Obstacles to doing business stifle job creation and keep us poor
Our decline in the rankings is bad news for the drive to woo investors
In his February state of the nation address, President Cyril Ramaphosa noted that the World Bank’s annual “doing business” index ranked SA 82nd out of 190 countries but announced that the government had set itself a target of being among the top 50 on the index within three years. He was referring to the government’s push to remove constraints to doing business and attract new investment, in the context of the investment conferences he initiated last year. A team had been established, he said, to address the policy and regulatory barriers frustrating investors. But when the World Bank released its new 2020 “doing business” index this week, it turned out that far from heading towards the top 50, SA’s ranking has now fallen further, to 84th out of 190 countries.
Africa has two countries in the top 50 in the latest rankings — Mauritius and Rwanda. It also yielded some of this year’s top reformers, with Nigeria and Togo among the countries that implemented multiple reforms to clear red tape. SA, by contrast, implemented just a single reform — introducing a specialised commercial crimes court to make it easier to enforce contracts. According to the World Bank’s researchers, SA has implemented just four reforms over the past five years to make it easier to do business here.
Our decline in the rankings is bad news for the president’s drive to set out SA’s stall and woo investors ahead of the second investment conference, which starts on November 5 in Sandton.
It is very bad news too in that it highlights a fundamental failure in the Ramaphosa administration’s promises to reform the economy and lift growth and job creation. That failure is not about policy; rather, it is at the level of bureaucracy, the basic regulatory machinery of municipal, provincial and national government departments.
It’s the efficiency of precisely this level of bureaucracy that the
World Bank’s “doing business” index measures. SA is failing the test — the test of being a reforming government that is making it easier for entrepreneurs to start businesses, thrive and create jobs. And the worry is that while the president may be 100% committed to reforming and growing the economy, he and his team simply do not have the ability to get government departments and municipalities to deliver.
That’s certainly the picture that emerges from the World Bank study, now in its 40th year. What it measures is the regulatory environment in which companies, especially small and medium enterprises, have to do business. It does this using 12 sets of metrics, such as the ease of starting a new business, getting a construction permit, connecting to the grid, paying taxes and trading across borders.
This latter metric is the one in which SA scores worst, with costly and inefficient port and other infrastructure cutting us to 145th. Starting a business is also time-consuming and costly, with SA ranking 139th on this metric. On the upside, SA comes in at 13th on protecting minority investors, and almost makes that top 50 at number 54 on the ease of paying taxes.
SA’s slide on the World Bank ranking contrasts with its recent climb on the World Economic Forum’s competitiveness index, but that measures the factors driving productivity, and SA scored on the improved quality of its institutions. What would it take for SA to rapidly vault up the “doing business” ranking? World Bank researcher Edgar Chavez says countries that have done so have set themselves a clear programme of reform, with clear deliverable goals and monthly report-backs on progress.
Why does it matter? Because the research shows doing better on “doing business” enables the inclusive growth SA so badly needs. Says the World Bank: “Economies that score well on ‘doing business’ benefit from higher levels of entrepreneurial activity. Increased entrepreneurship generates better employment opportunities, higher government tax revenues and improved personal incomes.” Joffe is contributing editor