Figures of the week: Improvements in business environment

Venders play Ludo using iPhone Games, while waiting in a store, at a market in Khartoum, Sudan July 3, 2017. REUTERS/Mohamed Nureldin Abdallah - RC1F5A668EE0

The World Bank Group recently released the “Doing Business 2019” report, their 16th annual report comparing business regulations in 190 economies. The report advocates for regulatory quality and efficiency reforms affecting 10 areas of business activity, such as starting a business, getting credit, and trading across borders, as well as features of labor market regulations.

Overall, as Figure 1 shows, low- and lower-middle-income economies have made more improvements since 2005 than upper-middle- and high-income countries. Additionally, in 2018, the majority of reforms were made in low- and lower-middle-income economies, with 73 percent of the former and 85 percent of the latter making reforms in at least one business area. Slowly but consistently, these economies, which generally started with weak regulatory institutions and costly, inconvenient business regulation processes, have been converging upon international standards for good “Doing Business” performance.

Figure 1: Low- and lower-middle-income economies have made bigger improvements over time

Low- and lower-middle-income economies have made bigger improvements over time

The report found that sub-Saharan Africa holds the record for the highest total number of “Doing Business” reforms over the past 15 years, at 905 total reforms. Despite these improvements, large gaps still exist between the performance of sub-Saharan African countries and OECD countries. While five of the top 10 most improved economies in “Doing Business 2019” are in sub-Saharan Africa, the region’s average score for overall ease of doing business is less than 40, compared to 73 in high-income OECD economies. As shown in Figure 2, the gap exists across all indicators, and is particularly wide in the areas of resolving insolvency (44 points), trading across borders (41 points), and getting electricity (36 points). Poor infrastructure, weak governance, lack of access to financial resources, and underdeveloped legal institutions in Africa are some factors contributing to the gaps.

Figure 2: Resolving insolvency is the area with the biggest gap between sub-Saharan African economies and OECD high-income economies

Resolving insolvency is the area with biggest gap between sub-Saharan African economies and OECD high-income economies

Across Africa, there are large variations in country performance. Mauritius and Rwanda rank highly in overall ease of doing business, at 20th and 29th in the world, respectively, while Somalia and Eritrea are the worst performers among all ranked countries. Mauritius and Rwanda’s improvements in regulatory environment have been due to comprehensive and continuous reforms in almost all areas measured by “Doing Business” over the past decade, which have made them the only sub-Saharan African country in the top 20 and the only low-income economy in the top 50, respectively.

The report states that the success of these countries, as well as other high performers in Africa, presents an opportunity for policymakers to learn from the experience of their neighbors. Countries scoring poorly in the area of getting credit, for example, could learn from the experience of Rwanda and Zambia, both ranked third globally in this indicator. Furthermore, policymakers should work to ensure that reforms target all areas of regulation, as many countries may score highly in one or two areas but poorly in others, which can present challenges to entrepreneurs and firms struggling to reach their potential.