BY GODFREY NTAGUNGIRA
Rwanda was declared as the star and the World’s top reformer of business regulation, making it easier to start businesses, register property, protect investors, trade across borders, and access credit. This marks the first time a Sub-Saharan African economy to merge as top reformer.
According to the report, the country has made the big strides in becoming business friendly by introducing reforms in seven out of the 10 categories, rising from 143rd to 67th place on the ease of doing business rankings.
Rwanda has proved to be walking the talk in line with her developmental plans embedded in Vision2020 and EDPRS framework. Rwanda has been aspiring and still making reforms to create a capable state with a better environment to do business and to have a modern, competitive private sector based on a culture of initiative and creativity centered on a solid class of businessmen and entrepreneurs, geared towards capital formation through the revitalization of industry and service sector.
The government of Rwanda began its progressive doing business reform in 2001 as part of a broader investment climate reform program to promote the country as a preferred investment destination with financial and technical assistance from the World Bank group.
In 2008, the government of Rwanda publicly set for itself a target to attain a double digit ranking in the doing business survey.
Since then Rwanda has improved the process for dealing with distressed companies with new law aimed at streamlining reorganization.
Employing workers was improved by abolishing the maximum duration for fixed term contracts and allowing unlimited renewals of such contracts as well as by allowing redundancy procedures to be more flexible.
For the first time in history, Rwanda is the World Bank’s biggest business reformer, while Singapore leads overall world rankings for the fourth straight year as the easiest place to do business.
Doing Business ranks economies based on 10 indicators of business regulation that record the time and cost to meet government requirements in starting and operating a business, trading across borders, paying taxes, and closing a business.
The rankings of 183 countries, currently in its seventh year, are based on analysis of regulations of business start-up and operations, trading across borders, paying taxes, and closing a business.
The top 10 in order include: Rwanda, Kyrgyz Republic, Macedonia, Belarus, UAE, Moldova, Colombia, Tajikistan, Egypt and Liberia
Report reveals that this year more countries were implementing regulatory reforms despite the global financial crisis, with 60 percent of economies reforming in every region.
According to Clare Akamanzi, the Rwanda Development Board Deputy CEO/ Business Operations and Services, Rwanda’s focus now shifts to moving ‘closer’ into the double digit as well as consolidating the reforms already in place, while doing more reforms in other areas beyond the Doing Business report.
“In our reform work, we want to go beyond the doing business report because it is not everything to do with doing business and investment climate,” said Akamanzi.
A statement from World Bank stated that business regulation can affect how well small and mid-size firms cope with the crisis and seize opportunities when recovery begins.
In past year Rwanda was ranked 139th whereby it held a top-third ranking within sub-Saharan African countries. The score on investor perceptions within investment climate scenario showed an average rating of 79%.This reflected improvements through the doing business reforms that the economy has embraced .
During the past year 18 economies reformed their bankruptcy regimes, including several economies in the hard-hit region of Eastern Europe and Central Asia. In times of recession, keeping viable companies operating as a going concern and preserving jobs becomes especially important.
Rwanda sees the Doing Business Report as a major tool to stimulate investments in the country.
“By ranking us with other countries, we are able to know where we stand and from there we can identify major areas of focus, where we need to improve and then we actually carry out the necessary reforms.” said Kaliza Karuretwa, the Director General in charge of investment climate at the Ministry of Trade and Industry.
Major reforms implemented by Rwanda aimed at easing the process of starting a business in the country which are expected to boost the country’s chances of getting a double-digit ranking.
“It has been in the government plans since this year’s retreat. We went through the last report indicator-by-indicator and looked at the laws that needed to be amended. We particularly prioritized a number of laws such as the company law, the privacy law etc and they have already been passed,” said Clare Akamanzi, the RDB Deputy CEO in charge of Business Operations and Services.
She added that the board has streamlined the process of starting a business, where in the last report it took 9 procedures and 16 days to register a company. Today it is just two procedures in one day.
“We see the Doing Business Report as a very critical component for the investment climate in Rwanda. However not everything we need to do, to boost the investment climate is within this report”
The Ministry of Trade and Industry’s strategic objectives in line with doing business reforms within the area of undertaking and actualizing reforms to stimulate growth has started paying off.
Assessment done by the Trade and industry Ministry indicates that major reforms done to boost undertaking and actualizing reforms to stimulate growth has started paying off, in terms of increased investment levels.
Reports from RDB also show that for the past six months, investments faced a slight decline of 10 percent in the number of investment projects registered but on the other hand there has been 50 percent increase in value of investment projects registered.
“We have monitored our economic performance from January to June this year and we have seen that the numbers of projects that are coming into Rwanda have a slight drop of about 10 percent but in terms of the value of the project, we have seen in fact an increase of over 50 percent of the value of projects registered,” Akamanzi said.
Among other factors, she cited key international companies that have registered to enter the local market including telecommunication giants like Tigo, the American firm investing in methane gas, Contour Global, and Bakhresa Grain millers.
Statistics indicate that in the last six months and their investments are quite substantial. The numbers have slightly declined compared to the last six months of 2008 but there has been substantial increase in the value of projects registered.” Akamanzi added.
Claire Kamanzi said Rwanda is quite optimistic that as economies slowly recover from the effects of global recession, international companies that had earlier expressed interest in investing in Rwanda but were heavily affected by the crisis will come on board.
A comparative analysis done by RDB by the end of June 2009 shows that 57 projects were registered with an estimated level of investment worth Rwf 368 bn expected to create 7,173 jobs.
Doing Business ranks economies based on 10 indicators of business regulation that track the time and cost to meet government requirements in starting and operating a business, trading across borders, paying taxes, and closing a business.
Better legal framework
In efforts of creating a better place to do business, parliament passed a number of new legal instruments that have played a central role to ease how companies operate within the economy.
The current legal reforms made lots of improvements in terms of doing business getting credit was made easier with a new secured transactions act and insolvency act to make secured lending more flexible which allows a wider range of assets to be used as collateral and a general description of debts and obligation.
“Issues regarding liquidation and insolvency currently are being addressed in the company law rather than the most commonly used system where, if a company goes bankrupt, it closes down and the owner arranges with the bank on the how it can get its loan serviced,” Kamanzi added.
Also out of court enforcement of collateral has become available to secured creditors who also currently have top priority within bankruptcy.
Property registration was simplified by decreasing the number of days required to transfer a property and also business start up was eased by eliminating a notorisation requirements by introducing standardized memorandum of association, enabling online publication, consolidating name checking, registration fee payment, tax registration and company registration process and the shortening the time required to process completed applications.
Role of Commercial courts in improving Business Environment
A sigh of relief has gone through the business community, now that specialized commercial courts have finally been set up. Over the years, the business community has often complained about the lack of specialised laws, and especially courts that would help them settle business disputes.
What Rwanda achieved in easing investment was a collective effort. The Doing Business Unit comprised of central and local government technicians, representatives of the private sector and civil society. In the past, commercial cases were heard by ordinary courts which; given the heavy case-load these courts were facing, often caused long delays.
This used to hamper government’s efforts to attract foreign investors for whom the existence of a consistent law and specialized courts is often an important factor in their decision to do business in a country.
“We are happy and determined to move forward every year coming from a very low base and we are committed to do more. A lot is in the pipeline to improve further on the business environment to make Rwanda a much better destination for business.” Claire Kamanzi.
The Doing Business project is based on the efforts of more than 5,000 local experts - business consultants, lawyers, accountants, government officials, and leading academics around the world, who provide methodological support and review.
In 2007, in an effort to counter Rwanda’s ratings in the two previous Doing Business reports (158 and 150). The government establishment of a national Doing Business Unit, a task force under the Rwanda development board to identify and drive implementation of reforms to improve Rwanda’s business climate.
Rwanda leaped 11 positions to become 139th in this year’s rating, registering commendable reforms on its way up. One indicator in which Rwanda improved tremendously was registering property. Rwanda boosted its ranking 78 places from 138 to 60, becoming runner-up for best reformer globally.
Rwanda introduced major reforms in several areas, according to Doing Business 2009. It streamlined construction permitting for the second year in a row by combining the applications for location clearance and a building permit in a single form and introducing a single application form for water, sewerage, and electricity connections. This reduced both the number of procedures and the time required for dealing with construction permits.
The time and cost to register a property also fell. A new fixed registration fee was introduced, and centralization of the tax service reduced the time to obtain a certificate of good standing, the report noted.
Rwanda facilitated trade by extending the opening hours of the customs border offices, implementing an electronic data interchange system, and introducing risk-based inspections.
Investment promotion involves all activities aimed at encouraging greater infusion of investments to fuel growth as well as enhancing the image of the country as an ideal location for investments.
Rwanda’s leadership realizes that economic growth must be driven by focused public and private sector investments as well as taking the necessary legislative and policy initiatives aimed at enhancing the country’s attractiveness as a base for business.
According 2008 World Bank and IFC, Rwanda was the fastest reforming economy in a region that is increasingly of interest to investors seeking opportunities in emerging markets.