EDITORIAL: World Bank report shows disjointed EAC integration

Discordant progress means that the laggards will always be a drag on others.

 

IN SUMMARY

  • Discordant progress means that the laggards will always be a drag on the potential of those that are doing better and could eventually pull everybody down.

The World Bank’s 2018 Doing Business report is out and as usual it paints a mixed picture of East Africa.

While Rwanda and Kenya improved their rankings, with the former moving up 15 places to rank 41st globally and second in Africa, Kenya improving 12 places to rank 80th globally, Tanzania, Uganda and South Sudan plummeted.

Uganda and Tanzania both dropped five places to weigh in at 122nd and 137th respectively. Of the 11 criteria measured, Tanzania and Uganda made progress on just a single aspect while Kenya improved on five heads.

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Also, in the 15 years since the report was first released, Rwanda has made the most reforms at 52, followed by Kenya at 32 and Mauritius at 31.

As in previous reports, this year’s rankings show that change is possible but also reflect the difficulties of achieving policy coherence in many parts of the region given the reluctant attitude to reform.

The refrain from many capitals last year was that they were going to fix the gaps, yet the results show otherwise. It is important that the region pulls together for the sake of an integrated regional economy.

So while the results may provide reason for plaudits for Rwanda and Kenya, they should equally be a cause for concern across the region, if only because they imply disjointed regional integration. Discordant progress means that the laggards will always be a drag on the potential of those that are doing better and could eventually pull everybody down.

The region needs to act in concert to implement reforms that ease doing business because one of the goals of integration is to present East Africa as a single investment destination.

On the upside, the progress made by Kenya and Rwanda demonstrates that reforming different aspects of regulation is not rocket science and only needs a cross-sectoral focus and commitment.

A major obstacle to reform has sometimes been inward-looking legislation, such as restrictions on repatriation of profits, lengthy business registration procedures and complex tax administration.

The major contributors to Kenya and Rwanda’s rankings revolve around the ease with which one can start a business through simple registration and securing tax credentials, easing trade across borders, boosting energy, access to credit and payment of taxes.

Rwanda also rose on facilitating the issuance of construction permits, which remain a challenge elsewhere in the region. Kenya created incentives for starting a business by removing stamp duty fees on nominal capital and memoranda and articles of association.

Looked at carefully, such duties amount to taxing a business even before it makes any revenue. The time it takes to get a connection to the power grid was slashed by employing geographic information systems to replace the need for a site survey.

Investors will also be happy with an improved and more transparent land registry, simplified insolvency procedures and enhanced protections for minority investors.

Rwanda also made it easier to comply with tax regulations. Resolving insolvency remains Rwanda’s only enduring challenge so far.

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