Doing Business the African Way: Africa’s Changing Business Environment

For many multinational companies, doing business in Africa has traditionally been seen as something to avoid. Indeed, many investors and business people have looked upon the continent as a difficult place to do business, pointing to slow and complicated business requirements, widespread regulatory obstacles, inefficiency, poor infrastructure, a high degree of uncertainty and risk brought about by macroeconomic and political instability, poor governance and corruption. In short, a place where business procedures are cumbersome and inefficient, legislation is onerous and the path to profitability is littered with obstacles.

However, a variety of reforms have led to a rapidly improving business environment in many countries across the continent. The conditions for doing business in Africa have improved considerably on the back of declining costs associated with doing business, together with a more predictable institutional environment and a wave of economic liberalisation. African governments have also adopted a number of policy-related reforms and strategies designed to ensure that their economies are more business friendly. These reforms have begun to gain considerable momentum, translating into significant improvements across a variety of business climate indicators. For instance, 2008 represented a record year for Africa in terms of regulatory reform – with 28 countries completing a total of 58 reforms designed to make it easier to do business. Moreover, the continent, boasted three (Senegal, Burkina Faso and Botswana) of the top 10 ranked countries in the world in 2008 in terms of reforming business regulations.

Nowhere has this transformation been more extraordinary than in Rwanda. Despite only recently recovering from the tragic 1994 genocide, and a post-independence history overwhelmingly dominated by political turmoil and conflict, Rwanda has emerged as the top global reformer in terms of improving the environment for doing business. In 2008/09, Rwanda led the world with respect to reforms to its business environment related to starting a business, employing workers, registering property, getting credit, protecting investors, trading across borders and closing a business. The World Bank’s Doing Business indicators show that Rwanda’s overall ease of doing business ranking improved by a remarkable 76 places from 143rd position in 2009 to 67th in the world in 2010. Furthermore, even greater improvements were seen between 2009 and 2010 in specific areas related to protecting investors – where Rwanda’s global ranking jumped 144 places from 171st to 27th. Rwanda has recorded other impressive gains with respect to business reforms relating to the availability of credit, employing workers (rising 83 positions up the rankings to reach position number 30) and starting a business (where the country’s reforms saw it rising 53 places to reach 11th position in terms of the ease of starting a business).

In many African countries, improvements to the environment for doing business have been bolstered by political reforms. Improving political conditions have in most cases coincided with the cessation of civil wars and inter-state conflicts; and most African countries have become peaceful and politically stable. This augurs well for future economic growth, and should encourage more companies to do business the African way.

Neil Balchin
Senior Researcher and Consultant
Mthente Research and Consulting Services