The World Bank recently issued its annual flagship report which measures the ease of doing business across the countries of the world.
Entitled Doing Business 2015: Going Beyond Efficiency, the report presents quantitative indicators on business regulations and the protection of property rights that can be compared across 189 economies. Current as of June 1, 2014, the report ranks Ethiopia 132nd out of the 189 countries measured, which is three places lower than its rank in the previous year.
The report measures regulations affecting 11 areas of the life of a business. Ten of these areas are included in this year’s ranking: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Accordingly, Ethiopia stood 168th in starting a new business, 28th in dealing with construction permits, 82nd in getting electricity, 104th registering property, 165th in getting credit, 154th in protecting minority investors, 112th in paying taxes, and 50th in enforcing contracts.
One of the strategic areas on which the Government of Ethiopia is working to grow the country’s economy is Foreign Direct Investment (FDI). Aside from putting in place an enabling policy and regulatory framework, the government is undertaking different things aimed at attracting foreign investors including promoting Ethiopia as a preferred investment destination. Though securing FDI is not that easy, a number of foreign investors have started to invest in Ethiopia thanks to the efforts the government has made. This said, one would not be mistaken to state that the country has not drawn the kind of FDI inflow it is capable of and indeed ought to have. This below-par performance is chiefly attributed to bureaucratic red tape.
Investors look at a lot of things when they contemplate where to spend their money. It’s only after weighing different countries against a mix of critical factors including ease of doing business that they will decide to invest in any one country.
In spite of the spike in the level foreign investment in Ethiopia over the past decade, the Doing Business report shows that Ethiopia is not keeping up pace with other countries in terms of facilitating the conditions which drive greater FDI influx. The patently cumbersome government bureaucracy in Ethiopia tends to complicate simple matters and subject investors to delays that force them to incur unnecessary expenses. It’s also a breeding ground for corrupt public servants which are loath to lift a finger without a bribe. Consequently, it may well prove to be a deterrent to winning over more foreign investors to opt for Ethiopia.
One of the essential factors on which the decision of foreign investors to invest in Ethiopia hinges is the availability of land. Presently, it’s quite a challenge for domestic and overseas investors alike to acquire land despite the government’s assertion that it has availed adequate land for investment purposes. The huge bribes that are being demanded for the provisioning of land are increasingly driving away foreign investors. This threatens to mar the investment environment.
Another area where bureaucratic red tape is pervasive is tax payment. The 112th rank that this year’s World Bank places Ethiopia under the tax payment category is three places down compared to the previous year. The problem persists to this day despite the frequent complaints of foreign investors and continues to discourage both existing investors and those planning to invest here. Like land, tax payment is an area which is beset by widespread corruption and needs to be tackled head on by the government in order to address foreign investors’ grievance that they are slapped with huge tax bills they do not owe. Needless to say we are not of the opinion that foreign investors must not pay their fair share of tax; we are saying that they should be treated the same as other taxpayers.
A further area which dissuades those thinking of investing in Ethiopia is the lengthy customs clearing process involving import and export goods. Coupled with high transportation cost and logistical hurdles, which are brought about by the inadequate infrastructures, it is a powerful disincentive that the government has to deal with decisively.
The report ranks Ethiopia 168th when it comes to starting a new business. If foreign investors which are eyeing Ethiopia are led to believe that obtaining the registration, investment and business licenses necessary to start operation is a complex process, they are liable to look elsewhere, thereby denying the country of valuable opportunities. Hence, this is an impediment for which the government is obliged to seek a prompt solution.
All in all there is no much use conceding that bureaucratic red tape is hindering Ethiopia’s potential to attract a greater volume of FDI inflow. Therefore, it is imperative that the government demonstrates the resolve to eliminate the problem from its root. Failure to take immediately concrete steps towards this end can have the effect of slowing the brisk growth the country has been registering in the last ten years.
[TheReporterEthiopia]