80645 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 Smarter Regulations for Small and Medium-Size Enterprises 2011 2007 2004 2010 2008 2006 2013 COMPARING BUSINESS REGULATIONS FOR DOMESTIC FIRMS IN THE EAST AFRICAN COMMUNITY AND WITH 185 ECONOMIES © 2013 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org Some rights reserved. A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The �ndings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are speci�cally reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 Unported license (CC BY 3.0) http://creativecommons.org/licenses/by/3.0. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank. 2013. Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium-Size Enterprises. Washington, DC: World Bank Group. License: Creative Commons Attribution CC BY 3.0 Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Copies of all 10 editions of the global Doing Business report may be purchased at www.doingbusiness.org. Other subnational and regional Doing Business studies can be downloaded at no charge at www.doingbusiness.org/subnational. Design and Layout: Corporate Visions, Inc. DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 Smarter Regulations for Small and Medium-Size Enterprises COMPARING BUSINESS REGULATIONS FOR DOMESTIC FIRMS IN THE EAST AFRICAN COMMUNITY AND WITH 185 ECONOMIES A COPUBLICATION OF THE WORLD BANK AND THE INTERNATIONAL FINANCE CORPORATION RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2013 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 185 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 185 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws http://www.doingbusiness.org/data/ and regulations relating to business and gender issues Reports http://www.doingbusiness.org/law-library/ Access to Doing Business reports as well as http://wbl.worldbank.org/ subnational and regional reports, reform case studies and customized economy and regional Contributors pro�les More than 9,600 specialists in 185 economies http://www.doingbusiness.org/reports/ who participate in Doing Business http://www.doingbusiness.org/contributors/ Methodology doing-business/ The methodologies and research papers underlying Doing Business NEW! Entrepreneurship data http://www.doingbusiness.org/methodology/ Data on business density for 130 economies http://www.doingbusiness.org/data/exploretopics/ Research entrepreneurship/ Abstracts of papers on Doing Business topics and related policy issueshttp://www.doingbusiness.org/ research/ Contents v Foreword 1 Executive summary 10 About Doing Business: measuring for impact Case study 21 Rwanda: fostering prosperity by promoting entrepreneurship Topic notes 26 Starting a business 30 Dealing with construction permits 33 Getting electricity 37 Registering property 40 Getting credit 44 Protecting investors 48 Paying taxes 52 Trading across borders 55 Enforcing contracts Doing Business in the East African Community 2013 is the fourth in a series of regional re- 59 Resolving insolvency ports drawing on the global Doing Business project and its database. The report also draws on the �ndings of Doing Business 62 References 2013, the 10th in a series of annual reports 65 Data notes investigating the regulations that enhance business activity and those that constrain 87 Ease of doing business and distance to frontier it. Doing Business presents quantitative 91 Summaries of Doing Business reforms in 2011/12 indicators on business regulation and the protection of property rights that can be 93 Country tables compared across 185 economies—from Afghanistan to Zimbabwe—and over time. 95 Acknowledgments Regulations affecting 10 areas of the life of a business are covered: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Data in Doing Business in the East African Community 2013 are current as of June 1, 2012. The Doing Business indicators are used to analyze economic outcomes and identify what reforms of business regula- tion have worked, where and why. v Foreword In recent years the Doing Business project has helped put business regulatory reform on the agenda of many countries—at all income levels. The project is premised on the belief that good business regulation is of the utmost importance in spurring economic growth, creating jobs and other opportunities and, ultimately, lifting people out of poverty. IFC’s East African Community Investment Climate Program and its partner in the pub- lication of this report, TradeMark East Africa, are committed to helping countries in the East African Community make regulation more efficient, transparent and predictable. Creating an environment that enables the growth of small and medium-size enter- prises is an integral part of the development agenda, with the ultimate goal being to lift the standards of human development in the East African region. With this in mind, we are pleased to present this report on doing business in the 5 economies of the East African Community, the fourth report in this series. Rapid inte- gration presents an opportunity to boost competitiveness in each of these countries and in the trading bloc as a whole. We hope that the report will be helpful for govern- ments, the private sector and civil society in efforts to unleash the potential of the private sector and regional integration in the �ght against poverty. Janamitra Devan Frank Matsaert Vice President and Head of Network Chief Executive Officer Financial & Private Sector Development TradeMark East Africa World Bank Group 1 Executive summary Over the past 8 years the 5 members of to have achieved the “4 freedoms�—free ƒ All 5 economies of the East African the East African Community (EAC)— movement of people, goods, services Community (EAC) implemented Burundi, Kenya, Rwanda, Tanzania and and capital within the common market. institutional or regulatory reforms Uganda—have continued to take steps Several committees were set up to work making it easier to do business in to make it easier for local �rms to start on realizing each of these freedoms, such 2011/12—just as in the previous year. up and operate (box 1.1). Driving these ef- as the Monetary Affairs Committee, The 9 reforms were spread across 8 areas of regulation measured by Doing forts has been a recognition that regional which is overseeing the harmonization Business. Worldwide, 108 economies integration alone is not enough to spur of monetary and exchange rate policies, implemented 201 reforms making it growth. The EAC needs an investment and the Committee on Fiscal Affairs, easier to do business in 2011/12. climate—including a business regulatory which is in charge of the harmonization environment—that is well suited to scal- of both tax policy and administrative ƒ The EAC economies have an average ing up trade and investment and can act processes. In addition, the secretariat is ranking on the ease of doing business of 117 (among 185 economies as a catalyst to modernize the regional working on a monitoring system to track globally). But there is great variation economy. Improving the investment cli- commitments made under the common among them—from Rwanda at 52 mate in the EAC is therefore an essential market protocol and flag areas where in the global ranking to Burundi at ingredient for successful integration—the implementation is slow. 159. This wide variation in business foundation for expanding business activ- regulations is among the issues that ity, boosting competitiveness, spurring Among the main tasks of the committees the EAC needs to tackle to achieve the growth and, ultimately, supporting hu- is to set up and implement coherent, desired level of integration. man development. broad-based regional reform programs to improve the investment climate of the re- ƒ While the regional average ranking is Continual improvement of the business gion as a whole and make it an attractive less than ideal, if a hypothetical EAC environment is important for countries destination for external investors. The economy were to adopt the region’s best regulatory practices in each area seeking to bene�t from greater trade and development of regional strategies and measured by Doing Business, it would investment through regional integration. frameworks that connect and streamline stand at 26 in the global ranking on the The common market protocol, which en- national reform programs is an indis- ease of doing business. tered into force in July 2010, is supposed pensable condition for a well-functioning to be fully implemented by December common market that can attract foreign ƒ Burundi was among the world’s most 2015. By that time the EAC is expected investment. A lack of coordination among active economies in implementing regulatory reforms in 2011/12. It implemented policy changes in 4 areas BOX 1.1 MAIN FINDINGS SINCE THE FIRST DOING BUSINESS REPORT measured by Doing Business: starting Ė Over the past 8 years the 5 EAC economies implemented a total of 74 institutional a business, dealing with construction or regulatory reforms improving the business environment for local entrepreneurs. permits, registering property and Ė Globally, business regulatory practices have been slowly converging as economies trading across borders. with initially poor performance narrow the gap with better performers. Among the 50 economies with the biggest improvements since 2005, the largest share—a third—are in Sub-Saharan Africa. Within the EAC, Rwanda is the country that has narrowed the gap the most, followed by Burundi. Ė The EAC has achieved greater convergence in the complexity and cost of regulatory processes than in the strength of legal institutions relevant to business regulation. Of the 74 institutional or regulatory reforms implemented by EAC economies in the past 8 years, the largest numbers were in the areas of starting a business (11), registering property (9) and dealing with construction permits (8). 2 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 1.1 Global rankings on the ease of doing business DB2013 DB2013 DB2013 Rank Economy reforms Rank Economy reforms Rank Economy reforms 1 Singapore 0 63 Antigua and Barbuda 0 125 Honduras 0 2 Hong Kong SAR, China 0 64 Ghana 0 126 Bosnia and Herzegovina 2 3 New Zealand 1 65 Czech Republic 3 127 Ethiopia 1 4 United States 0 66 Bulgaria 1 128 Indonesia 1 5 Denmark 1 67 Azerbaijan 0 129 Bangladesh 1 6 Norway 2 68 Dominica 1 130 Brazil 1 7 United Kingdom 1 69 Trinidad and Tobago 2 131 Nigeria 0 8 Korea, Rep. 4 70 Kyrgyz Republic 0 132 India 1 9 Georgia 6 71 Turkey 2 133 Cambodia 1 10 Australia 1 72 Romania 2 134 Tanzania 1 11 Finland 0 73 Italy 2 135 West Bank and Gaza 1 12 Malaysia 2 74 Seychelles 0 136 Lesotho 2 13 Sweden 0 75 St. Vincent and the Grenadines 0 137 Ukraine 3 14 Iceland 0 76 Mongolia 3 138 Philippines 0 15 Ireland 2 77 Bahamas, The 0 139 Ecuador 0 16 Taiwan, China 2 78 Greece 3 140 Sierra Leone 2 17 Canada 1 79 Brunei Darussalam 2 141 Tajikistan 1 18 Thailand 2 80 Vanuatu 0 142 Madagascar 1 19 Mauritius 2 81 Sri Lanka 4 143 Sudan 0 20 Germany 2 82 Kuwait 0 144 Syrian Arab Republic 1 21 Estonia 0 83 Moldova 2 145 Iran, Islamic Rep. 1 22 Saudi Arabia 2 84 Croatia 1 146 Mozambique 0 23 Macedonia, FYR 1 85 Albania 2 147 Gambia, The 0 24 Japan 1 86 Serbia 3 148 Bhutan 0 25 Latvia 0 87 Namibia 1 149 Liberia 3 26 United Arab Emirates 3 88 Barbados 0 150 Micronesia, Fed. Sts. 0 27 Lithuania 2 89 Uruguay 2 151 Mali 1 28 Switzerland 0 90 Jamaica 2 152 Algeria 1 29 Austria 0 91 China 2 153 Burkina Faso 0 30 Portugal 3 92 Solomon Islands 0 154 Uzbekistan 4 31 Netherlands 4 93 Guatemala 1 155 Bolivia 0 32 Armenia 2 94 Zambia 1 156 Togo 1 33 Belgium 0 95 Maldives 0 157 Malawi 1 34 France 0 96 St. Kitts and Nevis 0 158 Comoros 2 35 Slovenia 3 97 Morocco 1 159 Burundi 4 36 Cyprus 1 98 Kosovo 2 160 São Tomé and Príncipe 0 37 Chile 0 99 Vietnam 1 161 Cameroon 1 38 Israel 1 100 Grenada 1 162 Equatorial Guinea 0 39 South Africa 1 101 Marshall Islands 0 163 Lao PDR 3 40 Qatar 1 102 Malta 0 164 Suriname 0 41 Puerto Rico (U.S.) 1 103 Paraguay 0 165 Iraq 0 42 Bahrain 0 104 Papua New Guinea 0 166 Senegal 0 43 Peru 2 105 Belize 1 167 Mauritania 0 44 Spain 2 106 Jordan 0 168 Afghanistan 0 45 Colombia 1 107 Pakistan 0 169 Timor-Leste 0 46 Slovak Republic 4 108 Nepal 0 170 Gabon 0 47 Oman 1 109 Egypt, Arab Rep. 0 171 Djibouti 0 48 Mexico 2 110 Costa Rica 4 172 Angola 1 49 Kazakhstan 3 111 Palau 0 173 Zimbabwe 0 50 Tunisia 0 112 Russian Federation 2 174 Haiti 0 51 Montenegro 2 113 El Salvador 1 175 Benin 4 52 Rwanda 2 114 Guyana 0 176 Niger 1 53 St. Lucia 0 115 Lebanon 0 177 Côte d’Ivoire 0 54 Hungary 3 116 Dominican Republic 0 178 Guinea 3 55 Poland 4 117 Kiribati 0 179 Guinea-Bissau 0 56 Luxembourg 0 118 Yemen, Rep. 0 180 Venezuela, RB 0 57 Samoa 0 119 Nicaragua 0 181 Congo, Dem. Rep. 1 58 Belarus 2 120 Uganda 1 182 Eritrea 0 59 Botswana 1 121 Kenya 1 183 Congo, Rep. 2 60 Fiji 1 122 Cape Verde 0 184 Chad 1 61 Panama 3 123 Swaziland 1 185 Central African Republic 0 62 Tonga 0 124 Argentina 0 Note: The rankings for all economies are benchmarked to June 2012. This year’s rankings on the ease of doing business are the average of the economy’s percentile rankings on the 10 topics included in this year’s aggregate ranking. The number of reforms excludes those making it more dif�cult to do business. Source: Doing Business database. EXECUTIVE SUMMARY 3 member countries and the implementa- Business measures and tracks changes in a business, dealing with construction tion of “isolated� national reforms—which the regulations applying to domestic small permits, getting electricity, registering often focus on short-term gains and fail to and medium-size companies in 11 areas property, paying taxes and trading across consider the impact on the region—can in their life cycle. This year’s aggregate borders. Based on time-and-motion case hinder progress in fully implementing the ranking on the ease of doing business is studies from the perspective of the busi- common market. Conversely, continual based on indicator sets that measure and ness, these indicators measure the proce- exchange among different authorities benchmark regulations affecting 10 of dures, time and cost required to complete across countries, the implementation of those areas: starting a business, dealing a transaction in accordance with relevant an agreed-on regional reform agenda and with construction permits, getting elec- regulations. (For a detailed explanation of a focus on common goals and objectives tricity, registering property, getting credit, the Doing Business methodology, see the create synergies and help the region as a protecting investors, paying taxes, trading data notes and the chapter “About Doing whole to improve its investment climate. across borders, enforcing contracts and Business.�) resolving insolvency. Doing Business also Fostering economic growth by tapping documents regulations on employing Economies that rank high on the ease of the potential of the private sector is workers, which are not included in this doing business tend to combine efficient among the main objectives of the fourth year’s aggregate ranking or in the count of regulatory processes with strong legal EAC development strategy.1 In addition reforms. Regional Doing Business reports institutions that protect property and to increasing institutional coordination, capture differences in business regula- investor rights. Entrepreneurs in the EAC other important steps to achieve this tions and their enforcement across econ- tend to face both weaker legal institutions objective are better integrating small and omies within a single region. They provide and more complex and costly regulatory medium-size enterprises into the �nancial data on the ease of doing business, rank processes compared with global averages sector and creating business-friendly ad- each economy and recommend reforms and with averages for more developed ministrative structures and tax regimes. to improve performance in each of the economies (�gure 1.1). Yet EAC econo- Additional challenges are to ensure the areas measured by Doing Business. mies have stronger legal institutions for availability of reliable data and statistics enforcing contracts, protecting investors and to implement credible surveillance The economies that rank highest on the and resolving insolvency on average than and enforcement mechanisms, goals ease of doing business are not those the broader region of Sub-Saharan Africa. restated at a January 2013 workshop in where there is no regulation—but those Arusha, Tanzania, on the implications of where governments have managed to Despite the reform efforts of all 5 member the planned monetary union for partner economies, the EAC’s average ranking on create rules that facilitate interactions states’ �scal policies. the ease of doing business has remained in the marketplace without needlessly fairly constant over the past 4 years, at hindering the development of the private Recognizing the importance of creating around 117. This is a clear indication that sector. In essence, Doing Business is a well-functioning regulatory framework critical obstacles to entrepreneurial activ- about SMART business regulations— that is transparent and not excessively ity remain and that economies in other re- Streamlined, Meaningful, Adaptable, burdensome for companies, the EAC is gions have picked up the pace in improving Relevant, Transparent—not necessarily determined to continue its steady pace business regulation. But good regulatory fewer regulations (see �gure 2.1 in the of reform. This fourth edition of the Doing practices do exist in the EAC. Indeed, if a chapter “About Doing Business�). Business in the East African Community hypothetical EAC economy were to adopt report shows that in 2011/12, for the sec- the best practices among partner states as HOW DO EAC ECONOMIES ond year in a row, all 5 EAC economies measured by all Doing Business indicators, COMPARE IN BUSINESS implemented at least 1 institutional or it would stand at 26 in the global ranking REGULATIONS? regulatory reform making it easier to do on the ease of doing business. business—9 reforms in total (table 1.1). Doing Business encompasses 2 types of in- In Sub-Saharan Africa 61% of economies dicators: indicators relating to the strength Comparison of the performance of differ- implemented reforms improving their of legal institutions relevant to business ent regional blocs on Doing Business indi- business regulatory environment as mea- regulation and indicators relating to the cators may reveal unexpected strengths sured by Doing Business. complexity and cost of regulatory processes. in an area of business regulation—such Those in the �rst group focus on the legal as a regulatory process that can be com- The Doing Business data can help inform and regulatory framework for getting pleted with a small number of procedures the policy debate around business regula- credit, protecting investors, enforcing in a few days and at a low cost. One area tory reforms and within the context of contracts and resolving insolvency. Those where the EAC shows strong performance the common market. Through indicators in the second focus on the cost and effi- is business start-up. To start a business in benchmarking 185 economies, Doing ciency of regulatory processes for starting the EAC requires only 8 procedures and 4 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 FIGURE 1.1 The EAC has more ef�cient regulatory processes and stronger legal institutions FIGURE 1.3 How do EAC economies perform than ECOWAS on Doing Business indicators? Average global ranking on sets of Doing Business indicators Global ranking, by Doing Business topic Stronger Stronger legal institutions but Stronger legal institutions and more complex and expensive simpler and less expensive Burundi regulatory processes regulatory processes Starting a business OECD Resolving insolvency 185 Dealing with construction high income 161 29 141 permits Size of bubble reflects Enforcing Getting electricity 28 number of economies contracts 175 164 Eastern Europe Average ranking on & Central Asia Strength of legal institutions 1 ease of doing business 73 Trading across 127 Registering property 177 borders 49 Paying taxes 137 167 Getting credit Protecting investors EAC East Asia 117 & Pacific SADC 86 116 Kenya COMESA Starting a business ECOWAS 128 185 Resolving insolvency Dealing with construction 151 126 permits 100 Enforcing 45 162 Getting electricity 149 contracts 1 Weaker legal institutions and Weaker legal institutions but Trading across 148 12 Registering property 161 borders more complex and expensive simpler and less expensive 100 Weaker regulatory processes regulatory processes Paying taxes 164 Getting credit Protecting investors Complex and Complexity and cost Simple and expensive of regulatory processes inexpensive Rwanda Note: Strength of legal institutions refers to the average ranking on getting credit, protecting investors, enforcing contracts and Starting a business resolving insolvency. Complexity and cost of regulatory processes refers to the average ranking on starting a business, dealing with construction permits, getting electricity, registering property, paying taxes and trading across borders. COMESA = Common 185 Resolving insolvency Dealing with construction Market for Eastern and Southern Africa; ECOWAS = Economic Community of West African States; SADC = Southern African 167 permits 98 Development Community. Enforcing contracts 8 Getting electricity Source: Doing Business database. 39 49 1 Trading across 158 63 Registering property 25 23 borders 32 20 days on average. The EAC’s average for the Economic Community of West Paying taxes Getting credit ranking on the ease of starting a business African States (ECOWAS) (�gure 1.2).2 Protecting investors is 84, higher than those of other regional blocs in Africa—104 for the Southern Comparison of the performance of Tanzania African Development Community (SADC), individual EAC economies with regional Starting a business 110 for the Common Market for Eastern average performance is also revealing. Resolving insolvency 185 Dealing with construction 174 113 permits and Southern Africa (COMESA) and 127 The sometimes substantial differences 129 Enforcing contracts Getting electricity 96 36 1 137 FIGURE 1.2 The EAC outperforms other regional blocs in Africa in some areas of regulation Trading across 122 Registering property borders Average global ranking, by Doing Business topic 133 100 129 Paying taxes Getting credit 1 Protecting investors Uganda 74 79 83 Starting a business 84 112 102 84 92 185 185 104 114 111 106 103 103 Resolving insolvency 112 110 107 144 Dealing with construction 115 111 SADC 116 110 120 122 125 122 118 permits EAC 117 112 129 125 69 128 Enforcing contracts COMESA 128 127 127 135 130 122 127 117 127 Getting electricity 133 134 144 127 1 ECOWAS 133 151 153 Trading across 159 40 124 Registering property borders 185 93 Ease of Starting Dealing Getting Registering Getting Protecting Paying Trading Enforcing Resolving Paying taxes 139 Getting credit doing a business with electricity property credit investors taxes across contracts insolvency business construction borders Protecting investors permits SADC EAC COMESA ECOWAS Source: Doing Business database. Source: Doing Business database. EXECUTIVE SUMMARY 5 between economy rankings and regional undertook reforms in 3 or more areas. 2011/12. The country also implemented average rankings in areas measured by The total amounted to 201 reforms mak- reforms making it easier to deal with con- Doing Business clearly show that EAC ing it easier to do business. In the EAC struction permits, register property and economies remain at different stages all 5 economies implemented at least 1 trade across borders. As recorded in the of regulatory reform. Take paying taxes, institutional or regulatory reform making global Doing Business 2013 report, Burundi where the EAC’s average ranking is 110. it easier to do business—9 in total. ranks among the 10 economies improv- While 2 EAC economies have higher rank- ing the most across 3 or more areas ings—with Rwanda at 25 and Uganda at EAC economies accounted for 2 of the 11 measured—and it moved up 13 places in 93—the rest have much lower rankings, regulatory reforms implemented in Sub- the global ranking on the ease of doing with Tanzania at 133, Burundi at 137 and Saharan Africa to make it easier to start business, from 172 to 159 (table 1.2). Kenya at 164 (�gure 1.3). The closer an a business. Burundi eliminated 4 require- economy’s ranking is to the center of the ments: to have company documents no- Kenya launched an online platform to graph, the easier it is to do business. tarized, to register the new company with facilitate the process of dealing with the commercial court, to register it with construction permits in 2011. Architects Another area of stark difference is busi- the department of taxation and to publish may now submit and track the status of ness start-up. Rwanda still has the most information on it in a journal. Tanzania permit applications online. And paying efficient process in the EAC to start a eliminated a requirement for inspections taxes became easier in Kenya in 2011/12. business, with a global ranking of 8, by health, town and land officers as a pre- An online �ling system for value added followed by Burundi at 28, Tanzania at requisite for obtaining a business license. tax introduced by the Kenya Revenue 113, Kenya at 126 and Uganda at 144. In Authority in 2009 has gained in popu- The improvements in Burundi came general, 3 of 5 EAC economies rank well larity among taxpayers over the past 3 thanks to the implementation of a below the regional average in all areas years. In addition, thanks to the increased one-stop shop at the Burundi Revenue measured by Doing Business. popularity of tax software, the average Authority in 2012. This not only elimi- annual time for calculating corporate in- nated 4 procedures; it also reduced the WHO IN THE EAC NARROWED come tax has been reduced by 53 hours. time to start a business by 5 days and THE REGULATORY GAP IN the cost by 98.4% of income per capita. 2011/12? WHO IN THE EAC HAS Burundi moved up 80 places in the global From June 2011 to June 2012, 108 of the NARROWED THE GAP OVER ranking on the ease of starting a business, 185 economies covered by Doing Business THE LONG RUN? from 108 to 28. (58%) implemented at least 1 institution- To complement the ease of doing busi- al or regulatory reform making it easier to Starting a business was not the only area ness ranking, a relative measure, the do business in the areas measured; 23 in which Burundi made improvements in Doing Business 2012 report introduced the TABLE 1.2 The 10 economies improving the most across 3 or more areas measured by Doing Business in 2011/12 Reforms making it easier to do business Ease of doing Dealing with Trading business Starting a construction Getting Registering Getting Protecting across Enforcing Resolving Economy rank business permits electricity property credit investors Paying taxes borders contracts insolvency 1 Poland 55 3 3 3 3 2 Sri Lanka 81 3 3 3 3 2 Ukraine 137 3 3 3 4 Uzbekistan 154 3 3 3 3 5 Burundi 159 3 3 3 3 6 Costa Rica 110 3 3 3 3 6 Mongolia 76 3 3 3 8 Greece 78 3 3 3 9 Serbia 86 3 3 3 10 Kazakhstan 49 3 3 3 Note: Economies are ranked on the number of their reforms and on how much they improved in the ease of doing business ranking. First, Doing Business selects the economies that implemented reforms making it easier to do business in 3 or more of the 10 topics included in this year’s aggregate ranking. Regulatory reforms making it more dif�cult to do business are subtracted from the number of those making it easier to do business. Second, Doing Business ranks these economies on the increase in their ranking on the ease of doing business from the previous year. The increase in economy rankings is not calculated using the published ranking of last year but by using a comparable ranking for DB2012 that captures the effects of other factors, such as the inclusion this year of 2 new economies in the sample, Barbados and Malta. The choice of the most improved economies is determined by the largest improvement in rankings, among those economies with at least 3 reforms. Source: Doing Business database. 6 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 distance to frontier, an absolute measure FIGURE 1.4 Doing business is easier today than in 2005 in the EAC and other African regional blocs of business regulatory efficiency. This Average distance to frontier (percentage points) measure aids in assessing how much the regulatory environment for local entre- 100 preneurs improves in absolute terms over OECD high income time by showing the distance of each 75 economy to the “frontier,� which repre- 70 sents the best performance observed 65 Gap between OECD high-income economies and African regional blocs on each of the Doing Business indicators 60 across all economies and years included EAC 55 SADC since 2005. The measure is normalized COMESA 50 Sub-Saharan Africa to range between 0 and 100, with 100 representing the frontier. A higher score 45 therefore indicates a more efficient busi- 40 ECOWAS ness regulatory system (for a detailed 35 description of the methodology, see the chapter on the ease of doing business and 0 distance to frontier). 2005 2006 2007 2008 2009 2010 2011 2012 Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any Analysis based on the distance to fron- economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005) tier measure shows that the burden of and to the regional classi�cations applying in 2012. Eleven economies were added in subsequent years. regulation has declined since 2005 in Source: Doing Business database. the areas measured by Doing Business. On average the 174 economies covered FIGURE 1.5 Rwanda has reduced the gap with the frontier by almost half by Doing Business since that year are Distance to frontier (percentage points) today closer to the frontier in regulatory 100 practice. In 2005 these economies were 46 percentage points from the frontier 80 Top 10 in EU-27 on average, with the closest economy 10 percentage points away and the furthest 70 Gap between top 10 in EU-27 and EAC economies Rwanda one 74 percentage points away. Now 60 Kenya Tanzania these 174 economies are 40 percentage points from the frontier on average, with 50 Burundi Uganda the closest economy 8 percentage points 40 away and the furthest economy 69 per- centage points away. OECD high-income 30 economies are closest to the frontier on average. But other world regions are nar- 20 rowing the gap—and so are the EAC and 0 other African regional blocs (�gure 1.4). 2005 2006 2007 2008 2009 2010 2011 2012 Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any Rwanda, the number 2 improver glob- economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The top 10 in EU-27 are the 10 economies closest to the frontier among ally since 2005 and the top improver in current members of the European Union. the EAC, has reduced the gap with the Source: Doing Business database. frontier by almost half—26.5 percentage points. Indeed, Rwanda is approaching since 2005, 17 are in that region. Burundi Worldwide, economies at all income lev- the average distance to frontier of the top is among them. The number 16 improver els are narrowing the gap with the frontier 10 in the European Union (�gure 1.5). To globally and the number 2 in the EAC, on average—but low-income economies highlight key lessons emerging from the Burundi has closed the gap with the fron- more so than high-income ones. This is country’s sustained efforts, this year’s report features a case study of its reform tier by 12.6 percentage points (table 1.3). an important achievement. Indeed, while process. But Rwanda is far from alone in Among ECOWAS members, 67% are business regulatory practices in all lower- Sub-Saharan Africa: of the 50 economies among the 50 economies narrowing the income groups are converging toward advancing the most toward the frontier gap the most since 2005. those in high-income economies on EXECUTIVE SUMMARY 7 TABLE 1.3 The 50 economies narrowing the distance to frontier the most since 2005 average, low-income economies have re- Improvement Improvement duced the gap the most, by 4 percentage (percentage (percentage points since 2005. Lower-middle-income Rank Economy Region points) Rank Economy Region points) economies have closed the gap with 1 Georgia ECA 31.6 26 Saudi Arabia MENA 10.7 high-income economies by 3 percentage 2 Rwanda SSA 26.5 27 India SAS 10.6 points and upper-middle-income econo- 3 Belarus ECA 23.5 28 Guatemala LAC 10.4 4 Burkina Faso SSA 18.5 29 Madagascar SSA 10.3 mies by 2 percentage points. This conver- 5 Macedonia, FYR ECA 17.4 30 Morocco MENA 10.1 gence is far from complete, however. 6 Egypt, Arab Rep. MENA 16.3 31 Yemen, Rep. MENA 10.1 In improving business regulatory practices 7 Mali SSA 15.8 32 Peru LAC 10.1 since 2005, the EAC has achieved greater 8 Colombia LAC 15.3 33 Mozambique SSA 10.0 convergence in the complexity and cost of 9 Tajikistan ECA 15.2 34 Czech Republic OECD 9.8 10 Kyrgyz Republic ECA 14.8 35 Timor-Leste EAP 9.7 regulatory processes than in the strength 11 Sierra Leone SSA 14.7 36 Côte d’Ivoire SSA 9.5 of legal institutions relevant to business 12 China EAP 14.3 37 Togo SSA 9.5 regulation. Of the 74 institutional or 13 Azerbaijan ECA 12.9 38 Slovenia OECD 9.5 regulatory reforms implemented by EAC 14 Croatia ECA 12.8 39 Mexico LAC 9.4 economies in the past 8 years, the largest 15 Ghana SSA 12.7 40 Niger SSA 9.4 numbers were in the areas of starting a 16 Burundi SSA 12.6 41 Nigeria SSA 9.0 business (11), registering property (9) and 17 Poland OECD 12.3 42 Portugal OECD 9.0 dealing with construction permits (8). 18 Guinea-Bissau SSA 12.2 43 Solomon Islands EAP 8.9 These efforts have led to clear results. In 19 Armenia ECA 12.2 44 Uruguay LAC 8.8 2005 starting a business in the EAC took 20 Ukraine ECA 12.0 45 Dominican Republic LAC 8.8 29 days on average; today it takes 20. But 21 Kazakhstan ECA 11.9 46 Taiwan, China EAP 8.8 the time needed to register property had 22 Senegal SSA 11.5 47 São Tomé and Príncipe SSA 8.7 the biggest reduction, dropping from an 23 Cambodia EAP 11.1 48 France OECD 8.6 average of 140 days in 2005 to 56 days 24 Angola SSA 11.0 49 Bosnia and Herzegovina ECA 8.4 today (�gure 1.6). 25 Mauritius SSA 10.9 50 Albania ECA 8.3 Note: Rankings are based on the absolute difference for each economy between its distance to frontier in 2005 and that Individual EAC economies have followed in 2012. The data refer to the 174 economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. The distance to frontier measure shows how far on average an economy is from the best performance different—and varying—regulatory re- achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and form paths. In 2005 Rwanda was number 100, with 100 representing the best performance (the frontier). EAP = East Asia and the Paci�c; ECA = Eastern Europe and Central Asia; LAC = Latin America and the Caribbean; MENA = Middle East and North Africa; OECD = OECD high income; 4 in the ranking of EAC economies on SAS = South Asia; SSA = Sub-Saharan Africa. the complexity and cost of regulatory Source: Doing Business database. processes. From 2005 to 2008 Rwanda focused its regulatory reform efforts on reducing regulatory complexity and FIGURE 1.6 The speed of property registration in the EAC is converging toward the best performances cost to improve the business environ- ment. The country has continued to Average time to register property (days) reduce complexity and cost but has 250 focused even more on strengthening 200 legal institutions relevant to business regulation—surpassing Kenya in the pro- 150 cess (�gure 1.7). Burundi has also been Worst quartile strengthening legal institutions since 100 2005, though to a lesser degree, and is EAC now focusing more on reducing the com- 50 Best 3 quartiles plexity and cost of regulatory processes. 0 2005 2006 2007 2008 2009 2010 2011 2012 HOW ACCESSIBLE IS Note: Economies are ranked in quartiles by performance in 2005 on time to register property. The data refer to the 174 REGULATORY INFORMATION economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. Source: Doing Business database. IN THE EAC? Beyond the quality of data, transparency and access to data play an important part 8 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 FIGURE 1.7 Different EAC economies have followed different regulatory reform paths in effective and efficient management of Average distance to frontier in sets of Doing Business indicators (percentage points) public resources by the government. Lack of transparency around the decisions Stronger 100 made by policy makers and government officials can lead to resource misalloca- 80 tion as funds, rather than being directed toward their most productive ends, are instead captured for private gain. Lack 70 of transparency can also undermine the Strength of legal institutions credibility of those who are perceived as 60 Kenya being its bene�ciaries and thus sharply 2012 limit their ability to gain public support for economic and other reforms. 50 Uganda Tanzania Access to information also plays an es- Rwanda sential part in the ability of businesses to 40 Burundi operate efficiently. Company registries, property registries, building depart- 30 ments and power distribution utilities 2005 in too many economies make it difficult Weaker 0 to access basic information such as fee 0 30 40 50 60 70 80 100 schedules for their services. In only 25% Complex and expensive Simple and inexpensive of economies do all 4 agencies make fee Complexity and cost of regulatory processes schedules easily accessible through their websites or through brochures or notice Note: Strength of legal institutions refers to the average distance to frontier in getting credit, protecting investors, enforcing contracts and resolving insolvency. Complexity and cost of regulatory processes refers to the average distance to frontier in boards. These are mostly higher-income starting a business, dealing with construction permits, registering property, paying taxes and trading across borders. Each dot economies, but they also include low- and refers to a different year, starting in 2005 and ending in 2012. The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is lower-middle-income economies such as normalized to range between 0 and 100, with 100 representing the best performance (the frontier). Burkina Faso and Tanzania. Source: Doing Business database. Around the world company registries are most likely to make information available FIGURE 1.8 Which agencies are more likely to make regulatory information easily accessible— online or through brochures or notice globally and in the EAC? boards, and building departments least Share of economies where agency makes fee schedules easily accessible (%) likely to do so (�gure 1.8). In 60% of EAC economies—Rwanda, Tanzania and 79 Uganda—the company registry makes fee schedules for incorporation easily ac- 64 cessible. But in only 40% of EAC econo- 60 56 mies does the relevant agency make fee 53 schedules for electricity connections, 40 40 40 property registration or building permits easily accessible. On the brighter side, in only 7 of 176 economies worldwide do all 4 types of agencies require that customers meet Company registry Property registry Distribution utility Building department with an official to obtain fee schedules. Access to fee schedules is most limited in All economies EAC economies Sub-Saharan Africa and the Middle East and North Africa. Of the 7 economies Note: Fee schedules are considered easily accessible if they can be obtained through the website of the relevant agency or through public notices (brochures or notice boards) available at that agency or a related one, without a need to meet with an globally where fee schedules cannot be of�cial. obtained from any of the agencies sur- Source: Doing Business database. veyed without meeting with an official, EXECUTIVE SUMMARY 9 6 are in Sub-Saharan Africa and 1 in the achieving homogeneity in the value added areas. Many regulatory reforms have been Middle East and North Africa.3 tax, the harmonization of excise taxes and implemented, and many good regulatory the conclusion of a double tax agreement practices can be found in EAC econo- Tanzania makes more information eas- among all 5 economies. Nevertheless, mies, especially in the areas of starting ily accessible than such high-income there is room for improvement, especially a business, getting credit and protecting economies as Greece, Kuwait and the with respect to the different national investors. Indeed, thanks largely to the United Arab Emirates. Cape Verde and EAC, Sub-Saharan Africa has had some tax regimes for small and medium-size Georgia, 2 lower-middle-income econo- of the most comprehensive reforms to businesses. mies, also have higher accessibility levels strengthen minority investor protections. than some richer economies. There are Another challenge is the implementation And among African regional blocs, an multiple ways in which governments of a regional “e-registry�—an electronic EAC economy tops the ranking on each can share information with the public. registry including both registration and of the 3 aspects of investor protections Where internet access might be difficult, licensing—aimed at harmonizing busi- measured by Doing Business. The EAC for example, information can be distrib- ness registration across the 5 countries. could serve as a model for other regional uted though brochures and notice boards. This regional system for sharing company blocs in Africa, especially with respect to Low-income economies such as Burkina information will support the provisions the dynamic and ambitious discussions Faso and Tanzania show that brochures of the EAC common market protocol on on the business environment and the can be an effective means of creating right of establishment of companies—and consequent actions taken. more transparency around regulatory will substantially improve the administra- information. tion of business entry even for domestic �rms, which will now have access to digi- NOTES WHAT CHALLENGES LIE 1. EAC 2011. tized platforms for business registration. AHEAD? 2. This report covers the following Kenya, Rwanda and Tanzania are already economies in these 4 African regional The EAC has set some ambitious goals. implementing online business registra- blocs: In the EAC, Burundi, Kenya, Over the years the region has substan- tion. But Uganda’s online registry is still in Rwanda, Tanzania and Uganda. In tially improved its business regulatory the initial stages, and Burundi has yet to COMESA, Burundi, the Comoros, the environment. But challenges remain, and digitize its records. And a business regis- Democratic Republic of Congo, Djibouti, the Arab Republic of Egypt, Eritrea, only comprehensive, broad-based re- tration certi�cate from one EAC country Ethiopia, Kenya, Madagascar, Malawi, gional development strategies will help in is not yet accepted in another. Mauritius, Rwanda, the Seychelles, getting the priorities right and achieving Sudan, Swaziland, Uganda, Zambia and the agreed-on milestones over the com- In addition, with the implementation of Zimbabwe. In ECOWAS, Benin, Burkina ing years. the common market there was agree- Faso, Cape Verde, Côte d’Ivoire, The ment that nontariff barriers would be Gambia, Ghana, Guinea, Guinea-Bissau, One challenge is tax harmonization, an im- Liberia, Mali, Niger, Nigeria, Senegal, gradually removed. But progress has been Sierra Leone and Togo. And in SADC, portant topic in the EAC. The Committee limited. There are still substantial delays Angola, Botswana, the Democratic on Fiscal Affairs was set up to harmonize in the issuance of certi�cates of origin, Republic of Congo, Lesotho, Madagascar, taxes (especially value added and excise regulations are not yet fully harmonized, Malawi, Mauritius, Mozambique, taxes) within the region to facilitate the and there is no consistent application of Namibia, the Seychelles, South Africa, implementation of the common market. Swaziland, Tanzania, Zambia and the agreed-on standards.4 Zimbabwe. Macroeconomic convergence as well 3. These economies are Botswana, the as the harmonization of �nancial sector Despite the remaining challenges, the Republic of Congo, Equatorial Guinea, laws and regulations and of major taxes EAC has great potential. It has been Eritrea, Gabon and Mauritania in Sub- and tax procedures remains key for the among the fastest growing regional Saharan Africa and Iraq in the Middle integration process. The Committee on blocs in Africa in the past decade5 and East and North Africa. Fiscal Affairs has made signi�cant prog- has already made much progress in 4. McAuliffe, Saxena and Yabara 2012. ress in tax harmonization—for example, harmonizing national policies in different 5. McAuliffe, Saxena and Yabara 2012. 10 About Doing Business: measuring for impact The private sector provides an estimated economy can be compared with those for 90% of jobs in developing economies.1 184 other economies and over time. Where government policies support a dynamic business environment—with Over the years the choice of indicators for �rms making investments, creating jobs Doing Business has been guided by a rich and increasing productivity—all people pool of data collected through the World have greater opportunities. A growing Bank Enterprise Surveys. These data body of evidence suggests that policy highlight the main obstacles to business makers seeking to strengthen the private activity as reported by entrepreneurs in sector need to pay attention not only to well over 100 economies. Among the macroeconomic factors but also to the factors that the surveys have identi�ed as quality of laws, regulations and insti- important to businesses have been taxes tutional arrangements that shape daily (tax administration as well as tax rates) economic life.2 and electricity—inspiring the design of the paying taxes and getting electricity Doing Business 2013 is the 10th in a series indicators. In addition, the design of the of annual reports. When the �rst report Doing Business indicators has drawn was produced, in 2003, there were few on theoretical insights gleaned from globally available and regularly updated extensive research literature.3 The Doing indicators for monitoring such micro- Business methodology makes it possible economic issues as business regulations to update the indicators in a relatively affecting local �rms. Earlier efforts from inexpensive and replicable way. the 1980s drew on perceptions data, but these expert or business surveys focused The Doing Business methodology is also on broad aspects of the business environ- responsive to the needs of policy makers. ment and often captured the experiences Rules and regulations are under the direct of businesses. These surveys also lacked control of policy makers—and policy the speci�city and cross-country compa- makers intending to change the experi- rability that Doing Business provides—by ence and behavior of businesses will focusing on well-de�ned transactions, often start by changing rules and regula- laws and institutions rather than generic, tions that affect them. Doing Business perceptions-based questions on the busi- goes beyond identifying that a problem ness environment. exists and points to speci�c regulations or regulatory procedures that may lend Doing Business seeks to measure business themselves to regulatory reform. And regulations for domestic �rms through an its quantitative measures of business objective lens. The project looks primar- regulation enable research on how spe- ily at small and medium-size companies ci�c regulations affect �rm behavior and in the largest business city. Based on economic outcomes. standardized case studies, it presents quantitative indicators on the regulations The �rst Doing Business report covered 5 that apply to �rms at different stages topics and 133 economies. This year’s re- of their life cycle. The results for each port covers 11 topics and 185 economies. ABOUT DOING BUSINESS: MEASURING FOR IMPACT 11 Ten topics are included in the aggregate bene�ts and bear the costs of develop- FIGURE 2.1 What are SMART business ranking on the ease of doing business, ment strategies and policies. regulations as de�ned by Doing Business? and 9 in the distance to frontier measure.4 The project has bene�ted from feedback Consistent with the view that rules mat- ter, some Doing Business indicators give STREAMLINED—regulations from governments, academics, practi- that accomplish the desired a higher score for more regulation and outcome in the most efficient way tioners and reviewers.5 The initial goal remains: to provide an objective basis for better-functioning institutions (such as S courts or credit bureaus). In the area of understanding and improving the regula- MEANINGFUL—regulations protecting investors, for example, higher that have a measurable positive tory environment for business. scores are given for stricter disclosure re- impact in facilitating WHAT DOING BUSINESS COVERS quirements for related-party transactions. M interactions in the marketplace Higher scores are also given for a simpli- Doing Business captures several important �ed way of applying regulation that keeps ADAPTABLE—regulations dimensions of the regulatory environ- compliance costs for �rms low—such as that adapt to changes in the environment ment as they apply to local �rms. It provides quantitative measures of regula- by allowing �rms to comply with business start-up formalities in a one-stop shop A tions for starting a business, dealing with or through a single online portal. Finally, RELEVANT—regulations that are construction permits, getting electricity, Doing Business scores reward economies proportionate to the problem they registering property, getting credit, pro- are designed to solve tecting investors, paying taxes, trading that apply a risk-based approach to regulation as a way to address social R across borders, enforcing contracts and and environmental concerns—such as TRANSPARENT—regulations resolving insolvency. Doing Business also by imposing a greater regulatory burden that are clear and accessible to looks at regulations on employing work- on activities that pose a high risk to the anyone who needs to use them ers. Pending further progress on research population and a lesser one on lower-risk T in this area, this year’s report does not activities. present rankings of economies on the Thus the economies that rank highest on employing workers indicators or include the ease of doing business are not those Indeed, about three-quarters of the data the topic in the aggregate ranking on the where there is no regulation—but those used in Doing Business are of this factual ease of doing business. It does present the where governments have managed to type, reducing the need to have a larger data on the employing workers indicators. create rules that facilitate interactions sample size of experts in order to improve Additional data on labor regulations col- in the marketplace without needlessly accuracy. The local expert respondents lected in 185 economies are available on hindering the development of the private play a vital role in corroborating the Doing the Doing Business website.6 Business team’s understanding and inter- sector. In essence, Doing Business is about smart business regulations, not necessar- pretation of rules and laws. The foundation of Doing Business is the notion that economic activity, particularly ily fewer regulations (�gure 2.1). Data of the second type serve as inputs private sector development, bene�ts from into indicators on the complexity and cost In constructing the indicators the Doing clear and coherent rules: Rules that set out of regulatory processes. These indicators Business project uses 2 types of data. and clarify property rights and facilitate The �rst come from readings of laws and measure the efficiency in achieving a the resolution of disputes. And rules that regulations in each economy. The Doing regulatory goal, such as the number of enhance the predictability of economic Business team, in collaboration with local procedures to obtain a building permit interactions and provide contractual part- expert respondents, examines the com- or the time taken to grant legal identity ners with essential protections against pany law to �nd the disclosure require- to a business. In this group of indicators arbitrariness and abuse. Where such ments for related-party transactions. It cost estimates are recorded from official rules are reasonably efficient in design, reads the civil law to �nd the number of fee schedules where applicable. Time are transparent and accessible to those procedures necessary to resolve a com- estimates often involve an element of for whom they are intended and can be mercial sale dispute before local courts. judgment by respondents who routinely implemented at a reasonable cost, they It reviews the labor code to �nd data on administer the relevant regulations or are much more effective in shaping the a range of issues concerning employer- undertake the relevant transactions.7 incentives of economic agents in ways employee relations. And it plumbs other These experts have several rounds of that promote growth and development. legal instruments for other key pieces interaction with the Doing Business team, The quality of the rules also has a crucial of data used in the indicators, several involving conference calls, written cor- bearing on how societies distribute the of which have a large legal dimension. respondence and visits by the team until 12 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 there is convergence on the �nal answer. TABLE 2.1 Doing Business—benchmarking 11 areas of business regulation To construct the time indicators, a regula- Complexity and cost of regulatory processes tory process such as starting a business Starting a business Procedures, time, cost and paid-in minimum capital requirement is broken down into clearly de�ned steps Dealing with construction permits Procedures, time and cost and procedures (for more details, see Getting electricity Procedures, time and cost the discussion on methodology in this Registering property Procedures, time and cost chapter). Here Doing Business builds on Paying taxes Payments, time and total tax rate Hernando de Soto’s pioneering work in Trading across borders Documents, time and cost applying the time-and-motion approach Strength of legal institutions in the 1980s to show the obstacles to set- Getting credit Movable collateral laws and credit information systems ting up a garment factory on the outskirts Protecting investors Disclosure and liability in related-party transactions of Lima.8 Enforcing contracts Procedures, time and cost to resolve a commercial dispute Resolving insolvency Time, cost, outcome and recovery rate WHAT DOING BUSINESS Employing workersa Flexibility in the regulation of employment DOES NOT COVER a. The employing workers indicators are not included in this year’s ranking on the ease of doing business nor in the calculation of any data on the strength of legal institutions included in �gures in the report. The Doing Business data have key limita- tions that should be kept in mind by those who use them. through 11 speci�c sets of indicators One such assumption is the location of a (table 2.1). Similar to the indicators notional business in the largest business Limited in scope on getting electricity, those on start- city of the economy. The reality is that The Doing Business indicators are limited ing a business or protecting investors business regulations and their enforce- in scope. In particular: do not cover all aspects of commercial ment very often differ within a country, Ė Doing Business does not measure the legislation. And those on employing particularly in federal states and large full range of factors, policies and in- workers do not cover all areas of labor economies. But gathering data for every stitutions that affect the quality of the regulation; for example, they do not relevant jurisdiction in each of the 185 business environment in an economy measure regulations addressing health economies covered by Doing Business or its national competitiveness. It does and safety issues at work or the right of would be far too costly. not, for example, capture aspects of collective bargaining. Doing Business recognizes the limitations security, the prevalence of bribery Ė Doing Business does not attempt to of the standardized case scenarios and and corruption, market size, macro- measure all costs and bene�ts of a assumptions. But while such assump- economic stability (including whether particular law or regulation to society tions come at the expense of generality, the government manages its public �- as a whole. The paying taxes indicators, they also help ensure the comparability nances in a sustainable way), the state for example, measure the total tax rate, of data. For this reason it is common to of the �nancial system or the level of which in isolation is a cost to the busi- see limiting assumptions of this kind in training and skills of the labor force. ness. The indicators do not measure, economic indicators. Inflation statistics, Ė Even within the relatively small set of nor are they intended to measure, the for example, are often based on prices of indicators included in Doing Business, bene�ts of the social and economic a set of consumer goods in a few urban the focus is deliberately narrow. The programs funded through tax rev- areas, since collecting nationally repre- getting electricity indicators, for ex- enues. Measuring business laws and sentative price data at high frequencies ample, capture the procedures, time regulations provides one input into may be prohibitively costly in many coun- and cost involved for a business to ob- the debate on the regulatory burden tries. To capture regional variation in the tain a permanent electricity connection associated with achieving regulatory business environment within economies, to supply a standardized warehouse. objectives. Those objectives can differ Doing Business has complemented its Through these indicators Doing across economies. global indicators with subnational studies Business thus provides a narrow per- in some economies where resources and spective on the range of infrastructure Limited to standardized interest have come together (box 2.1). challenges that �rms face, particularly case scenarios in the developing world. It does not ad- A key consideration for the Doing Business Some Doing Business topics include com- dress the extent to which inadequate indicators is that they should ensure plex and highly differentiated areas. Here roads, rail, ports and communications comparability of the data across a global the standardized cases and assumptions may add to �rms’ costs and undermine set of economies. The indicators are are carefully considered and de�ned. For competitiveness. Doing Business cov- therefore developed around standardized example, the standardized case scenario ers 11 areas of a company’s life cycle, case scenarios with speci�c assumptions. usually involves a limited liability company ABOUT DOING BUSINESS: MEASURING FOR IMPACT 13 or its legal equivalent. The considerations business when potential losses are lim- and may lose considerable time in trying in de�ning this assumption are twofold. ited to their capital participation. to �nd out. Or they may deliberately avoid First, private limited liability companies compliance altogether—by not register- are, empirically, the most prevalent busi- Limited to the formal sector ing for social security, for example. Where ness form in many economies around The Doing Business indicators assume regulation is particularly onerous, levels of the world. Second, this choice reflects that entrepreneurs have knowledge of informality tend to be higher (�gure 2.2). the focus of Doing Business on expand- and comply with applicable regulations. Informality comes at a cost. Compared ing opportunities for entrepreneurship: In practice, entrepreneurs may not know with their formal sector counterparts, investors are encouraged to venture into what needs to be done or how to comply �rms in the informal sector typically grow more slowly, have poorer access to credit BOX 2.1 COMPARING REGULATIONS AT THE LOCAL LEVEL: SUBNATIONAL DOING and employ fewer workers—and these BUSINESS REPORTS workers remain outside the protections of Subnational Doing Business reports expand the indicators beyond the largest busi- labor law.9 All this may be even more so ness city in an economy. They capture local differences in regulations or in the imple- for female-owned businesses, according mentation of national regulations across cities within an economy (as in Colombia) to country-speci�c research.10 Firms in or region (as in South East Europe). Projects are undertaken at the request of central governments, which often contribute �nancing, as in Mexico. In some cases local gov- the informal sector are also less likely to ernments also provide funding, as in the Russian Federation. pay taxes. Subnational indicators provide governments with standard measures, based on laws and regulations, that allow objective comparisons both domestically and internation- Doing Business measures one set of factors ally. As a diagnostic tool, they identify bottlenecks as well as highlight good practices that help explain the occurrence of infor- that are easily replicable in other cities sharing a similar legal framework. mality and give policy makers insights Governments take ownership of a subnational project by participating in all steps of into potential areas of reform. Gaining its design and implementation—choosing the cities to be benchmarked, the indicators that can capture local differences and the frequency of benchmarking. All levels of a fuller understanding of the broader government are involved—national, regional and municipal. business environment, and a broader Subnational projects create a space for discussing regulatory reform and provide perspective on policy challenges, requires opportunities for governments and agencies to learn from one another, through the combining insights from Doing Business report and through peer-to-peer learning workshops. Even after the report is launched, with data from other sources, such as the knowledge sharing continues. In Mexico 28 of 32 states hold regular exchanges. World Bank Enterprise Surveys.11 Repeated benchmarking creates healthy competition between cities to improve their regulatory environment. The dissemination of the results reinforces this process and gives cities an opportunity to tell their stories. Fifteen economies have requested WHY THIS FOCUS?  2 or more rounds of benchmarking since 2005 (including Colombia, Indonesia and Nigeria), and many have expanded the geographic coverage to more cities (including Why does Doing Business focus on the Russia). In Mexico each successive round has captured an increase in the number of regulatory environment for small and me- states improving their regulatory environment in each of the 4 indicator sets includ- dium-size enterprises? These enterprises ed—reaching 100% of states in 2011. are key drivers of competition, growth and Since 2005 subnational reports have covered 335 cities in 54 economies, including Brazil, job creation, particularly in developing China, the Arab Republic of Egypt, India, Kenya, Morocco, Pakistan and the Philippines.1 economies. But in these economies up to This year studies were updated in Indonesia, Kenya, Mexico, Russia and the United Arab Emirates. Studies are ongoing in Hargeisa (Somaliland) as well as in 23 cities and 65% of economic activity takes place in 4 ports in Colombia, 15 cities and 3 ports in Egypt and 13 cities and 7 ports in Italy. In the informal sector, often because of ex- addition, 3 regional reports were published: cessive bureaucracy and regulation—and Ė Doing Business in OHADA, comparing business regulations in 16 member states of in the informal sector �rms lack access the Organization for the Harmonization of Business Law in Africa (Benin, Burkina to the opportunities and protections that Faso, Cameroon, the Central African Republic, Chad, the Comoros, the Republic of Congo, Côte d’Ivoire, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, the law provides. Even �rms operating in Senegal and Togo). the formal sector might not have equal Ė Doing Business in the East African Community, covering 5 economies (Burundi, Kenya, access to these opportunities and protec- Rwanda, Tanzania and Uganda). tions. Where regulation is burdensome Ė Doing Business in the Arab World, covering 20 economies (Algeria, Bahrain, the and competition limited, success tends to Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Mauritania, Morocco, depend on whom one knows. But where Oman, Qatar, Saudi Arabia, Sudan, the Syrian Arab Republic, Tunisia, the United Arab Emirates, West Bank and Gaza, and the Republic of Yemen). regulation is transparent, efficient and implemented in a simple way, it becomes 1. Subnational reports are available on the Doing Business website at http://www.doingbusiness .org/subnational. easier for aspiring entrepreneurs to com- pete, innovate and grow. 14 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 FIGURE 2.2 Higher levels of informality are associated with lower Doing Business rankings other major economic benchmarks. The Informal sector indicator set closest to Doing Business in as % of GDP, 2007 what it measures is the set of indicators 70 on product market regulation compiled by the Organisation for Economic Co- 60 operation and Development (OECD). 50 These are designed to help assess the extent to which the regulatory environ- 40 ment promotes or inhibits competition. 30 They include measures of the extent of price controls, the licensing and permit 20 system, the degree of simpli�cation of 10 rules and procedures, the administrative burdens and legal and regulatory bar- 0 riers, the prevalence of discriminatory 0 20 40 60 80 100 120 140 160 180 procedures and the degree of government DB2013 ranking on the ease of doing business control over business enterprises.13 These Note: The correlation between the 2 variables is 0.57. Relationships are signi�cant at the 5% level after controlling for income indicators—for the 39 countries that are per capita. The data sample includes 143 economies. Source: Doing Business database; Schneider, Buehn and Montenegro 2010. covered, several of them large emerging markets—are correlated with the Doing Business rankings (the correlation here is Do the focus areas of Doing Business mat- cover aspects that are more easily mea- 0.53) (�gure 2.3). ter for development and poverty reduc- sured than the entire regulatory environ- tion? The World Bank study Voices of the ment, and they provide important infor- There is a high correlation (0.83) be- Poor asked 60,000 poor people around mation about where change is needed. tween the Doing Business rankings and the the world how they thought they might What type of change or regulatory reform rankings on the World Economic Forum’s escape poverty.12 The answers were un- is right, however, can vary substantially Global Competitiveness Index, a much equivocal: women and men alike pin their across economies. broader measure capturing such factors hopes, above all, on income from their as macroeconomic stability, aspects of own business or wages earned in employ- To test whether Doing Business serves human capital, the soundness of public ment. Enabling growth—and ensuring as a proxy for the broader business institutions and the sophistication of that all people, regardless of income level, environment and for competitiveness, the business community (�gure 2.4).14 can participate in its bene�ts—requires one approach is to look at correlations Self-reported experiences with business an environment where new entrants with between the Doing Business rankings and regulations, such as those captured by the drive and good ideas can get started in business and where good �rms can invest FIGURE 2.3 A signi�cant correlation between Doing Business rankings and OECD rankings on and grow, thereby generating more jobs. product market regulation In this sense Doing Business values good rules as a key to social inclusion. 2008 ranking on OECD product market regulation indicators In effect, Doing Business functions as a 40 barometer of the regulatory environment for domestic businesses. To use a medi- 30 cal analogy, Doing Business is similar to a cholesterol test. A cholesterol test does 20 not tell us everything about our health. But our cholesterol level is easier to mea- sure than our overall health, and the test 10 provides us with important information, warning us when we need to adjust our 0 0 20 40 60 80 100 120 140 160 180 behavior. Similarly, Doing Business does not tell us everything we need to know DB2013 ranking on the ease of doing business about the regulatory environment for Note: Relationships are signi�cant at the 5% level after controlling for income per capita. domestic businesses. But its indicators Source: Doing Business database; OECD data. ABOUT DOING BUSINESS: MEASURING FOR IMPACT 15 FIGURE 2.4 A strong correlation between Doing Business rankings and World Economic Forum At any point in time the distance to fron- rankings on global competitiveness tier measure shows how far an economy is 2012/13 ranking on Global from the highest performance. And com- Competitiveness Index paring an economy’s score at 2 points in 140 time allows users to assess the absolute change over time in the economy’s regu- 120 latory environment as measured by Doing 100 Business, rather than simply the change 80 in the economy’s performance relative to 60 others. In this way the distance to frontier measure complements the yearly ease of 40 doing business ranking, which compares 20 economies with one another at a point in 0 time. 0 20 40 60 80 100 120 140 160 180 DB2013 ranking on the ease of doing business Each topic covered by Doing Business relates to a different aspect of the busi- Note: Relationships are signi�cant at the 5% level after controlling for income per capita. Source: Doing Business database; WEF 2012. ness regulatory environment. The rank- ings of each economy vary, sometimes signi�cantly, across topics. A quick way Global Competitiveness Index, often vary economies that have had rapid growth or to assess the variability of an economy’s much more within economies (across attracted a great deal of investment may regulatory performance across the differ- respondents in the same economy) than rank lower than others that appear to be ent areas of business regulation is to look across economies.15 A high correlation less dynamic. at the topic rankings (see the country such as this one can therefore coexist with tables and �gure 1.3 in the executive sum- signi�cant differences within economies. As economies develop, they may add to mary). Guatemala, for example, stands at or improve on regulations that protect 93 in the overall ease of doing business DOING BUSINESS AS A investor and property rights. Many also ranking. Its ranking is 12 on the ease of BENCHMARKING EXERCISE tend to streamline existing regulations getting credit, 20 on the ease of register- By capturing key dimensions of regula- and prune outdated ones. One �nding ing property and 34 on the ease of getting tory regimes, Doing Business provides a of Doing Business is that dynamic and electricity. At the same time, it has a rank- rich opportunity for benchmarking. Such growing economies continually reform ing of 124 on the ease of paying taxes, 158 a benchmarking exercise is necessarily in- and update their business regulations and on the strength of investor protections complete, just as the Doing Business data the implementation of those regulations, and 172 on the ease of starting a business. are limited in scope. It is useful when it while many poor economies still work aids judgment, but not when it supplants with regulatory systems dating to the late WHAT 10 YEARS judgment. 1800s. OF DATA SHOW Since 2006 Doing Business has sought to A growing body of empirical research For reform-minded governments, how provide 2 perspectives on the data it col- shows that particular areas of business much the regulatory environment for lo- lects: it presents “absolute� indicators for regulation, and particular regulatory re- cal entrepreneurs improves in an absolute each economy for each of the 11 regula- forms in those areas, are associated with sense matters far more than their econo- tory topics it addresses, and it provides vital social and economic outcomes— my’s ranking relative to other economies. rankings of economies for 10 topics, by including �rm creation, employment, To aid in assessing the absolute level of formality, international trade, access topic and also in the aggregate. Judgment regulatory performance and how it im- to �nancial services and the survival of is required in interpreting these measures proves over time, this year’s report again struggling but viable �rms.16 This research for any economy and in determining a presents the distance to frontier measure. has been made possible by a decade of sensible and politically feasible path for This measure shows the distance of Doing Business data combined with other regulatory reform. each economy to the “frontier,� which data sets. Some 1,245 research articles Reviewing the Doing Business rankings in represents the highest performance published in peer-reviewed academic isolation may reveal unexpected results. observed on each of the indicators across journals, and about 4,071 working papers Some economies may rank unexpect- all economies included in Doing Business available through Google Scholar, refer to edly high on some topics. And some since 2003. the Doing Business data.17 16 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 Determining the empirical impact of utilities and communications.22 Empirical Ė In India a study found that the pro- regulatory reforms is not easy. One pos- evidence also suggests that more effi- gressive elimination of the “license sible approach is cross-country correla- cient business entry regulations improve raj�—the system regulating entry and tion analysis. But with this method it is �rm productivity and macroeconomic production in industry—led to a 6% difficult to isolate the effect of a particular performance.23 increase in new �rm registrations.30 regulatory reform because of all the other Another study found that simpler entry factors that may vary across economies Lower costs for business registration improve regulation and labor market flexibility and that may not have been taken into formal employment opportunities. Because were complementary: in Indian states account in the analysis. How then do new �rms are often set up by high-skilled with more flexible employment regula- researchers determine whether social or workers, lowering entry costs often leads tions informal �rms decreased by 25% economic outcomes would have been to higher take-up rates for education, more, and real output grew by 18% different without a speci�c regulatory re- more jobs for high-skilled workers and more, than in states with less flexible form? A growing number of studies have higher average productivity.24 And by regulations.31 A third study found that been able to investigate such questions increasing formal registration, it can also the licensing reform resulted in an ag- by analyzing regulatory changes within a boost legal certainty—because the newly gregate productivity increase of 22% country over time or by using panel esti- formal �rms are now covered by the legal among the �rms affected.32 mations. Others have focused on regula- system, bene�ting themselves as well as Ė In Portugal the introduction of a one- tory reforms relevant only for particular their customers and suppliers.25 stop shop for businesses led to a 17% �rms or industries within a country. The increase in new �rm registrations. The broader literature, using a range of differ- Country-speci�c studies con�rm that reform favored mostly small-scale ent empirical strategies, has produced a simplifying entry regulations can promote entrepreneurs with low levels of educa- number of interesting �ndings, including the establishment of new formal sector tion operating in low-tech sectors such those described below. �rms: as agriculture, construction and retail.33 Ė In Colombia the introduction of one- Smarter business regulation promotes stop shops for business registration in An effective regulatory environment im- economic growth. Economies with better different cities across the country was proves trade performance. Strengthening business regulation grow faster. One followed by a 5.2% increase in new the institutional environment for study found that for economies in the �rm registrations.26 trade—such as by increasing customs best quartile of business regulation as efficiency—can boost trade volumes.34 measured by Doing Business, the differ- Ė In Mexico a study analyzing the effects In Sub-Saharan Africa an inefficient trade ence in business regulation with those of a program simplifying municipal environment was found to be among the in the worst quartile is associated with a licensing found that it led to a 5% main factors in poor trade performance.35 2.3 percentage point increase in annual increase in the number of registered One study found that a 1-day reduction in growth rates.18 Another found that regula- businesses and a 2.2% increase in inland travel times leads to a 7% increase tory reforms making it easier to do busi- employment. Moreover, competition in exports.36 Another found that among ness in relatively low-income economies from new entrants lowered prices by the factors that improve trade perfor- are associated with an increase in growth 0.6% and the income of incumbent mance are access to �nance, the quality rates of 0.4 percentage point in the fol- businesses by 3.2%.27 A second study of infrastructure and the government’s lowing year.19 found that the program was more ability to formulate and implement sound effective in municipalities with less policies and regulations that promote Simpler business registration promotes corruption and cheaper additional private sector development.37 The same greater entrepreneurship and �rm pro- registration procedures.28 Yet another study showed that the more constrained ductivity. Economies that have efficient business registration also tend to have found that simpler licensing may result economies are in their access to foreign a higher entry rate by new �rms and in both more wage workers and more markets, the more they can bene�t from greater business density.20 Faster busi- formal enterprises, depending on the improvements in the investment climate. ness registration is associated with more personal characteristics of informal Yet another study found that improve- businesses registering in industries with business owners: those with charac- ments in transport efficiency and the the strongest potential for growth, such teristics similar to wage workers were business environment have a greater as those experiencing expansionary more likely to become wage workers, marginal effect on exports in lower- global demand or technology shifts.21 And while those with characteristics similar income economies than in high-income easier start-up is associated with more to entrepreneurs in the formal sector ones.38 One study even suggests that investment in industries often sheltered were more likely to become formal behind-the-border measures to improve from competition, including transport, business owners.29 logistics performance and facilitate trade ABOUT DOING BUSINESS: MEASURING FOR IMPACT 17 may have a larger effect on trade, espe- Ė Brazil’s extensive bankruptcy reform the Doing Business project began. But cially on exports, than tariff reduction in 2005 was associated with a 22% Doing Business made it easier by creating would.39 reduction in the cost of debt and a a common language comparing business 39% increase in the aggregate level of regulations around the world. Other areas of regulation matter for trade credit.47 performance. Economies with good con- Over the past 10 years governments Ė Introducing streamlined mechanisms tract enforcement tend to produce and worldwide have been actively improving for reorganization has been shown export more customized products than the regulatory environment for domestic to reduce the number of liquidations those with poor contract enforcement.40 companies. Most reforms relating to because it encourages more viable Since production of high-quality output Doing Business topics have been nested �rms to opt for reorganization. Indeed, is a precondition for �rms to become in broader reform programs aimed at it reduced the number of liquidations exporters, reforms that lower the cost of enhancing economic competitiveness, as by 14% in Colombia and by 8.4% in high-quality production increase the posi- in Colombia, Kenya and Liberia. In struc- Belgium.48 One important feature of tive effect of trade reforms.41 Moreover, turing reform programs for the business Colombia’s new system is that it bet- reforms removing barriers to trade need environment, governments use multiple ter distinguishes between viable and to be accompanied by other reforms, data sources and indicators. This recog- nonviable �rms, making it more likely such as those making labor markets more nizes the reality that the Doing Business that �nancially distressed but funda- flexible, to increase productivity and data on their own provide an incomplete mentally viable �rms will survive. growth.42 roadmap for successful business regula- Ė Improving investor protections, tion reforms.50 It also reflects the need to Sound �nancial market infrastructure— developing �nancial markets and respond to many stakeholders and inter- including courts, creditor and insolvency promoting more active markets for cor- porate control reduce the persistence est groups, all of whom bring important laws, and credit and collateral registries— of family-controlled �rms over time, issues and concerns to the reform debate. improves access to credit. Businesses worldwide identify access to credit as one expanding opportunity for �rms with When the World Bank Group engages with of the main obstacles they face.43 Good more diversi�ed capital structures.49 governments on the subject of improving credit information systems and strong the investment climate, the dialogue aims collateral laws help overcome this ob- HOW GOVERNMENTS USE to encourage the critical use of the Doing stacle. An analysis of reforms improving DOING BUSINESS Business data—to sharpen judgment collateral law in 12 transition economies Doing Business offers policy makers a and promote broad-based reforms that concludes that they had a positive effect benchmarking tool useful in stimulating enhance the investment climate rather on the volume of bank lending.44 Greater policy debate, both by exposing poten- than a narrow focus on improving the information sharing through credit tial challenges and by identifying good Doing Business rankings. The World Bank bureaus is associated with higher bank practices and lessons learned. The initial Group uses a vast range of indicators and pro�tability and lower bank risk. And debate on the results highlighted by the analytics in this policy dialogue, including stronger creditor rights and the existence data typically turns into a deeper discus- its Global Poverty Monitoring Indicators, of public or private credit registries are sion on the relevance of the data to the World Development Indicators, Logistics associated with a higher ratio of private economy and on areas where business Performance Indicators and many others. credit to GDP.45 regulation reform is needed, including The open data initiative has made data areas well beyond those measured by for many such indicators conveniently Country-speci�c studies con�rm that Doing Business. available to the public at http://data efficient debt recovery and exit processes are key in determining credit conditions .worldbank.org. Reform-minded governments seeking and in ensuring that less productive �rms success stories in business regulation are either restructured or exit the market: refer to Doing Business for examples (box METHODOLOGY AND DATA Ė In India the establishment of special- 2.2). Saudi Arabia, for example, used The Doing Business data are based on ized debt recovery tribunals had a the company law of France as a model domestic laws and regulations as well range of positive effects, including for revising its own law. Many African as administrative requirements. The data speeding up the resolution of debt re- governments look to Mauritius—the cover 185 economies—including small covery claims, allowing lenders to seize region’s strongest performer on Doing economies and some of the poorest more collateral on defaulting loans, Business indicators—as a source of good economies, for which little or no data increasing the probability of repayment practices to inspire regulatory reforms in are available in other data sets. (For a by 28% and reducing interest rates on their own countries. Governments shared detailed explanation of the Doing Business loans by 1–2 percentage points.46 knowledge of business regulations before methodology, see the data notes.) 18 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 insolvency—the time component and BOX 2.2 HOW ECONOMIES HAVE USED DOING BUSINESS IN REGULATORY REFORM part of the cost component (where fee PROGRAMS schedules are lacking) are based on ac- To ensure the coordination of efforts across agencies, such economies as Brunei tual practice rather than the law on the Darussalam, Colombia and Rwanda have formed regulatory reform committees, re- porting directly to the president. These committees use the Doing Business indicators as books. This introduces a degree of judg- one input to inform their programs for improving the business environment. More than ment. The Doing Business approach has 35 other economies have formed such committees at the interministerial level. In East therefore been to work with legal prac- and South Asia they include India; Korea; Malaysia; the Philippines; Taiwan, China; and titioners or professionals who regularly Vietnam. In the Middle East and North Africa: Morocco, Saudi Arabia and the United undertake the transactions involved. Arab Emirates. In Eastern Europe and Central Asia: Georgia, Kazakhstan, Kosovo, the Kyrgyz Republic, the former Yugoslav Republic of Macedonia, Moldova, Montenegro Following the standard methodological and Tajikistan. In Sub-Saharan Africa: Botswana, Burundi, the Central African Republic, approach for time-and-motion stud- the Comoros, the Democratic Republic of Congo, the Republic of Congo, Côte d’Ivoire, ies, Doing Business breaks down each Kenya, Liberia, Malawi, Mali, Nigeria, Sierra Leone, Togo and Zambia. And in Latin process or transaction, such as starting America: Chile, the Dominican Republic, Guatemala, Mexico, Panama and Peru. Since a business or registering a building, 2003 governments have reported more than 350 regulatory reforms that have been informed by Doing Business.1 into separate steps to ensure a better Many economies share knowledge on the regulatory reform process related to the estimate of time. The time estimate for areas measured in Doing Business. Among the most common venues for this knowl- each step is given by practitioners with edge sharing are peer-to-peer learning events—workshops where officials from dif- significant and routine experience in ferent governments across a region or even across the globe meet to discuss the chal- the transaction. When time estimates lenges of regulatory reform and share their experiences. In recent years such events differ, further interactions with respon- have taken place in Colombia (for Latin America and the Caribbean), in Rwanda (for Sub-Saharan Africa), in Georgia (for Eastern Europe and Central Asia), in Malaysia (for dents are pursued to converge on one East Asia and the Paci�c) and in Morocco (for the Middle East and North Africa). In estimate that reflects the majority of addition, regional organizations such as APEC, featured in a case study in this year’s applicable cases. global report, use the Doing Business data as a tool and common language to set an agenda for business regulation reform. The Doing Business approach to data col- 1. These are reforms for which Doing Business is aware that information provided by the Doing lection contrasts with that of �rm surveys, Business report was used in shaping the reform agenda. which capture perceptions and experi- ences of businesses. A corporate lawyer registering 100–150 businesses a year will Doing Business respondents answer the surveys related to trading be more familiar with the process than an Over the past 10 years more than 18,000 across borders, taxes and construction entrepreneur, who will register a business professionals in 185 economies have as- permits. Certain public officials (such as only once or maybe twice. A bankruptcy sisted in providing the data that inform registrars from the commercial or prop- attorney or judge dealing with dozens of the Doing Business indicators. This year’s erty registry) also provide information cases a year will have more insight into global report draws on the inputs of more that is incorporated into the indicators. bankruptcy than a company that may than 9,600 professionals.51 Table 14.2 in Information sources for the data undergo the process once. the data notes lists the number of respon- dents for each indicator set. The Doing Most of the Doing Business indicators Development of the methodology Business website shows the number of are based on laws and regulations. In The methodology for calculating each respondents for each economy and each addition, most of the cost indicators are indicator is transparent, objective and indicator. Respondents are professionals backed by official fee schedules. Doing easily replicable. Leading academics who routinely administer or advise on Business respondents both �ll out written collaborate in the development of the the legal and regulatory requirements questionnaires and provide references indicators, ensuring academic rigor. Eight covered in each Doing Business topic. to the relevant laws, regulations and of the background papers underlying the They are selected on the basis of their fee schedules, aiding data checking and indicators have been published in leading expertise in the speci�c areas covered by quality assurance. Having representative economic journals.52 Doing Business. Because of the focus on samples of respondents is not an issue, as legal and regulatory arrangements, most the texts of the relevant laws and regula- Doing Business uses a simple averaging of the respondents are legal professionals tions are collected and answers checked approach for weighting component such as lawyers, judges or notaries. The for accuracy. indicators and calculating rankings and credit information survey is answered by the distance to frontier measure. Other officials of the credit registry or bureau. For some indicators—for example, approaches were explored, including Freight forwarders, accountants, archi- those on dealing with construction per- using principal components and unob- tects, engineers and other professionals mits, enforcing contracts and resolving served components.53 They turn out to ABOUT DOING BUSINESS: MEASURING FOR IMPACT 19 yield results nearly identical to those Data adjustments (2008), input from the International of simple averaging. In the absence of a Tax Dialogue and regular input from the All changes in methodology are explained Indicators Advisory Group. strong theoretical framework that assigns in the data notes as well as on the Doing 6. http://www.doingbusiness.org. different weights to the topics covered Business website. In addition, data time for the 185 economies by Doing Business, 7. Local experts in 185 economies are series for each indicator and economy are surveyed annually to collect and the simplest method is used: weighting available on the website, beginning with update the data. The local experts all topics equally and, within each topic, the �rst year the indicator or economy for each economy are listed on the giving equal weight to each of the topic was included in the report. To provide a Doing Business website (http://www components (for more details, see the .doingbusiness.org) and in the comparable time series for research, the chapter on the ease of doing business and acknowledgments at the end of data set is back-calculated to adjust for this report. distance to frontier).54 changes in methodology and any revi- 8. De Soto 2000. sions in data due to corrections. The data Improvements to the 9. Schneider 2005; La Porta and Shleifer set is not back-calculated for year-to-year 2008. methodology revisions in income per capita data (that 10. Amin 2011. The methodology has undergone con- is, when the income per capita data are 11. http://www.enterprisesurveys.org. tinual improvement over the years. For revised by the original data sources, Doing 12. Narayan and others 2000. enforcing contracts, for example, the Business does not update the cost mea- 13. OECD, “Indicators of Product Market amount of the disputed claim in the case sures for previous years). The website Regulation,� http://www.oecd.org/. study was increased from 50% of income The measures are aggregated into also makes available all original data sets per capita to 200% after the �rst year of 3 broad families that capture state used for background papers. data collection, as it became clear that control, barriers to entrepreneurship smaller claims were unlikely to go to Information on data corrections is provid- and barriers to international trade and court. investment. The 39 countries included ed in the data notes and on the website. A in the OECD market regulation indica- transparent complaint procedure allows tors are Australia, Austria, Belgium, Another change related to starting a anyone to challenge the data. If errors Brazil, Canada, Chile, China, the Czech business. The minimum capital require- Republic, Denmark, Estonia, Finland, are con�rmed after a data veri�cation ment can be an obstacle for potential France, Germany, Greece, Hungary, process, they are expeditiously corrected. entrepreneurs. Doing Business measured Iceland, India, Ireland, Israel, Italy, the required minimum capital regardless Japan, Korea, Luxembourg, Mexico, the of whether it had to be paid up front or Netherlands, New Zealand, Norway, NOTES Poland, Portugal, Russia, the Slovak not. In many economies only part of the 1. World Bank 2005; Stampini and others Republic, Slovenia, South Africa, Spain, minimum capital has to be paid up front. 2011. Sweden, Switzerland, Turkey, the United To reflect the relevant barrier to entry, the 2. See, for example, Alesina and others Kingdom and the United States. paid-in minimum capital has been used (2005); Perotti and Volpin (2005); 14. The World Economic Forum’s Global rather than the required minimum capital. Fisman and Sarria-Allende (2010); Competitiveness Report uses Doing Antunes and Cavalcanti (2007); Business data sets on starting a busi- This year’s report includes an update in Barseghyan (2008); Klapper, Lewin ness, employing workers, protecting and Quesada Delgado (2009); Freund investors and getting credit (legal the ranking methodology for paying taxes. and Bolaky (2008); Chang, Kaltani and rights), representing 7 of a total of 113 Last year’s report introduced a threshold Loayza (2009); Helpman, Melitz and different indicators (or 6.19%). for the total tax rate for the purpose of Rubinstein (2008); Klapper, Laeven and 15. Hallward-Driemeier, Khun-Jush and calculating the ranking on the ease of pay- Rajan (2006); World Bank (2005); and Pritchett (2010), analyzing data from ing taxes. This change came as a result of Ardagna and Lusardi (2010). World Bank Enterprise Surveys for consultations on the survey instrument 3. This includes Djankov and others Sub-Saharan Africa, show that de (2002); Djankov, McLiesh and Shleifer jure measures such as Doing Business and methodology for the paying taxes (2007); Djankov, La Porta and others indicators are virtually uncorrelated indicators with external stakeholders, (2008); Djankov, Freund and Pham with ex post �rm-level responses, including participants in the International (2010); Djankov and others (2003); providing evidence that deals rather Tax Dialogue. All economies with a total Djankov, Hart and others (2008); than rules prevail in Africa. The authors tax rate below the threshold (which is Botero and others (2004); and Djankov, �nd that the gap between de jure and de Ganser and others (2010). facto conditions grows with the formal calculated and adjusted on a yearly basis) 4. For more details on how the aggregate regulatory burden. The evidence also now receive the same ranking on the total ranking is created, see the chapter on shows that more burdensome processes tax rate indicator. This year’s threshold is the ease of doing business and distance open up more space for making deals set at the 15th percentile of the total tax to frontier. and that �rms may not incur the official rate distribution, which translates into a 5. This has included a review by the World costs of compliance but still pay to threshold for the total tax rate of 25.7%. Bank Independent Evaluation Group avoid them. 20 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 16. Much attention has been given to 25. Masatlioglu and Rigolini 2008; Djankov are introduced, borrowers with less exploring links to microeconomic 2009. collateral may experience a reduction outcomes, such as �rm creation and 26. Cardenas and Rozo 2009. in access to credit while those with employment. Recent research focuses more collateral may experience an 27. Bruhn 2011. on how business regulations affect the increase. But the authors also point out behavior of �rms by creating incentives 28. Kaplan, Piedra and Seira 2007. that this short-term effect disappears (or disincentives) to register and oper- 29. Bruhn 2012. over time as banks are able to increase ate formally, to create jobs, to innovate 30. Aghion and others 2008. their resources and the credit supply and to increase productivity. For details, 31. Sharma 2009. becomes elastic. see Djankov and others (2002); Alesina 47. Funchal 2008. 32. Chari 2011. and others (2005); Banerjee and Duflo 33. Branstetter and others 2010. 48. Giné and Love (2010) on Colombia; (2005); Perotti and Volpin (2005); Dewaelheyns and Van Hulle (2008) on Klapper, Laeven and Rajan (2006); 34. Djankov, Freund and Pham 2010. Belgium. Fisman and Sarria-Allende (2010); 35. Iwanow and Kirkpatrick 2009. Antunes and Cavalcanti (2007); 49. Franks and others 2011. 36. Freund and Rocha 2011. Barseghyan (2008); Eifert (2009); 50. One recent study using Doing Business 37. Seker 2011. indicators illustrates the difficulties in Klapper, Lewin and Quesada Delgado (2009); Djankov, Freund and Pham 38. Portugal-Perez and Wilson 2011. using highly disaggregated indicators (2010); Klapper and Love (2011); Chari 39. Hoekman and Nicita 2011. to identify reform priorities (Kraay and (2011); and Bruhn (2011). 40. Nunn 2007. Tawara 2011). 17. According to searches for citations of 51. While about 9,600 contributors pro- 41. Rauch 2010. the 9 background papers that serve as vided data for this year’s global report, 42. Chang, Kaltani and Loayza 2009; Cuñat the basis for the Doing Business indica- many of them completed a survey for and Melitz 2007. tors in the Social Science Citation Index more than one Doing Business indicator and on Google Scholar (http://scholar 43. http://www.enterprisesurveys.org. set. Indeed, the total number of surveys .google.com). 44. Haselmann, Pistor and Vig 2010. completed for this year’s report is more 18. Djankov, McLiesh and Ramalho 2006. The countries studied were Bulgaria, than 12,000, which represents a truer Croatia, the Czech Republic, Estonia, measure of the inputs received. The 19. Eifert 2009. Hungary, Latvia, Lithuania, Poland, average number of surveys per indicator 20. Klapper, Lewin and Quesada Delgado Romania, the Slovak Republic, Slovenia set and economy is just under 6. 2009. Entry rate refers to newly and Ukraine. For more details, see http://www registered �rms as a percentage of total .doingbusiness.org/contributors/ 45. Djankov, McLiesh and Shleifer 2007; registered �rms. Business density is de- doing-business. Houston and others 2010. �ned as the total number of businesses 46. Visaria 2009. In a follow-up study, von 52. All background papers are available on as a percentage of the working-age Lilienfeld-Toal, Mookherjee and Visaria the Doing Business website (http://www population (ages 18–65). (2012) found that the average effects .doingbusiness.org). 21. Ciccone and Papaioannou 2007. identi�ed by Visaria (2009) differ 53. For more details, see the chapter on the 22. Alesina and others 2005. between wealthy and poor borrowers ease of doing business and distance to 23. Loayza, Oviedo and Servén 2005; when the credit supply is inelastic frontier. Barseghyan 2008. (because of limits in such resources 54. A technical note on the different 24. Dulleck, Frijters and Winter-Ebmer as funds, staff and information). In aggregation and weighting methods is 2006; Calderon, Chong and Leon 2007; particular, they found that in the short available on the Doing Business website Micco and Pagés 2006. term after the debt recovery tribunals (http://www.doingbusiness.org). 21 Rwanda: fostering prosperity by promoting entrepreneurship Emerging from a decade marked by civil Building on a 2-year consultation process, ƒ Rwanda’s commitment to private war and political instability, Rwanda the government designed a long-term sector development has facilitated began a comprehensive and ambitious development strategy, Rwanda Vision growth in exports, domestic campaign in 2000 to rebuild, foster 2020, aimed at transforming Rwanda investment and foreign direct national reconciliation and drastically into a middle-income economy by investment inflows—and the reduce poverty. The government’s raising income per capita from $290 to implementation of effective �scal agenda gave priority to health, education, $900 before 2020.2 Introduced in 2000, policies supported by structural infrastructure, and private and �nancial the strategy recognized and sought to and institutional reforms. sector development, showing a overcome Rwanda’s multiple development ƒ Starting in 2000, Rwanda commitment to improving citizens’ living challenges—including past civil war, developed a strong institutional conditions and building a solid foundation poor governance, weak infrastructure, pipeline for designing and for reconciliation. underdeveloped �nancial and private implementing business regulation sectors, unemployment, overwhelming reforms. Starting early on in the reform campaign, public debt, a poorly developed education Rwanda has implemented many system, HIV and the rapid growth of a ƒ Since 2004 Rwanda has business regulation reforms. These have population expected to reach 13 million by substantially improved access to transformed the life of the private sector 2020. credit, streamlined procedures and made it noticeably easier to do for starting a business, reduced business. While challenges remain, the In 2001 the World Bank set up the the time to register property, country has achieved much success in Competitiveness and Enterprise Develop- simpli�ed cross-border trade and its reform agenda since the early 2000s. ment Project, designed to help the made courts more accessible for This success stems from many factors, government establish an environment resolving commercial disputes. and Rwanda’s experience may provide conducive to private sector growth and ƒ Rwanda is among more than 35 useful lessons for other nations seeking the emergence of a more competitive economies where the executive to improve their business climate, investment climate. The project focused on branch has made private sector particularly for those coming out of developing and updating the commercial development a priority by conflict. law and supporting the government’s establishing institutions whose privatization program through technical main purpose is to design and DESIGNING A STRATEGY assistance, capacity building and advice implement business regulation Between 2005 and 2011 Rwanda’s real on bank restructuring. This program reforms. GDP per capita grew by 4.5% a year, contributed to an overhaul of the reflecting a sustained expansion of country’s �nancial sector that led to the exports and domestic investment, with recapitalization of banks, the establishment inflows of foreign direct investment also of an insurance market and the introduction increasing substantially.1 In addition, of micro�nance lenders. In addition, the government strengthened the the Competitiveness and Enterprise foundations of macroeconomic stability Development Project collaborated with the by implementing cautious �scal policies World Bank’s Rwanda Investment Climate supported by a number of structural and Reform Program to develop a robust reform institutional reforms. Underpinning this agenda. The project helped establish policy stance was a strong and sustained the Doing Business Unit, the institution commitment by national authorities to responsible for spearheading Rwanda’s private sector development. reform initiatives, while the investment 22 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 climate reform program provided technical other economies—including economies The Doing Business Unit identi�es reform assistance and expertise to support the that have made some of the biggest opportunities; the technical task force implementation of planned legal, regulatory improvements in the ease of doing and the steering committee approve the and institutional reforms. business, such as Burundi, Colombia reform proposals. The annual plan for and Georgia.6 The approach has proved regulatory reforms is then communicated Rwanda’s 2007 Economic Development effective in triggering reforms. In Rwanda to the cabinet. The steering committee and Poverty Reduction Strategy, like its and the technical task force commit it helped put investment climate reforms Vision 2020, emphasized private sector to the new priorities that are agreed at the top of the economic policy agenda development as the key to creating on at the national leadership’s annual for promoting private sector development jobs, bringing peace, generating wealth retreats.7 The Doing Business Unit and helped consolidate and unify the and ultimately eliminating poverty.3 In monitors implementation and reports multiple reform efforts. addition, aware of its scarce natural to the steering committee and to resources and landlocked location, Since reforms to the investment climate the prime minister, who is ultimately Rwanda has focused on business require changes across many areas responsible for ensuring the execution regulation reform to attract foreign of government, the Doing Business of goals.8 Besides reporting directly to investment. Steering Committee, bringing together the Rwanda Development Board, the unit representatives from different ministries, also periodically informs the head of the Dubbed “Africa’s new Singapore� by was created in early 2009 to lead the Strategy and Policy Unit in the Office of The Economist for its positive economic reform efforts at the cabinet level. While the President about reform progress. reforms,4 Rwanda has been effectively other countries have created similar learning from the success stories of institutions to promote reform, Rwanda Far from being rigid, this structure economies like Singapore since the early has made effective use of the steering has been further improved by the 2000s. And in 2007 it started using the committee in implementing successful involvement of other stakeholders. Ahead Doing Business report as a tool to identify regulatory reforms (as detailed in the of the promulgation of major pieces of and learn from good practices in business following section). legislation, the Rwanda Development regulation and to monitor improvement. Board has worked closely with the Several elements of a successful reform Below the steering committee is a parliament and the judiciary, both of program were present, including political technical task force made up of 6 working which have helped in meeting targets will and commitment at the highest groups focusing on business entry, and deadlines. Civil society, development level and a broadly appropriate set of licensing reform, legislative changes, partners and institutions such as the macroeconomic policies that created taxes and trade logistics, construction Presidential Advisory Council have also room in the budget to invest in reforms permits and property registration. One provided crucial input in shaping the and gained strong support from the donor key to the working groups’ effectiveness reform agenda.9 community. has been their inclusion of private sector representatives. This has helped LAUNCHING REGULATORY BUILDING AN EFFECTIVE ensure private sector buy-in and allowed REFORMS REFORM PIPELINE participants to share their experiences Even as the internal organization was Government responsibility for improving during discussions about reform design. evolving, the government was enacting the investment climate in Rwanda and reforms: since 2005 Rwanda has To ensure success, the organizational implemented 26 business regulation driving through the reforms has shifted structure still needed something to reforms as recorded by Doing Business. over time. The responsibility was initially bring all the pieces together. For this assigned to the Rwanda Investment purpose the Doing Business Unit was Improving access to credit Promotion Agency. In August 2008 this created. A small, full-time team, this unit A series of changes improved conditions agency was joined by 7 others to create links the working groups to the steering for getting credit. In 2005 the public the Rwanda Development Board.5 committee, coordinates with donors credit registry expanded its database of The board’s creation marked not only providing technical support, manages �nancial institutions and improved the a change in name and gains in size, development funding to ensure proper content of its credit reporting system. In resources and efficiency but also a use and promotes efforts to improve 2009 a new secured transactions law fundamental increase in political will and the investment climate. It also advises was introduced, allowing a wider range support. The president of Rwanda made agencies, explains the reforms to the of assets to be used as collateral and business regulation reform a priority, private sector and monitors progress permitting out-of-court enforcement as did the leaders of more than 35 through internal indicators. proceedings.10 RWANDA: FOSTERING PROSPERITY BY PROMOTING ENTREPRENEURSHIP 23 In 2010 the legislature passed a law FIGURE 3.1 Rwanda streamlined the procedures for starting a business regulating the distribution of information Time (days) from credit bureaus. This led to the 18 creation of the country’s �rst private Rwanda eliminated 7 procedures credit bureau, which provides wider 15 and cut the time by 15 days coverage than the public registry because 12 it includes information from utilities. In addition, the public registry expanded 9 coverage to loans of all sizes. In December 6 2011 the public registry stopped issuing credit reports, and now only the private 3 bureau shares credit information. The 0 1 2 3 4 5 6 7 8 9 public registry still collects information from regulated �nancial institutions but Procedures only for supervisory purposes. 2004 2012 Source: Doing Business database. Streamlining regulatory processes Other changes streamlined regulatory The administrative reorganization and extended operating hours for border processes. In 2006 the introduction of the statutory time limits reduced the posts and implemented an electronic hundreds of new notaries made starting time required to transfer property by 346 data interchange system and risk-based a business faster. Before, only 1 notary days—from more than a year in 2004 to inspections. And in 2010 it streamlined had been available countrywide, and the less than a month (�gure 3.2). And the trade documentation requirements and high volume of requests meant a long changes in the transfer fees reduced the improved border cooperation. wait for entrepreneurs wanting to register cost from 10.3% of the property value to a new business. After an overhaul of the 5.6%.11 Results are clear. In 2006 exporting company law in 2009, entrepreneurs goods in Rwanda required 14 documents no longer needed to use the services of Changes over several years made and 60 days (�gure 3.3). Today it takes a notary; they could use standard forms trading across borders faster. In 2005 only 8 documents and 29 days. The story instead. An online system for publishing Rwanda made it possible to submit is similar for importing. the registration notice replaced customs declarations electronically. In 2007 the customs authority introduced Strengthening laws and requirements for physical publication. more acceptance points for customs the judiciary And a new one-stop shop streamlined business registration by reducing the declarations, reducing the waiting time The new company law adopted in 2009 number of interactions required from 9 to to submit them. In 2008 the government introduced several concepts into Rwanda’s 2 (�gure 3.1). The time required to start a business fell from 18 days to 3, and the FIGURE 3.2 Rwanda cut the time for property transfers by almost a year cost from 235% of income per capita to 4%. Time to register property (days) 400 Rwanda also made it easier to transfer Rwanda reduced the time property. In 2008 it eliminated mortgage required to complete procedures 300 from 371 days to 25 registration fees and shifted from a 6% transfer tax to a flat rate of 20,000 Rwandan francs (about $33). In 2010 the 200 government decentralized the Office of the Registrar and Land Titles and created 100 5 branches throughout the country, purging the backlog of cases in Kigali. It 0 1 2 3 4 5 also introduced strict time limits for some Procedures procedures. One was the issuance of tax clearance certi�cates, which had been 2004 2012 the lengthiest part of the process. Source: Doing Business database. 24 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 FIGURE 3.3 Big reduction in time and documents to trade across borders in Rwanda (�nanced by the Competitiveness and Enterprise Development Project) and the Time and documents to export Time (days) Documents (number) Institute for Legal Practice are training 70 15 judges, legal officers and lawyers to work 60 in a mixed legal system, where the civil 12 50 law tradition dominates but common law 40 9 and customary law tendencies are also 30 evident.15 6 20 With the aim of increasing efficiency 3 10 in resolving corporate insolvencies, the 0 0 government enacted a new insolvency law 2006 2007 2008 2009 2010 2011 2012 in 2009. But resolving insolvency remains the one area among all those included Time and documents to import in the ease of doing business index in Time (days) Documents (number) 100 20 which Rwanda still has great room for improvement. Achieving widespread use 80 15 of the law in insolvency cases has been 60 among the greatest regulatory reform 10 challenges in this area.16 40 5 SEEING MEASURABLE RESULTS 20 The ultimate goal of the reform program 0 0 2006 2007 2008 2009 2010 2011 2012 is a private sector that promotes economic growth and job creation.17 And Time the program is achieving measurable Inland transport Customs clearance Documents Terminal handling Document preparation progress toward this goal. After Rwanda simpli�ed formalities for Source: Doing Business database. business registration in 2006, 77% more �rms registered in the following year.18 In corporate legal system for the �rst time: laws proved crucial for the approval of 2008 more than 3,000 �rms registered, minority shareholder rights, regulation of important legal reforms. The government up from an average of 700 in previous years. In 2009 the number rose to 6,905. conflicts of interest, extensive corporate further enhanced the court system in And in 2010 the government managed to disclosure and directors’ duties. The new 2008 by creating lower commercial register 18,447 new businesses—nearly law introduced rules requiring approval courts. achieving its goal of registering 20,000 by the board of directors for related-party Consistent with its emphasis on bringing that year.19 The jump in registration transactions representing less than 5% of in the skills and expertise needed numbers cannot be attributed solely to the company’s assets and by shareholders to ensure the success of the reform the simpli�cation of the start-up process; for those representing more than 5%. The process, the government also hired non- the business registration reforms were law strengthened the director liability Rwandan expatriate judges: 2 Mauritian part of a wider government agenda regime for breach of �duciary duties and judges to help local judges run the new to promote private sector growth and for related-party transactions that harm commercial courts during the �rst 3 entrepreneurship in Rwanda. Even so, the the company. And it increased corporate years of operation.13 In addition, the increase points to a positive trend. transparency by improving disclosure requirements and minority shareholders’ government has provided incentives Good results are also showing up in access to corporate information. for Western-educated members of the the area of contract enforcement: the diaspora to repatriate and has promoted commercial courts started operating in In 2005 the government made contract an exchange of skills by opening the job Kigali in May 2008 and had fully cleared enforcement more of a reality by market to immigrants from neighboring the case backlog by the end of 2009.20 establishing more commercial courts12 countries, including Burundi, Kenya, and creating the Business Law Reform Tanzania and Uganda.14 Moreover, Rwanda’s consistent reforms to make Cell, whose review of 14 commercial the Capacity Strengthening Program trade easier improved the productivity RWANDA: FOSTERING PROSPERITY BY PROMOTING ENTREPRENEURSHIP 25 of customs officials, who increased the lawyers and judges—to ensure program to support the Rwanda number of documents they cleared proper administration of the reforms. Revenue Authority is considered a success, enabling the agency both annually by 39% between 2006 and Recognizing the bene�ts of a diverse to improve its tax collection rate 2009. And according to the Ministry of knowledge base, Rwanda has also and to simplify its interactions with Trade and Industry, Rwanda’s exports imported technical expertise from other businesses. rose from $147 million in 2006 to $193 countries, to replicate good practices and 10. Legal changes often require only million in 2009. build capacity. And the government has modest investments. For the secured involved the private sector in the reform transactions law, for example, Rwanda Rwanda recently adjusted some of the invested $55,320 (excluding technical process and maintained an open line of assistance from donors) in the valida- targets set in Vision 2020. Most notably, communication to keep entrepreneurs, tion and translation of the new law as it raised the income per capita target from civil society and other stakeholders well as in the legislative process. $900 to $3,500. This brings the target apprised of developments. 11. World Bank 2010. into line with levels in middle-income 12. World Bank 2006. economies today and reflects Rwanda’s All these efforts are showing results in 13. Hertveldt 2008. recent growth, which increased income Rwanda’s regulatory performance. And 14. “Africa’s New Singapore?� per capita to around $570 in 2011.21 Rwanda’s dedication to private sector The Economist, February 25, 2012, development, in triggering positive legal http://www.economist.com/. CONCLUSION reforms, has contributed substantially to 15. The Institute for Legal Practice was its overarching goal of promoting national established by an organic law in 2006 Every country faces different development and started to operate in May 2008. reconciliation and prosperity. challenges. But Rwanda’s ambitious 16. “Rwanda: Country Struggles on and complex reform program may offer Insolvency Law,� East African Business lessons for others seeking to reform Week, May 13, 2012, http://allafrica NOTES through private sector development. .com/. This case study was written by Moussa 17. Edmund Kagire, “New Reforms Set Up Traoré, Adrian Gonzalez, César Chaparro One key to its achievements has been to Boost Doing Business,� New Times Yedro, Jean Michel Lobet and Jonathan the strong commitment to reform shown (Kigali), April 18, 2010. Bailey. by Rwanda’s leaders and its citizens. The 18. World Bank 2010. 1. World Bank, World Development government has established structures Indicators database, http://data 19. Frank Kanyesigye, “Rwanda .worldbank.org/. Development Board Targets to Register for building a foundation for private 20,000 New Businesses,� New Times sector development and coordinating 2. Rwanda, Ministry of Finance and (Kigali), May 14, 2010. Economic Planning 2000. government-wide reform efforts. And 20. Interview by Business Times (Kigali) 3. Rwanda, Ministry of Finance and it has created a well-de�ned, long-term with Benoit Gatete, vice president of Economic Planning 2007. reform strategy that informs all of the the commercial high court, January 12, 4. “Africa’s New Singapore?� 2010, http://allafrica.com/. country’s short-term development goals. The Economist, February 25, 2012, 21. “Government to Adjust Vision 2020,� http://www.economist.com/. The government entities involved in New Times (Kigali), February 25, 2010; 5. The 7 agencies were Tourism and World Bank, World Development the process have had clearly de�ned Conservation, the Registrar General’s Indicators database, http://data roles and responsibilities, and they Office, the Privatization Unit, Human .worldbank.org/. have respected the goals set in initial and Institutional Development, the implementation strategy documents. The Center for the Support to Small and Medium-Sized Enterprises (CAPMER), Doing Business Unit has played a pivotal the IT Agency and the National role not only in ensuring coordination Environment Management Authority. within the government and between 6. See box 2.2 in the chapter “About Doing the government and donors but also Business� for a list of economies using in coordinating development funding this approach. initiatives so as to avoid duplication. 7. These retreats, which gather about 300 top members of the administration, The government has worked to meet the have included Doing Business reforms on the agenda since 2007. needs of entrepreneurs by streamlining 8. Presentation by Emmanuel Hategeka, regulatory processes involved in starting, permanent secretary, Ministry of Trade operating and closing a business. Beyond and Industry, Kigali, March 16, 2011; undertaking legal and administrative Karim 2011. reforms, the government has invested 9. In particular, the U.K. Department for in training for professionals—including International Development’s multiyear 26 Starting a business ƒ Among the economies of the East “In the past, it was too complicated to TABLE 4.1 How do EAC economies rank on African Community (EAC) and start a business in Burundi,� says Aline, the ease of starting a business? other regional blocs covered in an entrepreneur who just started a Economy Global rank Africa, Rwanda makes it easiest retail company in Bujumbura. Indeed, Rwanda 8 to start a business. Entrepreneurs before the launch of the one-stop shop Burundi 28 need to complete only 2 in Bujumbura in 2012, starting a business Tanzania 113 procedures and wait 3 days—and required visiting several separate agen- Kenya 126 can register their company online cies, completing 8 procedures, waiting Uganda 144 free of charge. 13 days on average and paying 247,900 Note: Rankings are the average of the economy’s rankings on the procedures, time, cost and paid-in ƒ From June 2011 to June 2012 Burundi francs (about $200). By bringing minimum capital for starting a business. See the data notes for details. Doing Business recorded 11 reforms together representatives from several Source: Doing Business database. making it easier to start a business agencies, the one-stop shop has made in Sub-Saharan Africa, including 2 the start-up process far simpler. Today, TABLE 4.2 Who in the EAC makes starting in EAC economies. starting a business takes only 4 proce- a business easy—and who dures and 8 days on average, and costs does not? ƒ Burundi made the biggest Procedures (number) just 62,500 francs ($46). improvement globally in the ease Rwanda 2 of starting a business in the past Inefficient regulation is among the range Burundi 4 year. of challenges faced by entrepreneurs Tanzania 9 ƒ Worldwide, simplifying company around the world. Making the start-up Kenya 10 registration formalities was the process easier can help. To measure the Uganda 15 most common feature of business ease of starting a business, Doing Business Time (days) start-up reforms over the past 8 records the procedures, time, cost and Rwanda 3 years. paid-in minimum capital required for a Burundi 8 For more information on good small or medium-size limited liability Tanzania 26 practices and research related company to start up and formally oper- Kenya 32 to starting a business, visit ate. To make the data comparable across Uganda 33 http://www.doingbusiness.org/data/ 185 economies, Doing Business uses a exploretopics/starting-a-business. standardized business that is 100% Cost (% of income per capita) For more on the methodology, see the domestically owned, has start-up capital Rwanda 4.3 section on starting a business in the equivalent to 10 times income per capita, Burundi 18.3 data notes. engages in general industrial or com- Tanzania 28.2 mercial activities and employs between Kenya 40.4 10 and 50 people within the �rst month Uganda 76.7 of operations. Note: All 5 EAC economies have no paid-in minimum capital requirement. Source: Doing Business database. According to a recent review, evidence from several studies shows that reforms making it easier to start a formal busi- in employment and productivity.1 In ness are associated with an increase in Rwanda the number of newly registered the number of newly registered �rms as limited liability companies in 2008 was well as with sustained gains in economic about the same as the number of newly performance, including improvements registered sole proprietorships. Then STARTING A BUSINESS 27 Rwanda revamped its business start-up TABLE 4.3 Who in the EAC made starting a business easier in 2011/12—and what did they do? process, making it easier and cheaper Feature Economies Some highlights to set up a limited liability company by Simpli�ed registration formalities Burundi Burundi eliminated the requirements to notarize company (seal, publication, notarization, documents, publish new company information in a journal and establishing a one-stop shop and cutting inspection, other requirements) register new companies with the Ministry of Trade and Industry. the cost of business registration. By 2010, Created or improved one-stop Burundi Burundi created a one-stop shop bringing together representa- a year later, almost 4 of every 5 newly shop tives from several agencies involved in the start-up process: the Burundi Investment Promotion Agency, the Registry of the registered enterprises were limited liabil- Commercial Court and the tax of�ce responsible for granting the national identi�cation number. ity companies.2 Cut or simpli�ed postregistration Tanzania Tanzania eliminated the requirements to obtain inspections from procedures (tax registration, social the health of�cer and town and land of�cer as a prerequisite for In the East African Community (EAC), security registration, licensing) obtaining a business license. Rwanda continues to make it easiest to Source: Doing Business database. start a business—and it is the only low- income economy ranking among the top FIGURE 4.1 Burundi made starting a business easier in 2011/12 by setting up a one-stop shop 10 globally on the ease of starting a busi- Time (days) ness (table 4.1). Burundi moved up to 28 14 in the global ranking in 2011/12. 12 On average in the 5 EAC economies, 10 starting a business requires 8 procedures. Before one-stop shop 8 The average time required is 20 days— After one-stop shop 6 less than in the Common Market for Eastern and Southern Africa (COMESA), 4 Changes in 2011/12 eliminated 4 procedures, cut time by 5 days and reduced cost by 98.4% of income the Southern African Development 2 per capita Community (SADC) and the broader 0 region of Sub-Saharan Africa. Globally, 1 2 3 4 5 6 7 8 business start-up is fastest in the OECD Procedures high-income economies, where it takes Source: Doing Business database. only 12 days on average. The average cost to start a business in FIGURE 4.2 A steady pace of business start-up reforms in the EAC the EAC (33.6% of income per capita) is Number of Doing Business reforms making it easier to start a business by substantially lower than in Sub-Saharan Doing Business report year Africa as a whole (67.3%)—though still fairly high compared with the average in Sub-Saharan Africa (46 economies) 3 10 12 14 16 7 15 11 OECD high-income economies (4.5%). Eastern Europe & Central Asia (24 economies) 9 10 8 8 11 9 10 10 Yet the cost varies considerably within Latin America & Caribbean (33 economies) 5 9 4 6 9 10 8 3 the EAC. While the cost is less than 5% OECD high income DB2006 of income per capita in Rwanda, it is more (31 economies) 9 8 8 8 6 6 4 4 DB2007 than 75% of income per capita in Uganda East Asia & Pacific (24 economies) 6 4 33 7 6 9 5 DB2008 (table 4.2). Burundi reduced the cost to Middle East & North Africa DB2009 (19 economies) 4 4 4 9 9 3 6 2 start a business in 2011/12 from 117% of ECOWAS DB2010 (15 economies) 2 3 6 4 8 1 8 3 DB2011 income per capita to 18%. COMESA DB2012 (18 economies) 2 5 4 5 4 4 3 4 There is also much variation within the SADC DB2013 (15 economies) 1 4 4 8 3 33 4 EAC in the number of procedures and South Asia (8 economies) 212 2 3 211 the time required to start a business. In EAC Rwanda, starting a business takes only (5 economies) 3 211112 2 procedures and 3 days. In Kenya it 0 20 40 60 80 100 requires 10 procedures and 32 days on Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 (2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei average—including 2 weeks to �le the Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. deed with the Registrar of Companies. Source: Doing Business database. 28 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 WHO REFORMED IN STARTING FIGURE 4.3 EAC economies have reduced start-up time by almost a third A BUSINESS IN 2011/12? Average time to start a business (days) In 2011/12, 36 economies around the OECD high income DB2013 DB2006 world implemented reforms making it DB2013 Eastern Europe & Central Asia DB2006 easier to start a business. Among them DB2013 South Asia DB2006 are 2 EAC economies, Burundi and DB2013 EAC DB2006 Tanzania (table 4.3). DB2013 ECOWAS DB2006 DB2013 Middle East & North Africa DB2006 Burundi, the only EAC economy that DB2013 COMESA DB2006 implemented no business start-up DB2013 East Asia & Pacific DB2006 reforms between 2006 and 2011, made DB2013 Sub-Saharan Africa DB2006 the biggest improvement globally in DB2013 the ease of starting a business in the SADC DB2006 DB2013 past year. The government reduced tax Latin America & Caribbean DB2006 registration costs and created a one-stop 0 10 20 30 40 50 60 70 80 shop at the Burundi Revenue Authority, bringing together representatives from Share of economies with no paid-in minimum capital requirement (%) DB2013 several agencies involved in the business OECD high income DB2006 start-up process (�gure 4.1). Four other DB2013 Eastern Europe & Central Asia DB2006 Sub-Saharan African economies also DB2013 South Asia DB2006 introduced a one-stop shop in 2011/12— DB2013 EAC DB2006 Chad, Guinea, Lesotho and Madagascar. DB2013 ECOWAS DB2006 DB2013 Middle East & North Africa DB2006 WHAT HAVE WE LEARNED DB2013 COMESA DB2006 FROM 8 YEARS OF DATA? DB2013 East Asia & Pacific DB2006 DB2013 In the past 8 years Doing Business record- Sub-Saharan Africa DB2006 DB2013 ed 368 reforms making it easier to start a SADC DB2006 DB2013 business, implemented in 149 economies. Latin America & Caribbean DB2006 The 5 EAC economies—Burundi, Rwanda, 0 20 40 60 80 100 Kenya, Tanzania and Uganda—account Note: To ensure an accurate comparison, the �gure shows data for the same sample of 174 economies for both DB2006 for 11 of those reforms (�gure 4.2). (2005) and DB2013 (2012) and uses the regional classi�cations applying in 2012. The economies added to the Doing Business sample after 2005 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, Thanks to these reforms, starting a Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes in methodology. business is easier today in all 5 EAC Source: Doing Business database. economies. Across the EAC, the reforms cut the average time to start a business from 29 days to 20 and the average cost the processing of completed applications. Introducing information and communica- from 140% of income per capita to 36% Through these changes Rwanda cut the tion technology has been another com- (�gure 4.3). number of procedures to start a business mon feature of start-up reforms. Today by 6, the time by 11 days and the cost by 106 economies use modern technology Worldwide over the past 8 years, about 100% of income per capita. for services ranging from name search simplifying company registration for- to complete online business registration. malities was the most common feature Tanzania reformed its licensing regime Those offering electronic registration of business start-up reforms. This feature in 2008, abolishing the license fee for include several economies with the fast- was also common in EAC economies. small and medium-size enterprises and est business start-up processes—New Rwanda simpli�ed formalities in 2010 by reducing the cost for companies with a Zealand, Australia, Singapore, Canada, eliminating the notarization requirement, turnover of more than 20,000 Tanzania Portugal, Denmark and Estonia. Online introducing standardized memoranda of shillings. It also simpli�ed the license cat- services are increasingly being offered in association, allowing online publication of egory system and reduced the number of developing economies. the notice of incorporation, consolidating licensed activities from 15 to 2. In Kenya name-checking, reducing the registra- the Licensing Laws Act 2006 eliminated EAC economies are among those provid- tion fee, streamlining tax and company the requirement to obtain a trading li- ing electronic services. Rwanda has an in- registration procedures and speeding up cense in addition to a business permit. tegrated system for company registration. STARTING A BUSINESS 29 TABLE 4.4 Who in the EAC has narrowed Kenya offers online procedures for tax COMESA). No EAC economies have a the distance to frontier in starting and value added tax registration. Uganda paid-in minimum capital requirement. a business the most since 2005? has an online system allowing entre- Improvement in preneurs to apply for corporate tax and Madagascar �rst reduced and then pro- distance to frontier gressively eliminated its paid-in minimum Economy (percentage points)a value added tax identi�cation numbers Rwanda 38 at the same time. Tanzania consolidated capital requirement. The country also set (59Æ97) and digitized registered company names, up a one-stop shop and substantially Burundi 28 allowing the company name search to improved its services over time. And it (63Æ91) be done online and speeding up name simpli�ed registration formalities and Tanzania 20 (57Æ77) clearances. Kenya also introduced online the publication requirement. Thanks to Kenya 11 name search, reducing the time and cost these efforts, Madagascar is among the (62Æ73) to start a business. economies in Sub-Saharan Africa that Uganda 3 have advanced the furthest toward the (56Æ59) Around the world 86 economies— frontier in regulatory practice in starting Note: The distance to frontier measure shows how far on average an economy is from the best performance Burundi and Rwanda among them—have a business since 2005. achieved by any economy on each Doing Business some variation of a one-stop shop for indicator since 2005—in this case for the starting a Among EAC economies, Rwanda has business indicators. The measure is normalized to range business registration. These include the between 0 and 100, with 100 representing the best 56 economies that established or im- narrowed the distance to frontier in performance (the frontier). The data refer to the 174 proved their one-stop shop over the past starting a business the most since 2005 economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. 8 years. (table 4.4). Burundi has also made steady a. This column shows the absolute improvement in progress over time. the distance to frontier between 2005 and 2012. The numbers in parentheses are the scores for those years. Globally, 91 economies require no paid-in Source: Doing Business database. minimum capital, and many others have lowered the requirement. The average NOTES requirement has fallen from 184% of in- This topic note was written by Valentina Saltane and Paula Garcia Serna. come per capita to only 42% since 2005. 1. Motta, Oviedo and Santini 2010. Several economies in African regional 2. According to a survey of 183 economies blocs eliminated the minimum capital conducted by Doing Business in 2011, requirement in the past 8 years—Lesotho establishing a sole proprietorship and Mozambique (SADC), Madagascar requires fewer procedures and costs (COMESA) and Zambia (both SADC and less than establishing a limited liability company. 30 Dealing with construction permits ƒ Within the East African Community Kenya continues to make construction TABLE 5.1 How do EAC economies rank (EAC), dealing with construction permitting simpler and more transpar- on the ease of dealing with permits is easiest in Kenya, where ent by implementing an online system. construction permits? it takes 9 procedures and 125 days. The system enables architects to submit Economy Global rank building permit requests and all required Kenya 45 ƒ From June 2011 to June 2012 Rwanda 98 plans online. It also allows online moni- Doing Business recorded 4 reforms Uganda 118 toring of the status of building proposals making it easier to deal with Burundi 141 and noti�es applicants by e-mail when construction permits in Sub- Tanzania 174 key milestones are met. Saharan Africa. One was in the Note: Rankings are the average of the economy’s EAC, in Burundi. Construction regulation matters for rankings on the procedures, time and cost to comply with formalities to build a warehouse. See the data notes ƒ Among EAC economies, Rwanda public safety. And simplifying regulation for details. Source: Doing Business database. has advanced the furthest toward can increase compliance: if procedures the frontier in regulatory practice are too complicated or costly, builders in construction permitting since tend to proceed without a permit.1 By proposed to address the issue. Once ad- 2005. some estimates 60–80% of building opted, the law would harmonize and con- projects in developing economies are un- solidate the country’s many construction ƒ Since 2005 the EAC has reduced dertaken without the proper permits and regulations and impose building standards the average cost to deal with approvals.2 Images of buildings that have at the same time. It would also provide construction permits by nearly collapsed because of poor construction stronger penalties for noncompliance. 2,500% of income per capita— more than any other regional bloc appear all too often in newspapers. To measure the ease of dealing with con- covered in Africa and more than struction permits, Doing Business records Thirty-four of 46 Sub-Saharan African any world region. the procedures, time and cost required economies have construction regula- ƒ Globally, introducing or improving tions, including 4 of the 5 in the East for a small to medium-size business to a one-stop shop was among African Community (EAC). Aware that obtain all the necessary approvals to the most common features of burdensome regulations can be difficult build a simple commercial warehouse construction permitting reforms to enforce, some are amending laws to and connect it to water, sewerage and in the past 8 years. In the EAC address this issue. a �xed telephone line. The case study only Rwanda has implemented a includes all types of inspections and one-stop shop for construction Kenya had some 103 construction regu- certi�cates needed before, during and permitting. lations, a number nearly impossible to after construction of the warehouse. To enforce. The collapse of the Sunbeam make the data comparable across 185 For more information on good Building in 1996 and the Kihonge high- economies, the case study assumes that practices and research related to dealing with construction permits, rise building in 2006 prompted Kenya to the warehouse is located in the periurban visit http://www.doingbusiness.org/ tackle the problem. A new law adopted on area of the largest business city, is not in data/exploretopics/dealing-with- January 4, 2011, established the National a special economic or industrial zone and construction-permits. For more on Construction Authority to control the will be used for general storage activities. the methodology, see the section on issuance of building permits and enforce Among EAC economies, Kenya has the dealing with construction permits in simpler and clearer regulations. easiest process for dealing with con- the data notes. struction permits as measured by Doing Uganda too has had its share of building Business (table 5.1). collapses, including a major one on July 25, 2011. The Building Control Bill has been DEALING WITH CONSTRUCTION PERMITS 31 TABLE 5.2 Who in the EAC makes dealing delay is due to a long wait to obtain the WHAT HAVE WE LEARNED with construction permits easy— building permit. Completing this single FROM 8 YEARS OF DATA? and who does not? procedure takes 90 days—compared In the past 8 years 83 economies around Procedures (number) with 14 in Burundi, 30 in Kenya, 45 in the world implemented 146 reforms Kenya 9 Rwanda and 60 in Uganda. On the time making it easier to deal with construc- Rwanda 12 required for the overall process of deal- tion permits (�gure 5.1). Eastern Europe Uganda 15 ing with construction permits, Burundi, and Central Asia had the most, with 39, Tanzania 19 Burundi 21 Kenya and Uganda compare well with the followed by Sub-Saharan Africa with 33. COMESA had 21, and the EAC and SADC regional average in Sub-Saharan Africa. Time (days) 10 each. But there is still room for improvement: in Burundi 99 Kenya 125 Singapore the process takes only 26 days. The EAC leads the way in reducing the cost Uganda 125 to deal with construction permits, slash- Among the regional blocs covered in ing it by an average 2,471% of income per Rwanda 164 Tanzania 206 Africa, the EAC has the highest average capita since 2005, followed by COMESA, cost to deal with construction permits, with an average reduction of 1,476% of Cost (% of income per capita) 764% of income per capita. The main income per capita (�gure 5.2). But there is Kenya 211.9 drivers of the higher costs in the EAC are more room for improvement: the average Rwanda 278.4 taxes and fees for preconstruction ap- cost in the EAC remains higher than in any Tanzania 564.6 provals, which average 582.3% of income world region except South Asia. Uganda 853.1 Burundi 1,911.9 per capita. Yet there are big differences Among the most difficult changes to Source: Doing Business database. among EAC economies in the cost to deal implement in construction permitting with construction permits. The cost is is the introduction or improvement of a highest in Burundi—at 1,912% of income one-stop shop. Construction approval On average in the EAC, entrepreneurs must go through 15 procedures to com- per capita, among the highest in the systems usually involve many different plete all formalities required to build a world—and in Uganda (853% of income agencies. To prevent overlap in their roles simple warehouse. Kenya has the fewest per capita). It is lowest in Kenya (212% of and ensure efficiency, many economies procedures, with 9, and Burundi the most, income per capita). have opted to put representatives from with 21 (table 5.2). Of the 21 procedures many agencies in a single location. These one-stop shops improve the organization required in Burundi, 16 relate to obtaining WHO REFORMED IN DEALING of the review process—not by reducing postconstruction authorizations and util- WITH CONSTRUCTION the number of checks needed but by bet- ity connections. PERMITS IN 2011/12? ter coordinating the efforts of the agencies From June 2011 to June 2012 Doing involved. Globally in the past 8 years, 18 The average time required to deal with construction permits in the EAC is Business recorded 4 reforms making it regulatory reforms were implemented to 144 days—less than the 156 days in easier to deal with construction permits set up or improve a one-stop shop. Within the Common Market for Eastern and in Sub-Saharan Africa. Burundi was the the EAC, only Rwanda has implemented Southern Africa (COMESA), 190 days in only EAC economy to implement a reform a one-stop shop. Besides Rwanda, 3 the broader region of Sub-Saharan Africa (table 5.3). As of June 1, 2011, it abolished others in Sub-Saharan Africa have done and 194 days in the Southern African a requirement to obtain approval from the so—Benin, Burkina Faso and Mauritania. Development Community (SADC). Ministry of Health before applying for a Many economies have gone particularly Indeed, the EAC average is almost the building permit, reducing the number of far in closing the gap with the most ef- same as the fastest worldwide average, procedures by 2, the time by 5 days and �cient regulatory systems for dealing the 143 days in OECD high-income the cost by 143,066 Burundi francs ($95). with construction permits, such as those economies. Within the EAC, the process for dealing TABLE 5.3 Who in the EAC made dealing with construction permits easier in 2011/12—and what did they do? with construction permits is fastest in Feature Economy Some highlights Burundi, where it takes 99 days, fol- Streamlined procedures and Burundi Burundi eliminated the requirement to obtain a clearance from lowed by Kenya and Uganda, where it reduced time for processing the Ministry of Health and reduced the cost of the geotechnical takes 125. In Tanzania, with the slowest permit applications study. Source: Doing Business database. process, it takes 206 days. The biggest 32 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 FIGURE 5.1 Reforms around the world to improve construction permitting TABLE 5.4 Who in the EAC has narrowed Number of Doing Business reforms making it easier to deal with construction permits by the distance to frontier in dealing Doing Business report year with construction permits the most since 2005? Eastern Europe & Central Asia (24 economies) 4 6 3 5 10 5 3 3 Improvement in Sub-Saharan Africa distance to frontier (46 economies) 3 5 6 3 7 5 4 Economy (percentage points)a Latin America & Caribbean Rwanda 20 (33 economies) 1 2 2 2 4 4 3 4 (58Æ78) OECD high income DB2006 (31 economies) 4 5 11 4 1 2 4 Burundi 16 DB2007 (36Æ52) COMESA (18 economies) 1 6 3 1 5 4 1 DB2008 Uganda 12 East Asia & Pacific DB2009 (58Æ70) (24 economies) 1 2 2 3 2 11 4 DB2010 Tanzania 3 ECOWAS (15 economies) 2 1 2 2 5 1 2 DB2011 (59Æ62) Middle East & North Africa DB2012 Kenya -1 (19 economies) 3 1 7 11 (87Æ86) EAC DB2013 (5 economies) 1 3 2 2 11 Note: The distance to frontier measure shows how far SADC on average an economy is from the best performance (15 economies) 2 2 3 3 achieved by any economy on each Doing Business South Asia indicator since 2005—in this case for the dealing (8 economies) 1 with construction permits indicators. The measure is normalized to range between 0 and 100, with 100 0 10 20 30 40 representing the best performance (the frontier). The data refer to the 174 economies included in Doing Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 Business 2006 (2005). Eleven economies were added in (2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei subsequent years. Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. a. This column shows the absolute improvement in Source: Doing Business database. the distance to frontier between 2005 and 2012. The numbers in parentheses are the scores for those years. Source: Doing Business database. in Hong Kong SAR, China, and Georgia. FIGURE 5.2 Biggest reduction in permitting costs in the EAC Those making the greatest progress Average cost to deal with construction permits (% of income per capita) toward the frontier in regulatory practice in this area have been able to do so thanks OECD high income DB2013 to a continual effort to improve regula- DB2006 tions. Among EAC economies, Rwanda East Asia & Pacific DB2013 DB2006 has advanced the furthest toward this Latin America & Caribbean DB2013 frontier since 2005 (table 5.4). DB2006 Middle East & North Africa DB2013 DB2006 Rwanda implemented 3 reforms making Eastern Europe & Central Asia DB2013 DB2006 it easier to deal with construction per- ECOWAS DB2013 mits. Besides setting up a one-stop shop, DB2006 SADC DB2013 it introduced time limits for processing DB2006 the building permit and the occupation Sub-Saharan Africa DB2013 DB2006 permit. In 2005 complying with all regu- COMESA DB2013 latory requirements for constructing the DB2006 EAC DB2013 standard warehouse took 13 procedures DB2006 and 307 days and cost the equivalent of South Asia DB2013 DB2006 918% of income per capita. Today it takes 0 500 1,000 1,500 2,000 2,500 3,000 3,500 12 procedures and 164 days and costs 278% of income per capita. Before construction (including building permit) During and after construction, utility connections NOTES Note: To ensure an accurate comparison, the �gure data cover 172 practice economies for both DB2006 (2005) and DB2013 (2012) and use the regional classi�cations applying in 2012. The economies added to the Doing Business sample after 2005 This topic note was written by Marie Lily and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Delion and Joyce Ibrahim. Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes in methodology. 1. Moullier 2009. Source: Doing Business database. 2. De Soto 2000.   33 Getting electricity Imagine a young Burundi entrepreneur TABLE 6.1 How do EAC economies rank on ƒ In the East African Community who is trying to set up a new warehouse the ease of getting electricity? (EAC), getting an electricity for his garment manufacturing business Economy Global rank connection is easiest in Rwanda, in Bujumbura. He has negotiated the Rwanda 49 where it takes 4 procedures and �nancing with his bank, spent weeks ob- Tanzania 96 30 days. Globally, the process is taining the building and operating permits Uganda 127 easiest in Iceland, where it takes 4 and invested in new machinery as well as Kenya 162 procedures and 22 days. a new building. He has employees lined Burundi 164 ƒ From June 2011 to June 2012 Doing up and is ready to get started. But he will Note: Rankings are the average of the economy’s rankings on the procedures, time and cost to get an Business recorded 13 reforms have to wait. He needs to obtain a new electricity connection. See the data notes for details. making it easier to get electricity. electricity connection for the warehouse, Source: Doing Business database. Five were in Sub-Saharan Africa, and in Bujumbura that requires several in- including 1 in the EAC. teractions with the utility, takes 6 months a power need of 140 kilovolt-amperes ƒ Among EAC economies, Rwanda on average and costs more than 200 (kVA). The warehouse is assumed to be made the biggest improvement in times the income per capita. In Rwanda located in the largest business city, in an the ease of getting electricity in the experience of an entrepreneur set- area where warehouses usually locate 2011/12. Globally, Armenia was the ting up a business in Gikondo, an area of and electricity is most easily available. top improver. Kigali, would be quite different (table 6.1). His warehouse would be hooked up to In the East African Community (EAC), ƒ In the EAC, Rwanda and Uganda electricity in about 1 month. The process getting a new electricity connection takes have advanced the furthest since would involve only 4 interactions with the 113 days on average, less than the average 2010 in narrowing the gap with utility and cost only about 39 times the of 131 days in the Common Market for the most efficient regulations income per capita. Eastern and Southern Africa (COMESA), governing electricity connections. 141 in the Southern African Development ƒ Sub-Saharan Africa leads in the Infrastructure services, particularly Community (SADC) and 160 in the number of reforms making it easier electricity, are a concern for businesses Economic Community of West African to get an electricity connection. around the world. World Bank Enterprise States (ECOWAS). It also takes less Surveys show that managers in 109 For more information on good practices than the 133 days in the broader region and research related to getting economies, 71 of them low or lower of Sub-Saharan Africa. Worldwide, the electricity, visit http://www middle income, consider electricity to be fastest region is Latin America and the .doingbusiness.org/data/ among the biggest constraints to their Caribbean, where getting a new electric- exploretopics/getting-electricity. business. In addition, managers estimate ity connection takes 66 days on average For more on the methodology, see losses due to power outages at an aver- (�gure 6.1). the section on getting electricity in age 5.1% of annual sales.1 the data notes. Within the EAC, the process for getting Doing Business measures the procedures, electricity is fastest in Rwanda, where it time and cost for a small to medium-size takes only 30 days, followed by Uganda, business to get a new electricity connec- where it takes 91 days, and Tanzania, tion for a warehouse. To make the data where it takes 109 days (table 6.2). comparable across 185 economies, Doing Burundi has the slowest process, at 188 Business uses a standardized case study of days. A major reason for this big delay a newly established warehouse requiring is lack of materials in the utility’s stock, a connection 150 meters long and with mainly distribution transformers. In 34 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 FIGURE 6.1 Big cuts in the time and cost to obtain a new electricity connection in the EAC TABLE 6.2 Who in the EAC makes getting Average cost to get electricity (% of income per capita) electricity easy—and who does DB2013 not? OECD high income DB2010 Procedures (number) DB2013 Latin America & Caribbean DB2010 Rwanda 4 DB2013 Eastern Europe & Central Asia DB2010 Tanzania 4 DB2013 East Asia & Pacific DB2010 Burundi 5 DB2013 Middle East & North Africa DB2010 Uganda 5 DB2013 South Asia DB2010 Kenya 6 DB2013 SADC DB2010 DB2013 Time (days) Sub-Saharan Africa DB2010 DB2013 Rwanda 30 ECOWAS DB2010 DB2013 Uganda 91 COMESA DB2010 DB2013 Tanzania 109 EAC DB2010 Kenya 146 0 3,000 6,000 9,000 12,000 Burundi 188 Average time to get electricity (days) Cost (% of income per capita) DB2013 OECD high income DB2010 Kenya 1,208.2 DB2013 Latin America & Caribbean DB2010 Tanzania 1,944.1 DB2013 Rwanda 3,948.1 Eastern Europe & Central Asia DB2010 DB2013 Uganda 4,623.0 East Asia & Pacific DB2010 DB2013 Burundi 21,481.7 Middle East & North Africa DB2010 Source: Doing Business database. DB2013 South Asia DB2010 DB2013 SADC DB2010 DB2013 Sub-Saharan Africa DB2010 Many economies put an emphasis on DB2013 ECOWAS DB2010 making it easier to get a connection to the DB2013 COMESA DB2010 distribution network as a way to increase DB2013 EAC DB2010 the electri�cation rate and stimulate 0 50 100 150 200 business growth. Rwanda is an example. Note: The data sample for DB2010 (2009) includes 176 economies. The sample for DB2013 (2012) also includes Barbados, the Its process for obtaining a connection is Comoros, Equatorial Guinea, Iraq, the Republic of Korea, Malta, São Tomé and Príncipe, Sudan and Uruguay, for a total of 185 economies. among the fastest in the world. The gov- Source: Doing Business database. ernment improved it further by reducing installation costs. Customers still provide the materials for the connection, but rath- Burundi transformers must be ordered covered in Africa. In SADC, for example, and imported from Europe, which takes the cost averages 4,110% of income per er than paying an additional 30% of that several months. capita. cost to the utility for installation, they now pay only half of that. Kenya introduced a In most economies around the world, a WHO REFORMED IN GETTING new electricity connection of 140 kVA ELECTRICITY IN 2011/12? TABLE 6.3 Good practices in the EAC in requires reinforcement of the distribution making it easy to get electricity Economies where getting an electric- network. When the customer bears the ity connection is easy have several good Practice Economies entire �nancial burden of the necessary Streamlining approval Burundi, Rwanda, practices in common (table 6.3). Other processes (utility obtains Tanzania, Uganda investment, connection costs often run economies are adopting some of these excavation permit or right of high because of the price of materials, way if required) practices. From June 2011 to June 2012 mainly for the distribution transformer Reducing the �nancial burden Burundi, Kenya Doing Business recorded 13 reforms that of security deposits for new and substation. made getting electricity easier. Five were connections in Sub-Saharan Africa. One of the 5 was Ensuring the safety of internal Kenya The average cost of obtaining a new wiring by regulating the in the EAC, in Rwanda (table 6.4). The electrical profession rather electricity connection in the EAC, at other 4 were in Angola, Guinea, Liberia than the connection process 6,641% of income per capita, exceeds the and Namibia. Providing transparent Tanzania average cost in all world regions. The cost connection costs and processes is also higher than in other regional blocs Source: Doing Business database. GETTING ELECTRICITY 35 TABLE 6.4 Who in the EAC made getting electricity easier in 2011/12—and what did they do? TABLE 6.5 Who in the EAC has narrowed Feature Economy Some highlights the distance to frontier in getting electricity the most since 2010? Improved regulation Rwanda In Rwanda the installation cost that a customer must pay the of connection costs Energy, Water and Sanitation Authority for the external connec- Improvement in and processes tion works was reduced from 30% of the materials cost to 15% distance to frontier when the customer provides the materials. Economy (percentage points)a Source: Doing Business database. Rwanda 6 (71Æ77) Uganda 4 customer charter in 2011/12 to push the (55Æ59) WHAT WERE THE TRENDS IN Kenya 3 utility to improve performance. One aim THE PAST 3 YEARS? (54Æ57) was to reduce delays in visiting the cus- In the past 3 years 30 economies around Tanzania 2 tomer’s site and in delivering the estimate the world implemented 31 regula- (71Æ73) for a new electricity connection.2 tory reforms making it easier to get a Burundi 0 (30Æ30) new electricity connection (�gure 6.2). Note: The distance to frontier measure shows how far on Improving process efficiency within Sub-Saharan Africa accounts for the larg- average an economy is from the best performance achieved the utility and streamlining approvals by any economy on each Doing Business indicator—in this est number of such reforms. ECOWAS case for the getting electricity indicators since 2010. The with other public agencies are the most measure is normalized to range between 0 and 100, with was particularly active, with 6 reforms in common features of reforms making 100 representing the best performance (the frontier). The the past 3 years. EAC economies imple- data refer to the 176 economies included in the getting it easier to get electricity. These are electricity sample in 2010. Nine economies were added in mented 3. also among the most effective ways subsequent years. a. This column shows the absolute improvement in to reduce connection delays and the The steady pace of reforms in Sub- the distance to frontier between 2010 and 2012. The duplication of formalities. Take Guinea, numbers in parentheses are the scores for those years. Saharan Africa yielded results, leading to Source: Doing Business database. where the utility streamlined approvals bigger reductions in the time and cost to by taking on a task previously left to the obtain a new electricity connection than customer. As a result of a decree signed those in any other world region between by almost half, from 120 times the income in April 2012, Electricité de Guinée now 2009 and 2012. Within Africa, the EAC per capita to 66 (see �gure 6.1). files the excavation permit applica- achieved bigger reductions than other tion with the Ministry of Public Works regional blocs covered—cutting the time In Tanzania a new customer service char- on behalf of the customer. This has from 183 days to 113 and cutting the cost ter approved by the regulatory agency in reduced the burden on the customer by eliminating the need to deal with FIGURE 6.2 Thirty economies had reforms in getting electricity in the past 3 years another government agency. Number of Doing Business reforms making it easier to get electricity by Doing Business report year Other utilities have reduced connec- tion costs and wait times by improving Sub-Saharan Africa (46 economies) 5 1 5 procurement practices. The utility of the ECOWAS (15 economies) 3 1 2 Namibian city of Windhoek took several Eastern Europe & Central Asia 1 2 2 steps aimed at reducing connection times (24 economies) DB2011 East Asia & Pacific and costs. First, the utility created a new (24 economies) 3 1 DB2012 template for calculating commodity pric- Latin America & Caribbean 3 1 DB2013 (33 economies) es, enabling it to provide customers with a OECD high income (31 economies) 1 3 cost estimate for a new connection more EAC easily and thus more quickly. Second, the (5 economies) 2 1 SADC utility selected a more effective, efficient (15 economies) 1 2 and experienced civil contractor through COMESA 1 1 (18 economies) an open tender process. Together, these 2 Middle East & North Africa (19 economies) 1 1 measures reduced the connection time by South Asia 17 days. Finally, the utility began acquir- (8 economies) 1 ing materials and equipment through an 0 2 4 6 8 10 12 open tender process held every 2 years. This led to more competition and lower Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2011 (2010) includes 176 economies. The sample for DB2013 (2012) also includes Barbados, the Comoros, Equatorial Guinea, Iraq, prices, reducing the connection cost by the Republic of Korea, Malta, São Tomé and Príncipe, Sudan and Uruguay, for a total of 185 economies. 77.8% of income per capita. Source: Doing Business database. 36 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 2010 reduced wait times for customers NOTES by enforcing time frames for different This topic note was written by Maya steps and streamlining internal processes. Choueiri, Caroline Frontigny, Anastasia In Uganda the utility reduced the time Shegay and Jayashree Srinivasan. required for completing external connec- 1. The surveys are for various years in tion works by 60 days by outsourcing the 2002–10. The data sample includes 113 economies. task to registered private �rms. Among 2. In accordance with the getting electricity EAC economies, Rwanda and Uganda methodology, the introduction of the have advanced the most since 2010 in customer charter was not included in narrowing the gap with the most efficient the reform count because it had only a regulatory practices for connecting new minor impact on the time to obtain a new customers (table 6.5). electricity connection. 37 Registering property Imagine Célestin, a Burundi entrepreneur TABLE 7.1 How do EAC economies rank on ƒ Within the East African Community who wants to sell a plot of land to raise the ease of registering property? (EAC), Rwanda makes it easiest to funds to expand his coffee processing Economy Global rank register property as measured by business in Bujumbura. He has found Rwanda 63 Doing Business. a buyer, Monia, and the 2 parties have Uganda 124 ƒ From June 2011 to June 2012 agreed on all material terms of the Burundi 127 Doing Business recorded 4 reforms transaction. They can expect the process Tanzania 137 making it easier to register of getting the property transferred and Kenya 161 property in Sub-Saharan Africa. registered in Monia’s name to take 64 Note: Rankings are the average of the economy’s rankings on the procedures, time and cost to register One was implemented in the days and cost 3.3% of the property value. property. See the data notes for details. EAC—in Burundi. This reflects a big improvement over the Source: Doing Business database. year before, when it would have taken 94 ƒ Angola, Burkina Faso, Côte d’Ivoire, Mauritius, Rwanda and Sierra days and cost 3.6% of the property value. on their behalf. Within the East African Leone are among the 10 economies Community (EAC), Rwanda makes it making the biggest improvements Formal property registration is pivotal to easiest to formally transfer and register in the efficiency of property private sector development, especially property as measured by Doing Business registration since 2005, giving in developing economies, because regis- (table 7.1). Sub-Saharan Africa the largest tered property rights are essential to sup- port investment and productivity growth.1 representation in this group. Evidence from economies around the WHO REFORMED IN ƒ Around the world, economies world suggests that property owners REGISTERING PROPERTY making effective cuts in the with registered titles are more likely to IN 2011/12? procedures to register property invest. They also have a better chance of In 2011/12, 17 economies around the have centralized procedures in getting credit when using their property world made it easier for local businesses a single agency. And they use as collateral. to register property by reducing the information and communication procedures, time or cost required. Four technology or better caseload Doing Business records the procedures of these economies are in Sub-Saharan management systems to make the necessary for a business to purchase a Africa, where the most common im- process faster and less costly. property from another business and to provements were introducing time limits For more information on good formally transfer the property title to the or expedited procedures, increasing practices and research related buyer’s name. The process starts with administrative efficiency, computerizing to registering property, visit obtaining the necessary documents, such procedures and reducing taxes or fees. http://www.doingbusiness.org/data/ as a copy of the seller’s title, and ends exploretopics/registering-property. when the buyer is registered as the new Burundi is the only EAC economy that For more on the methodology, see the owner of the property. The transaction implemented a reform making it easier to section on registering property in the is considered completed once the title is register property in 2011/12. Through an data notes. opposable to third parties and the buyer administrative order calling for improved can use the property as collateral for a workflow processes at the land registry, it bank loan or resell it. Every procedure established a statutory time limit for pro- required by law or necessary in practice cessing property transfer requests (table is included, whether it is the responsibil- 7.2). The land registry now issues a new ity of the seller or the buyer and even if title in the property purchaser’s name 30 it must be completed by a third party days faster (�gure 7.1). 38 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 7.2 Who in the EAC made registering property easier in 2011/12—and what did they do? for a proportional share of reforms, with 7 Feature Economy Some highlights recorded in the past 8 years. And the EAC Introduced effective time limits Burundi Burundi introduced time limits at its land registry. achieved a bigger reduction in the time to Source: Doing Business database. register property than any world region except Eastern Europe and Central Asia (�gure 7.3). FIGURE 7.1 Burundi reduced the time required for property transfers by a month in 2011/12 Reforms implemented by EAC economies Time to register property (days) since 2005 have had signi�cant and 100 lasting effects on property registration 90 systems. In 2011 Uganda reduced the 80 time required to transfer property by 70 Time to complete a property transfer was cut amending the service charter of the 60 from 94 days in 2011 to 64 days in 2012 Chief Government Valuer’s Office so as 50 to increase administrative efficiency and 40 by increasing the number of officials 30 handling land transfers at the Land Office. 20 In 2008 Kenya cut the time required for 10 property valuation by allowing private 0 1 2 3 4 5 6 7 8 practitioners as well as government Procedures valuers to carry out valuations. In 2007 „ 2011 „ 2012 Tanzania reduced the transfer fee from Source: Doing Business database. 4% of the property value to 1%. And in 2008 Rwanda not only reduced transfer fees but also set �xed fees. Besides Burundi, several other econo- registration reforms in the past 8 years— mies—Israel, Mauritius and Ukraine— with 52. As a result, it also cut the cost On average, registering property in also introduced effective time limits to register property the most, though the EAC economies costs 3.9% of the reducing the time required to register regional average remains the highest. property value, less than in economies property in 2011/12. In addition to time The EAC, with 5 economies, accounts in the Common Market for Eastern and limits, Mauritius implemented an elec- tronic system allowing faster processing FIGURE 7.2 Economies around the world are increasing the ef�ciency of property registration of registration and transcription requests at the Registrar-General’s Department— Number of Doing Business reforms making it easier to register property by Doing Business report year and reduced the time required to transfer property by 7 days. Mauritius stands out Sub-Saharan Africa (46 economies) 1 10 9 9 6 6 7 4 in Sub-Saharan Africa as the economy Eastern Europe & Central Asia (24 economies) 3 4 3 9 7 1 6 3 with the most good practices in property OECD high income registration. (31 economies) 4 3 4 2 7 7 3 6 Latin America & Caribbean DB2006 (33 economies) 3 3 6 2 5 4 2 2 DB2007 WHAT HAVE WE LEARNED COMESA (18 economies) 1 2 4 6 4 2 2 3 DB2008 FROM 8 YEARS OF DATA? SADC DB2009 (15 economies) 1 5 2 3 3 2 3 1 In the past 8 years Doing Business re- DB2010 ECOWAS 3 6 3 1 4 11 corded 185 reforms, undertaken in 121 (15 economies) DB2011 East Asia & Pacific DB2012 economies, that increased the efficiency (24 economies) 1 2 3 3 21 of procedures for transferring property Middle East & North Africa DB2013 (19 economies) 2 2 3 2 3 0 0 0 (�gure 7.2). Globally, the average time South Asia to transfer property fell by 35 days, from (8 economies) 2 2 1 2 2 1 EAC 90 to 55, and the average cost by 1.2 per- (5 economies) 11 2 111 centage points, from 7.1% of the property 0 10 20 30 40 50 60 value to 5.9%. Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 (2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei Among world regions, Sub-Saharan Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. Africa had the largest number of property Source: Doing Business database. REGISTERING PROPERTY 39 FIGURE 7.3 Property transfers have become faster worldwide—and substantially so in the EAC TABLE 7.4 Who in the EAC has narrowed Average time to register property (days) the distance to frontier in registering property the most OECD high income DB2013 DB2006 since 2005? Improvement in Eastern Europe & Central Asia DB2013 DB2006 distance to frontier Economy (percentage points)a Middle East & North Africa DB2013 DB2006 Rwanda 38 COMESA DB2013 DB2006 (36Æ74) Burundi 24 SADC DB2013 DB2006 (40Æ64) EAC DB2013 DB2006 Tanzania 10 (52Æ62) Latin America & Caribbean DB2013 Uganda 7 DB2006 (50Æ58) Sub-Saharan Africa DB2013 DB2006 Kenya -4 East Asia & Pacific DB2013 (61Æ58) DB2006 Note: The distance to frontier measure shows how far ECOWAS DB2013 DB2006 on average an economy is from the best performance achieved by any economy on each Doing Business South Asia DB2013 DB2006 indicator since 2005—in this case for the registering 0 50 100 150 200 property indicators. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005). Note: To ensure an accurate comparison, the �gure shows data for the same sample of 170 practice economies for both Eleven economies were added in subsequent years. DB2006 (2005) and DB2013 (2012) and uses the regional classi�cations applying in 2012. The economies added to the Doing a. This column shows the absolute improvement in Business sample after 2005 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, the distance to frontier between 2005 and 2012. The Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes in numbers in parentheses are the scores for those years. methodology. Source: Doing Business database. Source: Doing Business database. TABLE 7.3 Who in the EAC makes Southern Africa (COMESA), where the Rwanda stands out for having made the registering property easy— cost averages 6.4%, or in the Southern second largest improvement globally— and who does not? African Development Community (SADC), and the greatest in the EAC (table 7.4). Procedures (number) where it averages 7.3%. But property Rwanda 5 transfers in COMESA and SADC econo- Comparison of property registration Burundi 8 mies occur faster and require fewer pro- systems—based solely on the proce- Tanzania 8 cedures on average. dures, time and cost to transfer and Kenya 9 register property as measured by Doing Uganda 12 Around the world, economies making Business—suggests a number of common effective reductions in the time to register good practices: introducing time limits Time (days) property have reorganized the workflow that are complied with, setting low �xed Rwanda 25 of their registries, introduced time limits fees, streamlining procedures and going Uganda 52 (taking into account the capacity of the electronic. Burundi 64 institutions involved) or paired the com- Tanzania 68 puterization of their registries with the Kenya 73 NOTES introduction of efficient caseload man- agement systems. Through changes such This topic note was written by Frédéric Cost (% of property value) Meunier and Moussa Traoré. Uganda 1.9 as these, Rwanda cut the time to register 1. See Deininger (2003) for a summary and Burundi 3.3 property from 371 days in 2004 to 25 analysis of relevant studies. Kenya 4.3 days in 2012 (table 7.3). Indeed, while Tanzania 4.4 many economies have narrowed the gap Rwanda 5.6 with the most efficient regulatory prac- Source: Doing Business database. tice in property registration since 2005, 40 Getting credit ƒ Kenya leads the East African The United Nations Commission on TABLE 8.1 How do EAC economies rank on Community (EAC) in the ease of International Trade Law (UNCITRAL), the ease of getting credit? getting credit and stands at 12 in the in its Legislative Guide on Secured Economy Global rank global ranking. Rwanda is at 23 in the Transactions, emphasizes the importance Kenya 12 ranking, and Uganda at 40. the international community places Rwanda 23 on secured credit: “All businesses, Uganda 40 ƒ On the component indicators, Kenya whether engaged in mining, lumbering, Tanzania 129 leads the EAC in the strength of legal agriculture, manufacturing, distributing, Burundi 167 rights of borrowers and lenders, providing services or retailing, require Note: Rankings on the ease of getting credit are based and Rwanda in the depth of credit on the sum of the strength of legal rights index and the information. working capital to operate, to grow depth of credit information index. See the data notes for details. and to compete successfully in the ƒ In the past 8 years Doing Business Source: Doing Business database. marketplace. It is well established . . . recorded 2 reforms strengthening that one of the most effective means of legal rights in the EAC, in Burundi providing working capital to commercial available through credit registries and and Rwanda. It recorded 5 improving enterprises is through secured credit.�1 credit bureaus. credit information systems, in Kenya, Rwanda and Uganda. In that spirit Doing Business measures 2 Rankings on the ease of getting credit ƒ Rwanda is among the 3 economies types of institutions and systems that can are based on the sum of the strength of around the world advancing the facilitate access to �nance and improve legal rights index and the depth of credit furthest toward the frontier in its allocation: credit registries or credit information index (table 8.1). regulatory practice in the area of bureaus and the legal rights of borrowers getting credit since 2005. and lenders in secured transactions and WHO REFORMED IN GETTING bankruptcy laws. These institutions and ƒ Kenya and Rwanda have legislation CREDIT IN 2011/12? systems work best together.2 Information allowing the use of a broad range Globally, only 5 economies improved ac- sharing through credit registries or of movable assets as collateral and cess to credit by reforming their secured out-of-court enforcement of security bureaus helps creditors assess the creditworthiness of clients (though it transactions legislation or strengthening interests in movable property. is not the only risk assessment tool), the rights of secured creditors in 2011/12. For more information on good practices In the East African Community (EAC) while legal rights can facilitate the use of and research related to getting credit, no reforms were recorded in these areas collateral and the ability to enforce claims visit http://www.doingbusiness.org/data/ of law. But some EAC economies had exploretopics/getting-credit. For more in the event of default. Creditors’ rights and insolvency regimes are fundamental already incorporated good practices into on the methodology, see the section on getting credit in the data notes. to a sound investment climate and can their legislation covering secured trans- help promote commerce and economic actions and creditors’ rights (table 8.2). growth.3 Sixteen economies improved their credit These 2 types of institutions are mea- reporting system in 2011/12; 1 economy sured by 2 sets of indicators. One set made access to credit information analyzes the legal framework for secured more difficult. Three of the 16 reforming transactions by looking at how well col- economies are in Sub-Saharan Africa. lateral and bankruptcy laws facilitate Ethiopia introduced a new online system lending. The other looks at the coverage, for sharing credit information and guar- scope and quality of credit information anteed borrowers’ right to inspect their GETTING CREDIT 41 TABLE 8.2 Good practices in providing legal rights for borrowers and lenders also provided for the implementation of Practice Economiesa Some highlights in the EAC a collateral registry, which later became Allowing out-of-court 122 In Uganda legislation allows out-of-court enforcement of security operational. enforcement interests if agreed to by the parties. Allowing general description 92 In Kenya and Tanzania legislation allows movable assets owned Rwanda also improved the sharing of of collateral by companies to be used as collateral and permits a general description of these assets in the security agreement. credit information (table 8.5). In 2005 the Maintaining a uni�ed registry 67 Rwanda introduced a collateral registry in 2010. country expanded the range of information for movable property distributed by credit registries by includ- a. Among 185 economies surveyed around the world. ing credit information from micro�nance Source: Doing Business database. institutions. In 2010 Rwanda passed the Law Governing the Establishment, TABLE 8.3 Good practices in sharing credit and medium-size enterprises. Over the Organization and Functioning of a Credit information past 8 years Doing Business recorded Information System, which set up a Examples in 2 reforms in EAC economies affecting regulatory framework for the sharing of Practice Economiesa the EAC their score on the strength of legal rights credit information and provided for the Distributing data on 123 Kenya, loans below 1% of Rwanda, index (table 8.4). establishment of a private credit bureau. income per capita Uganda In addition, the central bank removed the Distributing both 105 Rwanda, In March 2006 Burundi enacted Law minimum threshold for loans that banks positive and negative Uganda 1/08, which regulates court-supervised credit information are required to report to public credit arrangements for insolvent companies. Distributing credit 55 Kenya, registries. Rwanda’s �rst private credit information from Rwanda The law provides protection for secured retailers, trade bureau, CRB Africa, started operations in creditors in a reorganization proceeding creditors or utilities May 2010. Three utility companies—the as well as �nancial by allowing the insolvency representative institutions mobile phone companies MTN and Tigo to replace the assets over which secured a. Among 185 economies surveyed around the world. and the electricity and gas company creditors have a right with others of equiv- Source: Doing Business database. EWSA—started providing credit informa- alent value if the collateral is destroyed, tion to the private credit bureau in 2011, sold or devalued during the proceeding. increasing by 2% the number of individu- The law also makes payment of interest personal data. In Mauritius the public als and �rms registered in the database. during the stay period mandatory. credit registry developed a new format Also in 2011, both the public credit reg- for credit reports that includes on-time In May 2009 Rwanda enacted Law istry and the private credit bureau began payments and unpaid installments and 11/2009, on security interests in movable distributing more than 2 years of histori- also began collecting data from retailers. property, and Law 12/2009, on com- cal data—both positive and negative. Sierra Leone’s �rst public credit registry mercial recovery and settling of issues started operations, issuing more than arising from insolvency. The �rst law Rwanda is not the only EAC economy that 4,000 credit reports in 2011. broadens the range of movable assets distributes credit information from retail- that can be subject to nonpossessory ers, trade creditors or utilities. In Kenya Speci�c practices help increase credit security interests and allows enforcement the private credit bureau added telephone coverage and encourage the use of credit of security interests out of court. The law companies and furniture and household information systems. Among the most appliance retailers as information provid- common measures around the world have ers in 2006, and utility companies and TABLE 8.4 Who in the EAC has the strongest been lowering or eliminating minimum legal rights for borrowers and other retailers in 2007. Trade creditors thresholds for the loans included, ex- lenders—and who the weakest? had started supplying credit information panding the range of information shared Strength of legal rights index (0–10) before 2006. Kenya also improved access and collecting and distributing data from Kenya 10 to credit by passing the Banking (Credit sources other than banks (table 8.3). Rwanda 7 Reference Bureau) Regulations 2008 Tanzania 7 in February 2009. The new law made Uganda 7 WHAT HAVE WE LEARNED it mandatory for �nancial institutions Burundi 3 FROM 8 YEARS OF DATA? licensed under the Banking Act to share Note: The rankings reflected in the table on legal rights Some economies have incorporated for borrowers and lenders consider solely the law. negative information on their customers Problems may occur in the implementation of legal good practices in their legal framework provisions and are not reflected in the scoring. See the with licensed credit bureaus. It also pro- for secured transactions with the aim data notes for details. vided for the licensing and establishment Source: Doing Business database. of improving access to �nance for small of private credit bureaus in the country. 42 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 8.5 Who in the EAC has the most credit information—and who the least? with a credit reporting system as recorded Depth of credit Public registry Private bureau by Doing Business). information index coverage coverage Economy (0–6) (% of adults) (% of adults) Among world regions, Sub-Saharan Rwanda 6 0.0 7.1 Africa had the largest number of reforms Uganda 5 0.0 3.7 strengthening legal rights. Most were Kenya 4 0.0 4.9 recorded in member economies of the Burundi 1 0.3 0.0 Organization for the Harmonization Tanzaniaa 0 0.0 0.0 of Business Law in Africa (OHADA), a. Tanzania has neither a private credit bureau nor a public credit registry. which implemented amendments to Source: Doing Business database. the OHADA Uniform Act on Secured Transactions of 2010. The revised act Uganda’s �rst private credit bureau, These changes in EAC economies led to broadened the range of assets that can Compuscan CRB, began operations in important improvements. Rwanda ranks be used as collateral (including future 2009. Regulated under the Financial among the 3 economies globally that assets), extended security interests to Institutions (Credit Reference Bureaus) have advanced the furthest toward the the proceeds of the original asset and Regulations, the new private bureau frontier in regulatory practice in the area introduced the possibility of out-of-court receives borrower information from all of getting credit since 2005 (table 8.6). enforcement. regulated entities, including 23 com- Uganda ranks among the 15 economies mercial banks and 3 micro�nance institu- advancing the furthest. Within Africa, the EAC has increased tions. Loans of all sizes and both positive its average score on the strength of The measures taken in EAC economies legal rights index more since 2005 than and negative information are reported to are among the 71 reforms strengthening have the Southern African Development the private bureau. By January 1, 2010, legal rights of borrowers and lenders in Community (SADC) and the Common Compuscan’s database included 174,683 59 economies recorded by Doing Business Market for Eastern and Southern Africa individuals and 3,104 �rms, coverage in the past 8 years—and among the 171 (COMESA) (�gure 8.1). The reason is that equivalent to 1.1% of the adult population regulatory reforms improving credit infor- no secured transactions reforms were as measured by Doing Business. Under the mation systems in 99 economies (more recorded in the past 8 years for SADC Financial Institutions Act, borrowers have than two-thirds of the 146 economies and COMESA members except Burundi the right to access their credit report. FIGURE 8.1 EAC economies have strengthened the legal rights of borrowers and lenders TABLE 8.6 Who in the EAC has narrowed Average strength of legal rights index (0–10) the distance to frontier in getting credit the most since 2005? DB2013 OECD high income DB2006 Improvement in DB2013 distance to frontier EAC DB2006 Economy (percentage points)a DB2013 East Asia & Pacific DB2006 Rwanda 56 (25Æ81) Eastern Europe & Central Asia DB2013 DB2006 Uganda 31 (44Æ75) ECOWAS DB2013 DB2006 Kenya 25 (63Æ88) SADC DB2013 DB2006 Burundi 0 South Asia DB2013 DB2006 (25Æ25) Latin America & Caribbean DB2013 Tanzania 0 DB2006 (44Æ44) Sub-Saharan Africa DB2013 DB2006 Note: The distance to frontier measure shows how far on average an economy is from the best performance COMESA DB2013 DB2006 achieved by any economy on each Doing Business indicator since 2005—in this case for the getting credit Middle East & North Africa DB2013 DB2006 indicators. The measure is normalized to range between 0 and 100, with 100 representing the best performance 0 1 2 3 4 5 6 7 8 (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. Note: To ensure an accurate comparison, the �gure shows data for the same sample of 174 economies for both DB2006 (2005) and DB2013 (2012) and uses the regional classi�cations applying in 2012. The economies added to the Doing a. This column shows the absolute improvement in Business sample after 2005 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, the distance to frontier between 2005 and 2012. The Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes in numbers in parentheses are the scores for those years. methodology. Source: Doing Business database. Source: Doing Business database. GETTING CREDIT 43 FIGURE 8.2 Big improvements in credit information systems in the EAC Regional averages in depth of credit information Latin America & Caribbean DB2013 DB2006 OECD high income DB2013 DB2006 Eastern Europe & Central Asia DB2013 DB2006 East Asia & Pacific DB2013 DB2006 Middle East & North Africa DB2013 DB2006 DB2013 South Asia DB2006 EAC DB2013 DB2006 Sub-Saharan Africa DB2013 DB2006 SADC DB2013 DB2006 COMESA DB2013 DB2006 ECOWAS DB2013 DB2006 0 1 2 3 4 5 6 Who is covered (0–2) Type of information (0–3) Consumers’ right (0–1) Note: To ensure an accurate comparison, the �gure shows data for the same sample of 123 economies for both DB2006 (2005) and DB2013 (2012) and uses the regional classi�cations applying in 2012. DB2006 data are adjusted for any data revisions and changes in methodology. Who is covered refers to whether both individuals and �rms are covered by a bureau or registry and whether loans below 1% of income per capita are included. Type of information refers to the availability of information from retailers or utilities, distribution of positive and negative information and availability of historical data. Consumers’ right refers to whether the law guarantees borrowers’ right to inspect their own data. Source: Doing Business database. and the economies that are also OHADA SADC, COMESA and ECOWAS—and members. The Economic Community more than Sub-Saharan Africa as a whole of West African States (ECOWAS) has (�gure 8.2). increased its average score more than all 3 of the other regional blocs, however— thanks to the secured transactions re- NOTES forms implemented by OHADA members This topic note was written by Santiago Croci Downes and Charlotte Nan Jiang. as well as by such economies as Ghana 1. UNCITRAL 2007, p. 1. and Sierra Leone. On the depth of credit 2. Djankov, McLiesh and Shleifer 2007. information index, the EAC has increased 3. World Bank 2011. its average score more since 2005 than 44 Protecting investors ƒ Rwanda has the strongest minority The East African Community (EAC) is TABLE 9.1 How do EAC economies rank investor protections in related- deeply rooted in principles of cooperation, on the strength of investor party transactions in the East competition and positive emulation. After protections? African Community (EAC), for the Rwanda launched ambitious and compre- Strength of investor protection �fth year in a row. In Sub-Saharan hensive reforms of its legal environment Economy Global rank index (0–10) Africa, South Africa continues to to foster investment, culminating in an Rwanda 32 6.3 have the strongest protections. overhaul of its company law in 2009, Burundi 49 6.0 Burundi soon followed suit. Practitioners Kenya 100 5.0 ƒ The EAC has been more active in are already seeing changes in these econ- Tanzania 100 5.0 strengthening the protections of omies. Business is no longer conducted in Uganda 139 4.0 minority investors since 2005 than the same way. Corporations are subject to Note: Rankings are based on the strength of investor any world region except Eastern protection index. See the data notes for details. more detailed rules governing how sensi- Europe and Central Asia. Economies shown with the same ranking number are tied tive transactions must be approved and in the ranking. ƒ Three EAC economies disclosed, what duties company directors Source: Doing Business database. strengthened minority investor are held to and whether minority inves- protections: Tanzania in 2006, tors in a company can initiate proceedings TABLE 9.2 Who in the EAC provides strong Rwanda in 2009 and Burundi in if they suspect that its directors are not minority investor protections— 2011. and who does not? acting in its best interests. Extent of disclosure index (0–10) ƒ Among the 10 economies globally Burundi 8 Doing Business measures the strength of that have advanced the furthest Rwanda 7 minority shareholder protections against toward the frontier in regulatory Kenya 3 directors’ misuse of corporate assets for practice in protecting investors Tanzania 3 personal gain. The indicators distinguish since 2005, Rwanda is third and Uganda 2 3 dimensions of investor protections: Burundi �fth. approval and transparency of related- Extent of director liability index (0–10) ƒ In 2011/12 Lesotho was the only party transactions (extent of disclosure Rwanda 9 economy in Sub-Saharan Africa index), liability of company directors for Burundi 6 that strengthened minority self-dealing (extent of director liability Uganda 5 investor protections. index) and shareholders’ ability to obtain Tanzania 4 For more information on good corporate documents before and dur- Kenya 2 practices and research related to ing litigation (ease of shareholder suits protecting investors, visit http:// index). The standard case study assumes Ease of shareholder suits index (0–10) www.doingbusiness.org/data/ a related-party transaction between Kenya 10 exploretopics/protecting-investors. Company A (“Buyer�) and Company Tanzania 8 For more on the methodology, see the B (“Seller�) where “Mr. James� is the Uganda 5 section on protecting investors in the Burundi 4 controlling shareholder of both Buyer and data notes. Rwanda 3 Seller and a member of both their boards of directors. The transaction is overpriced Source: Doing Business database. and causes damages to Buyer. Protecting minority shareholders matters �nance that companies need to grow, for companies. Without adequate regula- innovate, diversify and compete. A recent tions, equity markets fail to develop and study shows that in economies with banks become the only source of the stronger investor protections, investment PROTECTING INVESTORS 45 in �rms is less sensitive to �nancial con- FIGURE 9.1 Among African regional blocs, an EAC member tops the ranking on each of the 3 straints and leads to greater growth in aspects of investor protections measured revenue and pro�tability.1 Another study Extent of disclosure index (0–10) shows that regulating conflicts of interest Burundi Egypt, Arab Rep. is essential to successfully empowering South Africa Zimbabwe minority shareholders.2 Botswana Rwanda Comoros Within the EAC, Rwanda provides the Mauritius Angola strongest minority investor protections Djibouti Madagascar as measured by Doing Business, ranking Mozambique Namibia highest in this area for the �fth year in a Sub-Saharan Africa average EAC average row (table 9.1). But Rwanda is not alone Eritrea Ethiopia among EAC economies in protecting Malawi Seychelles minority investors. Today Burundi also Congo, Dem. Rep. Kenya offers many of the protections �rst in- Lesotho Tanzania troduced in the EAC in Rwanda. And in Zambia Swaziland Kenya and Tanzania minority investors Uganda can still count on some of the most bal- Sudan 0 0 2 4 6 8 10 anced civil procedure rules. The results of such provisions become apparent when Extent of director liability index (0–10) Rwanda measuring the ease of shareholder suits Botswana Mauritius (table 9.2). Seychelles South Africa Malawi Angola WHO HAS IMPROVED Burundi Madagascar INVESTOR PROTECTIONS? Sudan Zambia Within Africa, the EAC has been more ac- EAC average Eritrea tive than any other regional bloc covered Namibia Swaziland in strengthening legislation to further Uganda Ethiopia protect and empower minority share- Lesotho Mozambique holders. Indeed, it is largely responsible Tanzania for initiating a trend of regulatory reforms Sub-Saharan Africa average Congo, Dem. Rep. in favor of minority shareholders, with the Egypt, Arab Rep. Djibouti hope of building investor con�dence in Kenya Comoros Zimbabwe 0 2 4 6 8 10 TABLE 9.3 Who in the EAC has strengthened investor protections—and what Ease of shareholder suits index (0–10) did they do? Kenya Mauritius Economy Some highlights Mozambique Lesotho Burundi In 2011 Burundi enacted a new company South Africa law (Code des sociétés privées et à par- Tanzania ticipation publique) strengthening investor Zambia Angola protections by regulating the approval of EAC average transactions between interested parties; Madagascar requiring greater corporate disclosure to Namibia Swaziland the board of directors and in the annual Comoros report; and making it easier to sue direc- Egypt, Arab Rep. tors in cases of prejudicial transactions Eritrea between interested parties. Ethiopia Malawi Rwanda In 2009 Rwanda adopted a new company Seychelles law strengthening investor protections Sub-Saharan Africa average Uganda by requiring greater corporate disclosure, Burundi director liability and shareholder access to Congo, Dem. Rep. information. Sudan Zimbabwe Tanzania In 2006 Tanzania passed a new company Botswana act strengthening investor protections by Rwanda Djibouti 0 codifying directors’ duties and shareholder suit mechanisms and providing greater 0 2 4 6 8 10 access to company books. Note: Figure shows data for EAC, COMESA and SADC member economies. Source: Doing Business database. Source: Doing Business database. 46 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 FIGURE 9.2 The EAC has made signi�cant strides in investor protections since 2005 TABLE 9.4 Where have economies been Regional averages in protecting investors most active in strengthening investor protections since 2005? OECD high income DB2013 Economies that DB2006 reformed a Eastern Europe & Central Asia DB2013 DB2006 Region or Total Share of regional bloc economies Number total (%) SADC DB2013 DB2006 Eastern 24 16 67 East Asia & Pacific DB2013 Europe & DB2006 Central Asia EAC DB2013 DB2006 EAC 5 3 60 Latin America & Caribbean DB2013 OECD high 31 15 48 DB2006 income South Asia DB2013 DB2006 East Asia & 24 9 38 Middle East & North Africa DB2013 Paci�c DB2006 South Asia 8 3 38 COMESA DB2013 DB2006 SADC 15 5 33 Sub-Saharan Africa DB2013 Middle East & 19 6 32 DB2006 North Africa ECOWAS DB2013 DB2006 Latin America 33 8 24 20 & Caribbean 0 5 10 15 COMESA 18 4 22 Extent of disclosure index (0–10) Sub-Saharan 46 9 20 Extent of director liability index (0–10) Africa Ease of shareholder suits index (0–10) ECOWAS 15 2 13 a. Economies implementing at least 1 Doing Business Note: To ensure an accurate comparison, the �gure shows data for the same sample of 174 economies for both DB2006 reform strengthening investor protections from the Doing (2005) and DB2013 (2012) and uses the regional classi�cations applying in 2012. The economies added to the Doing Business Business report year DB2006 to DB2013. An economy sample after 2005 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, Kosovo, can be considered to have only 1 Doing Business reform Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes per topic and year. The data sample for DB2006 (2005) in methodology. includes 174 economies. The sample for DB2013 (2012) Source: Doing Business database. also includes The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. domestic �rms. Tanzania began the trend WHAT HAVE WE LEARNED Source: Doing Business database. in 2006 by adopting a new company act, FROM 8 YEARS OF DATA? followed by Rwanda in 2009 and Burundi In the past 8 years 60% of economies in TABLE 9.5 Who in the EAC has narrowed the in 2011 (table 9.3). distance to frontier in protecting the EAC implemented at least 1 reform investors the most since 2005? strengthening investor protections. This The emulation effect has rippled beyond Improvement in is a larger share than in any world region distance to frontier the con�nes of the EAC to Botswana, Economy (percentage points)a except Eastern Europe and Central Asia— Mozambique, Swaziland and, most Rwanda 38 and a far larger one than in Sub-Saharan recently, Lesotho. Yet among African (29Æ67) Africa overall (table 9.4). The EAC’s 60% regional blocs, an EAC economy still tops Burundi 29 share also far exceeds that in the Southern (34Æ62) the ranking on each of the 3 aspects of African Development Community (SADC), Tanzania 10 investor protections measured by Doing (41Æ51) the Common Market for Eastern and Business (�gure 9.1). Southern Africa (COMESA) and the Kenya 0 (51Æ51) Economic Community of West African Uganda 0 Moreover, thanks to the efforts of its States (ECOWAS). (42Æ42) member economies, the EAC is catching Note: The distance to frontier measure shows how far up with world regions. While it ranked While many economies around the world on average an economy is from the best performance achieved by any economy on each Doing Business below most world regions on the strength have strengthened investor protections, indicator since 2005—in this case for the protecting of investor protections in 2005, the EAC Rwanda and Burundi have made some of investors indicators. The measure is normalized to range between 0 and 100, with 100 representing the best has now surpassed Latin America and the biggest improvements since 2005— performance (the frontier). The data refer to the 174 the Caribbean, South Asia, the Middle and the biggest in Sub-Saharan Africa economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. East and North Africa and Sub-Saharan (table 9.5). Indeed, thanks largely to the a. This column shows the absolute improvement in Africa as a whole (�gure 9.2). EAC, Sub-Saharan Africa has had some of the distance to frontier between 2005 and 2012. The numbers in parentheses are the scores for those years. the most comprehensive minority investor Source: Doing Business database. protection reforms, with updates of com- pany laws following global good practices. PROTECTING INVESTORS 47 Overall, smart, comprehensive regulations on companies’ day-to-day operations. have had the strongest lasting impact. Thus far the EAC has been successful at Economies undertaking a complete maintaining this balance. Keeping this bal- overhaul of their corporate, securities and ance in mind will remain essential if Kenya, civil procedure laws—such as Burundi and Tanzania and Uganda pursue the initiatives Rwanda—have strengthened investor pro- of Rwanda and Burundi. tections the most as measured by Doing Business. NOTES But updating decades-old corporate law This topic note was written by Hervé principles to address investor protections Kaddoura. is not simple. It requires a balancing act— 1. Mclean, Zhang and Zhao 2012. to more effectively protect minority share- 2. Hamdani and Yafeh 2012. holders without creating undue burdens 48 Paying taxes ƒ From June 2011 to June 2012 Doing Taxes are essential: governments need potential arising from the regional ef- Business recorded 31 reforms making revenue to provide public services. But forts to make it easier to do business. it easier or less costly for companies meeting revenue targets while minimiz- The EAC has organized many activities to comply with taxes. One was in the ing distortions is always a challenge. toward this end in recent years, includ- East African Community (EAC)—in Governments need to not only choose ing technical workshops on income tax, Kenya. appropriate tax rates within a broad- value added tax (VAT) and the exchange based, fair and transparent tax system of information among EAC members’ ƒ EAC economies have an average global ranking of 110 on the ease but also design a tax compliance system revenue authorities. Effective informa- of paying taxes. But there is great that does not discourage taxpayers from tion exchange is essential to ensure the variation among them on the participating.1 correct application of tax laws while underlying indicators—time, number maintaining sovereignty over the applica- In recent years economies in the East tion and enforcement of these laws. And of payments and total tax rate. African Community (EAC) have under- the development of regional strategies ƒ Among EAC economies, Burundi and taken substantial efforts to improve their and frameworks for both tax policy and Rwanda have advanced the furthest tax systems—to make it easier to do administrative procedures is crucial for toward the frontier in regulatory business while also increasing tax rev- the realization of the common market practice in paying taxes since 2004. enue. For example, the Tanzania Revenue because it creates synergies and removes ƒ Over the past 8 years 7 reforms Authority established tax service centers obstacles to cross-border trade within making it easier or less costly to in Dar es Salaam, intensi�ed risk-based the EAC. comply with taxes were recorded in and quality tax audits and encouraged the 5 EAC economies. greater use of electronic �ling and pay- Doing Business records the taxes and ment systems. These administrative mandatory contributions that a medium- For more information on good measures helped improve compliance, size company must pay in a given year practices and research related to paying taxes, visit http:// and tax revenue rose relative to GDP in and also measures the administrative www.doingbusiness.org/data/ each of the past 2 years.2 Similarly, in burden of paying taxes and contributions. exploretopics/paying-taxes. For more Burundi tax revenue has almost doubled It does this with 3 indicators: number of on the methodology, see the section on since the 2009 reform of the revenue payments, time and total tax rate for the paying taxes in the data notes. administration, which included the es- Doing Business case study �rm. The num- tablishment of the Office Burundais des ber of payments indicates the frequency Recettes and focused on good gover- with which the company has to �le and nance, a streamlined tax environment pay different types of taxes and contribu- and stronger taxpayer services.3 tions, adjusted for the way in which those �lings and payments are made. The time Beyond measures by individual EAC indicator captures the number of hours economies, initiatives are also taking it takes to prepare, �le and pay 3 major place at the regional level. The EAC has types of taxes: pro�t taxes, consumption identi�ed regional tax harmonization taxes, and labor taxes and mandatory and greater cooperation on tax matters contributions. The total tax rate measures among its members as key to economic the tax cost (as a percentage of pro�t) prosperity. The goal of the EAC members borne by the standard �rm. The indica- in establishing the common market is to tors do not measure the �scal health of enable businesses to operate unhindered economies, the macroeconomic condi- by national borders and to tap the huge tions under which governments collect PAYING TAXES 49 TABLE 10.1 How do EAC economies rank on FIGURE 10.1 Tax compliance takes less time in the EAC than in ECOWAS the ease of paying taxes? Average payments (number per year) Economy Global rank Average total tax rate (% of profit) Average time (hours per year) Rwanda 25 70 400 Uganda 93 Tanzania 133 350 60 Burundi 137 300 Kenya 164 50 Note: Rankings are the average of the economy’s 250 rankings on the number of payments, time and total tax 40 rate as measured for the Doing Business case study �rm, 200 with a threshold imposed on the total tax rate. See the data notes for details. 30 150 Source: Doing Business database. 20 100 TABLE 10.2 Who in the EAC makes paying 10 50 taxes easy and who does not—and where is the total 0 0 Rwanda Tanzania COMESA SADC Uganda EAC Burundi Sub- Kenya ECOWAS tax rate highest? Saharan Payments (number per year) Africa Rwanda 17 Average payments Average total tax rate Average time Burundi 25 Uganda 31 Source: Doing Business database. Kenya 41 Tanzania 48 global ranking and Kenya at 164 (table social security contributions—all of them 10.1). monthly. Those in Rwanda also have to Time (hours per year) pay 9 different types of taxes, but they Rwanda 134 The EAC’s average ranking is lower pay VAT and social security contribu- Tanzania 172 than that for the Southern African tions quarterly—resulting in fewer annual Uganda 213 Development Community (SADC), at transactions (�lings and payments) for Burundi 274 83, and the Common Market for Eastern businesses. Complying with taxes takes Kenya 340 and Southern Africa (COMESA), at 92 only 134 hours a year in Rwanda, while it Total tax rate (% of pro�t) (in both these regional blocs, which takes 340 in Kenya. Rwanda 31.3 have overlapping memberships, rankings range from 12 for Mauritius to 171 for Uganda 37.1 WHO REFORMED IN PAYING Kenya 44.4 the Democratic Republic of Congo). The TAXES IN 2011/12? Tanzania 45.3 EAC has a signi�cantly lower average From June 2011 to June 2012 Doing Burundi 53.0 total tax rate, at 42.2% of pro�t, than Business recorded 31 reforms worldwide Note: The indicator on payments is adjusted for the SADC (52.2%), COMESA (65.1%) or possibility of electronic or joint �ling and payment when Sub-Saharan Africa as a whole (57.8%). making it easier or less costly for �rms to used by the majority of �rms in an economy. See the data pay taxes. Sixteen economies mandated notes for more details. And while businesses in the EAC spend Source: Doing Business database. on average 227 hours a year to comply or enhanced electronic �ling, eliminating with tax liabilities, the average is 204 the need for 196 separate tax payments hours a year in COMESA, 209 in SADC, and reducing compliance time by 134 days revenue or the provision of public services (1,070 hours) in total. Seven other econo- 344 in the Economic Community of West supported by taxation. The ranking on the mies implemented electronic �ling for African States (ECOWAS) and 319 in ease of paying taxes is the simple average the �rst time, raising the number offering Sub-Saharan Africa (�gure 10.1). of the percentile rankings on its compo- this option from 67 in 2010 to 74 in 2011. nent indicators, with a threshold applied Within the EAC, just as there is great Twelve economies reduced pro�t tax rates to the total tax rate.4 variation in the overall ranking on the ease in 2011/12: 6 high-income economies, 4 of paying taxes, there is much variation in middle-income ones and 2 low-income On average, EAC economies have a the underlying indicators. Tanzania re- ones. Reductions in pro�t tax rates are ranking of 110 (among 185 economies quires 48 payments a year, while Rwanda often considered by governments within globally) on the ease of paying taxes. requires just 17 (table 10.2).5 Businesses the broader context of tax policy reforms But there is much variation among the in Tanzania have to pay 9 different types and combined with efforts to widen the 5 economies, with Rwanda at 25 in the of taxes—including VAT, labor tax and tax base by removing exemptions and with 50 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 increases in the rates of other taxes, such TABLE 10.3 Who in the EAC made paying taxes easier and lowered the tax burden in 2011/12— as VAT. Eleven economies introduced new and what did they do? taxes. Others increased pro�t or income Feature Economy Some highlights tax rates or social security contributions. Introduced or enhanced electronic Kenya Kenya made paying taxes faster for companies by enhancing systems electronic �ling systems. Of the 31 reforms making it easier or Source: Doing Business database. less costly for companies to pay taxes in 2011/12, only 1 was recorded in the EAC— in Kenya (table 10.3). Beginning in 2009, FIGURE 10.2 Tax reforms were common across all regions in the past 8 years the Kenya Revenue Authority introduced Number of Doing Business reforms making it easier to pay taxes by Doing Business an online �ling system for VAT. Over the report year past 3 years the system has gained in popularity among taxpayers, who have Eastern Europe & Central Asia (24 economies) 8 11 10 9 9 11 7 7 learned to store required information OECD high income (31 economies) 9 7 6 8 9 7 7 9 in an efficient and user-friendly format, Sub-Saharan Africa (46 economies) 3 8 8 6 11 11 7 4 DB2006 upload it to tax software and �le the VAT Latin America & Caribbean DB2007 (33 economies) 4 5 5 8 6 2 7 5 returns online. Companies have reported DB2008 East Asia & Pacific (24 economies) 3 5 9 8 4 improvements in processing speed on the DB2009 ECOWAS �ling website, a major source of delay in (15 economies) 2 4 32 5 5 32 DB2010 COMESA 4 32 4 3 3 42 previous years. In addition, the revenue (18 economies) DB2011 Middle East & North Africa DB2012 authority exempted companies that �le (19 economies) 1 4 32 6 232 monthly payroll taxes online from addi- SADC DB2013 (15 economies) 12 5 4 3 221 tional quarterly and annual �ling require- South Asia 4 2112 (8 economies) ments. This reduced the time required EAC 111121 (5 economies) to comply with labor taxes. Thanks to 0 10 20 30 40 50 60 70 80 the increased popularity of tax software, the time required to calculate corporate Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 (2004) includes 174 economies. The sample for DB2013 (2011) also includes The Bahamas, Bahrain, Barbados, Brunei income tax (including inputting data) has Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. also declined. Source: Doing Business database. WHAT HAVE WE LEARNED FROM 8 YEARS OF DATA? Over the past 8 years Doing Business re- corded 7 reforms making it easier or less FIGURE 10.3 Time for tax compliance is converging across African regional blocs costly to comply with taxes in the EAC (�gure 10.2). As a result of these reforms, Average time (hours per year) the average number of tax payments in EAC economies fell from 36 in 2004 to 400 32 in 2011, while the average total tax rate ECOWAS dropped from 91.7% of pro�t to 42.2%.6 350 Over the same period the average time for tax compliance increased slightly, 300 showing the need for continued efforts to make compliance easier (�gure 10.3). 250 EAC SADC Among EAC economies, Burundi and 200 COMESA Rwanda have advanced the furthest toward the frontier in regulatory practice in paying taxes since 2004 (table 10.4). In 2009 Burundi replaced its sales tax 0 with VAT, which led to a reduction in the 2004 2005 2006 2007 2008 2009 2010 2011 total tax rate of 125 percentage points. Note: The data sample for ECOWAS excludes Liberia, which was added to the Doing Business sample after 2004. In 2010 Burundi continued its efforts to Source: Doing Business database. PAYING TAXES 51 TABLE 10.4 Who in the EAC has narrowed Electronic systems for �ling and paying NOTES the distance to frontier in taxes eliminate excessive paperwork This topic note was written by Joanna Nasr paying taxes the most since and interaction with tax officers. They and Nina Paustian. 2004? can reduce the time businesses spend 1. See, for example, IMF (2011). Improvement in distance to frontier on complying with tax laws, increase tax 2. Republic of Tanzania 2012. Economy (percentage points)a compliance and reduce the cost of rev- 3. See, for example, Sittoni (2012). Burundi 15 enue administration. But achieving these 4. The threshold is set at the 15th percentile (45Æ60) results requires effective implementa- of the total tax rate distribution, and Rwanda 15 (69Æ84) tion and high-quality security systems. this year is 25.7%. All economies with Fundamental to success in setting up a total tax rate below this level receive Kenya 6 (48Æ54) the same percentile ranking on this electronic systems is that implementa- component. The threshold is not based Uganda 2 tion be gradual, following a realistic time- (67Æ69) on any economic theory of an “optimal line adapted to the country’s capacities tax rate� that minimizes distortions or Tanzania -1 (59Æ58) and resources—among tax authorities as maximizes efficiency in the tax system of well as taxpayers. an economy overall. Instead, it is mainly Note: The distance to frontier measure shows how far on average an economy is from the best performance empirical in nature, set at the lower end achieved by any economy on each Doing Business of the distribution of tax rates levied on indicator—in this case for the paying taxes indicators By 2011, 74 economies had fully imple- medium-size enterprises in the manufac- since 2004. The measure is normalized to range between mented electronic �ling and payment of turing sector as observed through the 0 and 100, with 100 representing the best performance (the frontier). The data refer to the 174 economies taxes. Twenty-nine of them adopted the paying taxes indicators. This reduces the included in Doing Business 2006 (2004). Eleven system in the past 8 years. Ten OECD bias in the indicators toward economies economies were added in subsequent years. that do not need to levy signi�cant taxes high-income economies have made a. This column shows the absolute improvement in the on companies like the Doing Business distance to frontier between �nancial years 2004 and electronic �ling and payment mandatory. 2011. The numbers in parentheses are the scores for standardized case study company those years. And this trend is likely to continue. In the because they raise public revenue in Source: Doing Business database. next few years many other OECD high- other ways—for example, through taxes income economies, having introduced on foreign companies, through taxes requirements for electronic �ling and on sectors other than manufacturing or payment for larger businesses, plan to from natural resources (all of which are make paying taxes easier by reducing the outside the scope of the methodology). payment frequency for social security extend them to smaller ones. 5. As noted, the number of payments contributions from monthly to quarterly. indicates the frequency with which the Among EAC economies, none has fully Similarly, Rwanda enacted a new law in company has to �le and pay different implemented electronic �ling and pay- types of taxes and contributions, ad- 2010 reducing the frequency of VAT �l- ment as measured by Doing Business. justed for the way in which those �lings ings from monthly to quarterly. But EAC governments recognize the im- and payments are made. Companies portance of offering this option as a way sometimes prefer more frequent pay- What do global data from the past ments, to smooth cash flow, and less 8 years show about good regula- to ease tax compliance—and are taking frequent �ling, and this is accounted for tory practice in the area of paying taxes? steps in this direction. In 2011/12 Uganda in the methodology in cases where the Economies where tax compliance is less rolled out electronic �ling and payment company has the option to choose a burdensome for companies typically of- to all tax offices in the country after �rst higher frequency. piloting the system in those for medium- 6. The large reduction in the average total fer electronic �ling and payment. These size and large taxpayers. Rwanda has tax rate is due to a tax reform in one economies have also simpli�ed tax country, Burundi, where replacement of compliance by reducing the frequency implemented electronic �ling and pay- the sales tax with VAT in 2009 reduced of �ling or allowing joint payment and ment for large taxpayers. And as noted, the total tax rate by 125 percentage �ling of several taxes. Other common in 2009 the Kenya Revenue Authority points. features are having one tax per tax base started implementing an electronic sys- and allowing self-assessment supported tem for �ling VAT returns. by clear and understandable tax laws and efficient taxpayer services. 52 Trading across borders ƒ Tanzania leads the East African Traders in Burundi have long dealt with TABLE 11.1 How do EAC economies rank Community (EAC) in the ease of delays at the Kabanga border crossing on the ease of trading across trading across borders. Globally, between Burundi and Tanzania. This is borders? Singapore retains the top ranking. starting to change thanks to better coor- Economy Global rank Tanzania 122 ƒ From June 2011 to June 2012 Doing dination between Burundi and Tanzanian Kenya 148 Business recorded 22 reforms making border authorities, including synchro- Rwanda 158 it easier to trade across borders. One nized working hours. In addition, Burundi Uganda 159 was in the EAC—in Burundi. authorities have enhanced the system of Burundi 177 electronic communication and informa- ƒ Among the 10 economies making the Note: Rankings are the average of the economy’s tion sharing between border posts and rankings on the documents, time and cost required to most progress toward the frontier export and import. See the data notes for details. the main customs office in Bujumbura. in regulatory practice in trading Source: Doing Business database. These efforts have led to a more efficient across borders since 2005, 4 are in and reliable tracking system, reducing the Sub-Saharan Africa. Two are in the need for additional checks and controls at and to reach international markets. EAC—Rwanda and Kenya. the border and along trade corridors. Indeed, a study in Sub-Saharan Africa ƒ Worldwide, the most common shows that reducing inland travel time feature of trade facilitation To shed light on the bureaucratic and by 1 day increases exports by 7%.3 This reforms in the past 8 years was the logistical hurdles facing traders, Doing is of special relevance for the several introduction or improvement of Business measures the time and cost landlocked economies in the EAC. electronic data interchange systems. (excluding tariffs) associated with export- All 5 EAC economies reformed in this ing and importing by sea transport, and the number of documents necessary to WHO REFORMED IN TRADING area. complete the transaction.1 The indicators ACROSS BORDERS IN 2011/12? ƒ Since 2006 EAC economies have cut cover documentation requirements and Globally in 2011/12, South Africa made the time to export by about a third procedures at customs and other regula- the biggest improvement in the ease and the time to import by almost half. tory agencies as well as at the port. They of trading across borders as measured For more information on good practices also cover logistical aspects, including the by Doing Business. Through its customs and research related to trading across modernization program it implemented time and cost of inland transport between borders, visit http://www.doingbusiness the largest business city and the main port measures that reduced the time, cost .org/data/exploretopics/trading-across- used by traders. As measured by Doing and number of documents required for borders. For more on the methodology, see the section on trading across borders Business, trading across borders remains international trade. Improvements in in the data notes. easiest in Singapore. Among economies South Africa have effects throughout in the East African Community (EAC) it is southern Africa. Since overseas goods to easiest in Tanzania (table 11.1). and from Botswana, Lesotho, Swaziland and Zimbabwe transit through South Outdated and inefficient border proce- Africa, traders in these economies are dures, inadequate infrastructure and lack also enjoying the bene�ts. of reliable logistics services often mean high transactions costs and long delays, Within the EAC, Burundi was the only particularly for landlocked economies.2 economy that made it easier to trade The more costly and time-consuming it is across borders in 2011/12 (table 11.3). It to export or import, the more difficult it did so by enhancing its use of electronic is for local companies to be competitive data interchange systems, introducing TRADING ACROSS BORDERS 53 TABLE 11.2 Who in the EAC makes exporting Who in the EAC makes importing easy— a more efficient system for monitoring easy—and who does not? and who does not? goods going through transit countries, Documents (number) Documents (number) and improving border coordination with Tanzania 6 Kenya 7 neighboring transit countries. Tanzania Uganda 7 Rwanda 8 made trading across borders more difficult Kenya 8 Uganda 9 in 2011/12 by introducing the Preshipment Rwanda 8 Tanzania 10 Veri�cation of Conformity program. This Burundi 10 Burundi 11 increased the time, cost and number of Time (days) Time (days) documents required to import. Tanzania 18 Kenya 26 Kenya 26 Rwanda 31 WHAT HAVE WE LEARNED Rwanda 29 Tanzania 31 FROM 8 YEARS OF DATA? Burundi 32 Uganda 33 In the past 8 years Doing Business record- Uganda 33 Burundi 46 ed 212 trade facilitation reforms around Cost (US$ per container) Cost (US$ per container) the world (�gure 11.1). Sub-Saharan Africa Tanzania 1,040 Tanzania 1,565 leads the world in the number of such Kenya 2,255 Kenya 2,350 reforms—accounting for 63, nearly a Burundi 2,965 Uganda 3,215 third of the global total. EAC economies Uganda 3,050 Rwanda 4,990 implemented 14 of these reforms—in Rwanda 3,245 Burundi 5,005 such areas as joint border cooperation, Source: Doing Business database. electronic submission of documents and risk management systems for inspec- tions. Rwanda was the most active, TABLE 11.3 Who in the EAC made trading across borders easier in 2011/12— implementing 5 reforms making it eas- and what did they do? ier to trade across borders in the 8-year Feature Economy Some highlights period. Kenya and Uganda implemented Introduced or improved electronic Burundi Burundi enhanced its use of electronic data data interchange system interchange systems. 3 reforms each, Tanzania 2 and Burundi 1. Source: Doing Business database. Thanks to these efforts, delays in trading between EAC economies and the rest of the world have decreased considerably. FIGURE 11.1 Reforms around the world to improve trade facilitation in the past 8 years Export time in the EAC dropped from Number of Doing Business reforms making it easier to trade across borders by Doing Business report year 40 days on average in 2006 to 28 days in 2012. Meanwhile, import time was cut Sub-Saharan Africa (46 economies) 5 5 6 11 14 9 7 6 nearly in half, from 59 days in 2006 to Latin America & Caribbean 5 3 6 8 7 4 2 6 33 days in 2012 (�gure 11.2). Exporting (33 economies) COMESA and importing now take less time on (18 economies) 4 1 6 5 6 7 22 average in the EAC than in the Common Middle East & North Africa DB2006 (19 economies) 4 2 4 4 6 6 21 Market for Eastern and Southern Africa DB2007 Eastern Europe & Central Asia (COMESA) and the Southern African (24 economies) 1 3 3 4 6 6 22 DB2008 ECOWAS DB2009 Development Community (SADC), (15 economies) 3 2 6 5 2 4 2 DB2010 the reverse of the situation in 2006. East Asia & Pacific (24 economies) 4 3 2 4 2 5 11 DB2011 Documentation requirements in the EAC OECD high income (31 economies) 4 11 2 2 2 4 5 DB2012 were also streamlined during this time. SADC DB2013 (15 economies) 11 2 2 5 4 2 3 In all world regions over the past 8 years, EAC (5 economies) 2 2 2 2 2 2 11 the most common feature of trade South Asia facilitation reforms was the introduction (8 economies) 12 2 1111 0 10 20 30 40 50 60 70 or improvement of electronic submission and processing of customs declarations— Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 implemented in 110 economies. The (2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. improvement of customs administration Source: Doing Business database. was the second most common feature, 54 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 11.4 Who in the EAC has narrowed FIGURE 11.2 Time to import cut by almost half in the EAC the distance to frontier in Average time to export (days) trading across borders the most OECD high income DB2013 since 2005? DB2007 Improvement in Latin America & Caribbean DB2013 distance to frontier DB2007 Economy (percentage points)a East Asia & Pacific DB2013 DB2007 Rwanda 30 (0Æ30) Middle East & North Africa DB2013 DB2007 Kenya 19 (26Æ45) EAC DB2013 DB2007 Tanzania 12 (45Æ57) Eastern Europe & Central Asia DB2013 DB2007 Burundi 7 SADC DB2013 (10Æ17) DB2007 Uganda 7 COMESA DB2013 (24Æ31) DB2007 Note: The distance to frontier measure shows how far Sub-Saharan Africa DB2013 on average an economy is from the best performance DB2007 achieved by any economy on each Doing Business indicator South Asia DB2013 since 2005—in this case for the trading across borders DB2007 indicators. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the 0 10 20 30 40 frontier). The data refer to the 174 economies included in Doing Business 2006 (2005). Eleven economies were Average time to import (days) added in subsequent years. OECD high income DB2013 a. This column shows the absolute improvement in DB2007 the distance to frontier between 2005 and 2012. The numbers in parentheses are the scores for those years. Latin America & Caribbean DB2013 DB2007 Source: Doing Business database. East Asia & Pacific DB2013 DB2007 Middle East & North Africa DB2013 undertaken by 61 economies. Improving DB2007 port procedures was the third most com- Eastern Europe & Central Asia DB2013 DB2007 mon among economies in Sub-Saharan South Asia DB2013 Africa and the Middle East and North DB2007 Africa. By contrast, among other econo- EAC DB2013 DB2007 mies, including those in Eastern Europe COMESA DB2013 and Central Asia, Latin America and the DB2007 Caribbean and the OECD high-income SADC DB2013 DB2007 group, introducing or improving risk-based Sub-Saharan Africa DB2013 inspection systems was more common. DB2007 0 10 20 30 40 50 60 Since 2005 many economies have advanced toward the frontier in regula- Document Customs clearance Port and Inland preparation and technical control terminal handling transport tory practice in trading across borders. Rwanda stands out globally for having Note: To ensure an accurate comparison, the �gure shows data for the same sample of 174 economies for both DB2007 made the second greatest progress (table (2006) and DB2013 (2012) and uses the regional classi�cations applying in 2012. The economies added to the Doing Business sample after 2006 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, 11.4). All other EAC economies have also Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2007 data are adjusted for any data revisions and changes in narrowed the gap with global good prac- methodology. Source: Doing Business database. tice in cross-border trade. But much room remains for improvement. NOTES Sub-Saharan Africa and Eastern Europe for importer �xed effects and exporter and Central Asia. While sea transport remoteness to understand whether This topic note was written by Iryna still accounts for the majority of world different types of export costs affect Bilotserkivska, Robert Murillo and Mikiko trade, regional trade is becoming trade differently. All 3 techniques used Imai Ollison. increasingly important for small and to analyze the effect on trade values of 1. To ensure comparability across medium-size enterprises. export times for key components lead to economies, the Doing Business meth- the same conclusion: that inland transit 2. Arvis, Marteau and Raballand 2010. odology assumes that trade is by sea delays have a robust negative effect on transport and therefore may not capture 3. Freund and Rocha 2011. The authors use export values. regional trade in some regions, such as a modi�ed gravity equation that controls 55 Enforcing contracts Muvunyi manufactures shoe soles in TABLE 12.1 How do EAC economies rank on ƒ Within the East African Community Kigali. After recently deciding to expand the ease of enforcing contracts? (EAC) the cost to enforce contracts his pool of customers, he made his �rst Economy Global rank varies greatly: to settle the same delivery—20,000 customized soles—to Tanzania 36 standardized dispute costs an Pelagie, a local shoe producer. Pelagie Rwanda 39 average of 78.7% of the claim refused to pay, alleging that the soles Uganda 117 in Rwanda, but just 14.3% in were of poor quality. Muvunyi decided to Kenya 149 Tanzania. �le a lawsuit to recover the amount due Burundi 175 ƒ Overall, enforcing contracts is Note: Rankings are the average of the economy’s under the sales agreement. He knows rankings on the procedures, time and cost to resolve easiest in Tanzania, where it takes that he can expect to have a judicial deci- a commercial dispute through the courts. See the data 462 days and 38 procedures. The notes for details. sion enforced against Pelagie in less than process is fastest in Rwanda, where Source: Doing Business database. a year in Kigali. That’s why he had the it takes 230 days. con�dence to enter a business relation- ƒ One reform making it easier to ship with an unfamiliar customer. Eight businesses. The dispute involves the enforce contracts was recorded years ago, before Rwanda improved its breach of a sales contract worth twice in the EAC in 2011/12: Rwanda commercial justice system, that would the income per capita of the economy. introduced a new electronic �ling not have been the case. The case study assumes that the court system that allows the electronic hears arguments on the merits and In Rwanda, as in all 4 other East African �ling of initial complaints. that an expert provides an opinion on Community (EAC) members, the judicial the quality of the goods in dispute. This ƒ Four EAC economies implemented system includes a specialized court or distinguishes the case from simple debt reforms improving the efficiency of division to deal with commercial cases. enforcement. The time, cost and proce- contract enforcement in the past 8 Establishing a commercial court can dures are measured from the perspective years: Burundi, Kenya, Rwanda and reduce delays in resolving commercial of an entrepreneur (the plaintiff) pursu- Uganda. disputes—delays that can frustrate ing the standardized case through local ƒ Worldwide, introducing specialized investments and discourage market in- courts. Within the EAC, Tanzania has the commercial courts or divisions teractions.1 Indeed, weak judicial systems most efficient contract enforcement as was the most common feature of can undermine trust, reducing the scope measured by Doing Business (table 12.1). reforms making it easier to enforce of commercial activity. Efficient and contracts in the past 8 years. transparent courts, by contrast, encour- On average in the EAC, to enforce a For more information on good age new business relationships because contract through the courts takes 37 pro- practices and research related to �rms know they can rely on the courts if a cedures and 496 days and costs 44.7% enforcing contracts, visit http:// new customer fails to pay. A recent study of the value of the claim in dispute. This www.doingbusiness.org/data/ found that efficient contract enforcement performance compares well globally. The exploretopics/enforcing-contracts. is associated with greater access to credit average time to enforce contracts in the For more on the methodology, see for �rms.2 And speedy trials are essential EAC is faster than in almost any world the section on enforcing contracts for small enterprises because they may region, though the average cost is higher in the data notes. lack the resources to stay in business than in most (�gure 12.1). Globally on while awaiting the outcome of a long average, enforcing contracts takes 611 court dispute. days (with the fastest regional average 414 days, in Eastern Europe and Central Doing Business measures the time, cost Asia) and 38 procedures and costs and procedural complexity of resolving a 34.6% of the value of the claim (with the commercial lawsuit between 2 domestic lowest regional average 20.1%, in OECD 56 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 FIGURE 12.1 The EAC compares well globally on the speed of contract enforcement TABLE 12.2 Who in the EAC makes Average time to enforce contracts (days) enforcing contracts easy— and who does not? Eastern Europe & Central Asia DB2013 Procedures (number of steps) DB2008 EAC DB2013 Rwanda 23 DB2008 Tanzania 38 OECD high income DB2013 DB2008 Uganda 38 East Asia & Pacific DB2013 DB2008 Burundi 44 SADC DB2013 Kenya 44 DB2008 Middle East & North Africa DB2013 DB2008 Time (days) Sub-Saharan Africa DB2013 Rwanda 230 DB2008 COMESA DB2013 Tanzania 462 DB2008 Kenya 465 ECOWAS DB2013 DB2008 Uganda 490 Latin America & Caribbean DB2013 Burundi 832 DB2008 South Asia DB2013 DB2008 Cost (% of claim) 0 200 400 600 800 1,000 1,200 Tanzania 14.3 Filing and service Trial and judgment Enforcement Burundi 38.6 Note: To ensure an accurate comparison, the �gure shows data for the same sample of 178 economies for both DB2008 Uganda 44.9 (2007) and DB2013 (2012) and uses the regional classi�cations applying in 2012. The economies added to the Doing Business Kenya 47.2 sample after 2007 and therefore excluded here are The Bahamas, Bahrain, Barbados, Cyprus, Kosovo, Malta and Qatar. DB2008 data are adjusted for any data revisions and changes in methodology. Rwanda 78.7 Source: Doing Business database. Source: Doing Business database. high-income economies). In Sub-Saharan on time, cost and number of procedures In 2011 Rwanda introduced a new Africa the average time for contract would top the global ranking. electronic �ling system (table 12.3). enforcement is 649 days, and the aver- This allows the electronic �ling of age cost is 50% of the claim value. In WHO REFORMED IN initial complaints, with no hard copies the Common Market for Eastern and ENFORCING CONTRACTS required from the plaintiff. As a judicial Southern Africa (COMESA), enforcing IN 2011/12? spokesperson explained, the new system contracts takes 656 days (700 days with- From June 2011 to June 2012 Doing will save citizens time and money when out the 4 EAC partner states) and costs Business recorded reforms making it eas- they �le a new claim.3 Indeed, electronic 52.2% of the claim on average, while ier to enforce contracts in 11 economies. �ling systems offer multiple bene�ts. By in the Southern African Development Some economies introduced or expanded allowing litigants to �le complaints elec- Community (SADC) it takes 642 days specialized courts to deal with com- tronically in commercial cases, they can and costs 56.9% of the claim. mercial cases; others overhauled the or- speed up the �ling and service of process. ganization of their courts or their system They can prevent the loss, destruction or Within the EAC, performance on the of judicial case management that deals concealment of court records. And they enforcing contracts indicators varies with commercial dispute resolution; still can increase transparency and limit op- greatly (table 12.2). Rwanda’s courts are others made enforcement of judgments portunities for corruption in the judiciary. the �fth fastest in the world—completing more efficient or increased the number of the process from �ling to enforcement court personnel, judges or bailiffs. Among In addition to introducing the electronic in an average of 230 days. Burundi’s the economies that improved their com- �ling system, Rwanda also passed a courts take 832 days to settle the same mercial judicial system in 2011/12, 4 are law establishing the Kigali International standardized dispute. The cost to enforce in Sub-Saharan Africa—including 1 EAC Arbitration Center and issued regulations contracts is relatively high in Rwanda, at economy, Rwanda. to put it into operation. The arbitration an average of 78.7% of the value of the claim. It is relatively low in Tanzania, at TABLE 12.3 Who in the EAC made enforcing contracts easier in 2011/12—and what did they do? just 14.3% of the value of the claim. As Feature Economy Some highlights a result, while the average ranking of the Introduced or expanded Rwanda Rwanda introduced an electronic �ling system for EAC economies on the ease of enforcing computerized case commercial cases, allowing attorneys to submit a management system summons online through a dedicated website. contracts is 103, a hypothetical economy Source: Doing Business database. combining the best EAC performance ENFORCING CONTRACTS 57 center could help reduce the number of FIGURE 12.2 Reforms around the world are improving court ef�ciency in contract enforcement cases �led in court, which may result in Number of Doing Business reforms making it easier to enforce contracts by better management of the current case- Doing Business report year load in the Nyarugenge commercial court. Sub-Saharan Africa (46 economies) 2 6 6 2 5 6 4 4 OECD high income New regulations have also been in (31 economies) 5 8 2 3 2 3 1 2 4 preparation in other EAC economies. Eastern Europe & Central Asia (24 economies) 5 4 2 5 1 3 3 In Tanzania the commercial court has COMESA DB2006 (18 economies) 2 3 2 1 3 4 114 drafted new rules of procedure. In Uganda DB2007 Latin America & Caribbean efforts have been made to improve (33 economies) 1 4 2 3 11 4 1 DB2008 magistrates’ courts and to streamline ECOWAS 2 2 2 1 2 2 4 DB2009 (15 economies) the process in these courts. Magistrates’ DB2010 East Asia & Pacific (24 economies) 2 2 1 2 2 1 DB2011 caseloads were mapped, and the Judicial SADC DB2012 Service Commission initiated a process to (15 economies) 3 1 2 3 1 EAC DB2013 recruit more magistrates. (5 economies) 2 2 1 111 Middle East & North Africa Similarly, in Kenya the judiciary has (19 economies) 1 4 113 South Asia started recruiting new judges and (8 economies) 1 1 1 magistrates to reduce case backlogs. 0 5 10 15 20 25 30 35 Twenty-eight additional high court judges Note: An economy can be considered to have only 1 Doing Business reform per topic and year. The data sample for DB2006 were hired, bringing the total number to (2005) includes 174 economies. The sample for DB2013 (2012) also includes The Bahamas, Bahrain, Barbados, Brunei 80 nationally. An additional 7 court of Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar, for a total of 185 economies. Source: Doing Business database. appeal judges and 160 magistrates have also been hired. The Judicature Act has been amended to ensure that there are FIGURE 12.3 How Rwanda cut the time to enforce contracts by more than a third in Kigali never fewer than 120 high court judges and 30 court of appeal judges. In addi- Time (days) tion, the Judicial Service Commission has 400 advertised for 129 researchers—with one 395 350 to be allocated to each judge to assist in 300 Introduced more commercial courts 310 legal research and writing. The aim is to 250 and created Business free up time for the judges so that they 200 Law Reform Cell Created additional lower 230 230 can deliver judgments faster.4 150 commercial courts Introduced new electronic filing system 100 WHAT HAVE WE LEARNED 50 Recruited more judges, and trained legal professionals FROM 8 YEARS OF DATA? 0 2005 2008 2011 2012 In the past 8 years Doing Business re- corded 116 reforms that helped improve Source: Doing Business database. court efficiency in commercial dispute resolution in economies around the world (�gure 12.2). Sub-Saharan Africa had the of cases—from 44% backlogged in 165 days, from 395 days to 230 (�gure most reforms, with 35. In the EAC 4 of the 2009 to 34% in 2010—by establishing a 12.3). Rwanda started strengthening its 5 economies—Burundi, Kenya, Rwanda mediation registry and making other im- laws and judiciary in 2005 with the intro- and Uganda—implemented reforms provements in the commercial division of duction of more commercial courts and improving their judicial system. Burundi the high court, such as updating the com- the creation of the Business Law Reform implemented a new code of civil pro- mercial court’s competence threshold.5 In Cell, whose review of 14 commercial laws cedure (adopted in 2004), introducing Kenya a new constitution was adopted in proved crucial for the approval of impor- summary proceedings for uncontested 2010, and new civil procedure rules were tant legal reforms. The government fur- claims. Uganda’s efforts to increase court passed into law that same year. ther enhanced the court system in 2008 efficiency included promoting alternative by creating lower commercial courts. commercial dispute resolution through In Rwanda good results have been show- Rwanda also implemented a plan to its ongoing Justice Law and Order Sector ing up over time. Since 2005 the time to recruit more judges and to train legal pro- Project. Uganda also reduced the backlog enforce contracts has been reduced by fessionals to work in a mixed law system 58 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 12.4 Who in the EAC has narrowed that includes civil law, common law and the distance to frontier in customary law tendencies. Thanks to enforcing contracts the most these efforts, Rwanda has advanced the since 2005? furthest among EAC economies toward Improvement in distance to frontier the frontier in regulatory practice in en- a Economy (percentage points) forcing contracts (table 12.4). Rwanda 10 (55Æ65) Burundi 1 NOTES (38Æ39) This topic note was written by Erica Bosio Uganda 1 (52Æ53) and Julien Vilquin. Tanzania 0 1. Walsh 2010. (65Æ65) 2. Bae and Goyal 2009. Kenya -9 3. Ikinyamakuru IGIHE, “Rwanda’s Judiciary (55Æ46) Launches Electronic Filing System,� Note: The distance to frontier measure shows how far August 19, 2011, http://en.igihe.com/ on average an economy is from the best performance achieved by any economy on each Doing Business news/rwanda-s-judiciary-launches- indicator since 2005—in this case for the enforcing electronic-�ling. contracts indicators. The measure is normalized to range 4. World Bank 2012a. between 0 and 100, with 100 representing the best performance (the frontier). The data refer to the 174 5. World Bank 2012b. economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. a. This column shows the absolute improvement in the distance to frontier between 2005 and 2012. The numbers in parentheses are the scores for those years. Source: Doing Business database. 59 Resolving insolvency Things are not going well for Martin, a the proceedings is recorded as a percent- ƒ Within the East African Community small entrepreneur who runs a flower age of the value of the debtor’s estate. (EAC), creditors of �rms facing business in Nairobi, Kenya. A months- The recovery rate for creditors depends insolvency bene�t from the highest long drought has left him with almost on whether the case study company (a recovery rate in Uganda, at 38.9 nothing to sell in his shop and thus with- hotel business) emerges from the pro- cents on the dollar. out the means to pay off the loan he took ceedings as a going concern or its assets from a local bank to open his business. ƒ From June 2011 to June 2012 Doing are sold piecemeal. The rate is recorded But not all the news is bad: after Martin’s Business recorded 17 reforms around as cents on the dollar recouped by credi- business goes through insolvency pro- the world aimed at improving tors through reorganization, liquidation or ceedings, the most likely outcome is insolvency proceedings. One was in debt enforcement (foreclosure) proceed- that it will keep operating. Martin would the EAC, in Uganda. ings. If an economy had zero insolvency have faced a very different situation if he ƒ Within the EAC, resolving had started a business in Kigali, Rwanda. TABLE 13.1 How do EAC economies rank insolvency is least costly in Kenya There, the local bank probably would on the ease of resolving and takes the least time in Uganda. have foreclosed on his business and insolvency? sold its assets piecemeal—and his shop ƒ The average recovery rate in the Recovery rate would have disappeared in about 2 years. Global (cents on the EAC, at 20.2 cents on the dollar, Economy rank dollar) is one of the lowest among the The ability to preserve viable businesses Uganda 69 38.9 regional blocs covered in Africa. and allow them to continue operating Kenya 100 29.5 is among the most important features For more information on good practices Tanzania 129 21.7 of a well-designed bankruptcy system. and research related to resolving Burundi 161 8.0 Keeping the essential parts of a busi- insolvency, visit http://www Rwanda 167 3.1 .doingbusiness.org/data/exploretopics/ ness together rather than breaking them Note: Rankings are based on the recovery rate: how resolving-insolvency. For more on up and disposing of them in fragments many cents on the dollar creditors recover from an insolvent �rm as calculated by Doing Business. See the the methodology, see the section on results in greater value. This option has data notes for details. resolving insolvency in the data notes. multiple bene�ts for the overall economy: Source: Doing Business database. creditors can recover a larger part of their credit, employees have a better chance of keeping their jobs, and the network of TABLE 13.2 Who in the EAC makes resolving insolvency easy—and who does suppliers and customers is preserved. It not? also promotes the development of an en- Time (years) trepreneurial class. But preserving viable Uganda 2.2 businesses should not mean creating Rwanda 3.0 a safe haven for distressed businesses: Tanzania 3.0 those that are beyond rescue should Kenya 4.5 be liquidated as quickly and efficiently Burundi 5.0 as possible.1 Striking the right balance between these options is among the key Cost (% of estate) challenges for every insolvency regime. Kenya 22 Tanzania 22 Doing Business measures the time, cost Burundi 30 and outcome of insolvency proceedings Uganda 30 involving domestic entities. The time re- quired for creditors to recover their credit Rwanda 50 is recorded in calendar years. The cost of Source: Doing Business database. 60 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 cases a year over the past 5 years, it TABLE 13.3 Who in the EAC made resolving insolvency easier in 2011/12—and what did receives a “no practice� classi�cation. they do? This means that creditors are unlikely Feature Economy Some highlights to recover their money through a formal Promoted foreclosure Uganda In 2009 Uganda passed a new mortgage act, which came into force legal process (in or out of court). The re- proceedings in 2011. The new law strengthened Uganda’s insolvency process by clarifying rules on the creation of mortgages, establishing the duties covery rate for “no practice� economies is of mortgagors and mortgagees, de�ning priority rules, providing zero. The ranking on the ease of resolving remedies for mortgagors and mortgagees and establishing the powers insolvency is based on the recovery rate, of receivers. which is affected by the key variables of Source: Doing Business database. time, cost and outcome (tables 13.1 and 13.2). FIGURE 13.1 Resolving insolvency takes longer and is costlier in the EAC than in other regional blocs in Africa WHO REFORMED IN RESOLVING INSOLVENCY IN 2011/12? Average cost (% of estate) Average recovery rate (cents on the dollar) Average time (years) Compared with other areas measured by 35 4 Doing Business, resolving insolvency had little reform activity in 2011/12 in the East 30 African Community (EAC): only Uganda 3 reformed its insolvency framework. But 25 Uganda’s efforts in this area are espe- 20 cially encouraging. Besides substantially 2 improving its foreclosure proceedings 15 (table 13.3), Uganda has also undertaken a revision of its insolvency law. A new 10 1 insolvency act was passed by the parlia- 5 ment in April 2011 and was in the �nal en- dorsement stages by June 2011. The new 0 0 EAC Sub-Saharan Africa COMESA ECOWAS SADC act, which will replace a legal framework enacted in 1931, is expected to strengthen Average cost Average recovery rate Average time creditors’ rights; clarify rules on the appointment of liquidators, managers, Source: Doing Business database. administrators and trustees; and allow debtors to enter into an arrangement As shown in earlier Doing Business re- WHAT HAVE WE LEARNED intended to avoid insolvency. ports, however, there is great variation FROM 8 YEARS OF DATA? among EAC economies. Uganda has the In the past 8 years Doing Business Uganda’s recent measures notwithstand- highest recovery rate (38.9 cents on the recorded 126 insolvency reforms in 74 ing, there has been a lack of sustained dollar) and is also the economy where economies worldwide. While economies reform efforts in the EAC in past years. resolving insolvency takes the least time focused their efforts on different aspects This helps explain why resolving insol- (2.2 years). Globally, it stands at 69 in of insolvency, these reforms still shared vency remains more difficult in the EAC than in neighboring areas. Indeed, the the ranking on the ease of resolving insol- some common features. For example, 27 average recovery rate in the EAC, at 20.2 vency. Rwanda, despite insolvency reform economies passed new bankruptcy laws cents on the dollar, is lower than the in earlier years, still has the highest cost over the past 8 years. Many economies 20.8 cents in the Economic Community to resolve insolvency in the EAC (50% promoted reorganization proceedings by of West African States (ECOWAS) and of the value of the debtor’s estate) and simplifying and accelerating procedures, the 27.1 cents in the Southern African stands at 167 in the global ranking. Kenya de�ning the roles of the parties involved Development Community (SADC). This still has the lowest cost (22% of the value and introducing innovative instruments disparity is a direct consequence of the of the debtor’s estate), though the time such as out-of-court workouts. Tightening longer and more expensive insolvency required for creditors to recover their the time limits for different procedures proceedings in EAC economies: the av- credit (4.5 years) is among the longest in was also a common feature of insolvency erage time to resolve insolvency in the the EAC. reforms. Other common features were EAC is 3.5 years, and the average cost is regulating and re�ning standards for the 30.8% of the value of the debtor’s estate profession of insolvency administrators (�gure 13.1). RESOLVING INSOLVENCY 61 TABLE 13.4 Who in the EAC has narrowed FIGURE 13.2 Unlike in Sub-Saharan Africa overall, no improvement in the recovery rate in the EAC the distance to frontier in since 2005 resolving insolvency the most Average recovery rate (cents on the dollar) since 2005? Improvement in OECD high income DB2013 DB2006 distance to frontier Economy (percentage points)a Eastern Europe & Central Asia DB2013 DB2006 Burundi 1 East Asia & Pacific DB2013 DB2006 (8Æ9) Rwanda 0 Latin America & Caribbean DB2013 DB2006 (4Æ4) South Asia DB2013 DB2006 Tanzania 0 (24Æ24) SADC DB2013 DB2006 Uganda -1 Middle East & North Africa DB2013 DB2006 (43Æ42) Kenya -3 ECOWAS DB2013 DB2006 (35Æ32) EAC DB2013 DB2006 Note: The distance to frontier measure shows how far on average an economy is from the best performance Sub-Saharan Africa DB2013 DB2006 achieved by any economy on each Doing Business indicator since 2005—in this case for the resolving COMESA DB2013 DB2006 insolvency indicators. The measure is normalized to range between 0 and 100, with 100 representing the 0 10 20 30 40 50 60 70 80 best performance (the frontier). The data refer to the 174 economies included in Doing Business 2006 (2005). Eleven economies were added in subsequent years. Note: To ensure an accurate comparison, the �gure shows data for the same sample of 174 economies for both DB2006 a. This column shows the absolute improvement in (2005) and DB2013 (2012) and uses the regional classi�cations applying in 2012. The economies added to the Doing the distance to frontier between 2005 and 2012. The Business sample after 2005 and therefore excluded here are The Bahamas, Bahrain, Barbados, Brunei Darussalam, Cyprus, numbers in parentheses are the scores for those years. Kosovo, Liberia, Luxembourg, Malta, Montenegro and Qatar. DB2006 data are adjusted for any data revisions and changes in methodology. Source: Doing Business database. Source: Doing Business database. and strengthening the rights of secured creditors. EAC economies were among those im- Despite these efforts, EAC economies proving their insolvency systems. Besides remain among those with less efficient Uganda’s reform of 2011/12, the EAC and more costly insolvency proceedings. accounts for 3 other reforms in the past 8 Indeed, while the recovery rate in Sub- years. Two were implemented by Burundi. Saharan Africa as a whole has improved In 2007 the country adopted its �rst bank- by 3.7 cents on the dollar since 2005, ruptcy law since independence in 1962. it has declined by 0.7 cents in the EAC And in 2011 it amended its commercial (�gure 13.2). code to improve foreclosure proceedings, through measures similar to those in Uganda in the past year. Thanks to these NOTES efforts, Burundi has advanced further This topic note was written by Rong Chen, Fernando Dancausa Diaz and Olena Koltko. than any other EAC economy toward the 1. UNCITRAL 2005. frontier in regulatory practice in resolving insolvency since 2005 (table 13.4). Rwanda implemented the third reform. In 2009 it passed a law aimed at promoting reorganization proceedings as a viable option for distressed �rms and regulating the profession of insolvency administra- tors. However, reorganizations still remain uncommon in Rwanda. 62 References Aghion, Philippe, Robin Burgess, Stephen Productivity and Output.� Journal of Redding and Fabrizio Zilibotti. 2008. Economic Growth 13 (2): 145–67. “The Unequal Effects of Liberalization: Botero, Juan Carlos, Simeon Djankov, Rafael Evidence from Dismantling the License La Porta, Florencio López-de-Silanes and Raj in India.� American Economic Review Andrei Shleifer. 2004. “The Regulation of 98 (4): 1397–412. Labor.� Quarterly Journal of Economics 119 Alesina, Alberto, Silvia Ardagna, Giuseppe (4): 1339–82. Nicoletti and Fabio Schiantarelli. 2005. Branstetter, Lee G., Francisco Lima, “Regulation and Investment.� Journal of Lowell J. Taylor and Ana Venâncio. the European Economic Association 3 (4): 2010. “Do Entry Regulations Deter 791–825. Entrepreneurship and Job Creation? Amin, Mohammad. 2011. “Labor Evidence from Recent Reforms in Productivity, Firm-Size and Gender: The Portugal.� NBER Working Paper 16473, Case of Informal Firms in Argentina and National Bureau of Economic Research, Peru.� Enterprise Note 22, Enterprise Cambridge, MA. Analysis Unit, World Bank Group, Bruhn, Miriam. 2011. “License to Sell: The Washington, DC. http://www Effect of Business Registration Reform .enterprisesurveys.org/. on Entrepreneurial Activity in Mexico.� Review of Economics and Statistics 93 (1): Antunes, Antonio, and Tiago Cavalcanti. 382–86. 2007. “Start Up Costs, Limited Enforcement, and the Hidden Economy.� ___. 2012. “A Tale of Two Species: Revisiting European Economic Review 51 (1): 203–24. the Effect of Registration Reform on Informal Business Owners in Mexico.� Ardagna, Silvia, and Annamaria Lusardi. Policy Research Working Paper 5971, 2010. “Explaining International World Bank, Washington, DC. Differences in Entrepreneurship: The Calderon, César, Alberto Chong and Role of Individual Characteristics and Gianmarco Leon. 2007. “Institutional Regulatory Constraints.� In International Enforcement, Labor-Market Rigidities, Differences in Entrepreneurship, edited and Economic Performance.� Emerging by Josh Lerner and Antoinette Schoar, Markets Review 8 (1): 38–49. 17–62. Chicago: University of Chicago Press. Cardenas, Mauricio, and Sandra Rozo. 2009. “Firm Informality in Colombia: Arvis, Jean-François, Jean-François Marteau Problems and Solutions.� Desarrollo y and Gaël Raballand. 2010. The Cost of Sociedad, no. 63: 211–43. Being Landlocked: Logistics Costs and Chang, Roberto, Linda Kaltani and Supply Chain Reliability. Washington, DC: Norman Loayza. 2009. “Openness World Bank. Can Be Good for Growth: The Role of Bae, Kee-Hong, and Vidhan K. Goyal. 2009. Policy Complementarities.� Journal of “Creditor Rights, Enforcement, and Development Economics 90: 33–49. Bank Loans.� Journal of Finance 64 (2): Chari, Anusha. 2011. “Identifying the 823–60. Aggregate Productivity Effects of Entry Banerjee, Abhijit, and Esther Duflo. 2005. and Size Restrictions: An Empirical “Growth Theory through the Lens of Analysis of License Reform in India.� Development Economics.� In Handbook American Economic Journal: Economic of Development Economics, edited by Policy 3: 66–96. Philippe Aghion and Steven Durlauf, vol. Ciccone, Antonio, and Elias Papaioannou. 1A: 473–552. Amsterdam: Elsevier. 2007. “Red Tape and Delayed Entry.� Barseghyan, Levon. 2008. “Entry Costs Journal of the European Economic and Cross-Country Differences in Association 5 (2–3): 444–58. REFERENCES 63 Cuñat, Alejandro, and Marc J. Melitz. 2007. Dulleck, Uwe, Paul Frijters and R. Winter- Hertveldt, Sabine. 2008. “Rwanda: “Volatility, Labor Market Flexibility, and Ebmer. 2006. “Reducing Start-up Costs Pragmatism Leads the Way in Setting Up the Pattern of Comparative Advantage.� for New Firms: The Double Dividend on Specialized Commercial Courts.� World NBER Working Paper 13062, National the Labor Market.� Scandinavian Journal of Bank Group, Washington, DC. Bureau of Economic Research, Economics 108: 317–37. Hoekman, Bernard, and Alessandro Nicita. Cambridge, MA. EAC (East African Community). 2011. EAC 2011. “Trade Policy, Trade Cost and Deininger, Klaus. 2003. Land Policies for Development Strategy (2011/12–2015/16): Developing Country Trade.� World Growth and Poverty Reduction. World Deepening and Accelerating Integration. Development 39 (12): 2069–79. Bank Policy Research Report. New York: Arusha, Tanzania: EAC. Houston, Joel, Chen Lin, Ping Lin and Yue Oxford University Press. Eifert, Benjamin. 2009. “Do Regulatory Ma. 2010. “Creditor Rights, Information de Soto, Hernando. 2000. The Mystery of Reforms Stimulate Investment and Sharing, and Bank Risk Taking.� Journal of Capital: Why Capitalism Triumphs in the Growth? Evidence from the Doing Financial Economics 96 (3): 485–512. West and Fails Everywhere Else. New York: Business Data, 2003–07.� Working Paper IMF (International Monetary Fund). 2011. Basic Books. 159, Center for Global Development, “Revenue Mobilization in Developing Dewaelheyns, Nico, and Cynthia Van Hulle. Washington, DC. Countries.� Paper 030811, Fiscal Affairs 2008. “Legal Reform and Aggregate Fisman, Raymond, and Virginia Sarria- Department, IMF, Washington, DC. Small and Micro Business Bankruptcy Allende. 2010. “Regulation of Entry and Iwanow, Thomasz, and Colin Kirkpatrick. Rates: Evidence from the 1997 Belgian the Distortion of Industrial Organization.� 2009. “Trade Facilitation and Bankruptcy Code.� Small Business Journal of Applied Economics 13 (1): Manufacturing Exports: Is Africa Economics 31 (4): 409–24. 91–120. Different?� World Development 37 (6): Djankov, Simeon. 2009. “The Regulation of Franks, Julian, Colin Mayer, Paolo Volpin 1039–50. Entry: A Survey.� World Bank Research and Hannes F. Wagner. 2011. “The Life Kaplan, David, Eduardo Piedra and Enrique Observer 24 (2): 183–203. Cycle of Family Ownership: International Seira. 2007. “Entry Regulation and Evidence.� Review of Financial Studies 25 Business Start-Ups: Evidence from Djankov, Simeon, Caroline Freund and Cong (8): 1–38. Mexico.� Policy Research Working Paper S. Pham. 2010. “Trading on Time.� Review Freund, Caroline, and Bineswaree Bolaky. 4322, World Bank, Washington, DC. of Economics and Statistics 92 (1): 166–73. 2008. “Trade, Regulations and Income.� Klapper, Leora, Luc Laeven and Raghuram Djankov, Simeon, Tim Ganser, Caralee Journal of Development Economics 87: Rajan. 2006. “Entry Regulation as a McLiesh, Rita Ramalho and Andrei 309–21. Barrier to Entrepreneurship.� Journal of Shleifer. 2010. “The Effect of Freund, Caroline, and Nadia Rocha. 2011. Financial Economics 82 (3): 591–629. Corporate Taxes on Investment and Entrepreneurship.� American Economic “What Constrains Africa’s Exports?� Klapper, Leora, Anat Lewin and Juan World Bank Economic Review 25 (3): Manuel Quesada Delgado. 2009. “The Journal: Macroeconomics 2 (3): 31–64. 361–86. Impact of the Business Environment on Djankov, Simeon, Oliver Hart, Caralee Funchal, Bruno. 2008. “The Effects of the the Business Creation Process.� Policy McLiesh and Andrei Shleifer. 2008. 2005 Bankruptcy Reform in Brazil.� Research Working Paper 4937, World “Debt Enforcement around the World.� Economics Letters 101: 84–86. Bank, Washington, DC. Journal of Political Economy 116 (6): Giné, Xavier, and Inessa Love. 2010. Klapper, Leora, and Inessa Love. 2011. “The 1105–49. “Do Reorganization Costs Matter for Impact of Business Environment Reforms Djankov, Simeon, Rafael La Porta, Florencio on New Firm Registration.� Policy Efficiency? Evidence from a Bankruptcy López-de-Silanes and Andrei Shleifer. Research Working Paper 5493, World Reform in Colombia.� Journal of Law and 2002. “The Regulation of Entry.� Bank, Washington, DC. Economics 53 (4): 833–64. Quarterly Journal of Economics 117 (1): Hallward-Driemeier, Mary, Gita Khun-Jush Kraay, Aart, and Norikazu Tawara. 2011. 1–37. and Lant Pritchett. 2010. “Deals versus “Can Disaggregated Indicators Identify ___. 2003. “Courts.� Quarterly Journal of Governance Reform Priorities?� Policy Rules: Policy Implementation Uncertainty Economics 118 (2): 453–517. Research Working Paper 5254, World and Why Firms Hate It.� NBER Working ___. 2008. “The Law and Economics of Self- Paper 16001, National Bureau of Bank, Washington, DC. Dealing.� Journal of Financial Economics 88 Economic Research, Cambridge, MA. La Porta, Rafael, and Andrei Shleifer. 2008. (3): 430–65. Hamdani, Assaf, and Yishay Yafeh. 2012. “The Unofficial Economy and Economic Djankov, Simeon, Darshini Manraj, Caralee “Institutional Investors as Minority Development.� Tuck School of Business McLiesh and Rita Ramalho. 2005. “Doing Shareholders.� Review of Finance. Working Paper 2009-57. Available at Business Indicators: Why Aggregate, and Published online February 7. doi:10.1093/ http://ssrn.com/abstract=1304760. How to Do It.� World Bank, Washington, rof/rfr039. Loayza, Norman, Ana Maria Oviedo and DC. Haselmann, Rainer, Katharina Pistor and Luis Servén. 2005. “Regulation and Djankov, Simeon, Caralee McLiesh and Vikrant Vig. 2010. “How Law Affects Macroeconomic Performance.� Policy Rita Ramalho. 2006. “Regulation and Lending.� Review of Financial Studies 23 Research Working Paper 3469, World Growth.� Economics Letters 92 (3): (2): 549–80. Bank, Washington, DC. 395–401. Helpman, Elhanan, Marc Melitz and Yona Masatlioglu, Yusufcan, and Jamele Rigolini. Djankov, Simeon, Caralee McLiesh and Rubinstein. 2008. “Estimating Trade 2008. “Informality Traps.� B.E. Journal of Andrei Shleifer. 2007. “Private Credit Flows: Trading Partners and Trading Economic Analysis & Policy 8 (1). in 129 Countries.� Journal of Financial Volumes.� Quarterly Journal of Economics McAuliffe, Catherine, Sweta C. Saxena Economics 84 (2): 299–329. 123 (2): 441–87. and Masafumi Yabara. 2012. “The East 64 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 African Community: Prospects for December 19. http://www.imf.org/ India.� American Economic Journal: Applied Sustained Growth.� IMF Working Paper External/NP/LOI/2012/TZA/121912.pdf. Economics 1 (3): 59–81. 12/272, International Monetary Fund, Rwanda, Ministry of Finance and Economic von Lilienfeld-Toal, Ulf, Dilip Mookherjee and Washington, DC. Planning. 2000. Rwanda Vision 2020. Sujata Visaria. 2012. “The Distributive Mclean, R. D., T. Zhang and M. Zhao. 2012. Available at http://www.gesci.org/. Impact of Reforms in Credit Enforcement: “Why Does the Law Matter? Investor ___. 2007. Economic Development and Poverty Evidence from Indian Debt Recovery Protection and Its Effects on Investment, Reduction Strategy, 2008–2012. Available Tribunals.� Econometrica 80 (2): Finance, and Growth.� Journal of Finance at http://planipolis.iiep.unesco 497–558. 67: 313–50. .org/. Walsh, Barry. 2010. In Search of Success: Micco, Alejandro, and Carmen Pagés. 2006. Schneider, Friedrich. 2005. “The Informal Case Studies in Justice Sector Development “The Economic Effects of Employment Sector in 145 Countries.� Department of in Sub-Saharan Africa. Washington, DC: Protection: Evidence from International World Bank. Economics, University Linz, Austria. Industry-Level Data.� IZA Discussion Paper 2433, Institute for the Study of Schneider, Friedrich, Andreas Buehn and WEF (World Economic Forum). 2012. The Labor (IZA), Bonn. Claudio E. Montenegro. 2010. “New Global Competitiveness Report 2012–2013. Estimates for the Shadow Economies All Geneva: WEF. Motta, Marialisa, Ana Maria Oviedo and Over the World.� International Economic World Bank. 2005. World Development Massimiliano Santini. 2010. “An Open Journal 24 (4): 443–61. Report 2005: A Better Investment Climate Door for Firms: The Impact of Business Entry Reforms.� Viewpoint Note 323, Seker, Murat. 2011. “Trade Policies, for Everyone. Washington, DC: World World Bank Group, Washington, DC. Investment Climate, and Exports.� Policy Bank. Research Working Paper 5654, World ___. 2006. Doing Business in 2007: How to Moullier, Thomas. 2009. “Reforming Bank, Washington, DC. Reform. Washington, DC: World Bank Building Permits: Why Is It Important and What Can IFC Really Do?� International Sharma, Siddharth. 2009. “Entry Regulation, Group. Finance Corporation, Washington, DC. Labor Laws and Informality: Evidence ___. 2010. Doing Business 2011: Making a Narayan, Deepa, Robert Chambers, Meer from India.� Enterprise Survey Working Difference for Entrepreneurs. Washington, Kaul Shah and Patti Petesh. 2000. Paper, Enterprise Analysis Unit, World DC: World Bank Group. Voices of the Poor: Crying Out for Change. Bank Group, Washington, DC. ___. 2011. “Principles for Effective Creditor Washington, DC: World Bank. Sittoni, Pamella. 2012. “Countries with Rights and Insolvency Systems.� Revised Nunn, Nathan. 2007. “Relationship- Few Resources Need to Mobilise Tax draft, January 20. http://www Speci�city, Incomplete Contracts, and Revenue.� The East African, December 15. .worldbank.org/ifa/rosc_icr.html. the Pattern of Trade.� Quarterly Journal of http://www.theeastafrican.co.ke/. ___. 2012a. Doing Business in Kenya 2012. Economics 122 (2): 569–600. Stampini, Marco, Ron Leung, Setou M. Washington, DC: World Bank Group. Perotti, Enrico, and Paolo Volpin. 2005. “The Diarra and Lauréline Pla. 2011. “How Large Is the Private Sector in Africa? ___. 2012b. Doing Business in the East African Political Economy of Entry: Lobbying and Evidence from National Accounts and Community 2012. Washington, DC: World Financial Development.� Paper presented at the American Finance Association Labor Markets.� IZA Discussion Paper Bank Group. 2005 Philadelphia Meetings. 6267, Institute for the Study of Labor ___. 2012c. World Development Indicators Portugal-Perez, Alberto, and John Wilson. (IZA), Bonn. 2012. Washington, DC: World Bank. 2011. “Export Performance and Trade UNCITRAL (United Nations Commission ___. 2013. Doing Business 2013: Smarter Facilitation Reform: Hard and Soft on International Trade Law). 2005. Regulations for Small and Medium-Size Infrastructure.� World Development 40 Legislative Guide on Insolvency Law. New Enterprises. Washington, DC: World Bank (7): 1295–307. York: United Nations. Group. Rauch, James. 2010. “Development ___. 2007. Legislative Guide on Secured World Bank Independent Evaluation Group. through Synergistic Reforms.� Journal of Transactions. New York: United Nations. 2008. Doing Business: An Independent Development Economics 93 (2): 153–61. Visaria, Sujata. 2009. “Legal Reform and Evaluation—Taking the Measure of the Republic of Tanzania. 2012. Letter of Intent Loan Repayment: The Microeconomic World Bank–IFC Doing Business Indicators. to the International Monetary Fund. Impact of Debt Recovery Tribunals in Washington, DC: World Bank. 65 Data notes The indicators presented and analyzed measured in Doing Business were added in Doing Business measure business over time, and the sample of economies regulation and the protection of property expanded (table 14.1). rights—and their effect on businesses, es- pecially small and medium-size domestic The data for all sets of indicators in Doing Business 2013 are for June 2012.1 �rms. First, the indicators document the complexity of regulation, such as the number of procedures to start a business METHODOLOGY or to register and transfer commercial The Doing Business data are collected property. Second, they gauge the time in a standardized way. To start, the Doing Business team, with academic and cost of achieving a regulatory goal advisers, designs a questionnaire. The or complying with regulation, such as the questionnaire uses a simple business time and cost to enforce a contract, go case to ensure comparability across through bankruptcy or trade across bor- economies and over time—with as- ders. Third, they measure the extent of sumptions about the legal form of the legal protections of property, for example, business, its size, its location and the the protections of investors against loot- nature of its operations. Questionnaires ing by company directors or the range are administered through more than 9,600 local experts, including lawyers, of assets that can be used as collateral business consultants, accountants, according to secured transactions laws. freight forwarders, government of- Fourth, a set of indicators documents the ficials and other professionals routinely tax burden on businesses. Finally, a set of administering or advising on legal and data covers different aspects of employ- regulatory requirements (table 14.2). ment regulation. The 11 sets of indicators These experts have several rounds TABLE 14.1 Topics and economies covered by each Doing Business report DB DB DB DB DB DB DB DB DB DB Topic 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Starting a business Employing workers Enforcing contracts Resolving insolvency Getting credit Registering property Protecting investors Paying taxes Trading across borders Dealing with construction permits Getting electricity Number of economies 133 145 155 175 178 181 183 183 183 185 Note: Data for the economies added to the sample each year are back-calculated to the previous year. The exception is Kosovo, which was added to the sample after it became a member of the World Bank Group. 66 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 14.2 How many experts does Doing largest business city (which in some Finally, the methodology assumes that a Business consult? economies differs from the capital) and business has full information on what is Indicator set Contributors may not be representative of regulation required and does not waste time when Starting a business 1,585 completing procedures. In practice, in other parts of the economy. To address Dealing with construction permits 852 completing a procedure may take longer this limitation, subnational Doing Business Getting electricity 830 if the business lacks information or is un- indicators were created (box 14.1). Second, Registering property 1,069 able to follow up promptly. Alternatively, Getting credit the data often focus on a speci�c business 1,325 the business may choose to disregard Protecting investors 1,083 form—generally a limited liability com- some burdensome procedures. For both Paying taxes 1,173 pany (or its legal equivalent) of a speci�ed reasons the time delays reported in Doing Trading across borders 933 size—and may not be representative of Enforcing contracts 1,146 the regulation on other businesses, for ECONOMY CHARACTERISTICS Resolving insolvency 1,085 example, sole proprietorships. Third, trans- Gross national income per capita Employing workers 1,052 actions described in a standardized case Doing Business 2013 reports 2011 scenario refer to a speci�c set of issues income per capita as published in the World Bank’s World Development of interaction with the Doing Business and may not represent the full set of issues Indicators 2012. Income is calculated team, involving conference calls, writ- a business encounters. Fourth, the mea- using the Atlas method (current U.S. ten correspondence and visits by the sures of time involve an element of judg- dollars). For cost indicators expressed team. For Doing Business 2013 team as a percentage of income per capita, ment by the expert respondents. When 2011 gross national income (GNI) in members visited 24 economies to verify data and recruit respondents. The data sources indicate different estimates, the U.S. dollars is used as the denomi- from questionnaires are subjected to time indicators reported in Doing Business nator. GNI data were not available from the World Bank for Afghanistan, numerous rounds of verification, lead- represent the median values of several Australia, The Bahamas, Bahrain, ing to revisions or expansions of the responses given under the assumptions of Barbados, Brunei Darussalam, Cyprus, information collected. Djibouti, Guyana, the Islamic Republic the standardized case. of Iran, Kuwait, Malta, New Zealand, The Doing Business methodology offers Oman, Puerto Rico (territory of the several advantages. It is transparent, us- BOX 14.1 SUBNATIONAL DOING United States), Sudan, Suriname, the ing factual information about what laws BUSINESS INDICATORS Syrian Arab Republic, Timor-Leste, West Bank and Gaza, and the Republic and regulations say and allowing multiple This year Doing Business completed of Yemen. In these cases GDP or GNP interactions with local respondents to subnational studies for Indonesia, per capita data and growth rates from Kenya, Mexico, Russia and the United clarify potential misinterpretations of the International Monetary Fund’s Arab Emirates. Each of these countries questions. Having representative sam- World Economic Outlook database had already asked to have subnational ples of respondents is not an issue; Doing and the Economist Intelligence Unit data in the past, and this year Doing were used. Business is not a statistical survey, and the Business updated the indicators, mea- sured improvements over time and Region and income group texts of the relevant laws and regulations expanded geographic coverage to ad- Doing Business uses the World are collected and answers checked for Bank regional and income group ditional cities or added additional in- accuracy. The methodology is inexpen- dicators. Doing Business also published classi�cations, available at http:/ / sive and easily replicable, so data can be regional studies for the Arab world, data.worldbank.org/about/country- collected in a large sample of economies. the East African Community and classi�cations. The World Bank does member states of the Organization for not assign regional classi�cations Because standard assumptions are used the Harmonization of Business Law in to high-income economies. For the in the data collection, comparisons and Africa (OHADA). purpose of the Doing Business report, benchmarks are valid across economies. The subnational studies point to dif- high-income OECD economies are Finally, the data not only highlight the ferences in business regulation and its assigned the “regional� classi�cation implementation—as well as in the pace OECD high income. Figures and tables extent of speci�c regulatory obstacles of regulatory reform—across cities in presenting regional averages include to business but also identify their source economies from all income groups the same economy. For several econo- and point to what might be reformed. (low, lower middle, upper middle and mies subnational studies are now pe- riodically updated to measure change high income). LIMITS TO WHAT IS MEASURED over time or to expand geographic Population coverage to additional cities. This year Doing Business 2013 reports midyear The Doing Business methodology has 5 that is the case for all the subnational 2011 population statistics as published limitations that should be considered when studies published. in World Development Indicators 2012. interpreting the data. First, the collected data refer to businesses in the economy’s DATA NOTES 67 Business 2013 would differ from the recol- website. Questions on the methodology ease of starting a business is the simple lection of entrepreneurs reported in the and challenges to data can be submitted average of the percentile rankings on its World Bank Enterprise Surveys or other through the website’s “Ask a Question� component indicators (�gure 14.2). perception surveys. function at http://www.doingbusiness.org. After a study of laws, regulations and CHANGES IN WHAT Doing Business publishes 9,620 indicators publicly available information on busi- IS MEASURED each year. To create these indicators, the ness entry, a detailed list of procedures is team measures more than 57,000 data developed, along with the time and cost of The ranking methodology for paying taxes points, each of which is made available complying with each procedure under nor- was updated this year. The threshold for on the Doing Business website. Historical mal circumstances and the paid-in mini- the total tax rate introduced last year for data for each indicator and economy are the purpose of calculating the ranking on mum capital requirement. Subsequently, available on the website, beginning with the ease of paying taxes was updated. All local incorporation lawyers, notaries and the �rst year the indicator or economy economies with a total tax rate below the government officials complete and verify was included in the report. To provide a threshold (which is calculated and ad- the data. comparable time series for research, the justed on a yearly basis) receive the same ranking on the total tax rate indicator. The data set is back-calculated to adjust for Information is also collected on the threshold is not based on any economic changes in methodology and any revi- sequence in which procedures are to theory of an “optimal tax rate� that mini- sions in data due to corrections. The web- be completed and whether procedures mizes distortions or maximizes efficiency site also makes available all original data may be carried out simultaneously. It is in the tax system of an economy overall. sets used for background papers. The assumed that any required information Instead, it is mainly empirical in nature, set correction rate between Doing Business is readily available and that the entrepre- at the lower end of the distribution of tax 2012 and Doing Business 2013 is 8.6%.2 neur will pay no bribes. If answers by local rates levied on medium-size enterprises experts differ, inquiries continue until the in the manufacturing sector as observed STARTING A BUSINESS data are reconciled. through the paying taxes indicators. This Doing Business records all procedures reduces the bias in the indicators toward To make the data comparable across officially required, or commonly done economies that do not need to levy sig- economies, several assumptions about ni�cant taxes on companies like the Doing in practice, for an entrepreneur to start the business and the procedures are used. Business standardized case study com- up and formally operate an industrial or commercial business, as well as the pany because they raise public revenue in Assumptions about the business other ways—for example, through taxes time and cost to complete them and the The business: on foreign companies, through taxes on paid-in minimum capital requirement (�gure 14.1). These procedures include Ė Is a limited liability company (or its sectors other than manufacturing or from obtaining all necessary licenses and legal equivalent). If there is more than natural resources (all of which are outside the scope of the methodology). Giving permits and completing any required one type of limited liability company in the same ranking to all economies whose noti�cations, veri�cations or inscriptions the economy, the limited liability form total tax rate is below the threshold avoids for the company and employees with most popular among domestic �rms awarding economies in the scoring for relevant authorities. The ranking on the is chosen. Information on the most having an unusually low total tax rate, of- ten for reasons unrelated to government FIGURE 14.1 What are the time, cost, paid-in minimum capital and number of procedures to get a policies toward enterprises. For example, local limited liability company up and running? economies that are very small or that are Cost rich in natural resources do not need to (% of income per capita) levy broad-based taxes. Formal operation DATA CHALLENGES Paid-in Number of $ AND REVISIONS minimum procedures capital Most laws and regulations underlying the Doing Business data are available on the Doing Business website at http:/ / www.doingbusiness.org. All the sample Entrepreneur Time (days) questionnaires and the details underlying Preregistration Registration, Postregistration incorporation the indicators are also published on the 68 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 FIGURE 14.2 Starting a business: getting a between company founders or company counted. Similarly, if a company must local limited liability company up officers and employees are not counted as open a bank account before registering and running procedures. Procedures that must be com- for sales tax or value added tax, this Rankings are based on 4 indicators pleted in the same building but in different transaction is included as a procedure. offices or at different counters are counted Shortcuts are counted only if they ful�ll 4 Preregistration, As % of income registration and per capita, no as separate procedures. If founders have criteria: they are legal, they are available postregistration bribes included to visit the same office several times for (in calendar days) to the general public, they are used by different sequential procedures, each is the majority of companies, and avoiding counted separately. The founders are as- them causes substantial delays. 25% 25% sumed to complete all procedures them- Time Cost selves, without middlemen, facilitators, Only procedures required of all busi- 25% 25% accountants or lawyers, unless the use of nesses are covered. Industry-speci�c Procedures Paid-in minimum such a third party is mandated by law. If procedures are excluded. For example, capital the services of professionals are required, procedures to comply with environmental procedures conducted by such profession- Procedure is Funds deposited in a regulations are included only when they completed when bank or with a notary als on behalf of the company are counted final document before registration, as % apply to all businesses conducting gen- is received of income per capita separately. Each electronic procedure is eral commercial or industrial activities. counted separately. If 2 procedures can be completed through the same website but Procedures that the company undergoes popular form is obtained from incorpo- require separate �lings, they are counted to connect to electricity, water, gas and ration lawyers or the statistical office. as 2 procedures. waste disposal services are not included. Ė Operates in the economy’s largest business city. Both pre- and postincorporation proce- Time dures that are officially required for an Time is recorded in calendar days. The Ė Is 100% domestically owned and has 5 entrepreneur to formally operate a busi- measure captures the median duration owners, none of whom is a legal entity. ness are recorded (table 14.3). that incorporation lawyers indicate is Ė Has start-up capital of 10 times income per capita, paid in cash. necessary in practice to complete a Procedures required for official cor- procedure with minimum follow-up with Ė Performs general industrial or commer- respondence or transactions with public government agencies and no extra pay- cial activities, such as the production agencies are also included. For example, or sale to the public of products or ser- if a company seal or stamp is required ments. It is assumed that the minimum vices. The business does not perform on official documents, such as tax dec- time required for each procedure is 1 foreign trade activities and does not larations, obtaining the seal or stamp is day. Although procedures may take handle products subject to a special tax place simultaneously, they cannot start regime, for example, liquor or tobacco. on the same day (that is, simultaneous TABLE 14.3 What do the starting a business It is not using heavily polluting produc- indicators measure? procedures start on consecutive days). A tion processes. Procedures to legally start and operate a company procedure is considered completed once (number) Ė Leases the commercial plant and offic- the company has received the �nal docu- Preregistration (for example, name veri�cation or es and is not a proprietor of real estate. reservation, notarization) ment, such as the company registration Ė Does not qualify for investment incen- Registration in the economy’s largest business city certi�cate or tax number. If a procedure tives or any special bene�ts. Postregistration (for example, social security can be accelerated for an additional cost, registration, company seal) the fastest procedure is chosen if that op- Ė Has at least 10 and up to 50 employees Time required to complete each procedure 1 month after the commencement of (calendar days) tion is more bene�cial to the economy’s operations, all of them nationals. Does not include time spent gathering information ranking. It is assumed that the entrepre- Ė Has a turnover of at least 100 times Each procedure starts on a separate day neur does not waste time and commits income per capita. Procedure completed once �nal document is received to completing each remaining procedure No prior contact with of�cials without delay. The time that the entrepre- Ė Has a company deed 10 pages long. Cost required to complete each procedure neur spends on gathering information is (% of income per capita) Procedures ignored. It is assumed that the entrepre- Of�cial costs only, no bribes A procedure is de�ned as any interaction of neur is aware of all entry requirements No professional fees unless services required by law the company founders with external par- Paid-in minimum capital (% of income per capita) and their sequence from the beginning ties (for example, government agencies, Funds deposited in a bank or with a notary before but has had no prior contact with any of lawyers, auditors or notaries). Interactions registration (or within 3 months) the officials. DATA NOTES 69 Cost therefore 1,250 Turkish liras, or 7.2% of FIGURE 14.4 Dealing with construction income per capita. permits: building a warehouse Cost is recorded as a percentage of the Rankings are based on 3 indicators economy’s income per capita. It includes The data details on starting a business can all official fees and fees for legal or pro- be found for each economy at http://www Days to build a As % of income fessional services if such services are warehouse in per capita, no required by law. Fees for purchasing and .doingbusiness.org by selecting the economy main city bribes included legalizing company books are included if in the drop-down list. This methodology was developed in Djankov and others (2002) and 33.3% 33.3% these transactions are required by law. The Time Cost company law, the commercial code and is adopted here with minor changes. speci�c regulations and fee schedules are 33.3% used as sources for calculating costs. In the DEALING WITH Procedures absence of fee schedules, a government CONSTRUCTION PERMITS officer’s estimate is taken as an official Doing Business records all procedures Procedure is completed when final document is source. In the absence of a government of- received; construction permits, inspections and �cer’s estimate, estimates of incorporation required for a business in the construc- utility connections included lawyers are used. If several incorporation tion industry to build a warehouse (�gure lawyers provide different estimates, the 14.3). These procedures include submit- Information is collected from experts in median reported value is applied. In all ting all relevant project-speci�c docu- construction licensing, including archi- cases the cost excludes bribes. ments (for example, building plans and tects, construction lawyers, construction site maps) to the authorities; obtaining all Paid-in minimum capital �rms, utility service providers and public necessary clearances, licenses, permits officials who deal with building regula- The paid-in minimum capital requirement and certi�cates; completing all required tions, including approvals and inspections. reflects the amount that the entrepreneur noti�cations; and receiving all necessary To make the data comparable across needs to deposit in a bank or with a notary inspections. Doing Business also records economies, several assumptions about before registration and up to 3 months fol- procedures for obtaining connections for the business, the warehouse project and lowing incorporation and is recorded as a water, sewerage and a �xed landline.3 the utility connections are used. percentage of the economy’s income per Procedures necessary to register the capita. The amount is typically speci�ed Assumptions about the property so that it can be used as col- in the commercial code or the company construction company lateral or transferred to another entity are law. Many economies require minimum The business (BuildCo): also counted. The survey divides the pro- capital but allow businesses to pay only a cess of building a warehouse into distinct Ė Is a limited liability company. part of it before registration, with the rest to be paid after the �rst year of operation. procedures and calculates the time and Ė Operates in the economy’s largest busi- In Turkey in June 2012, for example, the cost of completing each procedure. The ness city. minimum capital requirement was 5,000 ranking on the ease of dealing with con- Ė Is 100% domestically and privately Turkish liras, of which one-fourth needed struction permits is the simple average of owned. to be paid before registration. The paid-in the percentile rankings on its component Ė Has 5 owners, none of whom is a legal minimum capital recorded for Turkey is indicators (�gure 14.4). entity. Ė Is fully licensed and insured to carry out construction projects, such as building FIGURE 14.3 What are the time, cost and number of procedures to comply with formalities to warehouses. build a warehouse? Ė Has 60 builders and other employees, Cost all of them nationals with the technical (% of income per capita) expertise and professional experience Completed warehouse necessary to obtain construction per- mits and approvals. Number of Ė Has at least 1 employee who is a li- procedures censed architect and registered with the local association of architects. A business in Ė Has paid all taxes and taken out all the construction industry necessary insurance applicable to its Time (days) Preconstruction Construction Postconstruction and utilities general business activity (for example, 70 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 accidental insurance for construction Ė Does not require water for �re pro- TABLE 14.4 What do the dealing with workers and third-person liability). tection reasons; a �re extinguishing construction permits system (dry system) will be used in- indicators measure? Ė Owns the land on which the warehouse stead. If a wet �re protection system Procedures to legally build a warehouse (number) is built. is required by law, it is assumed that Submitting all relevant documents and obtaining all necessary clearances, licenses, permits and certi�cates Assumptions about the warehouse the water demand speci�ed below Completing all required noti�cations and receiving all The warehouse: also covers the water needed for �re necessary inspections Ė Will be used for general storage ac- protection. Obtaining utility connections for water, sewerage and a land telephone line tivities, such as storage of books or Ė Has an average water use of 662 liters Registering the warehouse after its completion (if stationery. The warehouse will not be (175 gallons) a day and an average required for use as collateral or for transfer of the wastewater flow of 568 liters (150 gal- warehouse) used for any goods requiring special Time required to complete each procedure conditions, such as food, chemicals or lons) a day. (calendar days) pharmaceuticals. Ė Has a peak water use of 1,325 liters (350 Does not include time spent gathering information Ė Has 2 stories, both above ground, gallons) a day and a peak wastewater Each procedure starts on a separate day with a total surface of approximately flow of 1,136 liters (300 gallons) a day. Procedure completed once �nal document is received 1,300.6 square meters (14,000 square Ė Will have a constant level of water de- No prior contact with of�cials feet). Each floor is 3 meters (9 feet, 10 mand and wastewater flow throughout Cost required to complete each procedure (% of income per capita) inches) high. the year. Of�cial costs only, no bribes Ė Has road access and is located in the The telephone connection: periurban area of the economy’s larg- Ė Is 10 meters (32 feet, 10 inches) from est business city (that is, on the fringes (that is, simultaneous procedures start the main telephone network. of the city but still within its official on consecutive days). If a procedure can Ė Is a �xed telephone landline. limits). be accelerated legally for an additional Ė Is not located in a special economic Procedures cost, the fastest procedure is chosen. It or industrial zone. The zoning require- is assumed that BuildCo does not waste A procedure is any interaction of the ments for warehouses are met by time and commits to completing each company’s employees or managers with building in an area where similar ware- remaining procedure without delay. The external parties, including government houses can be found. time that BuildCo spends on gathering agencies, notaries, the land registry, the information is ignored. It is assumed Ė Is located on a land plot of 929 square cadastre, utility companies, public and that BuildCo is aware of all building re- meters (10,000 square feet) that is private inspectors and technical experts apart from in-house architects and en- quirements and their sequence from the 100% owned by BuildCo and is ac- gineers. Interactions between company beginning. curately registered in the cadastre and land registry. employees, such as development of the Cost Ė Is a new construction (there was no warehouse plans and inspections con- Cost is recorded as a percentage of the previous construction on the land). ducted by employees, are not counted as economy’s income per capita. Only official procedures. Procedures that the company Ė Has complete architectural and tech- costs are recorded. All the fees associated undergoes to connect to water, sewerage nical plans prepared by a licensed with completing the procedures to legally and telephone services are included. All architect. build a warehouse are recorded, including procedures that are legally or in practice Ė Will include all technical equipment those associated with obtaining land use required for building a warehouse are required to make the warehouse fully approvals and preconstruction design counted, even if they may be avoided in operational. clearances; receiving inspections before, exceptional cases (table 14.4). Ė Will take 30 weeks to construct (ex- during and after construction; getting cluding all delays due to administrative Time utility connections; and registering the and regulatory requirements). Time is recorded in calendar days. The warehouse property. Nonrecurring taxes measure captures the median duration required for the completion of the ware- Assumptions about that local experts indicate is necessary house project are also recorded. The build- the utility connections to complete a procedure in practice. It is ing code, information from local experts The water and sewerage connection: assumed that the minimum time required and speci�c regulations and fee schedules Ė Is 10 meters (32 feet, 10 inches) from for each procedure is 1 day. Although are used as sources for costs. If several the existing water source and sewer procedures may take place simultane- local partners provide different estimates, tap. ously, they cannot start on the same day the median reported value is used. DATA NOTES 71 The data details on dealing with construction FIGURE 14.5 Doing Business measures the connection process at the level of distribution utilities permits can be found for each economy at http://www.doingbusiness.org by selecting the economy in the drop-down list. GETTING ELECTRICITY Doing Business records all procedures Generation Transmission required for a business to obtain a permanent electricity connection and supply for a standardized warehouse. Distribution These procedures include applications New connections and contracts with electricity utilities, Network operation and maintenance all necessary inspections and clearances Metering and billing Customer from the utility and other agencies and the external and �nal connection works. The survey divides the process of getting connection is not eligible for subsidiza- Ė Is 150 meters long. The connection is to an electricity connection into distinct tion or faster service under a special either the low-voltage or the medium- procedures and calculates the time and investment promotion regime. If sever- voltage distribution network and either cost of completing each procedure (�gure al options for location are available, the overhead or underground, whichever 14.5). The ranking on the ease of getting warehouse is located where electricity is more common in the economy and electricity is the simple average of the is most easily available. in the area where the warehouse is percentile rankings on its component Ė Has road access. The connection works located. The length of any connection indicators (�gure 14.6). involve the crossing of a road (for ex- in the customer’s private domain is Data are collected from the electric- cavation, overhead lines and the like), negligible. ity distribution utility, then completed and but they are all carried out on public Ė Involves the installation of only one veri�ed by electricity regulatory agencies land; that is, there is no crossing onto electricity meter. The monthly elec- and independent professionals such as another owner’s private property. tricity consumption will be 0.07 electrical engineers, electrical contrac- gigawatt-hour (GWh). The internal Ė Is located in an area with no physical tors and construction companies. The electrical wiring has already been constraints. For example, the property electricity distribution utility surveyed is completed. is not near a railway. the one serving the area (or areas) where Ė Is used for storage of refrigerated goods. Procedures warehouses are located. If there is a choice of distribution utilities, the one serving the Ė Is a new construction (that is, there A procedure is de�ned as any interaction largest number of customers is selected. was no previous construction on the of the company’s employees or its main land where it is located). It is being To make the data comparable across connected to electricity for the �rst FIGURE 14.6 Getting electricity: obtaining an economies, several assumptions about time. electricity connection the warehouse and the electricity con- Ė Has 2 stories, both above ground, with Rankings are based on 3 indicators nection are used. a total surface area of approximately 1,300.6 square meters (14,000 square Days to obtain As % of income Assumptions about an electricity per capita, no feet). The plot of land on which it is connection in bribes included the warehouse main city built is 929 square meters (10,000 The warehouse: square feet). 33.3% 33.3% Ė Is owned by a local entrepreneur. Time Cost Ė Is located in the economy’s largest Assumptions about the business city. electricity connection 33.3% Ė Is located within the city’s official limits The electricity connection: Procedures and in an area where other warehouses Ė Is a permanent one. are located (a nonresidential area). Ė Is a 3-phase, 4-wire Y, 140-kilovolt- Steps to file an application, prepare a design, complete works, obtain approvals, go Ė Is not located in a special economic or ampere (kVA) (subscribed capacity) through inspections, install a meter and investment zone; that is, the electricity connection. sign a supply contract 72 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 electrician or electrical engineer (that is, Time deposit is based on the customer’s the one who may have done the internal Time is recorded in calendar days. The actual consumption, this basis is the wiring) with external parties such as the measure captures the median duration one assumed in the case study. Rather electricity distribution utility, electricity that the electricity utility and experts than the full amount of the security de- supply utilities, government agencies, indicate is necessary in practice, rather posit, Doing Business records the present electrical contractors and electrical than required by law, to complete a pro- value of the losses in interest earnings �rms. Interactions between company cedure with minimum follow-up and no experienced by the customer because employees and steps related to the inter- extra payments. It is also assumed that the utility holds the security deposit over nal electrical wiring, such as the design a prolonged period, in most cases until the minimum time required for each pro- and execution of the internal electrical the end of the contract (assumed to be cedure is 1 day. Although procedures may installation plans, are not counted as after 5 years). In cases where the security take place simultaneously, they cannot procedures. Procedures that must be deposit is used to cover the �rst monthly start on the same day (that is, simulta- completed with the same utility but with consumption bills, it is not recorded. To neous procedures start on consecutive different departments are counted as calculate the present value of the lost days). It is assumed that the company separate procedures (table 14.5). interest earnings, the end-2011 lending does not waste time and commits to com- rates from the International Monetary pleting each remaining procedure without The company’s employees are assumed Fund’s International Financial Statistics are delay. The time that the company spends to complete all procedures themselves used. In cases where the security deposit on gathering information is ignored. It is unless the use of a third party is mandated is returned with interest, the difference assumed that the company is aware of all (for example, if only an electrician regis- between the lending rate and the interest electricity connection requirements and tered with the utility is allowed to submit paid by the utility is used to calculate the their sequence from the beginning. an application). If the company can, but present value. is not required to, request the services of Cost professionals (such as a private �rm rath- In some economies the security deposit Cost is recorded as a percentage of the can be put up in the form of a bond: the er than the utility for the external works), economy’s income per capita. Costs are company can obtain from a bank or an these procedures are recorded if they are recorded exclusive of value added tax. insurance company a guarantee issued commonly done. For all procedures, only All the fees and costs associated with on the assets it holds with that �nancial the most likely cases (for example, more completing the procedures to connect institution. In contrast to the scenario than 50% of the time the utility has the a warehouse to electricity are recorded, in which the customer pays the deposit material) and those followed in practice including those related to obtaining in cash to the utility, in this scenario the for connecting a warehouse to electricity clearances from government agencies, company does not lose ownership control are counted. applying for the connection, receiving in- over the full amount and can continue spections of both the site and the internal using it. In return the company will pay TABLE 14.5 What do the getting electricity wiring, purchasing material, getting the the bank a commission for obtaining indicators measure? actual connection works and paying a the bond. The commission charged may Procedures to obtain an electricity connection (number) security deposit. Information from local vary depending on the credit standing of Submitting all relevant documents and obtaining all experts and speci�c regulations and fee the company. The best possible credit necessary clearances and permits schedules are used as sources for costs. standing and thus the lowest possible Completing all required noti�cations and receiving all If several local partners provide different commission are assumed. Where a bond necessary inspections estimates, the median reported value is can be put up, the value recorded for the Obtaining external installation works and possibly purchasing material for these works used. In all cases the cost excludes bribes. deposit is the annual commission times Concluding any necessary supply contract and the 5 years assumed to be the length of obtaining �nal supply Security deposit the contract. If both options exist, the Time required to complete each procedure Utilities require security deposits as a (calendar days) cheaper alternative is recorded. guarantee against the possible failure of Is at least 1 calendar day customers to pay their consumption bills. In Honduras in June 2012 a customer Each procedure starts on a separate day For this reason the security deposit for a requesting a 140-kVA electricity connec- Does not include time spent gathering information new customer is most often calculated tion would have had to put up a security Reflects the time spent in practice, with little follow-up and no prior contact with of�cials as a function of the customer’s estimated deposit of 126,894 Honduran lempiras (L) Cost required to complete each procedure consumption. in cash or check, and the deposit would (% of income per capita) have been returned only at the end of Of�cial costs only, no bribes Doing Business does not record the full the contract. The customer could instead Value added tax excluded amount of the security deposit. If the have invested this money at the prevailing DATA NOTES 73 lending rate of 18.56%. Over the 5 years or must be completed by a third party FIGURE 14.8 Registering property: transfer of of the contract this would imply a present on their behalf. Local property lawyers, property between 2 local companies value of lost interest earnings of L 72,719. notaries and property registries provide Rankings are based on 3 indicators In contrast, if the customer chose to information on procedures as well as the settle the deposit with a bank guarantee time and cost to complete each of them. Days to transfer As % of property at an annual rate of 2.5%, the amount lost property in value, no bribes over the 5 years would be just L 15,862. To make the data comparable across main city included economies, several assumptions about The data details on getting electricity can the parties to the transaction, the prop- 33.3% 33.3% Time Cost be found for each economy at http://www erty and the procedures are used. .doingbusiness.org. Assumptions about the parties 33.3% The parties (buyer and seller): Procedures REGISTERING PROPERTY Ė Are limited liability companies. Doing Business records the full sequence Ė Are located in the periurban area of the Steps to check encumbrances, obtain clearance of procedures necessary for a business certificates, prepare deed and transfer title so economy’s largest business city. that the property can be occupied, (buyer) to purchase a property from sold or used as collateral Ė Are 100% domestically and privately another business (seller) and to transfer owned. the property title to the buyer’s name so Ė Have 50 employees each, all of whom (6,000 square feet). A 2-story ware- that the buyer can use the property for are nationals. house of 929 square meters (10,000 expanding its business, use the prop- Ė Perform general commercial activities. square feet) is located on the land. The erty as collateral in taking new loans or, warehouse is 10 years old, is in good if necessary, sell the property to another Assumptions about the property condition and complies with all safety business. The process starts with obtain- The property: standards, building codes and other le- ing the necessary documents, such as a Ė Has a value of 50 times income per gal requirements. The property of land copy of the seller’s title if necessary, and capita. The sale price equals the value. and building will be transferred in its conducting due diligence if required. The entirety. transaction is considered complete when Ė Is fully owned by the seller. it is opposable to third parties and when Ė Will not be subject to renovations Ė Has no mortgages attached and has the buyer can use the property, use it as or additional building following the been under the same ownership for the collateral for a bank loan or resell it (�gure purchase. past 10 years. 14.7). The ranking on the ease of register- Ė Has no trees, natural water sources, Ė Is registered in the land registry or ing property is the simple average of the natural reserves or historical monu- cadastre, or both, and is free of title percentile rankings on its component ments of any kind. disputes. indicators (�gure 14.8). Ė Will not be used for special purposes, Ė Is located in a periurban commercial and no special permits, such as for Every procedure required by law or neces- zone, and no rezoning is required. residential use, industrial plants, waste sary in practice is included, whether it is Ė Consists of land and a building. The storage or certain types of agricultural the responsibility of the seller or the buyer land area is 557.4 square meters activities, are required. Ė Has no occupants (legal or illegal), and FIGURE 14.7 What are the time, cost and number of procedures required to transfer property no other party holds a legal interest between 2 local companies? in it. Cost (% of property value) Procedures Buyer can use A procedure is de�ned as any interaction the property, resell it or use of the buyer or the seller, their agents (if it as collateral an agent is legally or in practice required) Procedures or the property with external parties, including government agencies, inspec- Land & 2-story warehouse tors, notaries and lawyers. Interactions Seller with property registered and no between company officers and employ- title disputes Time ees are not considered. All procedures Preregistration Registration Postregistration (days) that are legally or in practice required for 74 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 14.6 What do the registering the beginning. Time spent on gathering FIGURE 14.10 Getting credit: collateral rules property indicators measure? information is not considered. and credit information Procedures to legally transfer title on immovable Rankings are based on 2 indicators property (number) Cost Preregistration procedures (for example, checking for liens, notarizing sales agreement, paying property Cost is recorded as a percentage of the transfer taxes) property value, assumed to be equivalent 100% Sum of depth of credit Registration procedures in the economy’s largest to 50 times income per capita. Only of- information index (0–6) business city and �cial costs required by law are recorded, strength of legal rights Postregistration procedures (for example, �ling title index (0–10) with municipality) including fees, transfer taxes, stamp du- Time required to complete each procedure ties and any other payment to the prop- (calendar days) erty registry, notaries, public agencies Scope, quality and accessibility of credit Does not include time spent gathering information information through public and private or lawyers. Other taxes, such as capital credit registries and bureaus Each procedure starts on a separate day gains tax or value added tax, are excluded Procedure completed once �nal document is received Regulations on nonpossessory security from the cost measure. Both costs borne interests in movable property No prior contact with of�cials by the buyer and those borne by the Cost required to complete each procedure Note: Private bureau coverage and public registry coverage (% of of property value) seller are included. If cost estimates dif- are measured but do not count for the rankings. Of�cial costs only, no bribes fer among sources, the median reported No value added or capital gains taxes included value is used. the ease of getting credit is based on The data details on registering property can the percentile rankings on the sum of its registering property are recorded, even if be found for each economy at http://www component indicators: the depth of credit they may be avoided in exceptional cases .doingbusiness.org by selecting the economy information index and the strength of (table 14.6). It is assumed that the buyer in the drop-down list. legal rights index (�gure 14.10). follows the fastest legal option available and used by the majority of property own- GETTING CREDIT LEGAL RIGHTS ers. Although the buyer may use lawyers The data on the legal rights of borrow- or other professionals where necessary Doing Business measures the legal rights ers and lenders are gathered through a in the registration process, it is assumed of borrowers and lenders with respect survey of �nancial lawyers and veri�ed that the buyer does not employ an outside to secured transactions through one set through analysis of laws and regulations facilitator in the registration process unless of indicators and the sharing of credit information through another. The �rst as well as public sources of information legally or in practice required to do so. set of indicators measures whether cer- on collateral and bankruptcy laws. Survey Time tain features that facilitate lending exist responses are veri�ed through several within the applicable collateral and bank- rounds of follow-up communication with Time is recorded in calendar days. The ruptcy laws. The second set measures respondents as well as by contacting third measure captures the median duration that property lawyers, notaries or registry the coverage, scope and accessibility parties and consulting public sources. officials indicate is necessary to complete of credit information available through The survey data are con�rmed through a procedure. It is assumed that the mini- public credit registries and private credit teleconference calls or on-site visits in all mum time required for each procedure is 1 bureaus (�gure 14.9). The ranking on economies. day. Although procedures may take place simultaneously, they cannot start on the FIGURE 14.9 Do lenders have credit information on entrepreneurs seeking credit? Is the law same day. It is assumed that the buyer favorable to borrowers and lenders using movable assets as collateral? does not waste time and commits to com- pleting each remaining procedure without Credit inform delay. If a procedure can be accelerated for ation an additional cost, the fastest legal proce- Potential Can movable assets be dure available and used by the majority of borrower used as collateral? property owners is chosen. If procedures Movable Collateral Credit registries and can be undertaken simultaneously, it asset registry Lender credit bureaus is assumed that they are. It is assumed What types can be Can lenders access that the parties involved are aware of all used as collateral? credit information on borrowers? requirements and their sequence from DATA NOTES 75 Strength of legal rights index allow nonpossessory security interests in Ė A collateral registry or registration The strength of legal rights index measures movable property, ABC and BizBank use institution for security interests over the degree to which collateral and bank- a �duciary transfer-of-title arrangement movable property is in operation, uni- ruptcy laws protect the rights of borrowers (or a similar substitute for nonpossessory �ed geographically and by asset type, and lenders and thus facilitate lending security interests). The strength of legal with an electronic database indexed by (table 14.7). Two case scenarios, case rights index does not cover functional debtors’ names. A and case B, are used to determine the equivalents to security over movable as- Ė Secured creditors are paid �rst (for scope of the secured transactions system. sets (for example, leasing or reservation example, before general tax claims and The case scenarios involve a secured bor- of title). employee claims) when a debtor de- rower, the company ABC, and a secured faults outside an insolvency procedure. In case B, ABC grants BizBank a busi- lender, BizBank. In some economies the ness charge, enterprise charge, floating Ė Secured creditors are paid �rst (for legal framework for secured transactions charge or any charge that gives BizBank example, before general tax claims and will allow only case A or case B to apply a security interest over ABC’s combined employee claims) when a business is (not both). Both cases examine the same movable assets (or as much of ABC’s liquidated. set of legal provisions relating to the use of movable assets as possible). ABC keeps Ė Secured creditors either are not subject movable collateral. ownership and possession of the assets. to an automatic stay or moratorium Several assumptions about the secured on enforcement procedures when a The strength of legal rights index includes borrower and lender are used: debtor enters a court-supervised 8 aspects related to legal rights in col- Ė ABC is a domestically incorporated, lateral law and 2 aspects in bankruptcy reorganization procedure, or the limited liability company. law. A score of 1 is assigned for each of law provides secured creditors with Ė The company has up to 100 employees. the following features of the laws: grounds for relief from an automatic Ė ABC has its headquarters and only stay or moratorium (for example, if the Ė Any business may use movable assets base of operations in the economy’s as collateral while keeping posses- movable property is in danger) or sets largest business city. sion of the assets, and any �nancial a time limit for the automatic stay. Ė Both ABC and BizBank are 100% do- institution may accept such assets as Ė The law allows parties to agree in a col- mestically owned. collateral. lateral agreement that the lender may Ė The law allows a business to grant a enforce its security right out of court. The case scenarios also involve assump- nonpossessory security right in a single tions. In case A, as collateral for the loan, The index ranges from 0 to 10, with higher category of movable assets (such as ABC grants BizBank a nonpossessory se- scores indicating that collateral and bank- accounts receivable or inventory), curity interest in one category of movable ruptcy laws are better designed to expand without requiring a speci�c description assets, for example, its machinery or its of the collateral. access to credit. inventory. ABC wants to keep both pos- Ė The law allows a business to grant session and ownership of the collateral. CREDIT INFORMATION a nonpossessory security right in In economies where the law does not The data on credit information sharing are substantially all its movable assets, without requiring a speci�c description built in 2 stages. First, banking supervision TABLE 14.7 What do the getting credit of the collateral. authorities and public information sources indicators measure? Ė A security right may extend to future or are surveyed to con�rm the presence of a Strength of legal rights index (0–10) after-acquired assets and may extend public credit registry or private credit bu- Protection of rights of borrowers and lenders through collateral laws automatically to the products, pro- reau. Second, when applicable, a detailed Protection of secured creditors’ rights through ceeds or replacements of the original survey on the public credit registry’s or bankruptcy laws assets. private credit bureau’s structure, laws and Depth of credit information index (0–6) Ė A general description of debts and associated rules is administered to the Scope and accessibility of credit information dis- tributed by public credit registries and private credit obligations is permitted in the col- entity itself. Survey responses are veri- bureaus �ed through several rounds of follow-up lateral agreement and in registration Public credit registry coverage (% of adults) documents; all types of debts and ob- communication with respondents as well Number of individuals and �rms listed in a public credit registry as percentage of adult population ligations can be secured between the as by contacting third parties and consult- Private credit bureau coverage (% of adults) parties, and the collateral agreement ing public sources. The survey data are Number of individuals and �rms listed in largest pri- can include a maximum amount for con�rmed through teleconference calls or vate credit bureau as percentage of adult population which the assets are encumbered. on-site visits in all economies. 76 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 Depth of credit information index (a score of 1). Both distribute more than and credit reporting �rms that do not The depth of credit information index 2 years of historical data (a score of 1). directly facilitate information exchange measures rules and practices affecting Although the public credit registry does among banks and other �nancial institu- the coverage, scope and accessibility not distribute data from retailers or tions are not considered. If no private of credit information available through utilities, the private credit bureau does bureau operates, the coverage value is 0. either a public credit registry or a private do so (a score of 1). Although the public credit registry has a threshold of 1,000 The data details on getting credit can be credit bureau. A score of 1 is assigned for litai, the private credit bureau distributes found for each economy at http://www each of the following 6 features of the data on loans of any value (a score of 1). .doingbusiness.org by selecting the economy public credit registry or private credit Borrowers have the right to access their in the drop-down list. This methodology was bureau (or both): data in both the public credit registry developed in Djankov, McLiesh and Shleifer Ė Data on both �rms and individuals are (2007) and is adopted here with minor and the private credit bureau (a score of distributed. changes. 1). Summing across the indicators gives Ė Both positive credit information (for Lithuania a total score of 6. example, outstanding loan amounts and pattern of on-time repayments) PROTECTING INVESTORS Public credit registry coverage and negative information (for ex- The public credit registry coverage indica- Doing Business measures the strength of ample, late payments, and number and tor reports the number of individuals and minority shareholder protections against amount of defaults and bankruptcies) �rms listed in a public credit registry with directors’ misuse of corporate assets for are distributed. information on their borrowing history personal gain. The indicators distinguish Ė Data from retailers and utility compa- from the past 5 years. The number is ex- 3 dimensions of investor protections: nies as well as �nancial institutions are pressed as a percentage of the adult pop- transparency of related-party transac- distributed. ulation (the population age 15 and above tions (extent of disclosure index), liability Ė More than 2 years of historical data in 2011 according to the World Bank’s for self-dealing (extent of director liability are distributed. Credit registries and World Development Indicators). A public index) and shareholders’ ability to sue of- bureaus that erase data on defaults as credit registry is de�ned as a database �cers and directors for misconduct (ease soon as they are repaid obtain a score managed by the public sector, usually by of shareholder suits index) (�gure 14.11). of 0 for this indicator. the central bank or the superintendent of The data come from a survey of corporate banks, that collects information on the and securities lawyers and are based on Ė Data on loan amounts below 1% of creditworthiness of borrowers (individu- securities regulations, company laws, income per capita are distributed. Note als or �rms) in the �nancial system and civil procedure codes and court rules of that a credit registry or bureau must facilitates the exchange of credit informa- evidence. The ranking on the strength of have a minimum coverage of 1% of the tion among banks and other regulated investor protection index is the simple adult population to score a 1 on this �nancial institutions. If no public registry average of the percentile rankings on its indicator. operates, the coverage value is 0. component indicators (�gure 14.12). Ė By law, borrowers have the right to access their data in the largest credit Private credit bureau coverage To make the data comparable across registry or bureau in the economy. economies, several assumptions about The private credit bureau coverage indi- cator reports the number of individuals the business and the transaction are used. The index ranges from 0 to 6, with higher values indicating the availability of more and �rms listed by a private credit bureau Assumptions about the business credit information, from either a public with information on their borrowing his- The business (Buyer): credit registry or a private credit bureau, tory from the past 5 years. The number is expressed as a percentage of the adult Ė Is a publicly traded corporation listed to facilitate lending decisions. If the credit population (the population age 15 and on the economy’s most important registry or bureau is not operational or above in 2011 according to the World stock exchange. If the number of pub- has a coverage of less than 0.1% of the Bank’s World Development Indicators). licly traded companies listed on that adult population, the score on the depth A private credit bureau is de�ned as a exchange is less than 10, or if there is of credit information index is 0. private �rm or nonpro�t organization that no stock exchange in the economy, it In Lithuania, for example, both a public maintains a database on the creditworthi- is assumed that Buyer is a large private credit registry and a private credit bureau ness of borrowers (individuals or �rms) in company with multiple shareholders. operate. Both distribute positive and the �nancial system and facilitates the Ė Has a board of directors and a chief ex- negative information (a score of 1). Both exchange of credit information among ecutive officer (CEO) who may legally distribute data on �rms and individuals creditors. Credit investigative bureaus act on behalf of Buyer where permitted, DATA NOTES 77 FIGURE 14.11 How well are minority shareholders protected against self-dealing in related-party of the transaction is required but not transactions? on Mr. James’s conflict of interest; 2 if disclosure on both the terms and Mr. Extent of disclosure Mr. James Disclosure and approval Lawsuit James’s conflict of interest is required. requirements 60% ownership, sits 90% ownership, sits Ė Whether disclosure in the annual re- Extent of director liability on board of directors on board of directors Ability to sue directors port is required. A score of 0 is assigned for damages Company A Company B if no disclosure on the transaction is Ease of shareholder suits (buyer) (seller) Access by shareholders to required; 1 if disclosure on the terms documents plus other Minority Transaction of the transaction is required but not evidence for trial involving shareholders conflict of interest on Mr. James’s conflict of interest; 2 if disclosure on both the terms and Mr. James’s conflict of interest is required. even if this is not speci�cally required Ė Mr. James proposes that Buyer pur- Ė Whether disclosure by Mr. James to by law. chase Seller’s unused fleet of trucks the board of directors or the supervi- Ė Has a supervisory board (applicable to to expand Buyer’s distribution of its sory board is required. A score of 0 is products, a proposal to which Buyer economies with 2-tier board systems) assigned if no disclosure is required; 1 if agrees. The price is equal to 10% of of which 60% of the shareholder- a general disclosure of the existence of Buyer’s assets and is higher than the elected members have been appointed a conflict of interest is required without market value. by Mr. James. any speci�cs; 2 if full disclosure of all Ė The proposed transaction is part of the material facts relating to Mr. James’s Ė Is a manufacturing company. company’s ordinary course of business interest in the Buyer-Seller transaction Ė Has its own distribution network. and is not outside the authority of the is required. company. Assumptions about the Ė Whether it is required that an external Ė Buyer enters into the transaction. All transaction body, for example, an external auditor, required approvals are obtained, and all review the transaction before it takes Ė Mr. James is Buyer’s controlling share- required disclosures made (that is, the place. A score of 0 is assigned if no; 1 holder and a member of Buyer’s board transaction is not fraudulent). if yes. of directors. He owns 60% of Buyer Ė The transaction causes damages to and elected 2 directors to Buyer’s Buyer. Shareholders sue Mr. James and The index ranges from 0 to 10, with higher 5-member board. the other parties that approved the values indicating greater disclosure. In transaction. Poland, for example, the board of direc- Ė Mr. James also owns 90% of Seller, a tors must approve the transaction and company that operates a chain of retail Extent of disclosure index Mr. James is not allowed to vote (a score hardware stores. Seller recently closed The extent of disclosure index has 5 com- of 2). Buyer is required to disclose imme- a large number of its stores. ponents (table 14.8): diately all information affecting the stock Ė Which corporate body can provide price, including the conflict of interest (a FIGURE 14.12 Protecting investors: minority legally sufficient approval for the score of 2). In its annual report Buyer must shareholder rights in related- transaction. A score of 0 is assigned also disclose the terms of the transaction party transactions if it is the CEO or the managing direc- and Mr. James’s ownership in Buyer and Rankings are based on 3 indicators tor alone; 1 if the board of directors, Seller (a score of 2). Before the transac- the supervisory board or shareholders tion Mr. James must disclose his conflict Requirements on Liability of CEO and must vote and Mr. James is permitted approval and disclosure board of directors in a of interest to the other directors, but he is of related-party related-party to vote; 2 if the board of directors or not required to provide speci�c informa- transactions transaction the supervisory board must vote and tion about it (a score of 1). Poland does 33.3% 33.3% Mr. James is not permitted to vote; 3 if Extent of Extent of not require an external body to review the disclosure director shareholders must vote and Mr. James index liability index transaction (a score of 0). Adding these is not permitted to vote. numbers gives Poland a score of 7 on the 33.3% Ease of shareholder Ė Whether immediate disclosure of the extent of disclosure index. suits index transaction to the public, the regula- tor or the shareholders is required.4 A Extent of director liability index Type of evidence that can be collected score of 0 is assigned if no disclosure The extent of director liability index has 7 before and during the trial is required; 1 if disclosure on the terms components:5 78 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 14.8 What do the protecting 2 if rescission is available when the Ease of shareholder suits index investors indicators measure? transaction is unfair or entails a conflict The ease of shareholder suits index has 6 Extent of disclosure index (0–10) of interest. components: Who can approve related-party transactions Ė Whether Mr. James pays damages for Ė What range of documents is available Disclosure requirements in case of related-party transactions the harm caused to the company upon to the shareholder plaintiff from the Extent of director liability index (0–10) a successful claim by the shareholder defendant and witnesses during trial. Ability of shareholders to hold interested parties and plaintiff. A score of 0 is assigned if no; A score of 1 is assigned for each of the members of the approving body liable in case of following types of documents avail- related-party transactions 1 if yes. Ė Whether Mr. James repays pro�ts able: information that the defendant Available legal remedies (damages, repayment of pro�ts, �nes and imprisonment) has indicated he intends to rely on for made from the transaction upon a Ability of shareholders to sue directly or derivatively his defense; information that directly successful claim by the shareholder Ease of shareholder suits index (0–10) proves speci�c facts in the plaintiff’s plaintiff. A score of 0 is assigned if no; Direct access to internal documents of the company claim; any information relevant to the and use of a government inspector without �ling suit 1 if yes. in court subject matter of the claim; and any Ė Whether both �nes and imprisonment information that may lead to the dis- Documents and information available during trial Strength of investor protection index (0–10) can be applied against Mr. James. A covery of relevant information. Simple average of the extent of disclosure, extent of score of 0 is assigned if no; 1 if yes. Ė Whether the plaintiff can directly ex- director liability and ease of shareholder suits indices Ė Whether shareholder plaintiffs are amine the defendant and witnesses able to sue directly or derivatively for during trial. A score of 0 is assigned if Ė Whether a shareholder plaintiff is able the damage the transaction causes to no; 1 if yes, with prior approval of the to hold Mr. James liable for the damage the company. A score of 0 is assigned questions by the judge; 2 if yes, without the Buyer-Seller transaction causes to if suits are unavailable or are available prior approval. the company. A score of 0 is assigned only for shareholders holding more Ė Whether the plaintiff can obtain cat- if Mr. James cannot be held liable or than 10% of the company’s share egories of relevant documents from can be held liable only for fraud or bad capital; 1 if direct or derivative suits are the defendant without identifying each faith; 1 if Mr. James can be held liable available for shareholders holding 10% document speci�cally. A score of 0 is only if he influenced the approval of or less of share capital. assigned if no; 1 if yes. the transaction or was negligent; 2 if Ė Whether shareholders owning 10% or Mr. James can be held liable when the The index ranges from 0 to 10, with less of the company’s share capital can transaction is unfair or prejudicial to higher values indicating greater liability request that a government inspector the other shareholders. of directors. Assuming that the prejudi- investigate the Buyer-Seller transaction Ė Whether a shareholder plaintiff is able cial transaction was duly approved and without �ling suit in court. A score of 0 to hold the approving body (the CEO, disclosed, in order to hold Mr. James is assigned if no; 1 if yes. the members of the board of directors, liable in Panama, for example, a plaintiff Ė Whether shareholders owning 10% or members of the supervisory board) must prove that Mr. James influenced or less of the company’s share capital liable for the damage the transaction the approving body or acted negligently have the right to inspect the transac- causes to the company. A score of 0 is (a score of 1). To hold the other direc- tion documents before �ling suit. A assigned if the approving body cannot score of 0 is assigned if no; 1 if yes. tors liable, a plaintiff must prove that be held liable or can be held liable only they acted negligently (a score of 1). Ė Whether the standard of proof for civil for fraud or bad faith; 1 if the approving The prejudicial transaction cannot be suits is lower than that for a criminal body can be held liable for negligence; 2 voided (a score of 0). If Mr. James is case. A score of 0 is assigned if no; 1 if the approving body can be held liable found liable, he must pay damages if yes. when the transaction is unfair or preju- dicial to the other shareholders. (a score of 1) but he is not required to The index ranges from 0 to 10, with disgorge his profits (a score of 0). Mr. Ė Whether a court can void the trans- higher values indicating greater powers action upon a successful claim by a James cannot be fined and imprisoned of shareholders to challenge the transac- shareholder plaintiff. A score of 0 is (a score of 0). Direct or derivative suits tion. In Greece, for example, the plaintiff assigned if rescission is unavailable are available for shareholders holding can access documents that the defendant or is available only in case of fraud or 10% or less of share capital (a score of intends to rely on for his defense and that bad faith; 1 if rescission is available 1). Adding these numbers gives Panama directly prove facts in the plaintiff’s claim when the transaction is oppressive or a score of 4 on the extent of director (a score of 2). The plaintiff can examine prejudicial to the other shareholders; liability index. the defendant and witnesses during trial, DATA NOTES 79 though only with prior approval of the FIGURE 14.13 What are the time, total tax rate and number of payments necessary for a local questions by the court (a score of 1). The medium-size company to pay all taxes? plaintiff must speci�cally identify the Total tax rate Time documents being sought (for example, the Buyer-Seller purchase agreement of July 15, 2006) and cannot just request To prepare, file and pay categories (for example, all documents value added or sales tax, Hours per year profit tax and labor related to the transaction) (a score of % of profit before all taxes taxes and contributions 0). A shareholder holding 5% of Buyer’s shares can request that a government inspector review suspected mismanage- ment by Mr. James and the CEO without �ling suit in court (a score of 1). Any Number of payments (per year) shareholder can inspect the transaction documents before deciding whether to sue (a score of 1). The standard of proof collection taxes, vehicle and road taxes, Doing Business measures all taxes and con- for civil suits is the same as that for a and any other small taxes or fees (�gure tributions that are government mandated criminal case (a score of 0). Adding these 14.13). (at any level—federal, state or local) and numbers gives Greece a score of 5 on the that apply to the standardized business ease of shareholder suits index. The ranking on the ease of paying taxes and have an impact in its �nancial state- is the simple average of the percentile ments. In doing so, Doing Business goes Strength of investor rankings on its component indicators, beyond the traditional de�nition of a tax. protection index with a threshold being applied to one of As de�ned for the purposes of govern- The strength of investor protection index the component indicators, the total tax ment national accounts, taxes include is the average of the extent of disclosure rate (�gure 14.14). The threshold is de- only compulsory, unrequited payments index, the extent of director liability index �ned as the highest total tax rate among to general government. Doing Business and the ease of shareholder suits index. the top 15% of economies in the ranking departs from this de�nition because it The index ranges from 0 to 10, with on the total tax rate. It is calculated and measures imposed charges that affect higher values indicating more investor adjusted on a yearly basis. This year’s business accounts, not government ac- protection. threshold is 25.7%. All economies with a counts. One main difference relates to total tax rate below this threshold receive labor contributions. The Doing Business The data details on protecting investors can the same score as the economy at the measure includes government-mandated be found for each economy at http://www threshold. The threshold is not based contributions paid by the employer to a .doingbusiness.org by selecting the econo- on any economic theory of an “optimal requited private pension fund or workers’ my in the drop-down list. This methodology tax rate� that minimizes distortions or insurance fund. The indicator includes, was developed in Djankov, La Porta and maximizes efficiency in the tax system of for example, Australia’s compulsory others (2008). an economy overall. Instead, it is mainly empirical in nature, set at the lower end FIGURE 14.14 Paying taxes: tax compliance PAYING TAXES of the distribution of tax rates levied on for a local manufacturing medium-size enterprises in the manu- company Doing Business records the taxes and facturing sector as observed through the Rankings are based on 3 indicators mandatory contributions that a medium- size company must pay in a given year as paying taxes indicators. This reduces the bias in the indicators toward economies Number of hours per year Firm tax liability as % well as measures of the administrative to prepare, file returns of profits before all burden of paying taxes and contributions. that do not need to levy signi�cant taxes and pay taxes taxes borne The project was developed and imple- on companies like the Doing Business standardized case study company be- 33.3% 33.3% mented in cooperation with PwC.6 Taxes Time Total and contributions measured include the cause they raise public revenue in other tax rate pro�t or corporate income tax, social ways—for example, through taxes on contributions and labor taxes paid by foreign companies, through taxes on 33.3% Payments the employer, property taxes, property sectors other than manufacturing or from transfer taxes, dividend tax, capital gains natural resources (all of which are outside tax, �nancial transactions tax, waste the scope of the methodology). Number of tax payments per year 80 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 superannuation guarantee and workers’ among domestic �rms is chosen. The Ė Makes a loss in the �rst year of compensation insurance. For the purpose most common form is reported by incor- operation. of calculating the total tax rate (de�ned poration lawyers or the statistical office. Ė Has a gross margin (pretax) of 20% below), only taxes borne are included. For Ė Started operations on January 1, 2010. (that is, sales are 120% of the cost of example, value added taxes are generally At that time the company purchased goods sold). excluded (provided they are not irrecov- all the assets shown in its balance Ė Distributes 50% of its net pro�ts as erable) because they do not affect the sheet and hired all its workers. dividends to the owners at the end of accounting pro�ts of the business—that Ė Operates in the economy’s largest the second year. is, they are not reflected in the income business city. Ė Sells one of its plots of land at a pro�t statement. They are, however, included for the purpose of the compliance mea- Ė Is 100% domestically owned and has at the beginning of the second year. sures (time and payments), as they add 5 owners, all of whom are natural Ė Has annual fuel costs for its trucks to the burden of complying with the tax persons. equal to twice income per capita. system. Ė At the end of 2010, has a start-up capi- Ė Is subject to a series of detailed assump- tal of 102 times income per capita. tions on expenses and transactions to Doing Business uses a case scenario to further standardize the case. All �nancial Ė Performs general industrial or commer- measure the taxes and contributions statement variables are proportional to cial activities. Speci�cally, it produces paid by a standardized business and the ceramic flowerpots and sells them at 2005 income per capita. For example, complexity of an economy’s tax compli- retail. It does not participate in foreign the owner who is also a manager spends ance system. This case scenario uses a trade (no import or export) and does not 10% of income per capita on traveling set of �nancial statements and assump- handle products subject to a special tax for the company (20% of this owner’s tions about transactions made over the regime, for example, liquor or tobacco. expenses are purely private, 20% are course of the year. In each economy tax Ė At the beginning of 2011, owns 2 plots for entertaining customers and 60% for experts from a number of different �rms of land, 1 building, machinery, office business travel). (in many economies these include PwC) compute the taxes and mandatory con- equipment, computers and 1 truck and Assumptions about the taxes and tributions due in their jurisdiction based leases 1 truck. contributions on the standardized case study facts. Ė Does not qualify for investment incen- Ė All the taxes and contributions record- Information is also compiled on the fre- tives or any bene�ts apart from those ed are those paid in the second year of quency of �ling and payments as well as related to the age or size of the company. operation (calendar year 2011). A tax time taken to comply with tax laws in an Ė Has 60 employees—4 managers, 8 or contribution is considered distinct if economy. To make the data comparable assistants and 48 workers. All are na- it has a different name or is collected by across economies, several assumptions tionals, and 1 manager is also an owner. a different agency. Taxes and contribu- about the business and the taxes and The company pays for additional medi- tions with the same name and agency, contributions are used. cal insurance for employees (not but charged at different rates depend- mandated by any law) as an additional ing on the business, are counted as the The methodology for the paying taxes bene�t. In addition, in some economies same tax or contribution. indicators has bene�ted from discussion reimbursable business travel and client Ė The number of times the company with members of the International Tax Dialogue and other stakeholders, which entertainment expenses are consid- pays taxes and contributions in a year led to a re�nement of the survey questions ered fringe bene�ts. When applicable, is the number of different taxes or on the time to pay taxes, the collection of it is assumed that the company pays contributions multiplied by the fre- additional data on the labor tax wedge for the fringe bene�t tax on this expense quency of payment (or withholding) further research and the introduction of a or that the bene�t becomes taxable in- for each tax. The frequency of payment threshold applied to the total tax rate for come for the employee. The case study includes advance payments (or with- the purpose of calculating the ranking on assumes no additional salary additions holding) as well as regular payments the ease of paying taxes. for meals, transportation, education (or withholding). or others. Therefore, even when such Assumptions about the business bene�ts are frequent, they are not Tax payments The business: added to or removed from the taxable The tax payments indicator reflects the Ė Is a limited liability, taxable company. If gross salaries to arrive at the labor tax total number of taxes and contributions there is more than one type of limited or contribution calculation. paid, the method of payment, the fre- liability company in the economy, the Ė Has a turnover of 1,050 times income quency of payment, the frequency of �l- limited liability form most common per capita. ing and the number of agencies involved DATA NOTES 81 TABLE 14.9 What do the paying taxes mandatory health insurance contributions all the different taxes and contributions indicators measure? and mandatory pension contributions are payable after accounting for allowable Tax payments for a manufacturing company in 2011 �led for and paid together, only one of deductions and exemptions. The taxes (number per year adjusted for electronic and joint �ling and payment) these contributions would be included in withheld (such as personal income tax) Total number of taxes and contributions paid, the number of payments. or collected by the company and remit- including consumption taxes (value added tax, sales ted to the tax authorities (such as value tax or goods and service tax) Time added tax, sales tax or goods and service Method and frequency of �ling and payment Time is recorded in hours per year. The tax) but not borne by the company are Time required to comply with 3 major taxes (hours per year) indicator measures the time taken to excluded. The taxes included can be Collecting information and computing the tax payable prepare, �le and pay 3 major types of divided into 5 categories: pro�t or cor- Completing tax return forms, �ling with proper taxes and contributions: the corporate porate income tax, social contributions agencies income tax, value added or sales tax, and and labor taxes paid by the employer (in Arranging payment or withholding labor taxes, including payroll taxes and respect of which all mandatory contribu- Preparing separate mandatory tax accounting books, social contributions. Preparation time if required tions are included, even if paid to a private includes the time to collect all information entity such as a requited pension fund), Total tax rate (% of pro�t before all taxes) necessary to compute the tax payable property taxes, turnover taxes and other Pro�t or corporate income tax Social contributions and labor taxes paid by the and to calculate the amount payable. If taxes (such as municipal fees and vehicle employer separate accounting books must be kept and fuel taxes). Property and property transfer taxes for tax purposes—or separate calculations Dividend, capital gains and �nancial transactions taxes made—the time associated with these The total tax rate is designed to provide Waste collection, vehicle, road and other taxes processes is included. This extra time is in- a comprehensive measure of the cost of cluded only if the regular accounting work all the taxes a business bears. It differs is not enough to ful�ll the tax accounting from the statutory tax rate, which merely for this standardized case study company requirements. Filing time includes the provides the factor to be applied to the during the second year of operation (table time to complete all necessary tax return tax base. In computing the total tax rate, 14.9). It includes taxes withheld by the forms and �le the relevant returns at the the actual tax payable is divided by com- company, such as sales tax, value added tax authority. Payment time considers the mercial pro�t. Data for Norway illustrate tax and employee-borne labor taxes. hours needed to make the payment online (table 14.10). These taxes are traditionally collected or at the tax authorities. Where taxes and by the company from the consumer or Commercial pro�t is essentially net pro�t contributions are paid in person, the time employee on behalf of the tax agencies. includes delays while waiting. before all taxes borne. It differs from the Although they do not affect the income conventional pro�t before tax, reported in statements of the company, they add to Total tax rate �nancial statements. In computing pro�t the administrative burden of complying The total tax rate measures the amount of before tax, many of the taxes borne by a with the tax system and so are included taxes and mandatory contributions borne �rm are deductible. In computing com- in the tax payments measure. by the business in the second year of op- mercial pro�t, these taxes are not deduct- eration, expressed as a share of commer- ible. Commercial pro�t therefore presents The number of payments takes into cial pro�t. Doing Business 2013 reports the a clear picture of the actual pro�t of a account electronic �ling. Where full elec- total tax rate for calendar year 2011. The business before any of the taxes it bears tronic �ling and payment is allowed and total amount of taxes borne is the sum of in the course of the �scal year. it is used by the majority of medium-size businesses, the tax is counted as paid once a year even if �lings and payments TABLE 14.10 Computing the total tax rate for Norway are more frequent. For payments made Statutory Actual tax Commercial tax base payable pro�t* through third parties, such as tax on Statutory rate b a=r xb c Total tax rate interest paid by a �nancial institution or Type of tax (tax base) r NKr NKr NKr t = a/c Corporate income tax 28.0% 20,612,719 5,771,561 23,651,183 24.4% fuel tax paid by a fuel distributor, only one (taxable income) payment is included even if payments are Social security contributions 14.1% 26,684,645 3,762,535 23,651,183 15.9% more frequent. (taxable wages) Fuel tax (fuel price) NKr 4 per liter 74,247 liters 297,707 23,651,183 1.3% Where 2 or more taxes or contributions Total 9,831,803 41.6% are �led for and paid jointly using the Note: NKr is Norwegian kroner. Commercial pro�t is assumed to be 59.4 times income per capita. same form, each of these joint pay- * Pro�t before all taxes borne. ments is counted once. For example, if Source: Doing Business database. 82 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 Commercial pro�t is computed as sales warehouse. For landlocked economies, FIGURE 14.16 Trading across borders: minus cost of goods sold, minus gross these include procedures at the inland exporting and importing by sea transport salaries, minus administrative expenses, border post, since the port is located in Rankings are based on 3 indicators minus other expenses, minus provisions, the transit economy. Payment is made plus capital gains (from the property sale) by letter of credit, and the time, cost and Document preparation, minus interest expense, plus interest documents required for the issuance or customs clearance and income and minus commercial deprecia- technical control, port advising of a letter of credit are taken All documents required by and terminal handling, tion. To compute the commercial depreci- into account (�gure 14.15). The ranking customs and other inland transport and agencies handling ation, a straight-line depreciation method on the ease of trading across borders is 33.3% 33.3% is applied, with the following rates: 0% for the simple average of the percentile rank- Documents Time to the land, 5% for the building, 10% for the to export export and ings on its component indicators (�gure and import import machinery, 33% for the computers, 20% 14.16). for the office equipment, 20% for the 33.3% Cost to export truck and 10% for business development Local freight forwarders, shipping lines, and import expenses. Commercial pro�t amounts to customs brokers, port officials and 59.4 times income per capita. banks provide information on required US$ per 20-foot container, documents and cost as well as the time no bribes or tariffs included The methodology for calculating the total to complete each procedure. To make tax rate is broadly consistent with the the data comparable across economies, Total Tax Contribution framework devel- several assumptions about the business Ė Is one of the economy’s leading export oped by PwC and the calculation within and the traded goods are used. or import products. this framework for taxes borne. But while the work undertaken by PwC is usually Assumptions about Assumptions about the business based on data received from the largest the traded goods companies in the economy, Doing Business The traded product travels in a dry-cargo, The business: focuses on a case study for a standardized 20-foot, full container load. It weighs Ė Has at least 60 employees. medium-size company. 10 tons and is valued at $20,000. The Ė Is located in the economy’s largest product: The data details on paying taxes can be business city. found for each economy at http://www Ė Is not hazardous nor does it include .doingbusiness.org by selecting the economy military items. Ė Is a private, limited liability company. It in the drop-down list. This methodology was Ė Does not require refrigeration or any does not operate in an export process- developed in Djankov, Ganser and others other special environment. ing zone or an industrial estate with (2010). Ė Does not require any special phytosan- special export or import privileges. itary or environmental safety standards other than accepted international Ė Is 100% domestically owned. TRADING ACROSS BORDERS standards. Ė Exports more than 10% of its sales. Doing Business measures the time and cost (excluding tariffs) associated with exporting and importing a standardized FIGURE 14.15 How much time, how many documents and what cost to export and import by sea transport? cargo of goods by sea transport. The time and cost necessary to complete every official procedure for exporting and im- porting the goods are recorded; however, Time Time the time and cost for sea transport are not included. All documents needed by Cost Cost To export To import the trader to export or import the goods Documents Full, 20-foot container Documents across the border are also recorded. For exporting goods, procedures range from Import packing the goods into the container at the warehouse to their departure from the port of exit. For importing goods, proce- Export dures range from the vessel’s arrival at the Port and terminal Customs and Inland port of entry to the cargo’s delivery at the handling border agencies transport DATA NOTES 83 TABLE 14.11 What do the trading across located in an export processing zone, or FIGURE 14.17 What are the time, cost and borders indicators measure? only to certain accredited �rms under number of procedures to resolve a commercial dispute Documents required to export and import (number) authorized economic operator programs, through the courts? Bank documents are not taken into account because they Customs clearance documents are not available to all trading companies. Port and terminal handling documents Sea transport time is not included. It is Court Transport documents assumed that neither the exporter nor Time Time required to export and import (days) the importer wastes time and that each Cost Obtaining, �lling out and submitting all the commits to completing each remaining Number of documents procedures procedure without delay. Procedures that Inland transport and handling can be completed in parallel are measured Customs clearance and inspections Company A Commercial dispute Company B as simultaneous. But it is assumed that (seller & plaintiff) (buyer & defendant) Port and terminal handling document preparation, inland transport, Does not include sea transport time customs and other clearance, and port Filing of Trial & Enforcement Cost required to export and import court case judgment (US$ per container) and terminal handling require a minimum All documentation time of 1 day each and cannot take place Inland transport and handling simultaneously. The waiting time be- Customs clearance and inspections tween procedures—for example, during Port and terminal handling unloading of the cargo—is included in the lawyers and by judges (�gure 14.17). The Of�cial costs only, no bribes measure. ranking on the ease of enforcing contracts is the simple average of the percentile Cost rankings on its component indicators Documents Cost measures the fees levied on a (�gure 14.18). All documents required per shipment 20-foot container in U.S. dollars. All the to export and import the goods are fees associated with completing the The name of the relevant court in each recorded (table 14.11). It is assumed that procedures to export or import the goods economy—the court in the largest a new contract is drafted per shipment are taken into account. These include business city with jurisdiction over com- and that the contract has already been costs for documents, administrative fees mercial cases worth 200% of income agreed upon and executed by both par- for customs clearance and inspections, per capita—is published at http://www ties. Documents required for clearance by customs broker fees, port-related charges .doingbusiness.org /ExploreTopics/ relevant agencies—including government and inland transport costs. The cost does EnforcingContracts/. ministries, customs, port authorities and not include customs tariffs and duties or Assumptions about the case other control agencies—are taken into ac- costs related to sea transport. Only of- count. Since payment is by letter of credit, Ė The value of the claim equals 200% of �cial costs are recorded. all documents required by banks for the the economy’s income per capita. issuance or securing of a letter of credit The data details on trading across borders can are also taken into account. Documents be found for each economy at http://www that are requested at the time of clear- .doingbusiness.org by selecting the economy ance but that are valid for a year or longer in the drop-down list. This methodology was FIGURE 14.18 Enforcing contracts: resolving a commercial dispute through and do not require renewal per shipment developed in Djankov, Freund and Pham the courts (for example, an annual tax clearance (2010) and is adopted here with minor Rankings are based on 3 indicators certi�cate) are not included. changes. Days to resolve Attorney, court and Time commercial sale dispute enforcement costs as ENFORCING CONTRACTS through the courts % of claim value The time for exporting and importing is recorded in calendar days. The time Indicators on enforcing contracts mea- calculation for a procedure starts from sure the efficiency of the judicial system in 33.3% 33.3% Time Cost the moment it is initiated and runs until resolving a commercial dispute. The data it is completed. If a procedure can be are built by following the step-by-step accelerated for an additional cost and is evolution of a commercial sale dispute 33.3% before local courts. The data are collected Procedures available to all trading companies, the fastest legal procedure is chosen. Fast- through study of the codes of civil proce- track procedures applying only to �rms dure and other court regulations as well Steps to file claim, obtain judgment as surveys completed by local litigation and enforce it 84 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 Ė The dispute concerns a lawful trans- movable assets (for example, office others are not counted in the total num- action between 2 businesses (Seller equipment and vehicles). ber of procedures. and Buyer), located in the economy’s largest business city. Seller sells goods Procedures Time worth 200% of the economy’s income The list of procedural steps compiled for Time is recorded in calendar days, per capita to Buyer. After Seller deliv- each economy traces the chronology of counted from the moment the plaintiff ers the goods to Buyer, Buyer refuses a commercial dispute before the relevant decides to �le the lawsuit in court until to pay for the goods on the grounds court. A procedure is de�ned as any payment. This includes both the days that the delivered goods were not of interaction, required by law or commonly when actions take place and the waiting adequate quality. used in practice, between the parties or periods between. The average duration between them and the judge or court of different stages of dispute resolution Ė Seller (the plaintiff) sues Buyer (the officer. Other procedural steps, internal is recorded: the completion of service of defendant) to recover the amount to the court or between the parties and process (time to �le and serve the case), under the sales agreement (that is, their counsel, may be counted as well. the issuance of judgment (time for the 200% of the economy’s income per Procedural steps include steps to �le and trial and obtaining the judgment) and the capita). Buyer opposes Seller’s claim, serve the case, steps to assign the case to moment of payment (time for enforce- saying that the quality of the goods is a judge, steps for trial and judgment and ment of the judgment). not adequate. The claim is disputed on steps necessary to enforce the judgment the merits. The court cannot decide Cost (table 14.12). the case on the basis of documentary Cost is recorded as a percentage of the evidence or legal title alone. The survey allows respondents to record claim, assumed to be equivalent to 200% Ė A court in the economy’s largest procedures that exist in civil law but not of income per capita. No bribes are re- business city with jurisdiction over common law jurisdictions and vice versa. corded. Three types of costs are recorded: commercial cases worth 200% of in- For example, in civil law jurisdictions the court costs, enforcement costs and average come per capita decides the dispute. judge can appoint an independent expert, attorney fees. Ė Seller attaches Buyer’s movable assets while in common law jurisdictions each party submits a list of expert witnesses Court costs include all court costs that (for example, office equipment and to the court. To indicate overall efficiency, Seller (plaintiff) must advance to the vehicles) before obtaining a judgment 1 procedure is subtracted from the total court, regardless of the �nal cost to Seller. because Seller fears that Buyer may number for economies that have special- Enforcement costs are all costs that Seller become insolvent. ized commercial courts, and 1 procedure (plaintiff) must advance to enforce the Ė An expert opinion is given on the judgment through a public sale of Buyer’s for economies that allow electronic �ling quality of the delivered goods. If it is of the initial complaint in court cases. movable assets, regardless of the �nal cost standard practice in the economy for Some procedural steps that are part of to Seller. Average attorney fees are the each party to call its own expert wit- fees that Seller (plaintiff) must advance to ness, the parties each call one expert a local attorney to represent Seller in the TABLE 14.12 What do the enforcing witness. If it is standard practice for the contracts indicators measure? standardized case. judge to appoint an independent ex- Procedures to enforce a contract through the courts pert, the judge does so. In this case the (number) The data details on enforcing contracts can judge does not allow opposing expert Any interaction between the parties in a commercial be found for each economy at http://www dispute, or between them and the judge or court testimony. of�cer .doingbusiness.org by selecting the economy Ė The judgment is 100% in favor of Seller: Steps to �le and serve the case in the drop-down list. This methodology was the judge decides that the goods are of Steps for trial and judgment developed in Djankov and others (2003) and adequate quality and that Buyer must Steps to enforce the judgment is adopted here with minor changes. pay the agreed price. Time required to complete procedures (calendar days) Ė Buyer does not appeal the judgment. Time to �le and serve the case RESOLVING INSOLVENCY Seller decides to start enforcing the Time for trial and obtaining judgment Doing Business studies the time, cost judgment as soon as the time allocated Time to enforce the judgment and outcome of insolvency proceedings by law for appeal expires. Cost required to complete procedures (% of claim) involving domestic entities. The name of Ė Seller takes all required steps for No bribes this indicator set was changed from closing a prompt enforcement of the judgment. Average attorney fees business to resolving insolvency to more ac- The money is successfully collected Court costs curately reflect the content of the indicators. Enforcement costs through a public sale of Buyer’s The indicators did not change in content or DATA NOTES 85 scope. The data are derived from ques- FIGURE 14.20 Resolving insolvency: time, cost The company has too many creditors to tionnaire responses by local insolvency and outcome of the insolvency negotiate an informal out-of-court work- proceedings against a local practitioners and veri�ed through a study company out. The following options are available: a of laws and regulations as well as public judicial procedure aimed at the rehabilita- Rankings are based on 1 indicator information on bankruptcy systems tion or reorganization of the company to (�gure 14.19). The ranking on the ease Recovery rate is a function of time, cost and other permit its continued operation; a judicial of resolving insolvency is based on the factors such as lending rate and the likelihood of the procedure aimed at the liquidation or recovery rate (�gure 14.20). company continuing to operate winding-up of the company; or a debt enforcement or foreclosure procedure To make the data comparable across against the company, enforced either in economies, several assumptions about 100% court (or through another government the business and the case are used. Recovery authority) or out of court (for example, by rate appointing a receiver). Assumptions about the business The business: Assumptions about the parties Ė Is a limited liability company. The bank wants to recover as much as Ė Operates in the economy’s largest Note: Time and cost do not count separately for the rankings. possible of its loan, as quickly and cheap- business city. ly as possible. The unsecured creditors Ė Is 100% domestically owned, with the will do everything permitted under the founder, who is also the chairman of charge) in economies where such col- applicable laws to avoid a piecemeal sale the supervisory board, owning 51% (no lateral is recognized or by the hotel of the assets. The majority shareholder other shareholder holds more than 5% property. If the laws of the economy do wants to keep the company operating of shares). not speci�cally provide for a universal and under its control. Management Ė Has downtown real estate, where it business charge but contracts com- wants to keep the company operating runs a hotel, as its major asset. The monly use some other provision to that and preserve its employees’ jobs. All the hotel is valued at 100 times income effect, this provision is speci�ed in the parties are local entities or citizens; no per capita or $200,000, whichever is loan agreement. foreign parties are involved. larger. Ė Has observed the payment schedule Time Ė Has a professional general manager. and all other conditions of the loan up to now. Time for creditors to recover their credit Ė Has 201 employees and 50 suppliers, is recorded in calendar years (table 14.13). each of which is owed money for the last Ė Has a mortgage, with the value of the The period of time measured by Doing delivery. mortgage principal being exactly equal Business is from the company’s default Ė Has a 10-year loan agreement with a to the market value of the hotel. until the payment of some or all of the domestic bank secured by a universal money owed to the bank. Potential delay business charge (for example, a floating Assumptions about the case tactics by the parties, such as the �ling of The business is experiencing liquidity dilatory appeals or requests for extension, problems. The company’s loss in 2011 re- FIGURE 14.19 What are the time, cost and are taken into consideration. duced its net worth to a negative �gure. outcome of the insolvency proceedings against a local It is January 1, 2012. There is no cash to Cost company? pay the bank interest or principal in full, The cost of the proceedings is recorded as due the next day, January 2. The busi- a percentage of the value of the debtor’s Court ness will therefore default on its loan. estate. The cost is calculated on the basis Management believes that losses will be of questionnaire responses and includes Outcome incurred in 2012 and 2013 as well. court fees and government levies; fees of Time Cost insolvency administrators, auctioneers, The amount outstanding under the loan assessors and lawyers; and all other fees Recovery rate agreement is exactly equal to the market and costs. Secured value of the hotel business and represents creditor Insolvent Unsecured (bank) company creditors 74% of the company’s total debt. The Outcome other 26% of its debt is held by unse- Recovery by creditors depends on whether Secured Other cured creditors (suppliers, employees, tax the hotel business emerges from the loan claims authorities). proceedings as a going concern or the 86 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 14.13 What do the resolving of the proceedings are deducted (1 cent 3. Following the inclusion of getting electric- insolvency indicators measure? for each percentage point of the value of ity indicators in the ease of doing business index in Doing Business 2012, additional Time required to recover debt (years) the debtor’s estate). Finally, the value lost procedures, time and cost related to Measured in calendar years as a result of the time the money remains obtaining an electricity connection in the Appeals and requests for extension are included tied up in insolvency proceedings is taken preconstruction stage were removed from Cost required to recover debt (% of debtor’s estate) into account, including the loss of value the dealing with construction permits Measured as percentage of estate value due to depreciation of the hotel furniture. indicators this year to avoid double Court fees counting. Consistent with international accounting Fees of insolvency administrators 4. This question is usually regulated by practice, the annual depreciation rate for stock exchange or securities laws. Points Lawyers’ fees furniture is taken to be 20%. The furniture are awarded only to economies with Assessors’ and auctioneers’ fees is assumed to account for a quarter of the more than 10 listed �rms in their most Other related fees total value of assets. The recovery rate is important stock exchange. Recovery rate for creditors (cents on the dollar) the present value of the remaining pro- 5. When evaluating the regime of liability Measures the cents on the dollar recovered by ceeds, based on end-2011 lending rates for company directors for a prejudicial creditors related-party transaction, Doing Business from the International Monetary Fund’s Present value of debt recovered assumes that the transaction was duly International Financial Statistics, supple- disclosed and approved. Doing Business Of�cial costs of the insolvency proceedings are deducted mented with data from central banks and does not measure director liability in the Depreciation of furniture is taken into account the Economist Intelligence Unit. event of fraud. Outcome for the business (survival or not) affects the 6. PwC refers to the network of member maximum value that can be recovered No practice �rms of PricewaterhouseCoopers If an economy had zero cases a year International Limited (PwCIL), or, as the context requires, individual member �rms over the past 5 years involving a judicial company’s assets are sold piecemeal. If of the PwC network. Each member �rm reorganization, judicial liquidation or debt is a separate legal entity and does not act the business keeps operating, no value is enforcement procedure (foreclosure), the as agent of PwCIL or any other member lost and the bank can satisfy its claim in economy receives a “no practice� ranking. �rm. PwCIL does not provide any services full, or recover 100 cents on the dollar. If to clients. PwCIL is not responsible or This means that creditors are unlikely to the assets are sold piecemeal, the maxi- liable for the acts or omissions of any of recover their money through a formal mum amount that can be recovered will its member �rms nor can it control the legal process (in or out of court). The exercise of their professional judgment not exceed 70% of the bank’s claim, which recovery rate for “no practice� economies or bind them in any way. No member translates into 70 cents on the dollar. is zero. �rm is responsible or liable for the acts or omissions of any other member �rm Recovery rate nor can it control the exercise of another This methodology was developed in Djankov, The recovery rate is recorded as cents on member �rm’s professional judgment or Hart and others (2008) and is adopted here the dollar recouped by creditors through bind another member �rm or PwCIL in with minor changes. any way. reorganization, liquidation or debt en- forcement (foreclosure) proceedings. The calculation takes into account the out- NOTES come: whether the business emerges from 1. The data for paying taxes refer to January– the proceedings as a going concern or the December 2011. assets are sold piecemeal. Then the costs 2. This correction rate reflects changes that exceed 5% up or down. 87 Ease of doing business and distance to frontier This year’s report presents results for 2 Construction of the ease of doing aggregate measures: the aggregate rank- business index ing on the ease of doing business and the Here is one example of how the ease of distance to frontier measure. The ease of doing business index is constructed. In doing business ranking compares econo- Finland it takes 3 procedures, 14 days mies with one another, while the distance and 4% of the property value in fees to to frontier measure benchmarks econo- register a property. On these 3 indicators Finland ranks in the 6th, 16th and 39th mies to the frontier in regulatory practice, percentiles. So on average Finland ranks measuring the absolute distance to the in the 20th percentile on the ease of best performance on each indicator. Both registering property. It ranks in the 30th measures can be used for comparisons percentile on starting a business, 28th over time. When compared across years, percentile on getting credit, 24th per- the distance to frontier measure shows centile on paying taxes, 13th percentile how much the regulatory environment on enforcing contracts, 5th percentile on for local entrepreneurs in each economy trading across borders and so on. Higher has changed over time in absolute terms, rankings indicate simpler regulation and while the ease of doing business ranking stronger protection of property rights. can show only relative change. The simple average of Finland’s percentile rankings on all topics is 21st. When all economies are ordered by their average EASE OF DOING BUSINESS percentile rankings, Finland stands at 11 The ease of doing business index ranks in the aggregate ranking on the ease of economies from 1 to 185. For each doing business. economy the ranking is calculated as the simple average of the percentile rankings More complex aggregation methods— such as principal components and un- on each of the 10 topics included in the observed components—yield a ranking index in Doing Business 2013: starting nearly identical to the simple average a business, dealing with construction used by Doing Business.2 Thus Doing permits, getting electricity, registering Business uses the simplest method: property, getting credit, protecting inves- weighting all topics equally and, within tors, paying taxes, trading across borders, each topic, giving equal weight to each of enforcing contracts and resolving insol- the topic components.3 vency. The employing workers indicators If an economy has no laws or regulations are not included in this year’s aggregate covering a speci�c area—for example, ease of doing business ranking. In addi- insolvency—it receives a “no practice� tion to this year’s ranking, Doing Business mark. Similarly, an economy receives a “no presents a comparable ranking for the practice� or “not possible� mark if regula- previous year, adjusted for any changes tion exists but is never used in practice or in methodology as well as additions of if a competing regulation prohibits such economies or topics.1 practice. Either way, a “no practice� mark 88 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 TABLE 15.1 Correlations between economy rankings on Doing Business topics Dealing with construction Registering Protecting Trading across Enforcing Resolving Getting permits property Getting credit investors Paying taxes borders contracts insolvency electricity Starting a 0.34 0.30 0.44 0.60 0.40 0.40 0.40 0.44 0.28 business Dealing with construction 0.24 0.19 0.21 0.41 0.49 0.23 0.36 0.49 permits Registering 0.37 0.33 0.37 0.29 0.50 0.38 0.26 property Getting credit 0.49 0.26 0.38 0.43 0.49 0.22 Protecting 0.39 0.36 0.30 0.41 0.22 investors Paying taxes 0.50 0.33 0.42 0.46 Trading across 0.36 0.55 0.58 borders Enforcing 0.46 0.24 contracts Resolving 0.32 insolvency Source: Doing Business database. puts the economy at the bottom of the Consider the example of Canada. It stands Economies that improved the ranking on the relevant indicator. at 17 in the aggregate ranking on the ease most across 3 or more Doing of doing business. Its ranking is 3 on start- Business topics in 2011/12 The ease of doing business index is ing a business, and 4 on both resolving Doing Business 2013 uses a simple limited in scope. It does not account for insolvency and protecting investors. But its method to calculate which economies an economy’s proximity to large markets, ranking is only 62 on enforcing contracts, improved the most in the ease of doing the quality of its infrastructure services 69 on dealing with construction permits business. First, it selects the economies (other than services related to trading and 152 on getting electricity. that in 2011/12 implemented regulatory across borders and getting electricity), reforms making it easier to do business the strength of its �nancial system, the Comparing the average of the highest 3 in 3 or more of the 10 topics included in security of property from theft and loot- topic rankings and the average of the low- this year’s ease of doing business rank- ing, macroeconomic conditions or the est 3 for each economy draws attention ing.4 Twenty-three economies meet this strength of underlying institutions. to economies with a particularly uneven criterion: Benin, Burundi, Costa Rica, the performance. While a relatively small dis- Czech Republic, Georgia, Greece, Guinea, Variability of economies’ tance between these 2 averages suggests Kazakhstan, Korea, Lao PDR, Liberia, rankings across topics a broadly consistent approach across the Mongolia, the Netherlands, Panama, Each indicator set measures a different areas of business regulation measured by Poland, Portugal, Serbia, the Slovak aspect of the business regulatory envi- Doing Business, a relatively large distance Republic, Slovenia, Sri Lanka, Ukraine, the ronment. The rankings of an economy suggests a more uneven approach, with United Arab Emirates and Uzbekistan. can vary, sometimes signi�cantly, across greater room for improvement in some Second, Doing Business ranks these indicator sets. The average correlation areas than in others. economies on the increase in their rank- coefficient between the 10 indicator sets ing on the ease of doing business from the included in the aggregate ranking is 0.37, Variation in performance across the indi- previous year using comparable rankings. and the coefficients between any 2 sets of cator sets is not at all unusual. It reflects indicators range from 0.19 (between deal- differences in the degree of priority that Selecting the economies that imple- ing with construction permits and getting government authorities give to particular mented regulatory reforms in at least credit) to 0.60 (between starting a busi- areas of business regulation reform and 3 topics and improved the most in the ness and protecting investors). These the ability of different government agen- aggregate ranking is intended to highlight correlations suggest that economies cies to deliver tangible results in their area economies with ongoing, broad-based of responsibility. reform programs. rarely score universally well or universally badly on the indicators (table 15.1). EASE OF DOING BUSINESS AND DISTANCE TO FRONTIER 89 DISTANCE TO are aggregated through simple averag- TABLE 15.2 What is the frontier in FRONTIER MEASURE ing into one distance to frontier score. regulatory practice? A drawback of the ease of doing business An economy’s distance to frontier is Topic and indicator Frontier ranking is that it can measure the regulatory indicated on a scale from 0 to 100, where Starting a business 0 represents the lowest performance and Procedures (number) 1 performance of economies only relative 100 the frontier.5 Time (days) 1 to the performance of others. It does not Cost (% of income per capita) 0 provide information on how the absolute The difference between an economy’s Minimum capital (% of income per 0 quality of the regulatory environment is capita) distance to frontier score in 2005 and improving over time. Nor does it provide Dealing with construction permits its score in 2012 illustrates the extent information on how large the gaps are be- Procedures (number) 6 to which the economy has closed the tween economies at a single point in time. Time (days) 25 gap to the frontier over time. And in any Cost (% of income per capita) 0.2 The distance to frontier measure is given year the score measures how far an Registering property designed to address both shortcomings, economy is from the highest performance Procedures (number) 1 complementing the ease of doing busi- at that time. Time (days) 1 ness ranking. This measure illustrates the Cost (% of property value) 0 The maximum (max) and minimum distance of an economy to the “frontier,� Getting credit (min) observed values are computed and the change in the measure over time Strength of legal rights index (0–10) 10 for the 174 economies included in the shows the extent to which the economy Depth of credit information index (0–6) 6 Doing Business sample since 2005 and has closed this gap. The frontier is a score Protecting investors for all years (from 2005 to 2012). The derived from the most efficient practice Extent of disclosure index (0–10) 10 year 2005 was chosen as the baseline or highest score achieved on each of the Extent of director liability index (0–10) 9 for the economy sample because it was component indicators in 9 Doing Business Ease of shareholder suits index (0–10) 10 the �rst year in which data were available indicator sets (excluding the employing Paying taxes for the majority of economies (a total of workers and getting electricity indicators) Payments (number per year) 3 174) and for all 9 indicator sets included Time (hours per year) 0a by any economy since 2005. In starting in the measure. To mitigate the effects of Total tax rate (% of pro�t) 27.5b a business, for example, New Zealand extreme outliers in the distributions of the Trading across borders has achieved the highest performance rescaled data (very few economies need Documents to export (number) 2 on the time (1 day), Canada and New 694 days to complete the procedures Time to export (days) 5 Zealand on the number of procedures to start a business, but many need 9 Cost to export (US$ per container) 390 required (1), Slovenia on the cost (0% of days), the maximum (max) is de�ned Documents to import (number) 2 income per capita) and Australia and 90 as the 95th percentile of the pooled data Time to import (days) 4 other economies on the paid-in minimum for all economies and all years for each Cost to import (US$ per container) 317 capital requirement (0% of income per indicator. The exceptions are the getting Enforcing contracts capita) (table 15.2). credit, protecting investors and resolving Procedures (number) 21 insolvency indicators, whose construc- Time (days) 120 Calculating the distance to frontier for tion precludes outliers. Cost (% of claim) 0.1 each economy involves 2 main steps. Resolving insolvency First, individual indicator scores are nor- Take Ghana, which has a score of 67 Recovery rate (cents on the dollar) 94.4 malized to a common unit: except for the on the distance to frontier measure a. The time of 0 hours refers to Maldives, where the 3 total tax rate, each of the 28 component for 2012. This score indicates that the major taxes covered by the paying taxes indicators did not exist until 2011. indicators y is rescaled to (max  −  y)/ economy is 33 percentage points away b. The frontier total tax rate differs from the threshold (max  −  min), with the minimum value from the frontier constructed from the set for the indicator this year. See the data notes for more details. (min) representing the frontier—the best performances across all economies Source: Doing Business database. highest performance on that indicator and all years. Ghana was further from the across all economies since 2005. For frontier in 2005, with a score of 54. The the total tax rate, consistent with the difference between the scores shows an calculation of the rankings, the frontier is improvement over time. de�ned as the total tax rate correspond- ing to the 15th percentile based on the The distance to frontier measure can also overall distribution of total tax rates for be used for comparisons across econo- all years. Second, for each economy the mies in the same year, complementing scores obtained for individual indicators the ease of doing business ranking. For 90 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 example, Ghana stands at 64 this year in topics and more than 50 economies more or less importance in the context of the ease of doing business ranking, while have been added since the inception a speci�c economy. of the project. Earlier rankings on the Peru, which is 29 percentage points from 3. A technical note on the different ease of doing business are therefore not the frontier, stands at 43. comparable. aggregation and weighting methods is 2. See Djankov and others (2005). Principal available on the Doing Business website components and unobserved compo- (http://www.doingbusiness.org). NOTES nents methods yield a ranking nearly 4. Doing Business reforms making it more 1. In case of revisions to the methodology identical to that from the simple average or corrections to the underlying data, method because both these methods difficult to do business are subtracted the data are back-calculated to provide assign roughly equal weights to the from the total number of those making it a comparable time series since the year topics, since the pairwise correlations easier to do business. the relevant economy or topic was �rst among indicators do not differ much. An 5. This represents a change from last year’s included in the data set. The time series alternative to the simple average method is available on the Doing Business website is to give different weights to the topics, report, where 100 represented the lowest (http://www.doingbusiness.org). Six depending on which are considered of performance and 0 the frontier. 91 Summaries of Doing Business reforms in 2011/12 Nine reforms in the East African Community in 2011/12 made it easier to do business Dealing with construction Starting a business permits Getting electricity Registering property Burundi, Tanzania Burundi Rwanda Burundi Paying taxes Trading across borders Enforcing contracts Resolving insolvency Kenya Burundi Rwanda Uganda Source: Doing Business database. Doing Business reforms affecting all sets of KENYA indicators included in this year’s ranking on  Paying taxes the ease of doing business, implemented from June 2011 to June 2012. Kenya made paying taxes faster for companies by enhancing electronic �ling  Doing Business reform making it easier to systems. do business  Doing Business reform making it more dif- �cult to do business RWANDA  Getting electricity BURUNDI Rwanda made getting electricity easier by reducing the cost of obtaining a new  Starting a business connection. Burundi made starting a business easier by eliminating the requirements to have  Enforcing contracts company documents notarized, to publish Rwanda made enforcing contracts easier information on new companies in a journal by implementing an electronic �ling sys- and to register new companies with the tem for initial complaints. Ministry of Trade and Industry.  Dealing with construction permits TANZANIA Burundi made obtaining a construction  Starting a business permit easier by eliminating the require- Tanzania made starting a business easier ment for a clearance from the Ministry by eliminating the requirement for inspec- of Health and reducing the cost of the tions by health, town and land officers as a geotechnical study. prerequisite for a business license.  Registering property  Dealing with construction permits Burundi made property transfers faster Tanzania made dealing with construction by establishing a statutory time limit for permits more expensive by increasing the processing property transfer requests at cost to obtain a building permit. the land registry.  Trading across borders  Trading across borders Tanzania made importing more difficult by Burundi reduced the time to trade across introducing a requirement to obtain a cer- borders by enhancing its use of electronic ti�cate of conformity before the imported data interchange systems, introducing goods are shipped. a more efficient system for monitoring goods going through transit countries and improving border coordination with neighboring transit countries. 92 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 UGANDA  Registering property Uganda made transferring property more difficult by introducing a requirement for property purchasers to obtain an income tax certi�cate before registration, resulting in delays at the Uganda Revenue Authority and the Ministry of Finance. At the same time, Uganda made it easier by digitizing records at the title registry, increasing ef- �ciency at the assessor’s office and making it possible for more banks to accept the stamp duty payment.  Resolving insolvency Uganda strengthened its insolvency process by clarifying rules on the creation of mortgages, establishing the duties of mortgagors and mortgagees, de�ning priority rules, providing remedies for mort- gagors and mortgagees and establishing the powers of receivers. 93 Country tables  Reform making it easier to do business  Reform making it more dif�cult to do business BURUNDI Sub-Saharan Africa GNI per capita (US$) 250 Ease of doing business (rank) 159 Low income Population (m) 8.6  Starting a business (rank) 28  Registering property (rank) 127  Trading across borders (rank) 177 Procedures (number) 4 Procedures (number) 8 Documents to export (number) 10 Time (days) 8 Time (days) 64 Time to export (days) 32 Cost (% of income per capita) 18.3 Cost (% of property value) 3.3 Cost to export (US$ per container) 2,965 Minimum capital (% of income per capita) 0.0 Documents to import (number) 11 Getting credit (rank) 167 Time to import (days) 46  Dealing with construction permits (rank) 141 Strength of legal rights index (0-10) 3 Cost to import (US$ per container) 5,005 Procedures (number) 21 Depth of credit information index (0-6) 1 Time (days) 99 Public registry coverage (% of adults) 0.3 Enforcing contracts (rank) 175 Cost (% of income per capita) 1,911.9 Private bureau coverage (% of adults) 0.0 Procedures (number) 44 Time (days) 832 Getting electricity (rank) 164 Protecting investors (rank) 49 Cost (% of claim) 38.6 Procedures (number) 5 Extent of disclosure index (0-10) 8 Time (days) 188 Extent of director liability index (0-10) 6 Resolving insolvency (rank) 161 Cost (% of income per capita) 21,481.7 Ease of shareholder suits index (0-10) 4 Time (years) 5.0 Strength of investor protection index (0-10) 6.0 Cost (% of estate) 30 Recovery rate (cents on the dollar) 8.0 Paying taxes (rank) 137 Payments (number per year) 25 Time (hours per year) 274 Total tax rate (% of pro�t) 53.0 KENYA Sub-Saharan Africa GNI per capita (US$) 820 Ease of doing business (rank) 121 Low income Population (m) 41.6 Starting a business (rank) 126 Registering property (rank) 161 Trading across borders (rank) 148 Procedures (number) 10 Procedures (number) 9 Documents to export (number) 8 Time (days) 32 Time (days) 73 Time to export (days) 26 Cost (% of income per capita) 40.4 Cost (% of property value) 4.3 Cost to export (US$ per container) 2,255 Minimum capital (% of income per capita) 0.0 Documents to import (number) 7 Getting credit (rank) 12 Time to import (days) 26 Dealing with construction permits (rank) 45 Strength of legal rights index (0-10) 10 Cost to import (US$ per container) 2,350 Procedures (number) 9 Depth of credit information index (0-6) 4 Time (days) 125 Public registry coverage (% of adults) 0.0 Enforcing contracts (rank) 149 Cost (% of income per capita) 211.9 Private bureau coverage (% of adults) 4.9 Procedures (number) 44 Time (days) 465 Getting electricity (rank) 162 Protecting investors (rank) 100 Cost (% of claim) 47.2 Procedures (number) 6 Extent of disclosure index (0-10) 3 Time (days) 146 Extent of director liability index (0-10) 2 Resolving insolvency (rank) 100 Cost (% of income per capita) 1,208.2 Ease of shareholder suits index (0-10) 10 Time (years) 4.5 Strength of investor protection index (0-10) 5.0 Cost (% of estate) 22 Recovery rate (cents on the dollar) 29.5  Paying taxes (rank) 164 Payments (number per year) 41 Time (hours per year) 340 Total tax rate (% of pro�t) 44.4 Note: Most indicator sets refer to a case scenario in an economy’s largest business city. For more details, see the data notes. 94 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013  Reform making it easier to do business  Reform making it more dif�cult to do business RWANDA Sub-Saharan Africa GNI per capita (US$) 570 Ease of doing business (rank) 52 Low income Population (m) 10.9 Starting a business (rank) 8 Registering property (rank) 63 Trading across borders (rank) 158 Procedures (number) 2 Procedures (number) 5 Documents to export (number) 8 Time (days) 3 Time (days) 25 Time to export (days) 29 Cost (% of income per capita) 4.3 Cost (% of property value) 5.6 Cost to export (US$ per container) 3,245 Minimum capital (% of income per capita) 0.0 Documents to import (number) 8 Getting credit (rank) 23 Time to import (days) 31 Dealing with construction permits (rank) 98 Strength of legal rights index (0-10) 7 Cost to import (US$ per container) 4,990 Procedures (number) 12 Depth of credit information index (0-6) 6 Time (days) 164 Public registry coverage (% of adults) 0.0  Enforcing contracts (rank) 39 Cost (% of income per capita) 278.4 Private bureau coverage (% of adults) 7.1 Procedures (number) 23 Time (days) 230  Getting electricity (rank) 49 Protecting investors (rank) 32 Cost (% of claim) 78.7 Procedures (number) 4 Extent of disclosure index (0-10) 7 Time (days) 30 Extent of director liability index (0-10) 9 Resolving insolvency (rank) 167 Cost (% of income per capita) 3,948.1 Ease of shareholder suits index (0-10) 3 Time (years) 3.0 Strength of investor protection index (0-10) 6.3 Cost (% of estate) 50 Recovery rate (cents on the dollar) 3.1 Paying taxes (rank) 25 Payments (number per year) 17 Time (hours per year) 134 Total tax rate (% of pro�t) 31.3 TANZANIA Sub-Saharan Africa GNI per capita (US$) 540 Ease of doing business (rank) 134 Low income Population (m) 46.2  Starting a business (rank) 113 Registering property (rank) 137  Trading across borders (rank) 122 Procedures (number) 9 Procedures (number) 8 Documents to export (number) 6 Time (days) 26 Time (days) 68 Time to export (days) 18 Cost (% of income per capita) 28.2 Cost (% of property value) 4.4 Cost to export (US$ per container) 1,040 Minimum capital (% of income per capita) 0.0 Documents to import (number) 10 Getting credit (rank) 129 Time to import (days) 31 Dealing with construction permits (rank) 174 Strength of legal rights index (0-10) 7 Cost to import (US$ per container) 1,565 Procedures (number) 19 Depth of credit information index (0-6) 0 Time (days) 206 Public registry coverage (% of adults) 0.0 Enforcing contracts (rank) 36 Cost (% of income per capita) 564.6 Private bureau coverage (% of adults) 0.0 Procedures (number) 38 Time (days) 462 Getting electricity (rank) 96 Protecting investors (rank) 100 Cost (% of claim) 14.3 Procedures (number) 4 Extent of disclosure index (0-10) 3 Time (days) 109 Extent of director liability index (0-10) 4 Resolving insolvency (rank) 129 Cost (% of income per capita) 1,944.1 Ease of shareholder suits index (0-10) 8 Time (years) 3.0 Strength of investor protection index (0-10) 5.0 Cost (% of estate) 22 Recovery rate (cents on the dollar) 21.7 Paying taxes (rank) 133 Payments (number per year) 48 Time (hours per year) 172 Total tax rate (% of pro�t) 45.3 UGANDA Sub-Saharan Africa GNI per capita (US$) 510 Ease of doing business (rank) 120 Low income Population (m) 34.5 Starting a business (rank) 144  Registering property (rank) 124 Trading across borders (rank) 159 Procedures (number) 15 Procedures (number) 12 Documents to export (number) 7 Time (days) 33 Time (days) 52 Time to export (days) 33 Cost (% of income per capita) 76.7 Cost (% of property value) 1.9 Cost to export (US$ per container) 3,050 Minimum capital (% of income per capita) 0.0 Documents to import (number) 9 Getting credit (rank) 40 Time to import (days) 33 Dealing with construction permits (rank) 118 Strength of legal rights index (0-10) 7 Cost to import (US$ per container) 3,215 Procedures (number) 15 Depth of credit information index (0-6) 5 Time (days) 125 Public registry coverage (% of adults) 0.0 Enforcing contracts (rank) 117 Cost (% of income per capita) 853.1 Private bureau coverage (% of adults) 3.7 Procedures (number) 38 Time (days) 490 Getting electricity (rank) 127 Protecting investors (rank) 139 Cost (% of claim) 44.9 Procedures (number) 5 Extent of disclosure index (0-10) 2 Time (days) 91 Extent of director liability index (0-10) 5  Resolving insolvency (rank) 69 Cost (% of income per capita) 4,622.9 Ease of shareholder suits index (0-10) 5 Time (years) 2.2 Strength of investor protection index (0-10) 4.0 Cost (% of estate) 30 Recovery rate (cents on the dollar) 38.9 Paying taxes (rank) 93 Payments (number per year) 31 Time (hours per year) 213 Total tax rate (% of pro�t) 37.1 Note: Most indicator sets refer to a case scenario in an economy’s largest business city. For more details, see the data notes. 95 Acknowledgments Doing Business in the East African Doing Business 2013 were conducted Community 2013 and associated activi- through the Global Indicators and Analysis ties were funded through contributions Department under the general direction from TradeMark East Africa (http://www of Augusto Lopez-Claros. The project was .trademarkea.com). managed by Sylvia Solf and Rita Ramalho, with the support of Carolin Geginat and The report was prepared as part of IFC’s Adrian Gonzalez. Other team members East African Community Investment included Beatriz Mejia Asserias, Andres Climate Program, which supports the Baquero Franco, Karim O. Belayachi, East African Community (EAC) mem- Iryna Bilotserkivska, Mariana Carvalho, ber states and the EAC Secretariat in Hayane Chang Dahmen, Rong Chen, Maya implementing the community’s com- Choueiri, Dariga Chukmaitova, Santiago mon market. Further details about the Croci Downes, Fernando Dancausa Diaz, program, which was developed in close Marie Lily Delion, Raian Divanbeigi, collaboration with TradeMark East Alejandro Espinosa-Wang, Margherita Africa, are available at https:/ /www Fabbri, Caroline Frontigny, Betina Hennig, .wbginvestmentclimate.org /regions/ Sarah Holmberg, Hussam Hussein, Joyce africa.cfm. Ibrahim, Ludmila Jantuan, Charlotte Nan Doing Business in the East African Jiang, Hervé Kaddoura, Paweł Kopko, Jean Community 2013 was prepared by a Michel Lobet, Jean-Philippe Lodugnon- team led by Marie Lily Delion and Nina Harding, Frédéric Meunier, Robert Murillo, Paustian under the general direction of Joanna Nasr, Marie-Jeanne Ndiaye, Nuria Rita Ramalho, Peter Ladegaard and Alfred de Oca, Mikiko Imai Ollison, Nina Paustian, Ombudo K’Ombudo. Galina Rudenko, Valentina Saltane, Lucas Seabra, Paula Garcia Serna, Anastasia The team is grateful for valuable com- Shegay, Jayashree Srinivasan, Susanne ments provided by colleagues across Szymanski, Moussa Traoré, Tea Trumbic, the World Bank Group. Comments Marina Turlakova, Julien Vilquin, Yasmin were received from Rita Ramalho, Peter Zand and Yucheng Zheng. The paying Ladegaard, Alfred Ombudo K’Ombudo, taxes project was conducted in collabora- Antonia Preciosa, Rajul Awasthi, Richard tion with PwC, led by John Preston. The Stern, Laurent Olivier Corthay, Moses development of the getting electricity Kajubi, Edward Mwachinga and Hadija indicators was �nanced by the Norwegian Murangwa. Trust Fund. Doing Business in the East African The online service of the Doing Business Community 2013 is based on the global database is managed by Andres Baquero Doing Business 2013 report, launched in Franco, Varun Doiphode, Kunal Patel, October 2012 (http:/ /www.doingbusiness Mohan Pathapati, Vinod Thottikkatu and .org). Data collection and analysis for Hashim Zia under the direction of Preeti 96 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 Endlaw. The Doing Business 2013 report media and marketing strategy is managed by Nadine Ghannam. The events and road- show strategy is managed by Sushmitha Malini Narsiah. Alison Strong copyedited the manuscript. Corporate Visions, Inc. designed the report and the graphs. The report was made possible by the generous contributions of lawyers, accountants, judges, businesspeople and public of- �cials in the 5 East African economies covered. The names of those wishing to be acknowledged individually are listed below. Contact details for local partners are available on the Doing Business website at http://www.doingbusiness.org. ACKNOWLEDGMENTS 97 BURUNDI Audace Sunzu Conrad Nyukuri Paul Frobisher Mugambwa Christopher Giattas Joseph Bahizi REGIDESO CHUNGA ASSOCIATES PWC UGANDA REX ATTORNEYS BANQUE DE LA RÉPUBLIQUE DU BURUNDI Egide Uwimana Denis Augustine Onyango Alexandre Mugenzangabo Syed Hasan Jean De Dieu Basabakwinshi TRIBUNAL DU TRAVAIL DE BUJUMBURA FRONTIER DESIGNS MUCYO & ASSOCIÉS RAIS SHIPPING SERVICES (TANZANIA) IMATCO LTD. Cephas Osoro Richard Mugisha KENYA CROWE HORWATH EA, MEMBER CROWE TRUST LAW CHAMBERS Beatus Idana Mélance Bukera BURUNDI GENERAL SERVICES METROPOL CORPORATION LTD. HORWATH INTERNATIONAL PKF ACCOUNTANTS & BUSINESS Léopold Munderere ADVISOR TANZANIA Ange Gakundwakazi Oliver Fowler Prakash CABINET D’AVOCATS-CONSEILS GPO PARTNERS BURUNDI KAPLAN & STRATTON MASTER POWER SYSTEMS LTD. Lincoln P. Irungu Pothin Muvara CORRESPONDENT FIRM OF DELOITTE DL SHIPPING COMPANY LTD. Peter Gachuhi Don Priestman Ernest Mwiza KAPLAN & STRATTON THE KENYA POWER AND LIGHTING Protase R. G. Ishengoma Gerard Handika TOWN NICE VIEW GPO PARTNERS BURUNDI COMPANY LTD. ISHENGOMA, KARUME, MASHA & Edmond Gichuru CORRESPONDENT FIRM OF DELOITTE Jean Kizito Niyonshuti MAGAI ADVOCATES POST BANK Sonal Sejpal KAMANZI, NTAGANIRA & ASSOCIATES Augustin Mabushi ANJARWALLA & KHANNA ADVOCATES Edward John Urio William Ikutha Maema A & JN MABUSHI CABINET D’AVOCATS Martin Nkurunziza TANZANIA FREIGHT FORWARDERS ISEME, KAMAU & MAEMA ADVOCATES Rajesh Shah GPO PARTNERS RWANDA LIMITED, AN ASSOCIATION PWC KENYA René Claude Madebari Shellomith Irungu INDEPENDENT CORRESPONDENT FIRM OF MKONO & CO ADVOCATES John R. Kahyoza ANJARWALLA & KHANNA ADVOCATES Deepen Shah DELOITTE TOUCHE TOHMATSU HIGH COURT OF TANZANIA WALKER KONTOS ADVOCATES Rodrigue Majambere Milly Jalega Marie Ange Nsengimana COMMERCIAL DIVISION INTERCONTACT SERVICES ISEME, KAMAU & MAEMA ADVOCATES David Tanki KAMANZI, NTAGANIRA & ASSOCIATES Kamanga K. Kapinga LAN-X AFRICA LTD. Trust Manjengwah Benson Kamau Jean Claude Nsengiyumva CRB AFRICA LEGAL WINTERTONS LAW FIRM PWC KENYA Joseph Taracha TRIBUNAL DE COMMERCE DE Wilbert B. Kapinga CENTRAL BANK OF KENYA NYARUGENGE Anatole Miburo Hamish Keith MKONO & CO ADVOCATES CABINET ANATOLE MIBURO DALY & FIGGIS ADVOCATES Harpreet Ubhi Paul Pavlidis Edward Kateka DALY & FIGGIS ADVOCATES CREDIT REFERENCE BUREAU AFRICA LTD. Ildephonse Nahimana Peter Kiara CRB AFRICA LEGAL BANQUE DE LA RÉPUBLIQUE DU BURUNDI ARCHITECT Peter Wahome Lucien Ruterana David Kibebe PWC KENYA EWSA Patrick Ndayishimiye Jinaro Kibet EPITOME ARCHITECTS Albert Ndereyimana OCHIENG, ONYANGO, KIBET & OHAGA Nicholas Wambua Etienne Ruzibiza Shani Kinswaga GETRA B.M. MUSAU & CO. ADVOCATES Timothy Kiman Sandrali Sebakara PWC TANZANIA Gregoire Nduwimana SIGINON FREIGHT LTD. Angela Waweru BUREAU D’ETUDES CAEDEC Barney Laseko SDV TRANSAMI BURUNDI KAPLAN & STRATTON Morris Kimuli Florence Umurungi PRIVATE SECTOR DEVELOPMENT B.M. MUSAU & CO. ADVOCATES FREIGHT LOGISTIC SERVICES LTD. AND INVESTMENT DIVISION, PRIME Bonaventure Nicimpaye RWANDA INTERCONTACT SERVICES MINISTERS OFFICE Meshack T. Kipturgo Ravi Vadgama BRALIRWA LTD. Lambert Nigarura SIGINON FREIGHT LTD. CREDIT REFERENCE BUREAU AFRICA LTD. Simon Lazaro MKONO & CO ADVOCATES NATIONAL BANK OF RWANDA MINISTRY OF LANDS & HUMAN Owen Koimburi TANZANIA SETTLEMENTS DEVELOPMENT Charles Nihangaza KOKA KOIMBURI & CO., MEMBER OF Alberto Basomingera MAZARS CABINET D’AVOCATS MHAYIMANA ERNST & YOUNG Amalia Lui Montfort Nininahazwe FB ATTORNEYS SEACO David Lekerai Pierre Célestin Bumbakare ISHENGOMA, KARUME, MASHA & ISEME, KAMAU & MAEMA ADVOCATES RWANDA REVENUE AUTHORITY MAGAI ADVOCATES Christine M.S. Shekidele Gustave Niyonzima TANZANIA REVENUE AUTHORITY MKONO & CO ADVOCATES Victor Majani Eric Cyaga Abdul Abdallah CROWE HORWATH EA, MEMBER CROWE K-SOLUTIONS AND PARTNERS CRB AFRICA LEGAL Victoria Makani Prosper Niyoyankana HORWATH INTERNATIONAL VELMA LAW CHAMBERS Claudine Gasarabwe UmmiKulthum Abdallah Jean-Marie Niyubahwe Bakari Mangale GASARABWE CLAUDINE & ASSOCIES AKO LAW IN ASSOCIATION WITH CLYDE Robert Makaramba SÉNAT DU BURUNDI NATIONAL ENVIRONMENT & CO. HIGH COURT OF TANZANIA Patrick Gashagaza MANAGEMENT AUTHORITY COMMERCIAL DIVISION Jocelyne Ntibangana GPO PARTNERS RWANDA LIMITED, AN Zukra Ally CABINET DE MAÎTRE NTIBANGANA James Mburu Kamau INDEPENDENT CORRESPONDENT FIRM OF PWC TANZANIA Hyacintha Benedict Makileo Antoine Ntisigana ISEME, KAMAU & MAEMA ADVOCATES DELOITTE TOUCHE TOHMATSU NATIONAL CONSTRUCTION COUNCIL Said Athuman SODETRA LTD. Mansoor A. Mohamed Felix Gatanazi TANZANIA REVENUE AUTHORITY G.O.L. Masangwa Happy Ntwari RUMAN SHIP CONTRACTORS LIMITED EWSA MOLLEL ELECTRICAL CONTRACTORS LTD. Aloys Bahebe MKONO & CO ADVOCATES Bernard Muange Jean Havugimana LA LAW ASSOCIATES ADVOCATES Lydia Massawe Patrick-Didier Nukuri ANJARWALLA & KHANNA ADVOCATES ECODESEP LTD. BLUELINE ATTORNEYS Tadjidine Ben Mohamed François Nyamoya John Muoria Suzanne Iyakaremye AVOCAT À LA COUR Peter S. Matinde AVOCAT À LA COUR WARUHIU K’OWADE & NG’ANG’A SDV TRANSAMI PSM ARCHITECTS CO. LTD. Ibrahim Bendera ADVOCATES Gilbert L.P. Nyatanyi Francois Xavier Kalinda M & B LAW CHAMBERS Sophia Mgonja MKONO & CO ADVOCATES Murigu Murithi UNIVERSITÉ NATIONALE DU RWANDA TANESCO LTD. Albina Burra ARCS AFRICA Déogratias Nzemba Désiré Kamanzi MINISTRY OF LANDS & HUMAN Nyaga Mawalla AVOCAT À LA COUR Benjamin Musau KAMANZI, NTAGANIRA & ASSOCIATES SETTLEMENTS DEVELOPMENT MAWALLA & ASSOCIATES ADVOCATES B.M. MUSAU & CO. ADVOCATES Willy Rubeya Marcellin Kamanzi Vijendra J. Cholera Ayoub Mftaya RUBEYA & CO - ADVOCATES Wachira Ndege BUREAU D’ETUDES D’ARCHITECTURE ET PKF ACCOUNTANTS & BUSINESS NEXLAW ADVOCATES CREDIT REFERENCE BUREAU AFRICA LTD. DE RÉALISATION (BEAR) ADVISOR TANZANIA Benjamin Rufagari Lucia Minde GPO PARTNERS BURUNDI Mbage Ng’ang’a Julien Kavaruganda Magori Cosmas AKO LAW IN ASSOCIATION WITH CLYDE CORRESPONDENT FIRM OF DELOITTE WARUHIU K’OWADE & NG’ANG’A K-SOLUTIONS AND PARTNERS TRADE FACILITATION UNIT, CUSTOMS & CO. ADVOCATES Thierry Rujerwaka Rodolphe Kembukuswa Moses Dancan Steven Mlote LABORATOIRE NATIONAL DU BÂTIMENT Joseph Ng’ang’ira SDV TRANSAMI GAPCS ENGINEERS REGISTRATION BOARD ET DES TRAVAUX PUBLICS (LNBTP) DALY & FIGGIS ADVOCATES Bernice Kimacia Theresia Dominic Angela Mndolwa BURUNDI Killian Ngala PWC UNIVERSITY OF DAR ES SALAAM AKO LAW IN ASSOCIATION WITH CLYDE Isaac Rwankineza MEDITERRANEAN SHIPPING COMPANY & CO. Isaïe Mhayimana Esteriano Emmanuel Mahingila ENTREPRISE BTCE (MSC), OCEANFREIGHT (E.A.) LTD. CABINET D’AVOCATS MHAYIMANA MINISTRY OF INDUSTRY & TRADE Chris Mnyanga Fabien Segatwa James Ngomeli MINISTRY OF LANDS & HUMAN Joseph Mpunga Bosco R. Gadi ETUDE ME SEGATWA THE KENYA POWER AND LIGHTING SETTLEMENTS DEVELOPMENT RWANDA DEVELOPMENT BOARD MINISTRY OF INDUSTRY & TRADE COMPANY LTD. Gabriel Sinarinzi George Mpeli Kilindu Donatien Mucyo Santosh Gajjar CABINET ME GABRIEL SINARINZI Kenneth Njuguna REX ATTORNEYS MUCYO & ASSOCIÉS SUMAR VARMA ASSOCIATES PWC KENYA Khalfan Msumi M & B LAW CHAMBERS PwC refers to the network of member �rms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member �rms of the PwC network. Each member �rm is a separate legal entity and does not act as agent of PwCIL or any other member �rm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member �rms nor can it control the exercise of their professional judgment or bind them in any way. No member �rm is responsible or liable for the acts or omissions of any other member �rm nor can it control the exercise of another member �rm’s professional judgment or bind another member �rm or PwCIL in any way. 98 DOING BUSINESS IN THE EAST AFRICAN COMMUNITY 2013 Octavian Mushukuma Rishit Shah Doreen Atuhurra Hakim Lugemwa William Okello CRB AFRICA LEGAL PWC TANZANIA PWC UGANDA UGANDA ENTREPRENEURS BUSINESS Silver Adowa Owaraga FOUNDATION Bumi Mwaisaka Thadeus J. Shio Justine Bagyenda MAGEZI, IBALE & CO. ADVOCATES MINISTRY OF LANDS & HUMAN CQS SERVICES LIMITED BANK OF UGANDA Michael Malan Enoch Sabiiti SETTLEMENTS DEVELOPMENT COMPUSCAN CRB LTD. Geoffrey Sikira Bernard Baingana STEMA ASSOCIATES Gerald Mwakipesile CRB ATTORNEYS PWC UGANDA Paul Mbuga Moses Segawa MINISTRY OF LANDS & HUMAN SEBALU & LULE ADVOCATES AND LEGAL Aliko Simon Matovu Emmy SEBALU & LULE ADVOCATES AND LEGAL SETTLEMENTS DEVELOPMENT CONSULTANTS AKO LAW IN ASSOCIATION WITH CLYDE MARMA TECHNICAL SERVICES CONSULTANTS Lugano J.S. Mwandambo & CO. John Mpambala Sarfaraz Jiwani Lawrence Sengendo REX ATTORNEYS KAMPALA CITY COUNCIL Eve Hawa Sinare SEYANI BROTHERS & CO. (U) LTD. KAMPALA CITY COUNCIL Shabani Mwatawala REX ATTORNEYS Andrew Munanura Kamuteera Lwanga John Bosco Alan Shonubi PSM ARCHITECTS CO. LTD. SEBALU & LULE ADVOCATES AND LEGAL Richard Sisa MARMA TECHNICAL SERVICES SHONUBI, MUSOKE & CO. ADVOCATES CONSULTANTS Gerald Nangi GAPCS Charles Kalu Kalumiya Manish Siyani FB ATTORNEYS Peters Musoke Joseph T. Tango KAMPALA ASSOCIATED ADVOCATES SEYANI BROTHERS & CO. (U) LTD. SHONUBI, MUSOKE & CO. ADVOCATES Maningo Nassoro CQS SERVICES LIMITED Francis Kamulegeya Charles Lwanga Ssemanda NATIONAL CONSTRUCTION COUNCIL Rachel Mwanje Musoke David Tarimo PWC UGANDA MMAKS ADVOCATES Obed Tindyebwa Stephen Ngatunga PWC TANZANIA Phillip Karugaba GRAND & NOBLE, CERTIFIED PUBLIC TANZANIA FREIGHT FORWARDERS Benon Mutambi Reginald Tarimo MMAKS ADVOCATES ACCOUNTANTS ASSOCIATION ELECTRICITY REGULATORY AUTHORITY BANK OF TANZANIA Edwin Karugire Ambrose Turyahabwe Alex Thomas Nguluma Jimmy M. Muyanja Mustafa Tharoo KIWANUKA & KARUGIRE ADVOCATES DHL GLOBAL FORWARDING (U) LTD. REX ATTORNEYS MUYANJA & ASSOCIATES ADEPT CHAMBERS Baati Katende Isaac Walukagga Sweetbert Nkuba Noah Mwesigwa Joseph Thomas Klerruu KATENDE, SSEMPEBWA & CO. MMAKS ADVOCATES LEXGLOBE LLP TANZANIA SHONUBI, MUSOKE & CO. ADVOCATES MINISTRY OF LANDS & HUMAN ADVOCATES Neema Nyiti SETTLEMENTS DEVELOPMENT Plaxeda Namirimu David Katende CRB AFRICA LEGAL PWC UGANDA Sarah Thomas Massamu ENVIROKAD Cyril Pesha ADEPT CHAMBERS Sophia Nampijja Sim K. Katende CRB AFRICA LEGAL KATENDE, SSEMPEBWA & CO. Irene Mutalemwa Woerle KATENDE, SSEMPEBWA & CO. ADVOCATES Katarina T. Revocati MKONO & CO ADVOCATES ADVOCATES HIGH COURT OF TANZANIA Kassim Ngude Sinare Zaharan Peter Kauma COMMERCIAL DIVISION REX ATTORNEYS KIWANUKA & KARUGIRE ADVOCATES Diana Ninsiima Frederick Ringo MMAKS ADVOCATES Kiryowa Kiwanuka ADEPT CHAMBERS UGANDA KIWANUKA & KARUGIRE ADVOCATES James Kagiri Njoroge Charles R.B. Rwechungura ERNST & YOUNG PRICE & KING CERTIFIED PUBLIC Brigitte Kusiima Byarugaba CRB AFRICA LEGAL ACCOUNTANTS Claire Amanya SHONUBI, MUSOKE & CO. ADVOCATES Emmy Salewi KAMPALA ASSOCIATED ADVOCATES Eddie Nsamba-Gayiiya Ida Kussima NORPLAN TANZANIA LIMITED CONSULTANT SURVEYORS AND Leria Arinaitwe KATENDE, SSEMPEBWA & CO. PLANNERS Amish Shah SEBALU & LULE ADVOCATES AND LEGAL ADVOCATES ADEPT CHAMBERS CONSULTANTS WWW.DOINGBUSINESS.ORG/EAC