. Land Officer; b. Form 12: Declaration of Compliance with the e. Medical Health Officer; Cost: No cost Requirements of the Decree on Application for f. Chief Building Inspector. Registration of a Company; Following the approval of all officers mentioned Procedure 8. Obtain registration number c. Form of Consent to Act as Director of a above, the application is considered by the Urban Company. at the Zanzibar Social Security Fund (ZSSF) Development Control Authority (UDCA). An UDCA At the moment, there is no Registry of Companies Time: 7 days review committee convenes once a month and is branch on Pemba, and companies from across Cost: No cost chaired by the Director of the Zanzibar Municipality. Zanzibar must register in Zanzibar Town. Comments: Every company of 2 or more workers The building permit issued by the UDCA is valid for must register with the ZSSF. All employees are 6 months. Procedure 3. Order a company seal fingerprinted and receive social security cards. Procedure 3. Receive a routine supervision Time: 4 days (3 days for obtaining the Procedure 9*. Apply for Pay As You inspection from the Zanzibar Municipality company seal and 1 day for shipping from Dar es Salaam) Earn (PAYE) at the Tanzania Revenue Time: 1 day Cost: TZS 80,000 Authority Cost: No cost Comments: The company seals are not made Time: 1 day Comments: The Zanzibar Municipality sends an in Zanzibar and have to be ordered from Dar es Cost: TZS 20,000 inspector to check whether BuildCo is in possession INDICATOR DE TAILS 51 of the appropriate building permit and whether the Procedure 11*. Obtain authorization from construction complies with such permit. the local Sheha Registering property Procedure 4. Notify the Zanzibar Time: 1 day Zanzibar Town, Zanzibar Municipality of the completion of Cost: TZS 2,000 Property Value: USD 24,650 = TZS 31,941,087 construction and receive an inspection Comments: The Sheha in charge of the local Data as of: March 2010 Time: 2 days ward verifies that BuildCo is the real owner of the Cost: No cost property and confirms that the plot is located within Procedure 1. Conduct a search at the its administrative boundary. The purpose of this Land Registry Procedure 5. Obtain a completion procedure is to confirm the identity of the applicant Time: 3 days certificate from the Zanzibar Municipality and discourage illegal connections to the water system. Cost: TZS 10,000 Time: 1 day Comments: This procedure is done at the Cost: TZS 50,000 Procedure 12*. Receive an inspection Department of Land and Registration in Comments: While it is common practice for large from ZAWA Zanzibar Town. projects and government buildings to obtain a Time: 2 days completion certificate, this procedure is often Procedure 2. Receive a valuation Cost: No cost inspection from the Tanzania disregarded for small construction projects. The fee for the completion certificate amounts to half of the Comments: ZAWA sends a team of inspectors Revenue Authority building permit fee. to the construction site. Inspectors measure the distance from the main pipe to the Time: 4 days construction site and provide a cost estimate Cost: TZS 319,411 (1% of the value of property) Procedure 6. Apply for electricity connection at the Zanzibar Electricity for the connection. Comments: The purpose of the inspection is to Company (ZECO) determine the value of the property and assess the Procedure 13*. Pay water connection fee capital gains tax. Time: 1 day to ZAWA Cost: TZS 12,000 (non-refundable deposit) Procedure 3. Execution and notarization Time: 1 day Comments: For a three-phase connection the of the sale agreement Cost: TZS 119,000 non-refundable deposit is TZS 12,000, while for a Time: 1 day Comments: Installation costs vary from TZS 84,000 one-phase connection the non-refundable deposit Cost: TZS 958,233 (3% of the property value is to TZS 154,000. is TZS 8,000. charged, on average, but legal fees can range from Procedure 14*. Obtain water connection 1% to 5% of property value) Procedure 7. Receive an inspection from ZECO to assess the cost of from ZAWA Comments: According to the Legal Practitioner’s Decree, all legal documents must be prepared by electricity connection Time: 10 days a lawyer. However, that is not necessarily observed Time: 7 days Cost: No cost in practice. Cost: No cost Procedure 15*. Apply for telephone Procedure 4. Obtain a property Comments: Due to the lack of a well-established connection at the Tanzania electric grid, obtaining a connection to electricity transfer form from the Zanzibar Telecommunication Company Land Transfer Board in Zanzibar is a demanding process that requires a Limited (TTCL) lot of follow up by the applicant. More specifically, Time: 1 day applicants need to follow up with the ZECO officials Time: 1 day Cost: TZS 5,000 (per form) in order receive the on-site inspection that deter- Cost: No cost mines the feasibility and the cost of the connection. Procedure 5. Obtain approval of the The process takes a week on average. Procedure 16*. Receive an inspection transaction from the local Sheha from TTCL Procedure 8. Pay the fees for Time: 5 days electricity connection Time: 1 day Cost: TZS 20,000 Cost: No cost Time: 1 day Comments: In absence of proper land records, Comments: TTCL sends a team of inspectors that there is a presumption that the Sheha witnesses Cost: TZS 3,000,000 visits the site and provides a cost estimate for the almost all transactions in his ward and will be Comments: Fees for electricity connection range connection. able to ascertain the vendor’s right to transfer. The from TZS 450,000, in the case of a simple recon- Sheha calls a meeting of the Advisory Commit- nection to power supply, to TZS 20,000,000, when Procedure 17*. Pay fees and obtain tee (composed of 4 members). The members sign a transformer has to be installed. For a warehouse telephone connection from TTCL the forms and the Sheha approves by sealing and located in the peri-urban area of Zanzibar city that singing the forms. does not require a new transformer and is relatively Time: 5 days close to the electric grid, the cost estimate amounts Cost: TZS 38,600 Procedure 6. Obtain approval of the to TZS 3,000,000. Comments: Telephone connection costs depend transaction from the District Council upon the applicant’s needs. Procedure 9. Obtain electricity connection Fees apply as follows: Time: 5 days Time: 21 days Cost: TZS 3,194,109 (10% of the property value) a. Pre-paid connection: TZS 23,600; Cost: No cost b. Post-paid connection (local only): Comments: Although the signature of the District TZS 38,600; Council is not required in the sale form, it has be- Procedure 10*. Obtain an application form c. Post-paid connection (international): come a common practice to obtain such signature for water connection from the Zanzibar TZS 150,000—including a refundable before the application is submitted for approval to Water Authority (ZAWA) deposit. the District Commissioner. Time: 1 day Cost: TZS 2,000 (application form) 52 DOING BUSINESS IN ZANZIBAR 2010 Procedure 7. Obtain approval of the transaction from the District Commissioner Time: 3 days Cost: TZS 30,000 Procedure 8. Obtain and pay the Certificate of Approval of Titles at the Zanzibar Land Transfer Board Time: 11 days Cost: TZS 1,597,054 (5% of property value) Comments: The Chief Land Officer approves the forms with a signature and a stamp, and issues a bill for payment. The fee is paid at the account section of the Department of Land and Registration. Procedure 9. Obtain a Capital Gains Tax Clearance Certificate from the Tanzania Revenue Authority Time: 5 days Cost: No cost Comments: A Capital Gains Tax Clearance Certificate is obtained from the TRA before the name of the buyer can be recorded at the Registry of Documents. Procedure 10. Submit documents, pay for registration, and obtain the Sales Deed registered at the Registry of Documents, Registrar’s General Office Time: 1 day Cost: TZS 319,411 (Stamp duty-1% of the value of property) Comments: The Registration Officer reviews the documents and assigns the Sales Deed a number. The documents are examined by the Registrar General. One copy is retained at the Registry of Documents. The fees are paid at the Registry´s cashier. INDICATOR DE TAILS 53 Getting credit Getting credit indicators Private credit bureau Public credit registry Indicator Depth of credit information index (0–6) 0 Are data on both firms and individuals distributed? No No 0 Are both positive and negative data distributed? No No 0 Does the registry distribute credit information from retailers, trade creditors or utility No No 0 companies as well as financial institutions? Are more than 2 years of historical credit information distributed? No No 0 Is data on all loans below 1% of income per capita distributed? No No 0 Is it guaranteed by law that borrowers can inspect their data in the largest credit registry? No No 0 Coverage 0 0 Number of individuals 0 0 Number of firms 0 0 Strength of legal rights index (0–10) 3 Can any business use movable assets as collateral while keeping possession of the assets; and any financial institution accept such assets as collateral? Yes Does the law allow businesses to grant a non possessory security right in a single category of revolving movable assets, without requiring a specific No description of the secured assets? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of the No secured assets? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, proceeds or replacements of the No original assets? Is a general description of debts and obligations permitted in collateral agreements, so that all types of obligations and debts can be secured by stating Yes a maximum amount rather than a specific amount between the parties? Is a collateral registry in operation that is unified geographically and by asset type as well as indexed by the grantor’s name of a security right? No Do secured creditors have absolute priority to their collateral outside bankruptcy procedures? No Do secured creditors have absolute priority to their collateral in bankruptcy procedures? No During reorganization, are secured creditors’ claims exempt from an automatic stay on enforcement? No Does the law authorize parties to agree on out of court enforcement? Yes 54 DOING BUSINESS IN ZANZIBAR 2010 Protecting investors Strength of investor protection index (0–10) 3.7 Disclosure index 2 What corporate body provides legally sufficient approval for the transaction? (0–3) 1 Immediate disclosure to the public and/or shareholders (0–2) 0 Disclosures in published periodic filings (0–2) 0 Disclosures by Mr. James to board of directors (0–2) 1 Requirement that an external body review the transaction before it takes place (0=no, 1=yes) 0 Director liability index 1 Shareholder plaintiff’s ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company (0–2) 0 Shareholder plaintiff’s ability to hold the approving body (the CEO or board of directors) liable for damage to the company (0–2) 0 Whether a court can void the transaction upon a successful claim by a shareholder plaintiff (0–2) 0 Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff (0=no, 1=yes) 0 Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff (0=no, 1=yes) 0 Whether fines and imprisonment can be applied against Mr. James (0=no, 1=yes) 0 Shareholder plaintiff’s ability to sue directly or derivatively for damage the transaction causes to the company (0–1) 1 Shareholder suits index 8 Documents available to the plaintiff from the defendant and witnesses during trial (0–4) 3 Ability of plaintiffs to directly question the defendant and witnesses during trial (0–2) 2 Plaintiff can request categories of documents from the defendant without identifying specific ones (0=no, 1=yes) 1 Shareholders owning 10% or less of Buyer’s shares can request an inspector investigate the transaction (0=no, 1=yes) 1 Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes) 1 Shareholders owning 10% or less of Buyer’s shares can inspect transaction documents before filing suit (0=no, 1=yes) 0 INDICATOR DE TAILS 55 Paying taxes City: Zanzibar Town Tax or mandatory Payments Notes on Time Statutory Tax Total tax rate Notes on total contribution (number) payments (hours) tax rate base (% of profit) tax rate Corporate income tax 5 26 30.0% taxable income 21.8% VAT 12 72 18% value added not included Labor tax (Skill development levy) 12 60 5.00% gross salaries 5.6% City service levy 4 - fixed fee (TZS 6,500) turnover 0.1% Social security contributions (ZSSF) 12 - 15% (only 10% paid gross salaries 11.3% by the employer) Property tax 1 - 0.20% property value 0.2% Vehicle taxes 1 - fixed fee (TZS 200,000) 0.8% Fuel tax 1 - TZS 450 per liter liters 1.0% Tax on interest - - 10.00% interest income 0.3% not included Total 48 158 40.8% Trading across borders Zanzibar Town trading through the port of Malindi Time Cost Exporting (days) (US$ per container) Export documents Documents preparation 13 334 • Export license • Customs declaration form Customs clearance and technical control 1 210 • Bill of lading Ports and terminal handling 7 150 • Commercial invoice • Packing list Inland transportation and handling 1 150 • Cargo release order Export total: 22 844 • Terminal handling receipts Importing Import documents Documents preparation 13 382 • Import license • Customs declaration form Customs clearance and technical control 2 210 • Bill of lading Ports and terminal handling 13 450 • Commercial invoice • Certificate of origin Inland transportation and handling 1 150 • Packing list Import total: 29 1,192 • Cargo release order • Terminal handling receipts 56 DOING BUSINESS IN ZANZIBAR 2010 Enforcing contracts City: Zanzibar Town Value of claim: TZS 1,277,643 Nature of procedure Indicator Procedures (number) 39 Time (days) 469 Filing and service 14 Trial and judgment 365 Enforcement of judgment 90 Cost (% of claim)* 12.6 Attorney cost (% of claim) 10 Court cost (% of claim) 2 Enforcement Cost (% of claim) 0.6 * Claim assumed to be equivalent to 200% of income per capita. INDICATOR DE TAILS 57 Annex: employing workers* Answer Rigidity of employment index Difficulty of hiring index Are fixed-term contracts prohibited for permanent tasks? No What is the maximum duration of fixed-term contracts (including renewals)? (in months) 36 Rigidity of hours index Can the work week extend to 50 hours (including overtime) for 2 months per year to respond to a seasonal increase in production? Yes What is the maximum number of working days per week? 6 Are there restrictions on night work and do these apply when continuous operations are economically necessary? No Are there restrictions on “weekly holiday” work and do these apply when continuous operations are economically necessary? No What is the paid annual vacation (in working days) for an employee with 20 years of service? 21 Difficulty of redundancy index Is the termination of workers due to redundancy legally authorized? Yes Must the employer notify a third party before terminating one redundant worker? Yes Does the employer need the approval of a third party to terminate one redundant worker? Yes Must the employer notify a third party before terminating a group of 9 redundant workers? Yes Does the employer need the approval of a third party to terminate a group of 9 redundant workers? Yes Is there a retraining or reassignment obligation before an employer can make a worker redundant? No Are there priority rules applying to redundancies? No Are there priority rules applying to re-employment? No Redundancy costs (weeks of salary) What is the notice period for redundancy dismissal after 20 years of continuous employment? (weeks of salary) 12 What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of salary) 7 What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0 * Doing Business measures the regulation of employment, specifically as it affects the hiring and redundancy of workers and the rigidity of working hours. In 2007 improvements were made to align the methodology for the employing workers indicators with the relevant International Labour Organization (ILO) conventions. In Doing Business 2010, additional changes to the methodology of this indicator were made. In addition, a Consultative Group including representatives from the ILO (as the international standard setting body) was formed to serve as an important source of advice on revising this indicator and on the establishment of a new worker protection indicator. In this context, the employing workers indicators were removed as a guidepost to the World Bank Country Policy and Institutional Assessment questionnaire (CPIA) and are not to be used as a basis for policy advice. While this process is ongoing, the Employing Workers data will be presented without any scoring and it will not be tabulated in the calculation of overall ease of doing business ranking. The same policy has been applied for Doing Business in Zanzibar 2010. For additional information, please visit: http://www.doingbusiness.org/Methodology. 59 Doing Business in Zanzibar 2010 was pro- Finance and Economic Affairs (MFEA) duced by a World Bank Group team led of the Government of Zanzibar under the by Trimor Mici and Luis Aldo Sanchez- coordination of Mr. Khamis M. Omar, Ortega, as well as Joanna Kata-Blackman Principal Secretary. Technical and orga- and Sarah Kitakule (through September nizational support was provided by Mr. 2009). The report was produced under the Kombo K. Hassan, Economist, MFEA. Acknowledgments general direction of Mierta Capaul and in collaboration with David Bridgman The team wishes to express its special from the Investment Climate Advisory gratitude to the 90 lawyers, notaries, ac- Contact details for local partners Services in Africa. The team comprised countants, architects, engineers, freight are available on the Iva Ilieva Hamel, Maria Camila Roberts forwarders, judges and public officials who generously participated in this Doing Business website at and Alessio Zanelli. Lucie Cecile Giraud, Peter Ladegaard, Jana Malinska, Jean project. The team recognizes the contri- http://subnational.doingbusiness.org Michel Lobet, Yasmin Yand, and César bution of Abdulaziz H.M. Hamid, Abdul- Chaparro Yedro also provided valuable Hakim A. Issa, Said H. Maalim, Salim assistance to complete the project. Peer H.B. Mnkonje, and Rashid S. Rashid review comments were received from who spent considerable amounts of time Frank Armand Douamba, Iva Ilieva with the team during the data collection Hamel, Jean Michel Lobet, Jana Malinska, process. The names of contributors who Andrei Mikhnev, Massimiliano Santini, have agreed to be publicly acknowledged Raha Shahidsaless, and Justin Yap. are listed on the following page. Doing Business in Zanzibar 2010 is the result of a request from the Ministry of 60 DOING BUSINESS IN ZANZIBAR 2010 P U B L I C O F F I C IA L S HIGH COURT OF ZANZIBAR REGISTRAR GENERAL’S OFFICE ZANZIBAR COMMISSION OF ZANZIBAR PORTS CORPORATION Yesaya Kayange Abdulla Waziri LABOUR Mustafa Aboud Jumbe Registrar of High Court Registrar General Iddi R. Mapuri Director General Moh’d Makame Haji Abdulbaq Ali Ahmed Labour Commissioner ZANZIBAR REVENUE BOARD Secretary General Registrar of Companies Hassan Bakar Othman Labour Officer Mohamed Hashim Ismail LAND REGISTRY OFFICE Rajab Khatib Mwinchande Commissioner Registrar of Documents Omar Mohamed Mr. Sofu Labour Officer Haji Kali Haji Legal Advisor Mohamed Ali Ahmed Manager, Policy & Research Deputy Registrar ZANZIBAR ELECTRICITY Department Mr. Pharaj Legal Advisor Ibrahim R. Nyonje CORPORATION Registration Officer ZANZIBAR SOCIAL SECURITY Maulid Shiraz Hassan Kassim Ali Kassim FUND Deputy Commercial Manager Land Registrar TANZANIA REVENUE Makame Mwadini Silima Abdalla Haji Steni AUTHORITY Fund Service Manager MINISTRY OF FINANCE AND ECONOMIC AFFAIRS Hassan Mcha ZANZIBAR INVESTMENT Khatib I. Khatib Deputy Commissioner (Zanzibar) PROMOTION AGENCY AG Fund Service Manager Khamis M. Omar Principal Secretary Ali B. Ame Rashid Salim Manager, Customs Operations Senior Monitoring and ZANZIBAR WATER AUTHORITY Rashid Said Kibao (Zanzibar) Evaluation Officer Ayoub M. Mahmoud Commissioner for Economic Finance & Administration Director Khamis S. Mwalim Binhindi Khatib Management and Budget Manager, Domestic Revenue Senior Investment Officer - Omar A. Yussuf Kombo K. Hassan Department (Zanzibar) Aftercare Services Commercial Director Economist, Department of Economic Nana R. Mwanjisi Management and Budgeting Salek H. Paudu Senior Promotion Officer MINISTRY OF WATER, ZANZIBAR ATTORNEY GENERAL’S CHAMBER ZANZIBAR MUNICIPAL CONSTRUCTION, ENERGY AND COUNCIL LANDS Hamisa Mwmanga Makame State Attorney Rajab Salum Rajab Haji Adam Haji Environmental Health Officer Director of Surveys and ZANZIBAR COMMISSION FOR Sheha Haji Ali Urban Planning TOURISM Planning Section Officer Ghalib Omar Awadh Ali Khalil Mirza Head of Urban Planning Selection Director for Marketing Mwinyi Tazib Hanti and Promotion Legal Advisor Vuai M. Mohammed Abdalla S. Rashid Executive Secretary Urban Planner, Surveys and Ali S. Haneni Urban Planning Lawyer Juma Khamis Juma Chairman, Land Transfer Board P R I VAT E P R O F E S S I O NA L S AJM CHAMBER IMARA CONSULTANTS THE PEOPLE’S BANK OF ZANZIBAR LAW SOCIETY Shaaban Shaaban ACCOUNTANTS, AUDITORS, ZANZIBAR Salum Toufiq Otman Ali Haji AND TAX CONSULTANTS Abdul-Hakim A. Issa President Seif S. Issa Company Secretary Mussa Kombo ALAWY SUPPLIES CO. LTD Managing Partner Said Ali Mwinyigogo Ahmed Yussuf Baalawy Rajab R.O. Marketing Manager ZANZIBAR M.M. LAW CHAMBERS BRAIN OF ZANZIBAR LIMITED Managing Partner Juma Mohammed Salim H.B. Mnkonje Partner INSURANCE BROKERS & Said H. Maalim Managing Director BUSINESS CONSULTANTS Partner Hamid Mbwezeleni Ali Aboud Mzee TUMAINI ENTERPRISES LTD. Partner Chief Executive Officer JUBIWABA Suleiman Yussuf Ali ZANZIBAR NATIONAL CHAMBER Talib Ussy Hamad BUILDING AND CIVIL WINGS & WHEELS, C&F AGENCY OF COMMERCE INDUSTRY & ENGINEERING CONTRACTOR NATIONAL BANK OF COMMERCE Mahmoud M. Mussa AGRICULTURE Nassor Ahmed Mazrui Diane Namunza Managing Director Mohammed Khalfan Managing Director Legal Counsel Executive Director ZANZIBAR ASSOCIATION OF Remindius Kissassi FBME BANK LTD Rajab H.J. Maalim FEMALE LAWYERS Branch Manager Chairman, Trade & Investment Nassor Rajabu Dachi Safia Hija Abras Committee Branch Manager RANS CONSTRUCTION Sabra Msellem Khamis Shawana Soud Khamis Omar Ameir Yunus Gaare HAMID & RASHID ATTORNEYS Rashida Ahmed Suleiman Salmin S. Khatib Technical Director Abdulaziz H.M. Hamid Mwanamkaa Abdulrahman Managing Partner Ali Said Bakar Salha Ali Molid ZANZIBAR PUBLIC SECTOR UNION Araja S. Juma Talib Omar Mbwana Rashid S. Rashid ZANZIBAR ASSOCIATION OF Secretary General Managing Partner TOURISM INVESTORS SUSTAINABLE MANAGEMENT Mwatomi Khamis OF LAND AND ENVIRONMENT Julia Bishop PROJECT Director Asmahany J. Ally Ian Corker Anthony Chege Kamau OTHER Land Management Advisor Abdalla Juma Mohamed Ajar Patel Zahor Nassor Said THE WORLD BANK Ministry of Finance and Economic Affairs Zanzibar Government