The issue at hand
The other day, the President of the Republic of Uganda detailed, in a fifteen-point guideline for his, and the country’s cabinet, that, amongst others, investors, or rather, businessmen, should be able to commence and complete the process of registering their businesses in only two days. The interpretation of that is, apparently, that there should be improved registration, regulatory, and enforcement administration services. However, it begs the all important question; is this, his dream, achievable – at least in the near future?
The reality of starting and doing business
Doing business – the Doing Business project, launched, in 2002, by the World Bank – looks at domestic small and medium-size companies and measures the regulations applying to them in their life cycle. It follows through to provide objective measures of business regulations and their enforcement, with the main goal being providing an objective basis for understanding and improving the regulatory environment for business around the world.
It is on the foundation of the Doing Business reports that we can ably tell and note and rank any developments being made in as far as doing business in a specific country – the sub national, with comparison to the regional blocs and the rest of the globe.
The intriguing case of Uganda
Even without paying keen attention to the specifics – as per the Doing Business reports, here is a brief abstract on Uganda. The Ugandan economy is extremely informal, extremely unregulated, has limited understanding of the requisite procedures, and a predominant use of untraceable cash in most financial transactions and receipts of income.
Business choices are determined by where one falls – either the informal sector, or the formal sector, with the informal sector having the advantage. The informal sector employs 70%-80% of Ugandans. Manufacturing has a share of 14%, food processing 15%, wholesale and retail 24% and agriculture is at 27%. As of 2014 figures, it – the informal sector – comprises 49% of GDP, up from 43% in 2002.
The choices of formality are dependent on the structure of the economy. Our education system has, in its current state, failed to train people with employable skills. There are 400,000 people released into the job market every other year, but there are only 90,000 jobs available during the same span of time. Uganda is ranked as the most entrepreneurial country, but it is also worth noting that all the companies which are started do not get to or survive past their first anniversaries. We may help them to start, but we do not help them to keep alive. The persistent formal sector is, therefore, participating in the economy, but relying on services of the informal sector.
The authorities and related administrative initiates
To take the example of two cardinal institutions; the Uganda Registration Services Bureau is established by Chapter 210 of the Laws of Uganda, an Act by the same name, and mandated under the same law to, amongst other functions, carry out all registrations required under the relevant laws, and, also, to act as an agent of the Uganda Revenue Authority in collection of stamp duty. It is, thus, the only institution charged with, like its name suggests, all registration services.
The second is the Uganda Revenue Authority is established under Chapter 196 of the Laws of Uganda to, amongst other functions, to assess, collect, and account for all revenue. Its major goal is, presumably, to broaden the tax base, get as many people as possible paying as much as they can, and in an efficient manner, and improve the reserves in economy’s coffers. Only then can Ugandans be guaranteed a necessary improvement in their country’s infrastructure and services as there would be enough resources to provide for them.
The transitions in starting a business
The aforementioned institutions are the most necessary when starting a business. Even with their existence and, generally, impressive performance, Uganda still appears, and several times so, as a poor regional performer under several indicators. With particular regard to starting a business, Uganda has the lowest regional performance (at position 168), whereas Burundi has the best at 19.
In the most recent past, Uganda made it more difficult to start a business by increasing the trade licensing fees (in 2011), and, in 2012, introduced changes that added time to the process of obtaining a business license which slowed business start-up. In the same year (2012), it simplified registration for a tax identification number and for value added tax by introducing an online system.
In 2016, Uganda has made starting a business easier by introducing an online system for obtaining a trading licence and by reducing business incorporation fees.
The ease of doing business index
The developments, highlighted above, are some of those that contribute to our consideration on the global ease of doing business index. The ease of doing business is an index created by the World Bank. It is based on the study of laws and regulations, with the input and verification of those who routinely advise on or administer legal and regulatory requirements.
The ease of doing business is meant to measure regulations directly affecting businesses. A nation’s ranking on the index is based on the average of ten subsidiaries; starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.
Singapore has topped the global ranking on the ease of doing business index for the seventh consecutive years. Poland, the global top improver, enhanced the ease of doing business through four institutional or regulatory reforms, making it easier to register property, pay taxes, enforce contracts, and resolve insolvency.
Uganda currently (as of 2016) ranks at 150, a decline, by eighteen positions, from 152 in 2015. The reason for our position is simply the range of challenges we still permit to exist.
The pool of challenges
Uganda’s regulatory and/or administrative institutions are faced with vast challenges, the most being that they are understaffed, and underfunded, and over burdened. To mention but a few;
- The existing institutions face infrastructure challenges. An “e-registry”, for both registration and licensing is still in its initial stages. We rely, heavily, on paper work, when we could easily do away with it.
- With new legislation, like the new Companies (General) Regulations, 2016, there is a doubling of procedures, and, with effect, the costs incurred and time taken to appreciate and make the most of. The new regulations have, unfortunately, not been applied with immediate effect, but rather gradually. The consequence is that gradual approaches to enforcement lead to disorganised ways of compliance.
- Regulation and compliance is inefficient. The processes are unnecessarily lengthy and frustrating, costly, and corrupted. This inevitably limits potential business owners as the processes do not reflect an iota of transparency.
- The service centres are not harmonised and are limited to a few major towns. Their centralisation or concentration in the towns, and not being distributed to many more means that the chosen few will be over burdened with responsibilities that they could have easily delegated with the goal of successfully targeting and providing improved services to everyone who needs them.
The possible solutions
Helped by reforms in business and property registration, electricity connection, and access to credit, Kenya improved 28 positions in the World Bank’s ease of doing business index. In 2015, Kenya ranked at position 108 out of 189 economies globally compared to the previous year, making it the third most improved economy.
One of the reasons for Kenya’s improvement is in two words: Huduma Centre. Huduma, or Service Centres harmonise different government services in one place. It helps hasten the process, and reduce on the unnecessary burden of visiting several agencies to accomplish one goal –of starting a business.
The other is that the period taken for businesses to be connected to electricity had reduced, in 2015, to 110 days from 145 the previous year, while that taken to access credit with ease was 28 from 116 the previous year.
Another example worth note is from Burundi. Bujumbura opened a one stop shop in 2012. Before it did, starting a business took visiting several separate agencies, completing eight (8) procedures, waiting for an average of thirteen (13) days, and paying at least $200. Today, it takes only four procedures, eight (8) days, and costs only $46.
With more reforms, a one stop shop, reduced procedures, duration and costs, starting a business in Uganda is most definitely going to be much easier. It is that ease, that convenience, which will attract the 70%-80% of Ugandans in the informal sector, the more than 80% who are unbanked, and about the same figure of the untaxed to transit to a modern way of transacting with their local, regional and global peers.
Doing Business in the East African Community 2013, which compared business regulation and identified good practices across the region, found that the East African Community ranks, on average, 117th among 185 economies on the ease of doing business. It, also, found that if all East African Community adopted the best practices in the region across all areas of regulation covered, the East African Community would rank 26th, equal to the United Arab Emirates.
This is evidence that the ingredients of reform already reside in the East African Community; what remains is for a stronger culture of peer learning to grow within the region.
Over the past eight years, the five East African Community countries have implemented a total of 74 business regulatory reforms. (During the same period of time, specifically in 2013, Uganda had only one reform). The majority of the reforms focused on simplifying regulatory processes – such as registering property and starting a business. The average time to register property fell from 140 days in 2005 to 56 in 2012.
The introduction of new information and communication technology has been a common feature of reforms making it easier to start a business. Both Kenya and Tanzania now (since 2013) offer online name search for companies which helps in reducing time and cost.
Thanks to the above, we now know what, on average, it takes to start a business in the East African Community. With respect to the requisite procedures; Uganda (15), Kenya (10), Tanzania (9), Burundi (4), and Rwanda (2). In terms of costs, which is a percentage of income per capital; Uganda (76.7), Kenya (40.4), Tanzania (28.2), Burundi (18.3), and Rwanda (4.3). In terms of the time it takes; Uganda (33), Kenya (32), Tanzania (26), Burundi (8), and Rwanda (3).
Regional integration – which is exciting members of the East African Community – alone, is not enough to spur growth. Each of countries in the Community needs an investment climate – including an efficient, modern business regulatory environment – that is well suited to scaling up trade and investment and can act as a catalyst to modernise both the independent and the regional economies.