Ease of Doing Business Reforms to Increase Liquidity and Build Reserves through Domestic and Foreign Direct Investments

Zimbabwe Economic Review and National Competitiveness ConferenceHarare

20 October 2016

By Amarakoon Bandara

Ease of Doing Business

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200 184

Ease of Doing Business Rank ▲

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200

89

Starting a Business

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200

131

Dealing with Construction Permits

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200

174

Getting Electricity

Ease of Doing Business

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200

135

Registering Property

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200

133

Getting Credit

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200

174

Protecting Minority Investors

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200

173

Paying Taxes

Ease of Doing Business

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200 187

Trading Across Borders

Mauritius

Botswana

Morocco

Seychelle

s

NamibiaKenya

Ghana

Uganda

Egypt, A

rab Rep.

Mozambique

Malawi

Burkina Faso

EthiopiaTogo

Burundi

ComorosBenin

Niger0

20406080

100120140160180200

165

Enforcing Contracts

Mauritius

Rwanda

Botswana

South Africa

Tunisia

Morocco

Seychelle

s

Zambia

Namibia

Swaziland

KenyaGhana

Lesotho

Uganda

Cabo Verde

Egypt, A

rab Rep.

Mozambique

Tanzania

Malawi

Côte d'Ivoire

Burkina Faso Mali

Ethiopia

Sierra Le

oneTogo

Gambia, The

Burundi

Senegal

Comoros

Zimbabwe

BeninSudan

Niger0

20406080

100120140160180200 189

Resolving Insolvency

Progress in Doing BusinessChange in Rank

2013 2015 ChangeEase of doing business 172 184 -12Starting a business 143 89 54Dealing with construction permits

170 131 39

Getting electricity 157 174 -17Registering property 85 135 -50Getting credit 129 133 -4Protecting investors 128 174 -46Paying taxes 134 173 -39Trading across borders 167 187 -20Enforcing contracts 111 165 -54Resolving insolvency 169 189 -20

Two fundamentals for attracting Investments

Safety of capital

and

Higher Return

Safety of capital

Property Rights

Rule of Law

Higher Returns

Classical sources of comparative advantages Market size; Absorptive capacity, as measured by

financial development; the level of economic development; infrastructure; natural resource abundance; and macroeconomic stability.

Institutional quality and efficiencyRule of law, quality of bureaucracy, and executive

constraints.

Host country’s structural reforms

Financial sector reforms (to strengthen banking sector supervision, to reduce credit ceilings for banks, and to liberalize securities markets), trade reforms, and privatization.

Financial reform is arguably a pre-condition for the maximization of the benefits of spillovers to foreign investors via backward linkages as an efficient domestic financial system greatly facilitates the establishment and growth of domestic suppliers of the foreign firms.

Foreign investors highly value a host country’s financial system that is able to allocate capital efficiently, monitor firms, ameliorate, diversify and share risk, and ultimately mobilize savings.

Cost of Capital and Labor Limited access to and

high interest rates on credit from formal financial institutions

Excessively high costs on micro credits

High cost of labor relative to most regional countries

Low labor productivity

Wage structures not linked to labor productivity

Liquidity Crunch

Decline in net financial flows (CA:-3.0bn, Capital account:2.7bn), inability to print money,

Medium to long term effects of liquidity issues on domestic and foreign investments

More to do with the breakdown in confidence that leads to hoarding, illicit financial outflows

The role played by past mistakes and present policy uncertainties

Policy Recommendations

Restore confidence in the government and the financial system, including through being transparent in policy making, maintaining policy coherence and consistency and establishing strong financial regulatory measures

Undertake credible reforms (financial, labor and public sector) to attract foreign and domestic investments

Policy Recommendations Create a conducive investment climate including

through removal/modification of existing restrictions on foreign investments

Strengthen institutional efficiency. Link public service salaries/career development to innovation through a risk-reward system

Fight corruption head-on

Thank You!