Ethiopia improves its standing in the World Bank’s Doing Business Report
The World Bank released its Doing Business Report 2016 on Thursday last week (October 29). This is a study, produced annually by the World Bank Group since 2003, measuring the costs to firms of business regulations in 189 countries. The study has become one of the flagship products of the World Bank Group in the field of private sector development and it has led to the redesign of a number of regulatory reforms in many developing countries. It presents a detailed analysis of costs, requirements and the procedures that specific types of private firms are subject to in all countries. It then creates ranking for every country. The study is backed up by broad communication efforts, and by creating rankings it spotlights countries and leaders that are promoting reforms as well as those that are not.
The Doing Business Report this year has made a number of changes in the way it rates countries, expanding benchmarks that measure the quality of regulations as well as the efficiency of the business regulatory framework. The report has also now added some recent developments in good practice in those indicators that had already measured quality. One notable finding here is that while most cases show better marks for efficiency than quality, a comprehensive study within each indicator shows that the two are actually somewhat proportional. Of the ten indicators that have been used since the first report in 2003, five have been adjusted this year: Dealing with Construction Permits, Getting Electricity, Enforcing Contracts, Registering Property and Trading Across Borders.
Overall, in this year’s report, Ethiopia is ranked 146 out of 189 countries in overall ease of doing business. This is two places higher than last year. The report says Ethiopia has made some progress in several key areas of business regulation in the past decade, noting that it now provides an enabling regulatory environment in several areas of doing business and has achieved some substantive results. Measuring Regulatory Quality and Efficiency finds that Ethiopia does relatively well on indicators related to construction permits, cost of warehouse value, enforcing contractors, good electricity, registering property and resolving insolvency.
The report finds Ethiopia is among the best performers in the sub region on enforcing contracts, with a global ranking of 84 and 7th in the region. This is due, in part, to past efforts to ease the process of contract enforcement which has resulted in considerable improvements in time involved. A case in point in this regard is that over a decade ago it would take an entrepreneur in Addis Ababa 690 days to resolve a commercial dispute. Today it takes only 530 days, less time than in Canada. In the area of Dealing with Construction Permits, Ethiopia ranks 73 worldwide. The time required to build a warehouse in Ethiopia is 129 days compared to 152 days on average in the high-income Organization for Economic Cooperation and Development economies. 12 years ago it took a local entrepreneur 47 days to start a business in Addis Ababa; now, it takes only 19 days.”
Ethiopia’s rank in the various categories are: Starting a business (rank 176); Getting credit (rank) 167; Trading across borders (rank) 166; Dealing with construction permits(rank) 73; Protecting minority investors (rank) 166; Paying taxes (rank) 113; Getting electricity (rank) 129; Enforcing contracts (rank) 84; Resolving insolvency (rank) 114; and Registering property (rank) 141.
The report certainly indicates that Ethiopia could improve. One example was that in addition to the steps, time and cost to get connected to the grid, the Getting Electricity indicator assesses power outages through the quality of supply and transparency of tariffs index and in this Ethiopia was still underperforming. Similarly on Registering Property, Ethiopia could improve the quality of its land administration system, its reliability, transparency and geographic coverage.
With reference to these continuing challenges and other areas such as business incorporation, protecting minority investors, trading across border, and getting credit, these are challenges that the Government of Ethiopia is now taking into consideration. It is making a real effort to tackle obstacles in these areas.
In fact, Ethiopia’s persistent double-digit economic growth of the last couple of decades has already brought about significant progress in several key areas of business regulation. In fact many international financial institutions now predict it will become the third largest economy in the continent in three to four years time. It has certainly reached a stage where it can comfortably manage multiple major projects such as the Grand Ethiopian Renaissance Dam, Bole International Airport expansion, building of an oil pipeline to Djibouti and the construction of 5060 kms of railway line.
The Acting World Bank Country Manager for Ethiopia, Qaiser Khan, noted that Ethiopia had made progress in several key areas of business regulation in the past decade. He also pointed out that the regulatory burdens of cost, procedures and paid in minimum capital requirements were higher than the regional average. This underlined that there is still work to be done. In the last decade Ethiopia has implemented a total of seven reforms to ease business regulations, and this is a slower pace than the regional average; in the past year there have been no changes.