Does Rwanda's impressive growth tell the whole story? (Credit: CIAT, Flickr Creative Commons)
Over the last few years, a lot of optimism has been built around Rwanda being the next big thing in Africa. I guess one reason for this optimism is Rwanda’s impressive list of business friendly reforms and its equally impressive growth performance. Between 2006 and 2011, per capita income in Rwanda grew at an average rate of 5.1 percent per annum, fifth highest in Sub-Saharan Africa (SSA) region and much better than the regional average rate of 2.4 percent. Moreover, Rwanda currently ranks third in the region in the quality of the business environment as measured by the World Bank Group’s Ease of Doing Business index. So, is Rwanda really the next big thing in Africa?
Business reforms can spur economic dynamism in the East African Community
East Africa is famous for its breathtaking landscapes and its unique concentration of wild animals. Could it also become as famous for its dynamic economic development?
In 2009 I came to Tanzania to work on tax harmonization in the East African Community (EAC). The Common Market Protocol was about to be signed and one of the biggest goals was to tap into the economic potential of the region by facilitating (cross-border) trade and improving the business climate. A year later, the five Partner States of the East African Community ratified the Common Market Protocol in order to realize “accelerated economic growth and development through the attainment of the free movement of goods, persons, labor, the rights of establishment and residence and the free movement of services and capital”. The overarching goal of the East African Community is to achieve sustainable economic growth in order to increase employment and reduce poverty.
A financial crisis is a difficult time to start a business. Credit is tight, demand is low, and the future is uncertain. Even in recovery periods, entrepreneurs may be skittish about making the enormous sacrifices necessary to launch a new enterprise and lenders may be unwilling to lend to new borrowers. New data from the Entrepreneurship Database – a collaborative effort between the Bank's Development Economics Group (DEC) and Doing Business - provide an interesting look at the relationship between new firm creation and the recent financial crisis and ongoing recovery. The main indicator is new firm entry density, defined as the ratio of new registrations of limited liability companies to the working age population. The data show that new firm entry density (“entry density”, for short) dropped sharply in response to the 2008-09 financial crisis but by 2011 had recovered to pre-crisis levels in many economies.
New firm entry density over time: Percent change in entry density as compared to 2004 levels (Source: Entrepreneurship Database, 2012)
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Ambitious and fast rising—these words aptly describe modern Indonesia. Amidst a global economic slowdown, Indonesia was the third fastest growing economy among the G-20 for 2009 and it continues to post strong economic growth, at a projected rate of 6.4% for 2012. Improving economic competitiveness by creating a more salutary business climate is one of Indonesia’s national priorities for 2010 to 2014.
Indonesia is walking the talk. Doing Business in Indonesia 2012 launched January 31 in Jakarta, finds that all 14 cities previously measured in Doing Business in Indonesia 2010 have improved business registration processes over the last two years, while 10 out of 14 cities expedited the approval of construction permits. During his keynote address on the launching of the report, the Minister of State Ministry for Administrative Reforms talked about the cities moving from 'comfort zone' to 'competitive zone'.
The region may have once been defined by the term 'balkanization’ - which refers to the disintegration of a state into smaller, antagonistic parts-but no longer. Recent history has instead taken on a more positive hue-one of increasing cooperation, economic growth and foreign direct investment. Indeed, South East Europe has been improving business regulations, often in response to circumstances—such as the prospect of joining the EU or as a way of mitigating the effects of the global financial crisis.
- doing business
Editor's Note: The following post was submitted jointly by Pilar Sanchez-Bella and Brice Richard both members of the Doing Business Team.
The Doing Business in Juba 2011 report was launched last May 16 in Juba, Southern Sudan. The city profile, which covers 9 Doing Business indicators, is one of the first assessments of business regulations in Juba, the current capital of Southern Sudan. Why is this report noteworthy? First, it helps fill the micro-level data gap in the country by providing baseline data.
A concerted effort is being made by institutions like the World Bank to quantify various types of transaction costs incurred by businesses (Doing Business, Enterprise Surveys). The rationale for focusing on transaction costs (and reducing them) is usually couched in mainstream economic concerns. That is, in an attempt to increase growth rate of GDP per capita, create jobs, reduce poverty, and so on.
For all of us working towards providing a better business and regulatory environment, it is important to know whether economic analysis has improved the quality of regulatory decisions. A proper analysis of the costs and benefits associated with regulations (government rules that govern private activity) is critical in determining which regulations to administer and in what capacity.
The conventional wisdom is that the exchanging of information on an individual or firm will go a long way in determining credit worthiness, thereby improving credit availability. When a bank evaluates a request for credit, it can either collect information on the applicant first-hand, or it can source this information from other lenders that have already transacted with the applicant. Information exchange between lenders can occur voluntarily via “private credit bureaus” or it can be enforced by regulation via “public credit registries.”