For the past 10 years, the World Bank’s Ease of doing business index has been used by foreign businesses and investors to measure the degree to which a country’s laws and regulations simplify or complicate business activity. In Africa, where economies generally rank poorly, the index has been used to gauge how markets can better attract foreign investors, and whether they are doing this.
However, Africa investment advisor and author Aubrey Hruby argues that the Ease of doing business index fails to capture an important layer: the level of government at which a decision has to be made in order to solve a problem.
During a panel discussion at the recent SuperReturn Africa conference in Cape Town, Hruby said she is putting together a ‘depth of delegation’ index to look at just this. “To me it is a very critical layer because if you have to go through a minister every time you have capital equipment stuck in a port, then that is a significant obstacle for investment. That decision and that problem should be fixed at a lower level.”
She said her index measures delegation of decision-making power whereby a ‘zero’ indicates that all decisions for a foreign investor have to first go through a head of state; followed by a ‘one’ where decisions are delegated at the ministry level, and ‘two’ for deputy ministers.
“And really, of all the countries I’ve worked in across Africa, there aren’t many that go beyond the ‘two’ [ranking]. And that is the problem.” she added.
“It’s just ineffective to engage in that way all the time.”
Also speaking on the panel was Greg Metro, managing director of Schulze Global Investments, who noted that in Ethiopia, high-level government officials often “roll out the red carpet for new investors”.
However, once a licence to operate has been granted, these investors are forced to deal with middle-tier bureaucrats, which can be a struggle.
“Now you can go to seven or 10 government offices to set up your business, which can be quite frustrating when they tell you that you need to dot that ‘i’ and cross that ‘t’ and come back in five days,” said Metro.