September 25, 2007—Doing business in Africa was once perceived as a difficult and complex undertaking. The reasons: the numerous processes associated with conducting business, combined with a fragile investment climate and inadequate infrastructure.
But, with fewer conflicts, more democratic elections, and economic growth rates that gradually have begun to compete with those of other developing regions, Africa is proving itself again a continent of positive change.
In Doing Business 2008, the fifth in an annual series of reports issued by the World Bank and the International Finance Corporation, two African countries -- Ghana and Kenya --rank among the top 10 reformers worldwide who have made the most significant advances in the aggregate ease of doing business.
Kenya’s reforms have involved an ambitious licensing reform program, which has eliminated 110 business licenses and simplified eight others. These and other changes, combined with financial and technical support of development partners have given promise to companies such as the Kimemia Engineering Company Limited.
Over ten years ago, Eddy Kimemia and his wife Diana Ndungu formed their business. Together with their two sons, they hoped to engage in general building construction and civil engineering, including road works. Theirs was a small family business, which faced the typical difficulties of small and medium-scale enterprises in Kenya: lack of access to finance due to inadequate security and perceived risk by potential lenders.
Kimemia Engineering Company
The Kimemia Engineering Company also bore the additional burden of lengthy business licensing and registration processes, and long delays in payments especially for public jobs.
The Kimemias were introduced to the International Finance Corporation’s Small and Medium Enterprises Solution Center (IFC SSC), which, through its SME Risk Capital Fund, offers unique flexible financial products to companies with promise. The couple was able to obtain the required working capital for a US$6.6 million road construction contract which they had won and were also given technical assistance to improve their financial systems.
More and more, companies in Kenya continue to benefit from the IFC’s program to boost businesses that have the potential to grow. Through the group’s SSC and business licensing reforms supported by The World Bank, the cost of doing business in Kenya has dramatically gone down.
Nosey Be Opens its First Laundry
Other reforms also are changing the course of doing business on the continent.
In 2006-2007, 24 African countries implemented 49 reforms which have made it simpler to start a business. They have strengthened property rights, enhanced investor protections, increased access to credit, eased tax burdens, and expedited trade while reducing costs.
This wave of reforms has swept through Madagascar, where business start-up has been reduced to seven days by eliminating five procedures and streamlining operations. This, in turn, has attracted investments and promoted small private business.
Fifty-four-year-old Bruno Randriamialijaona is the proud owner of Madagascar’s first and only laundry in its main tourist area Nosy Be. In February 2006, Bruno and his wife Brigitte decided he would take early retirement from the bank where he had worked for 33 years to start their laundry, Classic Clean.
Elma Ross, president of Nosy Be’s Tourism Board, explains how novel an idea it was: “The expansion of international tourism creates real business opportunities in Nosy Be, and international-standard hotels and restaurants definitely need professional laundry services,” she said.
But the business idea was enmeshed with the usual difficulties in doing business in Africa. In 2006, the same year Randriamialijaona opted to start his business, the World Bank’s Doing Business report ranked Madagascar 149 th out of 175 in the ease of doing business, and 159th in access to credit.
Classic Clean’s solution came through the Malagasy Government’s US$129.8 million Integrated Growth Poles project (IGP), financed by The World Bank Group. The project aims to provide the adequate business environment to stimulate and lead economic growth, and to allow Malagasy firms to play a greater role in the economy.
As part of its activities in Nosy Be, the IGP project set-up the Partial Portfolio Guarantee (PPG)program in collaboration with the IFC and two local banks. The project supports 50 percent of the guarantee needed for a loan from the banks. As one of the beneficiaries in Nosy Be, Randriamialijaona took out two loans through the program.
Classic Clean now employs 13 people, and takes care of 1,000 pieces of laundry each day, with clients including hotels and restaurants in the Nosy Be area.
“I am really proud to show that small-scale formal Malagasy enterprises can take risks to build their capacity in providing professional services,” Randriamialijaona said.
The Business Uganda Development Scheme
There are numerous other success stories emerging from African entrepreneurs, who have proved that with a little financial push and an enabling business environment much can be achieved in promoting private investment and closing the poverty gap in Africa.
SAMEG Chemical Products, the first company to produce wide-ranging cleaning detergents in Uganda.
In Uganda, which positively reformed its labor law in 2007 along with several other reforms, impressive progress has been realized.
The story of Samuel Rugambwa and his wife Margaret is one of the many that highlight the impact of these reforms. On return from exile in 1990, the Rugambwa’s found a struggling economy that had a limited supply of basic needs products such as soap and other cleaning agents. They exploited this niche to start producing detergents.
With about US$400 in savings, they converted their residential home into SAMEG Chemical Products, the first company to produce wide-ranging cleaning detergents in Uganda. As their business expanded, they needed working capital and business advice to reach a wider market.
The Rugambwa’s turned to the Business Uganda Development Scheme (BUDS) a component of the Private Sector Competitiveness Project, financed by the World Bank. The project aims to improve enterprise creation and growth of Micro, Small and Medium Enterprises (MSMEs) by raising productivity and improving the quality, standards and reliability of such producers.
The company invested in three regional trade exhibitions, which opened up avenues for a bigger market. BUDS refunded 50 per cent of SAMEG’s trade exhibitions costs, allowing for reinvestment of the saved finances into expansion of their business. BUDS also provided a grant to help SAMEG improve packaging and labeling in order to make their products more competitive. Their business technological capacity was also boosted with computers and financial management packages.
Today, the Rugambwas are proud owners of a successful and growing small-scale business producing a wide range of products including detergents, bleach, petroleum jelly, skin care products, shampoos, hand and shower gel. By the end of 2006 their total returns had multiplied one thousand fold from $400 to $0.25 million.
“We need to increase our productivity to meet growing demand,” says Rugambwa. “We need initiatives that can help local industries especially with machinery... My appeal is to government to put protective measures for local industries against foreign products and to provide access to cheaper credit.”
Nigeriaand Malawi Reforms Aid Local Businesses
In Nigeria, Africa’s most populous country, reforms have seen the computerization of the national company registry, the speeding up company name searches and an increase in efficiency. Entrepreneurs can now start operating a new business within 34 days and the planning authority now issues construction permits in 30 days.
This has attracted investments and the return of some highly skilled persons that had fled the country for greener pastures in the developed world.
In 2003, Dr. Bart Nnaji, a former federal minister of Science and Technology in Nigeria, and his partners, were competing against more experienced multinational companies to build Geometric Power Limited (GPL), an indigenous power company, which today boasts a US$250 million, 140 MW, integrated generation and distribution power plant.
The challenge: a country with very poor energy infrastructure, inadequate business regulation and lack of access for undertaking business ventures of such magnitude,
For GPL to take off , Nigeria’s federal government, with support from the World bank Group, developed and enacted the Electricity Act of 2005, which saw the unbundling of the state monopoly and paved the way for private sector participation in the power sector. The IFC also played an important role in guiding GPL in its development phase through the provision of financial and technical assistance.
The involvement of IFC, which currently is considering a total investment of about US$60 million in a combination of equity, senior debt and quasi-equity in GPL, has encouraged investor confidence and has set GPL on a path to being one of the most prominent local companies in Nigeria.
Malawi is yet another country on the move. Its ease of doing business reforms have seen the launch of the commercial division of its high court and the appointment of specialized commercial judges. This is a significant stride in Malawi’s reforms, which seek to pave the way for growth of the private sector and investment.
One of the beneficiaries of these reforms is Ivy Gondwe, who with her husband has transformed a huge spread of idle land in Malawi’s capital Lilongwe into the luxurious Ufulu Gardens Hotel.
“It just started with the idea of going back to Malawi, but wanting to build something there,” said Gondwe. “One day, at the dinner table, we talked about buying land and building. A friend drew a sketch, a typical American neighborhood in the suburbs. Now I am managing the business.”
In 1996 when the Gondwes started their business, things were very difficult in Malawi. They were venturing into the hotel industry in which they had no experience; they had neither guidance nor information on government regulations on setting-up such a business; and had no funds beyond their savings. No local bank was willing to finance their project.
The Gondwes finished their project in 1999 after getting support from the IFC. They are now expanding their premises with the addition of a 25-room hotel, restaurant, bar and conference center.
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