Doing better for the economy by focusing on Doing Business
One of the more unexpected questions President Cyril Ramaphosa was asked on Thursday when he met business and other leaders heading to the World Economic Forum (WEF) at Davos was about SA’s ranking on the World Bank’s Doing Business index. SA’s position has deteriorated to 82nd, out of 190 countries, from 69th five years ago and a record best of 32nd in 2008. Standard Bank CEO Sim Tshabalala’s question was: what is SA’s ambition for the next year’s ranking, and what actions could get us there? The short answer is we don’t seem to have an aspiration for the ranking. But we should, if SA wants the job creation it aspires to. And the question is a particularly pertinent one ahead of a forum such as the WEF, which is a kind of competitiveness contest, particularly for emerging markets such as SA.
Countries such as Rwanda and Georgia have, famously, focused on ratcheting up their Doing
Business rankings in order to get themselves on to the radar screens of the world’s big multinationals and attract investment. They’ve asked the World Bank what to do to lift their rankings, and they’ve gone about doing it. Georgia is now in the top 10, having implemented all sorts of regulatory reforms that make it easier to do business; Rwanda is way ahead of SA at 41st, though still behind Mauritius at 25th.
That may make those countries attractive to international investors, but far more important is that it makes them conducive to domestic investment, entrepreneurship and job creation. The rankings measure the regulatory environment in which private-sector companies, especially small and medium-sized companies, do business — how long it takes to register a new company, get planning permission to build a factory or warehouse, connect it to the electricity grid, and so on.
The focus of the 15-year-old Doing Business survey is “promoting regulatory reform that strengthens the ability of the private sector to create jobs, lift people out of poverty and create more opportunities for the economy to prosper”. Academic studies have found that doing well on Doing Business is associated with lower levels of unemployment and poverty (says the World Bank).
SA has never set itself a target ranking, nor systematically measured or monitored its progress, though the department of trade & industry has an official responsible for the Doing Business rankings — and the Treasury, in recent years, has commissioned the World Bank to do sub-national Doing Business surveys in the nine big cities as part of an effort to get the city governments to make it easier, faster and cheaper to do business in their cities.
At Thursday’s briefing, Ramaphosa initially bounced the question to trade & industry minister Rob Davies, who said SA had made progress — but noted that it required improved regulation at all levels, and blamed Johannesburg for SA’s poor performance on the rankings. The World Bank uses the biggest city economy in each country as a proxy to measure city-level regulations, such as construction permits or electricity connections. In the city surveys, Joburg has done worst and Cape Town best. But national and provincial bureaucracies are as much if not more of a problem — when it comes to indicators such as “trading across borders”, for example, or, indeed, starting a business and hiring labour.
Ramaphosa and his envoys are targeting $100bn (R1.37-trillion) in new investment, but to make it happen, companies will need to be registered, construction permits procured, electricity connected and new employees signed up — procedures that are far from simple, easy or cheap here.
That’s why SA should be setting itself a rankings target. It almost doesn’t matter whether it aspires to be 42nd or 22nd. What’s crucial is that the government commits to improving the ranking.
Ramaphosa seems to recognise that. He spoke on Thursday of a two-year wait to get plans approved to build a small business, commenting that “civil servants are the blockage: we need them to get more paper across their desks more quickly, and to remove the bureaucratic clutter that makes it so debilitating for business to operate”.
It’s crucial the government commits to improving the ranking