Doing Business 2017 Reform Agenda Workshop

By Barbara Andoh and Hubert Nii-Aponsah

The International Finance Corporation in conjunction with the Ghana National Chamber of Commerce organized the “Doing Business 2017 Reform Agenda Workshop” on the 9th of November 2016 to present the “Doing Business Methodology” to key private and public sector stakeholders as well as to discuss Ghana’s performance in the Doing Business 2017 report.

The meeting began with an opening prayer and the introduction of the Chairperson, Nana Dr. Appiagyei Dankawoso I, the president of the Ghana National Chamber of Commerce. This was followed by a welcome address from the Chairperson and a key note address on the performance of the private sector by the CEO of the Private Enterprise Foundation, Nana Osei-Bonsu who stressed the need for regulatory reforms that will positively impact and facilitate growth of businesses in the private sector in Ghana.

Ms Kaliza Karuretwa, Senior Operations Officer of the World Bank delivered the Bank’s address on behalf of the IFC Country Manager for Ghana Ronke-Amoni Ogunsulire who could not be present at the meeting. She outlined the agenda for discussion which mainly included a presentation and discussion of the doing business methodology as well as a discussion on Ghana’s performance. She congratulated Ghana on its performance stating that Ghana’s overall ranking had improved from 114th in the last report to 108th.

Proceedings

The Doing Business Technical Team led by Friedric Meunier proceeded to deliver the presentation on the 2017 Doing Business Report.

He pointed out that the area of greatest improvement for Ghana was in the “Trading across Borders” indicator. However, Ghana performed poorly on the “Starting a Business” and “Dealing with Construction Permit” indicators because respectively fees for obtaining licenses and permits were increased. Ghana ranked best in the “Getting Credit” indicator placing 44th out of 190 countries.

Discussion Ghana’s performance per Selected Indicator

Starting a Business

In discussing Ghana’s performance on this indicator, Mr. Meunier pointed out that Ghana performed poorly on this indicator because Ghana made starting a business more costly by increasing registration and authentication fees. Further, the number of days to register a business was 14 which was still far from best practice and it took an even longer time to get the business license. Together, these make doing business in Ghana more difficult.

A representative from the Registrar General’s department put forward that, improvements had been made in the process of registering a business, particularly, it was now possible to register businesses online. However, the system was not currently in use because of issues with the online payment system which was being sorted out. This will likely translate into a better score on the “Starting a Business” indicator in the next report.

Dealing with Construction Permit

Mr. Muenier pointed out that Ghana’s ranking on this indicator fell mainly because Ghana increased the cost of obtaining a building permit thereby increasing costs. Further, he mentioned that it takes approximately 170 days to complete the full process of licensing while for other countries, it takes on average 150 days. Ghana however improved in the area of on-the-ground inspections.

Trading Across Borders

Ms. Kaliza Karuretwa stated that, Ghana’s exports consisted mainly of edible fruits and nuts and the topmost destination for its export was India. She further stated that Ghana mainly imported car parts largely from Belgium. The easiest entry and exit point for imports and exports is the Tema port. Overall, Ms. Kaliza noted that Ghana had improved on this indicator essentially because of the removal of the mandatory pre-arrival assessment inspection at the origin for the imported goods.

Getting Credit

The availability of a private credit bureau making credit information available caused Ghana to score high on the depth of credit information index. On discussing the performance of Ghana, participants raised concerns about the ranking of Ghana pointing out that, the favorable rank obtained wasn’t a true reflection of the actual situation in Ghana. In fact, many businesses in Ghana found it difficult to access financing for their businesses because of issues such as high interest rates, lack of collateral among others. This was evidenced in the Global Competitiveness Index report 2016/2017 which pointed out the most problematic factor for doing business in Ghana was access to finance.

Mr. Meunier responded that the DB report looks at the institutions and regulations in place which foster access to credit. It was therefore suggested that since the DB report looks at the institutions and regulations in place that foster access to credit rather than the actual situation of getting credit in Ghana, the name of the indicator should be changed to reflect this.

Comments from the Imani Team

Sole Proprietorships versus Limited Liabilities: Imani’s Barbara Andoh raised a few concerns with the stipulated assumptions; specifically, that the businesses considered were solely limited liability companies (LLC’s). According to her, in the case of Ghana, there were doubtless more sole proprietorships than limited liability companies. In that case, an analysis looking solely at the procedure of registration and start up for LLC’s is not likely to be a true reflection of the actual situation in Ghana. A case in point is that it takes fewer procedures, documentation and days to register a sole proprietorship than a limited liability company in Ghana. If so, Ghana would have performed better on the “Starting a Business” indicator.

Mr. Meunier responded to this pointing out that, the Doing Business Report focused more on a global perspective. Though there may be more sole proprietorships in Ghana, the more common form of business globally was the limited liability form. As such, it was more prudent to focus on the situation as pertains to limited liability companies. Further, better performance on the indicator for LLC’s automatically meant better performance for sole proprietorships given that the procedure for starting LLC’s involved more steps (documentation and regulations), time and cost than those for sole proprietorships. He also mentioned that sole proprietorships have a more informal structure which usually needs little regulation.

Reliability of the Methodology Over time: Imani’s Resident Economist and Deputy Head for the Centre for Economic Governance and Political Affairs Mr. Hubert Nii-Aponsah posed the question of how reliable the results of the DB methodology are over time given that changes are made in the methodology from time to time. For instance, the 2015 report saw a change in the basis of the ranking from the percentile rank to the distance to the frontier score. Consequently, Ghana’s rank dropped from 69th position to 112th position; over 40 places. So it was hard to say, prima facie, whether Ghana’s rank in the 2015 report was largely due to the change in the methodology or largely due to a deterioration in the favorableness of Ghana’s business environment instead although both contributed to the decline.

In answering to this, Mr. Meunier pointed out that, there is a trade-off between having comparable data over time and making sure that the methodology reflects the world today. So, the World Bank tries to correct the data up to about two to three years back after a change in the methodology but the Bank has to keep updating the methodology as well.

Addition of Gender Component to Indicators: Mr. Nii-Aponsah noted that this year, the DB methodology was changed to capture gender discrimination in relation to doing business with the aim of discouraging it. He stated that, there are over 30 countries in Africa that actually have laws which discriminate against women however, as Mr. Meunier had earlier mentioned, Ghana was not one of them. This meant that the boost in Ghana’s ranking when compared to these other countries was automatic because of the gender component and not necessarily because the ease of doing business in Ghana has improved.

The Methodology’s Consideration of Taxes in Ghana: Mr. Nii-Aponsah further noted that even though in 2016 the new tax law Act 896 in Ghana increased taxes for businesses overall in line with IMF’s austerity measures to help stabilize debt, the total tax rate (32.7%) used by the DB technical team had not increased to reflect this indicating that the tax data had not captured tax changes made in 2016.

Mr. Meunier explained that the scope of the tax data analyzed ended at December 2015 and so the new tax law was not included in the score and the determination of Ghana’s rank for the Paying Taxes indicator.

Mr. Nii-Aponsah agreed that tax data was typically lagged; however, he brought to attention the fact that if the new tax law been included in the DB 2017 analysis, Ghana would have performed much worse under the Paying Taxes indicator which would have adversely affected Ghana’s composite score and rank. This is because the fundamental challenges of the old tax law Act 592 still prevail coupled with an overall increase in taxes under the new tax law Act 896.

Overall, Mr. Nii-Aponsah opined that he was skeptical about using the DB ranking to claim that the ease of doing business in Ghana has improved due to the fact that there were two negative reforms concerning the “Starting a Business” and “Dealing with Construction permit” indicators and only one positive reform concerning the “Trading Across Borders” indicator according to the 2017 report.

Mr Nii-Aponsah agreed that DB 2017 report is a crucial and informative report; however, he stressed the need to add some more domestic flesh to appreciate it better in Ghana’s context since the assumptions made by the Doing Business team helps them to compare Ghana with the rest of the world but may not necessarily be accurate for Ghana.

Closing Remarks

The meeting ended with the closing remarks from Nana Dankawoso I, who thanked all stakeholders present for their presence and contributions. He said that Ghana make every effort to improve its Doing Business ranking. He coined the term W.I.M.P.E.Y which stands for “We Intend Making Progress Every Year” as the take home agenda from the meeting.