International Institute of Business & Tax Excellence Newsletter (IIBTE.com)
Edition 6: The Entrepreneurial Edition - July 2020
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Ease of Doing Business in South Africa
by Saijal Singh of Cayman International Asset Managers (Pty) Ltd
www.caymanassetmanagers.comDoing Business in Mauritius
by Saijal Singh of Cayman International Asset Managers (Pty) Ltd
www.caymanassetmanagers.comSources of Instability and Inhibition of Business Growth in Nigeria
by Saijal Singh of Cayman International Asset Managers (Pty) Ltd
www.caymanassetmanagers.comArticle 1:
Ease of Doing Business in South Africa
A. INTRODUCTION
1. ECONOMIC GLOBALISATION
Shangquan (2000) defined economic globalization as the increasing interdependence of world
economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies.
The United Nations (2000) elaborated that the participation of developing countries in the globalization process enables them to better utilize their comparative advantages, introduce advanced technologies, foreign capital and management experience. It is also favorable for eliminating monopolistic behaviors and strengthening market competition.
B. SOUTH AFRICA
1. EASE OF DOING BUSINESS
According to the World Bank (2018), Doing Business measures aspects of business regulation and their implications for company establishment and operations. The report does not include all relevant issues for businesses’ decisions but covers pertinent aspects which are under the control of policy makers.
Although the Doing Business Report 2020 shows that developing economies are catching up with developed economies in ease of doing business, the gap remains wide. An entrepreneur in a low income economy typically spends around 50 percent of the country’s per-capita income to launch a company, compared with just 4.2 percent for an entrepreneur in a high-income economy. It takes nearly six times as long on average to start a business in the economies ranked in the bottom 50 as in the top 20.
South Africa, an emerging economy, was selected for analysis and currently ranks 84th globally, and 5th among African countries.
2. INSTITUTIONAL QUALITY INDICATORS
Doing Business data is utilized widely by stakeholders to guide policies, conduct research and develop new indexes.
The choice of the Doing Business indicators was guided by economic research, from World Bank Enterprise Surveys which provide an insight into the challenges faced by entrepreneurs globally.
The 12 indicators used by the World Bank in preparing the Doing Business Report are as follows:
➢ Starting a business
➢ Dealing with construction permits
➢ Getting electricity
➢ Registering property
➢ Getting credit
➢ Protecting minor investors
➢ Paying taxes
➢ Trading across borders
➢ Enforcing contracts
➢ Resolving insolvency
➢ Labor market regulation
➢ Contracting with government
3. ANALYSIS OF INSTITUTIONAL QUALITY INDICATORS
The two indicators analyzed with reference to South Africa are as below:
i. Starting a business
The factors of measure include procedures, time, cost and minimum capital to start a limited liability company.
In 2009, South Africa began improving efficiency in terms of starting a business. The first reform in 2009 included reducing the time and cost to start a business by eliminating the need to use a lawyer. In 2012, they continued to improve on this indicator by implementing its new company law, which simplified the incorporation documents required.
In 2017, South Africa improved further by introducing an online portal to search for a company name. the final reform pertaining to this indicator was in 2019 when the time for online business registration was significantly reduced.
The best performing nations under this indicator included Georgia, New Zealand, Rwanda, Slovenia, Australia, Colombia and Mauritius while South Africa ranked at 139 indicating that much reform is necessary in eliminating barriers to start a business in South Africa.
ii. Trading across borders
World Bank measured the time and cost associated with the logistical process of exporting and importing goods. The measure included the time and cost (excluding tariffs) associated with three sets of procedures:
1. Documentary compliance
2. Border compliance
3. Domestic transport
within the overall process of exporting or importing a shipment of goods.
The only reform by South Africa from 2008 to 2020, was in 2013 where the time and documents required to export, and import was reduced through the ongoing customs modernization program.
Significant remediation and reform procedures are required in addressing barriers to cross border trading to improve performance on this indicator as South Africa ranked at 145 among 190 other nations.
C. CONCLUSION
Although Sub-Saharan Africa remains one of the weak-performing regions on the ease of doing business scale, South Africa has slipped considerably since 2008, where they were ranked 32nd.
Now, at their lowest ranking yet, a more focused approach is required to implementing reformatory policies and procedures particularly in starting a business and trading across borders as these pose the greatest challenge, and have the greatest potential to enabling a pivotal change in the economy.
D. BIBLIOGRAPHY
Romer, Paul, 1992, “Two Strategies for Economic Development: Using Ideas and Producing Ideas,”
ABCDE, World Bank.
Gao Shangquan, 2000. "Economic Globalization: Trends, Risks and Risk Prevention," CDP
Background Papers 001, United Nations, Department of Economics and Social Affairs.
World Bank. (2019). Doing Business Report 2019. “Ease of Doing Business Report 2019.”
World Bank. (2020). Doing Business Report 2020. “Ease of Doing Business Report 2020.”
Article 2:
TITLE: DOING BUSINESS IN MAURITIUS
A. INTRODUCTION
According to the World Bank (2019), Doing Business measures aspects of business regulation and their implications for company establishment and operations. The report does not include all relevant issues for businesses’ decisions but covers pertinent aspects which are under the control of policy makers.
The World Bank (2019) stated that Sub-Saharan Africa has the widest variation in performance, with Mauritius ranking at 25 and Somalia ranking at 190.
Mauritius was selected for profile analysis as the current highest performing Sub-Saharan African nation.
B. STARTING A BUSINESS
Mauritius has measured strong as compared to other nations in ease of starting a business. The factors of measure include procedures, time, cost and minimum capital to start a limited liability company.
In 2016/2017, Mauritius simplified preregistration and registration formalities hence reducing regulatory related time and costs spent on starting a business, making business in Mauritius a simpler, more attractive process.
Foreign individuals may look at Mauritius to start a business as they have scored strongly in this aspect and remain the highest-ranking African nation in Doing Business 2018.
The time frame for incorporation of a company ranges between 3 days to 6 weeks based on the level of due diligence, Know-Your-Client and Anti-Money Laundering background checks that are required for the directors and beneficial owners of the company.
The time frame for bank account opening procedures may be as short as 2 days, provided that the client has satisfied all documentary requirements.
Anti-Money Laundering, Counter Terrorism and Know Your Client regulations are stringent in Mauritius, in order to comply on a global scale.
C. DOING BUSINESS
On the World Bank Index (2019), Mauritius has ranked in 8th place indication that doing business within Mauritius is efficient and compliant with international standards of reporting.
The Annual tax submission may be completed annually by your accountant in Mauritius while corporate filings are conducted quarterly by your accountant. Regarding the efficiency employed in resolving a commercial dispute, parties engage the services of the Arbitration and
Mediation Centre of the Mauritius Chamber of Commerce and Industry.
Mauritius has significantly improved trading across borders regulations in terms of time and cost to export and/or import products of comparative advantage.
Improved facilitation of customs administration for exports and imports, decreased number of intrusive inspections, reducing border compliance time for exports and imports by 10 hours have improved ease of cross border trade.
Furthermore, to ensure the coordination of efforts across agencies, Mauritius has formed a regulatory reform committee which uses indicators to improve the business environment.
Economic development with gradual shifts from the primary sector of agriculture, to manufacturing of textiles, to services including financial services, information and computer technology were noted.
Politically, Mauritius has experiences colonization of the Dutch, French, British and India and adopted various business and regulatory techniques through interaction with the various nations.
Romer (1992) argues that importing ideas, through inward Foreign Direct Investment (FDI), is an effective alternative to growing them domestically and increases economic development through capital injection, job creation and taxation and regulatory costs. Globalization, improved trading across borders and ease of starting a business in Mauritius serve to increase FDI and related benefits to Mauritius.
D. CONCLUSION
Internationally, policymakers recognize the economic and political benefits of improved business regulation as encouraging new venture creation and entrepreneurship hence necessitating an environment with transparent, accessible and predictable regulations. As a nation, Mauritius is leading the African nations by their international standard of entering and doing business within the country.
E. BIBLIOGRAPHY
Romer, Paul, 1992, “Two Strategies for Economic Development: Using Ideas and Producing Ideas,”
ABCDE, World Bank.
Gao Shangquan, 2000. "Economic Globalization: Trends, Risks and Risk Prevention," CDP
Background Papers 001, United Nations, Department of Economics and Social Affairs.
World Bank. (2019). Doing Business Report 2019 “Ease of Doing Business Report 2019.”
Article 3:
Sources of Instability and Inhibition of Business Growth in Nigeria
A. INTRODUCTION
Globalization and increased global integration have caused instability and conflict to expand beyond the domains of interstate wars.
Conflict and instability now have a dramatic effect on the economic development of a region which may then take years to recover from instances of civil war, terrorism, political and social instability.
Using Nigeria as a case study, we will further discuss their insecurity situation and its implications for business, foreign direct investment, operations and sustainable development.
B. NIGERIA: INSTABILITY AND ASSOCIATED CHALLENGES
1. AN ATTRACTIVE INVESTMENT HUB
According to Santos (2016), Nigeria has, since 2007, attracted the most foreign direct investment in Sub-Sahara Africa due to its well-developed legal and banking systems. Santos (2016) further elaborated that Nigeria is the largest economy in Africa and plays a central role in shaping the continent’s political agenda and trade.
Domestic instability is however leading to an increasing number of displaced Nigerians abroad, decreasing oil prices and a slowed economy. This statement is backed by figures from the 2010 Central Bank of Nigeria (CBN) Yearly Report which demonstrate a precarious 78.1 per cent decrease in outside direct investment. Ujah and Eboh (2006) further reported a study by World Bank on investment climate in nine African countries in which it was found that 29% of business operators in Africa and 36% in Nigeria perceived insecurity as a major constraint on investment. This situation has the damaging consequence of giving signal to the international community that Nigeria is not a safe and secure place and as such not suitable for investment and business activities.
We will further unpack the sources of instability and their impact on businesses who choose to invest in Nigeria.
2. SOURCE OF INSTABILITY: TERRORISM
Terrorism is the most fundamental source of insecurity in Nigeria today, generally linked to religious fanaticism and intolerance particularly in the conservative northern dominated states of Nigeria. Terrorism as defined by Onuoha (2011), is “the premeditated use or threat of use of violence by an individual or group to cause fear, destruction or death, especially against unarmed targets, property or infrastructure in a state, intended to compel those in authority to respond to the demands and expectations of the individual or group behind such violent acts.”
According to Jelilov, Ozden & Briggs (2018), Nigeria’s terrorism index show that terrorist activities have a significant effect on the growth of the economy.
Santos (2016) believes that economically empowering youth is a key piece in this puzzle, as the private sector needs a workforce, and youth need employment opportunities as an alternative to joining insurgent groups.
According to the 2015 Global Terrorism Index, from 2014-2015 Nigeria recorded the largest increase in terrorist activity in the history of the world, with a 300 percent increase in fatalities. Thus, in addition to increasing security threats from Boko Haram, Nigeria is facing its worst economic crisis to date, with the economy expected to shrink by 1.8 percent this year. The rise in violence scares investors who fear that instability could jeopardize profit and infrastructure.
Achumba and Ighomereho (2013) stated that businesses would decline to invest as such environments or economies are considered high risk zones due to the high level of uncertainty about the safety of investment and lives of the managers and their staff. Terrorism is on the rise and presents the potential risk of damage to business property, personnel and infrastructure hence inhibiting new business ventures and existing business growth.
3. SOURCE OF INSTABILITY: LACK OF INSTITUTIONAL CAPABILITIES LEADING TO GOVERNMENTAL
FAILURE
Fukuyama (2004) described this as a result of the corrosion of institutional infrastructures. The foundations of institutional framework in Nigeria are unstable and have provoked deterioration of state governance and democratic accountability, thus, paralyzing the existing set of constraints including the formal and legitimate rules nested in the hierarchy of social order.
As stated by Igbuzor (2011) the state of insecurity in Nigeria is a function of government failure or linked to government failure. This is manifested by the incapacity of government to deliver public services and to provide for basic needs of the masses. The lack of necessities by the people in Nigeria has created a pool of frustrated people who are ignited easily to be violent.
Hazen and Horner (2007) described the Nigerian situation as a ‘Paradox of Plenty’, where the country earns a great deal of revenue through oil sales but fails to utilize these earnings to meet the needs of its people, develop infrastructure and the economy. The risk this poses to businesses is that citizens look to businesses to provide the necessities that the government fails to provide through corporate social responsibility programs. While existing corporate businesses may be obligated to partner with citizens and the government to curb the shortcomings of the state, this will have short- and long-term ramifications on their operating profit and bottom line, thereby inhibiting business growth and expansion. As we already uncovered, there is a decline in foreign direct investment which is largely attributed to the state of insecurity in the country hence inhibiting new businesses from coming into Nigeria.
Nigerian governmental failure, socio-economic difficulties and the increase in crime is well documented globally, hence demotivating potential new business interests.
C. CONCLUSION
Nigeria holds one of the fastest growing economies and populations in the world but increasing instability and conflict has led to demotivation of potential investors, businesses and individuals. This has been purely due to the instability factors posing as business inhibitors. It is however important for all stakeholders, including the private sector, to support Nigerian stability and growth. As a way forward Nigeria needs a developmental approach to target the root of their instability and strengthen the business environment for foreign investors.
D. BIBLIOGRAPHY
Achumba and Ighomereho (2013). Security Challenges in Nigeria and the Implications for Business
Activities and Sustainable Development. Department of Economics and Business Studies.
Adedeji, D. and Eziyi, O. I. (2010). Urban Environmental Problems in Nigeria: Implications for
Sustainable Development, Journal of Sustainable Development in Africa, Volume 12, No.1, 124-145.
Fukuyama, F. (2004). State-Building: Governance and World Order in the 21st Century, Ithaca: Cornell University Press.
Hazen, J.M. and Horner, J (2007). Small Arms, Armed Violence, and Insecurity in Nigeria: The Niger Delta in Perspective, Switzerland: Small Arms Survey
Igbuzor, O. (2011). Peace and Security Education: A Critical Factor for Sustainable Peace and National Development, International Journal of Peace and Development Studies Vol. 2(1), 1-7, January.
Jelilov G., Ozden K., Briggs S. O. Journal of Management, Economics, and Industrial Organization, Vol.2 No.3, 2018, pp.41-61.
Onouha, F.C. (2011). Nigeria’s Vulnerability to Terrorism: The Imperative of a Counter Religious Extremism and Terrorism (CONREST)Strategy, Peace and Conflict Monitor, (2 February 2011), Retrieved from: http://www.monitor.upeace.org/innerpg.cfm?id [Accessed 24 Sept 2019].
Santos (2016). Youth at Risk: How can the Private Sector help Nigeria Fight Boko Haram. [online] Prosper. Available at: https://csisprosper.com/2016/08/17/youth-at-risk-how-can-the-privatesector- help-nigeria-fight-boko-haram/ [Accessed 24 Sept 2019].
Ujah, O. and Eboh, E. (2006). The Security Factor in Business Environment Across Nigerian States, African Institute for Applied Economics, Becans Working Paper 1.
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