African nations are powering up business. What lessons can we learn from them?
Political will for business reform is a key factor in Nigeria, Kenya and Morocco climbing the World Bank's Doing Business rankings.
The World Bank Group recently launched its annual Doing Business report. In its 15th edition, the report investigates regulations that enhance business activity and those that constrain it in 190 countries. These regulations include starting a business, obtainment of construction permits, availability of electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.
As has been the case in the last several years, African countries were among the most improved nations on the list. Nigeria, Djibouti, Zambia and Malawi were amongst the top 10 reformers in this year’s edition. Nigeria (Africa’s largest economy, but currently facing strong economic headwinds) moved up 24 places to the 145th position and so is by default a case study for this year’s report.
WHY ARE THE DOING BUSINESS RANKINGS TO IMPORTANT?
Like most other indices, the Doing Business indicators are not comprehensive and have their own limitations. So an important question to ask is: why then do developing countries, particularly African ones, pay so much attention to them?
The first and most important is the universal consensus that private sector development and by extension private sector-led growth is the most sustainable solution to Africa’s development challenges.
And the Doing Business indicators, in the absence of other more robust indicators, indeed provide a window through which foreign investors assess the ease of carrying out business activity in any given country.
This is even more relevant for certain African countries, for which there may not be readily available information on private sector activity.
ARE THESE YEAR’S RANKINGS FOR AFRICAN COUNTRIES DIFFERENT FROM THOSE OF PREVIOUS YEARS?
First, it is important to state that 264 reforms were implemented in 190 countries this year, and of these, about 83 were implemented in Africa - over a third of the total.
Mauritius was again the highest ranked African country, followed by Rwanda and then Morocco.
Overall, the top 10 highest ranked African economies in the rankings have been the same over the years. In addition to those listed above, other countries to feature include Botswana, South Africa, Zambia, Seychelles, Lesotho, Namibia and Tanzania.
The common and most obvious denominator for Africa’s top reformers is that they are all English-speaking and located in eastern and southern Africa and (by default) part of the Common Market for Eastern and Southern African States (COMESA).
It is important to note here that Kenya has made significant inroads in the last three years. Having moved over 30 places to 92nd in 2016, Kenya was highlighted as the country, out of 190, with the second highest number of reforms.
This year, Kenya moved up an additional 12 places to 80th becoming the fourth in the African ranking and displacing Botswana from its usual position.
The major feature of this year’s ranking is the fact that Africa’s largest economy (Nigeria) was one of the top 10 global performers, and moved up 24 places to 145th. Although this is a real achievement, it is worth noting that this is not Nigeria’s best ranking in the Doing Business indicators; Nigeria was 109th out of 188 countries in 2009.
The peculiarity of this ranking is that it was achieved in spite of the economic recession and generally somewhat morose economic environment. Nigeria was able to achieve such results due to political will.
In 2016, the government of Nigeria created the Presidential Enabling Business Environment Council (PEBEC), chaired by the vice-president.
WHAT LESSONS CAN BE DRAWN FROM AFRICA’S TOP PERFORMERS?
The first and most important lesson is that to achieve major reforms, political will is key. NIgeria's PEBEC had clear objectives and was headed by the vice-president, who for certain parts of the year was the acting president.
The PEBEC launched two 60-day action plans in April and September 2017. And in May 2017, the government issued an executive order aimed at promoting transparency in the business environment.
The governments of Rwanda, Morocco, Botswana and Kenya also champion business reforms at a very high level.
Second, the quality of institutions is critical. Africa’s top performers have very high Country Policy and Institutional Assessment (CPIA) and Ibrahim governance index scores. Botswana, Namibia, Rwanda, Seychelles, Tanzania, Mauritius all score very well in the above indices. In fact, if anything, the results indicate that there is a strong correlation between the CPIA, Ibrahim index and the Doing Business indicators.
Third, the top performers are those that market themselves well. Between the 28 May and 15 July 2016, Kenya hosted the presidents and prime ministers of South Korea, Turkey, Ethiopia, Israel and India for bilateral visits.
Kenya also hosted the 14th United Nations Conference on Trade and Development (UNCTAD) Summit and the 6th Tokyo International Conference for African Development (TICAD VI), with over 35 heads of states present.
In addition, Kenya hosted the 6th Global Entrepreneurship Summit (GES) in July 2015 and the 10th Summit of the Trade Ministers of the World Trade Organization (WTO) in December 2015.
And so for the Africa countries that did not score high in this year’s Doing Business rankings or for those that have historically not scored high, there are lessons to be learnt from the top performers.
Written by John Mbu, economist, office of the senior vice-president, African Development Bank (AfDB).
This article was republished courtesy of the World Economic Forum.