A delegation of about 100 business executives from francophone Africa (about 70% of them from Cameroon), are in Chicago for the secondannual food and technology business forum which begins tomorrow. Jointly organized by The United States Embassy, Cameroon, the U.S. Regional commercial service in Dakar/Abidjan and ChicagoMidwest Corporation, the business forum is an opportunity for African business executives to meet with American companies and organs of the U.S. government that support international trade.
This is an appropriate time to take a look at the obstacles and challenges that Africa businesses face not just in terms of setup, functioning, the taxation, licensing and registration, but also with regards to the ease of importing and exporting goods, which is a critical success factor in today’s global economy.
These issues, among others, are tackled in the recently released World Bank annual report on the ease of doing business in 175 countries. Titled Doing Business 2007: How to Reform, the report uses 10 indicators to “to analyze economic outcomes and identify what reforms have worked, where and why.”
The indicators are: Starting a business, Dealing with licenses, Hiring and firing workers, Registering property, Getting credit, Protecting investors, Paying taxes, Trading across borders, Enforcing contracts, and Closing a business.
Africa making positive strides
The 2006 report had lamented that there was little room for optimism in Africa:
“Reform is sorely needed. Entrepreneurs face more regulatory obstacles in Africa than in any other region. Yet in 2004 reform was slower there than in other regions. The 16 West African countries managed just 2 reforms: Cameroon imposed a 7-day limit on customs clearance, and Côte d’Ivoire enabled employers to register workers with the social security fund in 1 day, down from 2 weeks. Across the region, for every 3 countries that improved regulation, 1 made it more burdensome.”
However the 2007 report takes a decidedly more upbeat tone, although African countries generally still found themselves at the end of the pack.
“Last year and the year before, Africa lagged behind all other regions in the pace of reform. This year it ranks third, behind only Eastern Europe and Central Asia and the OECD high-income countries (figure 1.2). Twothirds of African countries made at least one reform, and Tanzania and Ghana rank among the top 10 reformers… The easy reforms—what can be done by the stroke of a minister’s pen—are coming first. Small as these initial reforms may be, they can attract investors who seek the growth opportunities that will follow. India’s economic boom may have started with just such reforms in the 1980s.”
Once again, Ghana was a pacesetter in the continent:
“Ghana, the top reformer in Africa, reformed trade, tax, and property administration. It introduced a single-window clearance process at customs where traders can now file all paperwork—for all agencies—at one place. Clearance time dropped from seven days to three days for imports and from four days to two days for exports. Ghana also reduced the corporate tax rate and reconstruction levy for businesses, cutting the overall tax burden from 35.6 percent to 32.3 percent of profits. And it decreased the stamp duty on property transfers from 2 percent to 0.5 percent of the property value.”
But Still at the bottom...
That said, African countries still find themselves at the bottom of the pack, crippled by excessive regulation, burdensome bureaucracy, and exorbitant taxes. As the report points out:
“The report finds that particular remaining obstacles in the region are complicated and costly business start-up procedures and lengthy import and export procedures. For example, in Guinea-Bissau, starting a business takes 233 days and costs double what the average worker earns in a year. In Burundi, it takes 80 days to export goods from the country, at a cost of $3,625 a container load.”
Cameroon – The Usual Story…
This negative trend noted above was clearly reflected in the case of Cameroon which ranks 157 out of 175. (In 2005 Cameroon ranked 147 out of 155). While the overall drop in rank is noticeable, what is significant that Cameroon’s rankings for the 10 areas remains basically unchanged, thereby confirming that reforms are taking place at a very slow rate. Here is a snapshot:
In Cameroon, someone trying to start a business goes through 12 steps over 37 days, at a cost which is equal to 152.2% of the gross national income, and they must deposit at least 187.3% of the gross national income (GNI) per capita in a bank to obtain a business registration number.
It takes 15 steps and 444 days to complete the process, and costs 1,165.62% of income per capita to comply with licensing and permit requirements for ongoing operations in Cameroon.
In Cameroon it takes 5 steps and 93 days to register property. The cost to register property there is 18.7% of overall property value.
The effective tax that a medium size company in Cameroon must pay or withhold within a year is shown below. Entrepreneurs there must make 39 payments, spend 1,300 hours, and pay 46.22% of gross profit in taxes. These figures don't mean much on their own until they are compared to the figures from other countries.
A practical comparison
To clearly understand how bureaucratic bottlenecks and excessive regulation hinder business growth in Africa, let 's compare the number of steps and days required to start a business in Australia, along with the total cost of that process in both countries.
Starting a Business in Australia (2 steps)