By Ivania Mondlane & Keshia Osei-Kufour | Issues 0112 | IMANI – Atlas Life Project
According to the World Bank’s Doing Business indicators, Ghana is the 12th easiest country in Sub-Saharan Africa in the “Starting a Business” category; while, out of the 185 countries ranked worldwide, Ghana was placed in the 96th position from a previous ranking of 93rd. While Ghana has experienced peace and relative political stability for longer than most Sub-Saharan economies, countries like Burundi, Côte d’ Ivoire and Liberia, cannot boast the same. Even though they have experienced extensive political unrest, these countries are currently in the top ten easiest countries in Sub-Saharan Africa in the ‘Starting a Business’ category. This means that Ghana’s business environment is less conducive to starting a business when compared to the aforementioned countries. The fact that Ghana has been overtaken by these nations implies that peace and stability can only get one so far, and progress in promoting a friendly business environment will require deliberate action and not the mere passivity. Presently, it can be said that Ghana is only somewhat ready for business.
This paper examines the components that determine Ghana’s readiness and what measures can be adopted to improve Ghana’s place on the index. A comparative analysis follows, between Ghana’s business environment and those provided by three other Sub-Saharan African countries; Burundi, Liberia and Cote d’Ivoire; to understand what lessons Ghana can learn from their success in this area. This paper is part of an ongoing series from IMANI Ghana, aimed at critically assessing and improving business conditions in Ghana.
Starting a Business Methodology
The Doing Business report on Starting a Business uses four indicators to determine the ease of starting a business in a particular country. It measures the number of procedures (name verification, registration etc), the time taken in calendar days, the official costs as a percentage of the income per capita, and the paid-in minimal capital as a percentage of the income per capita.
Comparing the procedures of Starting a Business for all four countries, it is notable that Ghana has the highest number of procedures and takes the most time to start a business. This seems to correlate with its lower ranking in the World and in Sub-Saharan Africa when compared to Burundi, Liberia and Côte d’Ivoire, meaning that there are lessons that Ghana can learn from them.
|Country||World Ranking||Ranking within Sub-Saharan Africa|
Source: Doingbusiness.org, 2015
Comparison of Ghana with Sub-Saharan Africa
|Country||Procedures (number)||Time (days)||Cost (% of income per capita)||Paid-in min. Capital (% of income per capita)|
Source: Doingbusiness.org, 2015
Comparison of Ghana with Burundi, Liberia and Cote d’Ivoire
[pullquote]Over the last 20 years, Ghana, compared to the other three countries, has been one of the most secure countries, maintaining political stability and civil peace. This type of environment should, in theory, be the most favourable when attracting new businesses. However, because of certain business reforms, this may not be the case.[/pullquote]
When compared to the average Sub-Saharan country, Ghana is doing better, with the exception of the number of procedures taken when starting a business (Ghana has 8 procedures while the average Sub-Saharan economy has 7.8 procedures). However, it will become clear that aside from the reduction in the time taken and the costs of starting a business, there have been little significant change to the indices of starting a business.
The evidence shows that, while Ghana’s ranking has improved over the years (from 145th in 2007 to 96th in 2015), Ghana has further to go to keep up with the pace of progress that other Sub-Saharan economies, who have all undergone dramatic improvements in their rankings, are making and be among the easiest countries in Africa to start a business.
Over the last 20 years, Ghana, compared to the other three countries, has been one of the most secure countries, maintaining political stability and civil peace. This type of environment should, in theory, be the most favourable when attracting new businesses. However, because of certain business reforms, this may not be the case.
In the past five years, the Ghanaian government has attempted to introduce policies that would both streamline the process of starting a business and induce more regulation, in an attempt to achieve superior outcomes in the business environment. But as some experts argue, more bureaucracy and costs come along with fewer formal businesses and more corruption in the economy, hindering the progress of starting businesses rather than helping.
Of late, in 2008, the government established an online database for both registration and name search processes. This was done with the hopes of increasing efficiency and reducing the costs, bureaucracy and time taken to start a business. Though this was a proactive step to invite businessmen into the formal business environment, it has to be noted that the use of internet is still not widely accessible to most Ghanaians. Moreover, there is no assurance of the quality of services, as the Registrar General’s Department, and businessmen still lack the trust or confidence in its efficiency. Entrepreneurs attempting to start a formal business may find the manual or bureaucratic forms of application more reliable than the online form as they would be sure, at least, that the job would be done. Overall, however, there was an increase by about 50% in the registration of new business from 2007 to 2008, so this reform was beneficial.
In 2010, Ghana established a one-stop shop for customer service, which simplified company registration and brought the number of necessary procedures down from 8 to 7. This policy of easier to registration of businesses in Ghana took their ranking from 135th in 2010 to 99th in 2011, clearly improving the business climate.
However, Ghana increased the cost to start a business by 70% in 2012. This was a detrimental reform that mot likely acted as a barrier to entry for many entrepreneurs who couldn’t afford this extra cost. The number of new businesses registered in Ghana decreased by about 15% from 2011 to 2012. This was also reflected in the Starting a Business index, as the world ranking for Ghana went from 99th in 2011 to 104th in 2012, showing the loss in competitiveness of Ghana.
Further exacerbating the situation, in 2014, Ghana introduced a new policy which stated that entrepreneurs required a tax identification number prior to company registration. This lengthened the number of procedures necessary to start a business, from 7 to 8 and increased the amount of days needed from 11 to 14, again also worsening Ghana’s world ranking in the Starting a Business index.
When looking back in time, Ghana has made rather significant progress into the ease of starting a business from where it initially started in 2004, but compared to other economies in West Africa it has lagged off. In 2004, the amount of procedures it took to start a business were 11, with 21 days at a cost of 80.5% of the income per capita and a paid-in minimum capital of 41.6% of the income per capita. Today, it takes an entrepreneur 8 procedures, 14 days to complete such procedures, with a cost of 19.2% of the income per capita and 2.8% of income per capita as the minimum paid in capital.However, progress in the indicators for Starting a Business has fluctuated over the years, as has Ghana’s rankings.
In Sub-Saharan Africa, Burundi is currently the easiest country to start a business in, and moved from the 20th position to the 18th in the world. Even after experiencing a 12 year civil war that ended in 2005, Burundi is doing better than Ghana: one of the most democratic countries in Africa; in terms of starting a business. Burundi has done so by including less regulatory reforms.
From 2004, Burundi eliminated minimum paid-in capital, thus facilitating the starting a business process greatly. As is evident, Burundi has managed to implement successful reforms that facilitate the processes of starting a business, decreasing each variable in the Starting A Business index from 2004 to the rpesent day.
By 2013, Burundi had reduced tax registration costs and created a one-stop shop to bring several agency representatives together, thus streamlining the process and more than halving the number of procedures and the amount of days needed. This saw an immediate improvement in Burundi’s World ranking for Starting a Business, from 108 to 28.
In 2014, Burundi also accelerated the process of obtaining a registration certificate, again, enabling a faster, more efficient system. Currently, compared to Ghana, Burundi has fewer procedures (3 compared to Ghana’s 8), takes much less time (5 days), has a lower cost and no minimum capital.
Even though Africa’s oldest republic, Liberia, has also experienced an extensive civil war, which began in 1980, it has still managed to be among the easiest countries in sub-Saharan Africa to start a business. In the Doing Business ranking, Liberia has moved up one position from 31st to 30th from 2014 to 2015, as opposed to Ghana’s rank of 93 to the current 96 (2014 to 2015) in the indices of starting a business.
When comparing Liberia to Ghana in 2007, starting a business in Liberia’s unfavourable business environment was more expensive, time consuming and bureaucratic than in Ghana: the costs of starting a business (563.9% of income per capita as opposed to Ghana’s 47.2%) were extremely high, with relation to the income per capita at the time more time consuming (68 days in Liberia as opposed to 17 days in Ghana).
However, since then, Liberia has taken great strides towards reforming their business environment and, presently, Liberia is among the top 5 easiest economies in sub-Saharan Africa to start a business, with half of Ghana’s number of procedures (4), 4.5 days, a cost of 17.4% of income per capita and still no minimum capital required. This has been made possible with a number of pivotal reforms, all seeking to ease the process for entrepreneurs.
In 2009, Liberia reviewed its business licensing procedures, which resulted in the simplification of business registration and the introduction of time limits for procedures. This saw the process of starting a business decrease from 12 procedures in 99 days in 2008, to 8 procedures in 27 days in 2009.
In 2010, Liberia further eliminated the need for an environmental impact assessment when forming a general trading company, thus shortening the procedures from 8 in 27 days down to 5 procedures in 20 days.
In 2011, Liberia merged value added and income tax registrations, further simplifying the process of starting a business, while in 2012, they created a one-stop shop, reducing the amount of time taken to start a business by 70%. In 2014, business trade license fees were eliminated, further reducing costs.
Lastly, a better comparison to Ghana would be with Côte d’Ivoire, which also faced political turmoil, but managed to recuperate and move past Ghana. Côte d’Ivoire moved up 80 positions from 2014 to 2015 (from 124th to 44th) in the world on the Starting a Business index. In 2004, starting a business required 10 procedures that took 77 days to complete. The cost of starting a business was 139.5% of the income per capita, and the minimum paid-in capital 212.5% of the income per capita. Presently, Côte d’Ivoire has half the amount of procedures that Ghana has, and takes half the time compared to Ghana to start up a business.
These changes in the indices are due to reforms such as, Côte d’Ivoire undertaking the simple step of reorganising an administrative office where entrepreneurs file their company documents in 2012, which, in the process, resulted in 8 days being saved.
In 2014, Côte d’Ivoire also created a one-stop shop, reduced notary fees and replaced one of the requirements needed at the time of company registration with a simpler requirement. This halved the number of procedures, reduced the time needed by 75% and also greatly cut the cost of starting a business.
In 2015, the minimum capital requirement was lowered by 98%, registration fees were lowered, as well as a one-stop shop being created to publish notices of incorporation, further creating a friendly business environment.
Comparing the reforms of the other three countries, it is apparent that there are some commonalities that facilitate the process of starting a business and which Ghana should consider adopting. These include eliminating the need for minimum paid-in capital, and creating one-stop shops that bring together many government agencies.
The Doing Business reports have stated several times, such as in 2004 and 2005 to name a few, that while it may initially be difficult to implement and gain support for, removing the requirement for minimum paid-in capital is a reform that is benefical in the long term for attracting new business and which many best-ranked economies have already done.
Introducing electronic one-stop shops would be advantageous, as it would reduce the need to move from agency to agency, thus eliminating both costs and the time taken to start a business; as implemented by the Brazilian government where they merged the federal and taxed authorities when starting a business. However, computerised systems require a lot of capital to be maintained.
Even if there isn’t the capacity to create online resources such as this, a physical one-stop shop for business-owners could still be implemented, where representatives from several relevant government agencies are housed. This has been shown to be beneficial for many economies, including Rwanda in 2009. They created a physical one-stop shop, which saw an increase in the number of new businesses being registered in that year equivalent to the collective amount of businesses registered in the previous five years. As a result of this, Rwanda was ranked as 11th for the Starting a Business category in 2010. Creating one-stop shops to streamline some of the processes of starting a business would save entrepreneurs time and money, and encourage more business.
Another reform could be to improve the existing online registration process and make the overall process of starting a business more automated. This would require an improvement in the infrastructure to enable better availability of internet and for the system to become more reliable, in order to increase the confidence in it. This should be done while still retaining the manual system, to ensure access is available to all potential business-owners.
Overall, it is notable that Ghana’s government has not made many significant changes to its regulatory procedures when it comes to starting a business. When compared to other economies within Sub-Saharan Africa, Ghana has much to improve to accommodate domestic businesses in its formal sector. While these Sub-Saharan economies have all facilitated the procedures of starting a business for an increase in business activity in their economies, Ghana, although a more politically stable environment with a relatively high income per capita, could stand to benefit from embracing the reforms implemented in their economies.
Also, at a time when Ghana’s business environment is largely made of the informal sector, bureaucracy could come as a disadvantage rather than a benefit, fostering corruptive practices by encouraging entrepreneurs to pay bribes to officials to speed up the process and reduce the time taken. While in the formal sector there is, at least some government regulation on business activities, it is difficult to control the informal sector’s activities, and this is when the regulatory framework backfires and a more corruptive system takes over. So, in conclusion, Ghana needs to eliminate heavy bureaucracy to allow for a better business environment.
ABOUT THIS PUBLICATION
This publication is part of the ATLAS Life Project, supported by the Atlas Network. The ATLAS Life Project seeks to improve the business environment in Ghana. Learn more here http://imanighana.com/projects/DoingBusinessInGhana . Tweet at us using the hashtag #GhReady4Biz
 Doing Business, World Bank Group, 2015: http://www.doingbusiness.org/rankings
 Index Mundi, 2015: http://www.indexmundi.com/facts/ghana/new-businesses-registered
 Index Mundi, 2015: http://www.indexmundi.com/facts/ghana/new-businesses-registered
 DoingBusiness.org, Doing Business in 2004, p18
 DoingBusiness.org, Doing Business 2015: Case Study: Starting a Business, p50