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EDITORIAL: Uneven business reforms a threat to integration

Saturday November 03 2018
By The EastAfrican

For observers of East Africa’s business landscape, the 2019 Ease of Doing Business Report released by the World Bank this past week came with few, if any surprises. The results show the enduring asymmetry in progress across the region.

Rwanda and Kenya led the pack with Rwanda moving 13 positions up from rank 41 in 2017 to 29, while Kenya made the biggest leap when it improved its ranking from 80 to 60. In contrast, Tanzania dropped seven positions to come in at 144 while Uganda slid from 122 to 127.

Kenya’s gains came from digitising and reducing the time it takes to register a property from 61 to 49 days, a new law on secured transactions and a unified and notice-based collateral registry. Regulations were also introduced to protect minority investors and greater corporate transparency.

Rwanda’s improved score was derived from a simplified tax payments system, streamlined construction permit issuance, and quality controls.

The Doing Business survey findings demonstrate how just one simple change can translate into a game changer for business and the economy in general.

For instance in Rwanda, the introduction of online business registration saw domestic business registrations increase from a paltry 418 ten years ago to 13,394 at the end of 2017. As a result, the cost of registering a business in Rwanda has shrunk from 317 per cent of per capita income in 2005 to 15 per cent in 2018, while the time it takes to register a property has come down from 354 days to just seven days.

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Even for the reformers though, progress is uneven, which emphasises the need for a full ecosystem approach to reform for both the reformers and the laggards.

For instance, while Kenya and Rwanda are praised for the strides they have made, declaring insolvency remains a challenge in Rwanda while Kenya still has to reduce the number of procedures for property transfer and the number of days it takes to secure a construction permit or to start a business.

Uganda, which dropped five positions, actually made more reforms this year than during the previous survey period. It was tripped up by failing to match the progress it made in easing trading across borders, issuance of construction permits and resolving insolvency, with creating a better environment for SMEs, which still endure a lengthy business registration and tax documentation process.

Tanzania undermined reforms that simplified business registration by increasing fees associated with registering land and property. Policy uncertainty also did not endear Tanzania to business people.

Ultimately though, the absence of uniform progress on implementing key reforms has grave implications for regional economic and political integration. As the gap between the reformers widens, so does the latent risk and economic gap because investors will gravitate towards those economies where they find doing business convenient.

This can retard deeper regional integration since any incremental steps proposed will appear to promise more benefits for the reformers. This perceived imbalance is already at the heart of slow implementation of some regional protocols. It is therefore necessary for governments in the region to see business reforms as an opportunity, rather than a mere badge.

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