Improving the Investment Climate in Sub-Saharan Africa NEPAD OECD Conference Brazzaville, the 12 th of December, 2006 Nigel Twose Senior Manager, FIAS-PEP Africa World Bank Group
HE CHALLENGE AT HAND GDP/Capita ($ in 2005) Gabon 8,000 Mauritius South Africa Botswana Namibia Swaziland Cape Verde 700 Average 100 Dem. Rep. Congo Ethiopia Nigeria 58 129 700 Population size (millions) Source: World Bank
ROWTH IS PICKING UP IN A NUMBER OF COUNTRIES Zimbabwe Seychelles Guinea-Bissau Eritrea Niger Cote d'ivoire Burundi South Africa Mozambique Tanzania Sudan Nigeria Botswana Senegal Ghana Zambia Sierra Leone Namibia Congo, Rep. Congo, Dem. Rep. Rwanda Mauritius Mauritania Liberia Malawi Cape Verde Uganda Madagascar Lesotho Gambia, The Cameroon Burkina Faso Swaziland Sao Tome and Principe Kenya Mali Guinea Gabon Comoros Central African Republic Benin Togo Angola Ethiopia Equatorial Guinea* -10-5 0 5 10 15 Chad Per Capita GDP Growth 2004-2005 (annual average) *Equatorial Guinea data for 2004
ORE GROWTH AND INVESTMENTS NEEDED TO REDUCE POVERTY GDP per capita growth 3% Gross capital formation as a percentage of GDP 17% 19% 0% 1990-2002 2003-2005 1990 2003-2005 Annual increase in the number of people living in poverty 3.5% 0.4% 1980-2000 2004 Source : Africa Action Plan World Bank
INFORMALITY IS HIGH AND RISING Informal output as a percentage of total economic output 1990 2003 East Asia & Pacific 19 21 Middle East & North Africa South Asia 21 22 27 28 Europe & Central Asia 33 38 Latin America & Caribbean Sub-Saharan Africa 29 30 38 39 Developed Countries 10 13 Source : Doing Business Database, World Bank
COMPETITIVENESS IS LOW AND DECLINING Percentage of total exports in trade and services from developing countries 1990 2005 East Asia & Pacific 22 38 Europe & Central Asia 32 25 Collapse of trade Within Eastern Europe (recovering Latin America & the Caribbean 21 19 Middle East & North Africa 11 7 South Asia 4 5 Sub-Saharan Africa 10 6 Mostly commodities Source :International Monetary Fund
THE POTENTIAL IS THERE Productivity levels at the factory floor 90 98 98 100 50 65 65 65 75 Ethiopia Eritrea Uganda Tanzania Kenya Senegal Morocco India China Source: Investment Climate Surveys of the World Bank
HE PROBLEM IS WHAT HAPPENS OUTSIDE THE FACTORY of firms reporting external factor as major constraint Sub-Saharan Africa Developing World Access to Finance 52 42 Tax Rate 44 39 Macroeconomic Stability Public Sector Governance (corruption) 38 36 36 34 Tax administration 34 31 Electricity Anti-competitive Policy 32 33 25 28 Policy Uncertainty 28 34 Crime 28 22 Labor Skills 27 22 Note: Weighted average based on the number of firms surveyed in Benin, Burundi, Eritrea, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Senegal, South Africa, Tanzania, Uganda, Zambia. Source: Investment Climate Surveys (WB 2006)
HIGHEST COST OF DOING BUSINESS IN THE WORLD ECD high come Starting a business (% of income per capita) 5 Registering property (% of property value) 4 Getting a license (% of income per capita) 72 Time to export (days) 10 Paying taxes (% of profits) 48 urope and entral Asia 14 3 565 29 56 ast Asia and acific 43 4 207 24 56 outh Asia 47 5 376 34 45 iddle East nd North frica 75 7 500 27 41 atin America nd aribbean 48 6 246 22 49 Sub-Saharan Africa 163 12 1024 40 71 Source: Doing Business in 2007
HERE HAS BEEN SLOW PROGRESS ON MICRO REFORMS Significant progress Slow progress Very Slow/No Progress Political leadership/stability Macroeconomic stability Infrastructure Privatization Openness to trade Labor skills Capital market regulations Tax burden on formal firms Land market regulations Labor market regulations Judiciary systems Administrative red tape And last but not least: Regulations and governance of key industries (e.g. mining)
xcuse #1: it s too expensive Days to import Hard infrastructure is only 33% globally Singapore 3 18 Estonia 5 Kiribati 8 Mauritius 16 54 15 Samoa 19 Swaziland 35 13 Bhutan Guyana 42 54 Port and terminal handling Inland transport Customs and inspection Prearrival documents
Excuse #2: only rich countries succeed The hypothetical country Africana would be ranked #12 in Doing Business: Entry in Mauritius (#30) Licensing (construction) in Swaziland (#16) Hiring and firing in Uganda (#8) Registering property in Sudan (#29) Getting credit in Botswana (#13) Protecting investors in South Africa (#9) Paying taxes in Mauritius (#11) Trade in Cape Verde (#20) Enforcing contracts in South Africa (#43) Closing in Botswana (#22)
ICROECONOMIC REFORMS HAVE STARTED TO HAPPEN 89% 82% Percentage of countries with at least one reform, 2005/06 67% 61% 58% 35% 25% East Europe OECD Africa Middle East Latin America East Asia South Asia
OP REFORMERS IN AFRICA 2005/06 Reforms affecting Doing Business indicators on: Country Starting a business Dealing with licenses Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business Ghana v v v Tanzania v v v v Mali v v Niger v v Burundi v v Kenya v v Lesotho v v Nigeria v v v Rwanda v v v Mauritius v v
FIAS/PEP AFRICA HAS HELPED A LITTLE Share of 2006 DB reforms FIAS contributed to in Africa Licensing 100% Taxes Property Business registration 57% 33% 20% + Helping beyond DB agenda e.g. 800 licenses up for review in Kenya Contract enforcement 20%
What triggers reform? 60 Percentage of Cases 50 40 30 20 10 0 Political change Crisis International Agreements New diagnostics Donor pressure Major Minor 2007 Doing Business: 85% of reforms in first 15 months 15
oing Business rankings 2007 and Presidential Elections* recent or upcoming presidential elections denoted in parenthesis 1-48-Botswana(2009) 94-Ghana(2008) 137-Benin(2011) 140-Mozambique(2009) 97-Ethiopia(2007) 141- Cote d Ivoire(Oct 2007) 142- Tanzania(2010) 144- Comoros(2010) 102-Zambia(2011) 146- Senegal(Feb 2007) 148- Mauritania(mar 2007) 149- Madagascar(Dec 2006) 150- Equatorial Guinea(2009) 107- Uganda(2011) 151- Togo(2008) 108-Nigeria(Apr 2007) 152- Cameroon(2011) 153- Zimbabwe((2008) 110-Malawi(2009) 154-Sudan (2009) 155- Mali(May 2007) 156- Angola(2007) 157- Guinea(2008) 114-Lesotho(No Pres.) 158- Rwanda(2008) 160- Niger(2009) 161- Djibouti(2011) 163-Burkina Faso(2010) 29-South Africa(2009) 166- Burundi(2010) 167- Central African Rep.(2010) 168- Sierra Leone(May 2007) 32- Mauritius(2007) 169- Sao Tome and Principe (2011) 83-Kenya(Dec 2007) 170- Eritrea 171- Congo, Rep. 172-Chad(2011) 42-Namibia(2009) 173-Guinea-Bissau(2010) 44-88- 132- Gabon((Nov 2012) 175-Congo,Dem. Rep(2006)
IDENTIFICATION OF REFORM PRIORITIES Results from Benin Cotton Agro-processing/ light manufacturing Banking Telecom Power Port Retail Housing construction Macro conditions Judiciary system Tax system Government control Capital market Labor market Land market Industry Specific regulations Infrastructure Education Administrative red tape Very important Important Secondary
IAS and Industry Competitiveness: Better Factories Cambodia 250 garment factories to adopt higher labor standards Substantial higher investment, sales, and employment since 2004 Financed 40% by government, 30% by local manufacturers, and 30% by international buyers. Project scaled up to a global program called Better Work, managed jointly by IFC and ILO.
IAS in Collaboration with the Multi-Fiber Agreement (MFA) Forum.. advised the government of Lesotho and the apparel industry on: strategic post MFA potential expiration of the AGOA third country fabric provision Musician Bono visited Lesotho in support to fashion industry reforms Road map agreed to improve regional integration, expand into new markets, and ensure decent working conditions.
IAS in Partnership with ICF to Meet the Challenge ICF: a new private-public partnership for investment limate reform Independent trust, with African Trustees World Bank Group provided $30 million to the facility FIAS to support project development pending legal stablishment
HOW OTHER COUNTRIES DID IT? mall World class team leading the reform process at the outset alaysia, Singapore, Chile, Indonesia, Cape Verde) Systemic assault on stock and flow of regulations exico, Hungary,Korea, Slovakia, Kenya) Focused reform efforts along key export industries hile, Singapore, Taiwan, Mauritius, Botswana, Malaysia, Cape Verde) Reform teams in charge of development budget and donor oordination (Singapore, Taiwan, Malaysia, Botswana and Cape Verde)
Reformers Checklist of Strategic Questions Diagnostics/ Agenda Setting Solution Design Implementation/ Monitoring Start with bold reforms or quick wins? Binding constraints identified (crosscutting and industry specific)? World class team to lead the process? Public commitment from political leaders? Leverage of relevant international good practices? Strategy to deal with vested interests? Strategy to mobilize public support? Fix existing laws or new legal framework? Fix existing institutions or build from scratch? Pilots? The right implementation leaders? Clear and realistic implementation targets? Monitoring systems and accountability? Leverage of private sector? Leverage of new IT solutions? Support and coordination of donors? 22