It’s as easy for entrepreneurs to access start-up credit in Rwanda as it is in the US and Colombia, with only New Zealand besting the three countries that tied in joint-second, the World Bank Doing Business Report (DBR) 2016 says.
The new ranking is an improvement by two steps for Rwanda on the same indicator in last year’s DBR publication.
In its 13th edition, the Doing Business Report is the World Bank’s flag publication that measures how economies around the world are responding to investor needs by removing burdensome regulations that tend to discourage businesses to start and prosper.
The latest DBR was released last week under the theme, “Measuring regulatory quality and efficiency,” with its findings based on the doing business environment in 189 economies around the world.
Although Rwanda’s overall global DBR ranking tapered by seven positions, from 55th previously to 62nd, the country has retained its position as the easiest place to do business in East Africa ahead of larger economies such as Kenya, Tanzania and Uganda. East Africa’s largest economy, Kenya, is ranked 108 globally, Uganda (122), Tanzania (139), while Burundi is placed in 152nd position.
Although still way behind Rwanda, the report found that Kenya and Uganda were among the ten economies in the world that recorded the most notable improvement in their doing business reforms for the period between June 2014 and June 2015.
Other top reformers on key doing business indicators in 2014/15 included Costa Rica, Cyprus, Mauritania, Uzbekistan, Kazakhstan, Jamaica, Senegal and Benin.
The DBR is a major reference document for investors who are constantly on the lookout for places around the world that offer the best potential returns to their investment and the World Bank’s latest analysis will guide entrepreneurs where to do business in 2016.
Rwanda is certainly one of those places. According to findings in the DBR, the country initiated some new regulatory reforms which helped the economy improve its rankings on four out of the 10 indicators measured.
The biggest improvement was registered on the indicator regarding ‘protection of minority investors’ with new reforms helping the economy better its rankings by 33 points, moving from 121st position previously to 88th position.
As a country with a fast-growing stock market, a reform that seeks to protect minority shareholders in a company is likely to encourage stock investors to increase their interest in Rwandan firms.
The Rwandan government, according to the report, has strengthened minority investor protections by introducing provisions allowing holders of 10 per cent of a company’s shares to call for an extraordinary meeting of shareholders, requiring holders of special classes of shares to vote on decisions affecting their shares.
Reforms on resolving insolvency also helped Rwanda improve its rankings on this particular indicator, by 25 points, moving from 97th position previously to 72nd this year.
The positive shift on this particular indicator followed a new reform where government introduced provisions on ‘voidable transactions’ and the approval of ‘reorganisation plans’ and by establishing additional safeguards for creditors in ‘reorganisation proceedings.’
Meanwhile, regarding how easy it is for entrepreneurs to get credit, Rwanda moved two positions up, from 4th to 2nd place with the positive shift linked to benefits of the country’s credit reference bureau services which started providing credit scores to banks and other financial institutions help them with reliable credit worthiness data and ease their decision making on credit applications.
Rwanda’s credit reference bureaus have helped expand coverage on credit history of borrowers and strengthened the credit reporting system, hence reducing on the time previously spent by credit officers in investigating the credit worthiness of loan applicants, the report noted.
Rwanda’s general rankings in the last two doing business reports has noticeably tapered but that’s because of a recent change in methodology used to measure the various indicators.
Most top ranked countries under the previous methodology, including Rwanda, lost ground and faltered on most indicators after the new methodology was introduced rather unexpectedly, and countries have since been working toward realigning their reform efforts to the new rules.
For instance, in the 2012 Doing Business Report, Rwanda was ranked 8th globally as the easiest place to start a business. However, under the new methodology, the country is now ranked as 111st in the world under the latest index.
According to the report, Rwanda has reformed its starting a business process to make it easier by eliminating the need for new companies to open a bank account in order to register for VAT; this helped the country move six positions up from last year’s ranking of 117th to 111st, this year.
To measure ease of starting a business, the doing business survey looks at the time, cost, paid-in minimum capital and number of procedures to get a local limited liability company up and running.
Under the new methodology, New Zealand is the easiest place for investors to start a business and, at 19th globally, Burundi is the easiest place to start a business in East Africa.
“A modern economy cannot function without regulation and, at the same time, it can be brought to a standstill through poor and cumbersome regulation. The challenge of development is to tread this narrow path by identifying regulations that are good and necessary, and shunning ones that thwart creativity and hamper the functioning of small and medium enterprises,” said Kaushik Basu, World Bank chief economist and senior vice-president.
Augusto Lopez-Claros, the director of the World Bank’s Global Indicators Group, which produces the report said: “The increased emphasis on the quality of regulation, to complement the previous focus on efficiency, is aimed at providing greater clarity between well-designed and badly-designed regulations, making it easier to identify where regulation is enabling businesses to thrive and where it has the opposite effect.”