The business environment in a country influences the ease and efficiency of businesses to operate. When it is not conducive, it discourages entrepreneurship and holds back private sector development.
It depends on various factors including the legal and regulatory framework, the quality of physical infrastructure, such as roads and transportation, telecommunications, supply of water, and electricity, availability of skilled labour, political governance as well as the security of a country.
Other key factors are macroeconomic stability, the costs of red tape in complying with government requirements as well as the level of corruption.
Due to its immense importance, improving the business environment requires many intellectual and financial efforts, regular monitoring and a strong partnership between the private sector, government and development partners.
According to the annual World Bank Doing Business Report, Rwanda has made very impressive improvements through a variety of business reforms since 2005.
It is performing well compared to the Sub-Saharan Africa average in seven World Bank indicators (enforcing contracts, paying taxes, starting a business, registering a property, dealing with licenses and employing workers) and has been the best performer in EAC in starting a business, registering property and paying taxes.
Nevertheless, Rwanda is performing poorly in four indicators especially in closing a business, protecting investors, trading across borders and getting credit.
Hence, more efforts have to be made in order to further develop an enabling business environment which leads to economic growth and creates employment.
The above mentioned World Bank instrument has been very powerful in boosting business reforms worldwide by scoring countries looking at ten distinct indicators.
Bearing in mind that there are other important factors determining competitiveness which are not sufficiently taken into consideration, a complementing instrument, namely, the Business and Investment Climate Survey (BICS) has been conceived.
Many private sector organisations in African countries such as Malawi, Ghana, and the majority of countries in the Southern African Development Community (SADC) have improved their lobbying and advocacy using this particular instrument.
In Rwanda, the first BICS was produced by the Private Sector Federation (PSF) with the support of GTZ and was launched on April 2nd 2009.
GTZ’s support comes under the framework of its programme “Sustainable Development of the Economy and Employment in Rwanda” which is financed by the German Federal Ministry of Economic Cooperation and Development (BMZ).
A country wide representative cross-section of 952 businesses who completed questionnaires, has shown that the greatest impediments to business growth in Rwanda are access to and cost of land (83% of respondents), access to and cost of transport (81% of respondents) , as well as tax rates and administration (77% of respondents).
The below illustration (BICS 2008 result) shows the major business challenges nationwide by sector:
Because BICS captures the business community’s views in a clear and concise manner, it helps the PSF to have a very powerful policy advocacy and the information provided becomes a very strong basis for private-public dialogue.
Furthermore, BICS is also very important helping to measure progress over time. However, it has to be repeated on a regular basis in order to monitor and measure progress.
Hence, PSF intends to repeat the exercise every two years. Some of the issues revealed by business operators can be resolved without external aid, but through internal measures.
Access to and cost of land is not only a problem for business operators but there is also a social dimension. Rwanda has a demographic density of more than 500 inhabitants/km2 (total population on arable land), making Rwanda the most densely populated country in Africa and among the 10 top countries in the world.
On the issue of population growth, the Government of Rwanda is deploying great effort to raise awareness of the role and use of family planning techniques.
However, on a different note, the government needs to look into possibilities to reduce the time and procedures it takes for a business to acquire land permits and subsequently titles.
Businesses need land and the title thereto to become part of their assets and to qualify as collateral to attain finance from commercial banks.
Being a landlocked country, transport and non tariff barriers along the way to the ports are serious issues for external trade development.
Poor infrastructure (roads) leads to high transport costs and contributes to the increase of prices of goods and services which in turn leads to low demand and finally reduces the competitiveness and the incentive to produce for the market.
The same report revealed that the internal transport cost account for 15% to businesses’ monthly costs. The government, in partnership with the private sector and development partners should focus on improving feeder roads in the rural areas, hence stimulating rural production for the market.
With Works for General Interest (TIG) and community works (Umuganda), many things can be achieved. For external trade, focus should be put on reducing time of complying with export and import requirements at national level.
With East African countries, especially Kenya and Tanzania, where Rwanda’s imports and exports have to pass, negotiations should concentrate on reducing non tariffs barriers which increase the cost of Rwandan exports, therefore reducing their competitiveness.
A study conducted in 2006 by Djankov S. and al. entitled “Trading on time” of 126 economies showed that each extra day of delay incurred the loss of 1% of trade and nearly 3% of volume of trade for perishable products. The Ministry of East African Community and MINICOM can play a crucial role in lobbying for improvement.
On issues pertaining to tax rate and administration, recent improvements specifically helping to facilitate tax payment implemented by the management of Rwanda Revenue Authority (RRA), can only be applauded. However, there is room for further improvement.
Another report recently commissioned by PSF and funded by GTZ on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) entitled “Cutting the Cost of Red Tape for business growth in Rwanda” showed that the total cost for Rwandan businesses to comply with regulations in 2007 amounted to an estimated RwF 55billion (US$ 100 million).
Tax and customs procedures are most troublesome and time consuming and accounted for 38.8% of the total compliance costs (RwF 21 billion).
On the other hand the BICS report revealed that the most cited constraints regarding fiscality is a lack of understanding of information about tax system, difficulty in filling in forms, time spent dealing with tax issues and poor/unfriendly services rendered by the RRA.
Until recently businesses wanting to pay their taxes could only do so at ECOBANK and had to do so in person. In an effort to reduce time spent by businesses waiting to pay their taxes, RRA has allowed taxpayers who have accounts at the Bank of Kigali to pay there.
However, the question remains why RRA is not further diversifying its partner banks perceiving taxes and non tax revenues?
Why is it that other commercial banks such as Banque Populaire and even some strong microfinance institutions specifically with networks in rural area cannot be used in this process and help reduce the time it takes a business operator in paying his/her due?
RRA, among all other institutions, should know that time is money and that this strategy can probably also contribute in reducing the unfriendly services stated. RRA should also try to provide clear information on time, specifically if there are any changes and simplify forms to avoid business people to interact with many departments at ago.
Emma Carine Uwantege is a Senior Economist, with the Promotion of Economy and Employment Programme at Deutsche Gesellschaft für Technische
Zusammenarbeit - GTZ