In this AFKInsider series, we explore the regulatory conditions that an entrepreneur is likely to face when setting up a business in sub-Saharan Africa. AFKI presents Doing Business in Africa: Congo.
Doing Business in Africa: Republic of the Congo
Bordered by the DRC Congo to the east, Gabon to the west, Angola to the south and Cameroon and the Central African Republic to the north, the Republic of the Congo—also called Congo-Brazzaville to distinguish it from its eastern neighbor—came under the control of the French in 1880 and its capital, Brazzaville, became the administrative headquarters for much of French Central Africa during the colonial era.
After the Second World War—during which Brazzaville served as something of a symbolic capital for the Free French—the country benefited from increased attention from France in the form of greater spending on infrastructure, administration, and economic development. Then in 1960 the country was granted independence from France along with another of other French colonies in Africa.
As was the usual case in much of post-colonial Africa, Congo swiftly fell into political disorder after independence and affinity for anti-colonial rhetoric from the Easter Bloc led to the country adopting a more socialistic form of government after a coup in 1963.
A period of political musical chairs then followed with one leader deposing another until stability of sorts was imposed by Denis Sassou Nguesso, who took power in 1979 and ruled until 1992. For much of this period the Nguesso regime was heavily dependent on aid from the Soviet Union and when the Cold War ended pressure mounted for the former Moscow client to introduce economic and political reforms.
This was done and Nguesso lost the presidency in 1992, but civil war led to his return to the presidency in 1997—an office Nguesso still holds to this day. Meanwhile, under his steady, if corrupt, rule the country has liberalized and opened up to international trade and investment all while periodic elections keep Congo’s long-ruling president in office as a more-or-less elected strongman who totally dominates the country’s politics.
Ease of Doing Business
So how does all this influence business conditions? According to the World Bank, Congo currently ranks 177th out of 183 countries on its Ease of Doing Business Index – a measure created by the Bank to gauge the degree to which commercial enterprises encounter regulatory hurdles, legal threats to property, and the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses.
By way of comparison, the United States ranks 4th on ease of doing business, right after Singapore, Hong Kong, and New Zealand.
What does this ranking mean? Take, for instance, the Bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. From the figure one can see that the Bank defines business-creation costs as consisting of the time and money outlays involved in the series of legal steps necessary for the entrepreneur must take in order to legally establish an in-country firm. Using this framework, the Bank then tasks researchers to go through this process in order to establish in-country averages.
When this metric is applied to Congo, the Bank finds that Congo ranks 176th out of 183 in ease of starting a business, making Congo one of the worst places on Earth to start a legal commercial enterprise.
To start a business in Congo one has to complete 10 bureaucratic procedures that take a total of 160 days at a total cost of about $2,031 a minimum capital requirement imposed by the government of $2,379.
How the World Bank Measures Ease of Starting a Business
Using similar metrics for other aspects of business operations, the Bank has ranked Congo in a number of other areas. To obtain a construction permit, for instance, Congo does much better, but still no great, ranking 83rd out of 183 as it takes the completion of 17 procedures, which takes on average 169 days at a cost of nearly $4,410. Clearly this is a very high price to pay and a clear barrier to your average citizen of Congo in building or expanding a business.
Continuing in its assessment, the World Bank has determined that in order to obtain and register property, Congo does worse as it ranks 133rd out of, again, 183 countries measured.
To register property in Congo, the Bank finds, it takes the completion of six bureaucratic procedures that takes, on average, 55 days and costs 10.7-percent of the property’s financial value in fees and other costs to complete. This makes Congo a moderately a fairly difficult place in which to register property.
Congo unfortunately does little better when it comes to obtaining credit, where it ranks 138th out of 183—making the country one of the worst in the world in this area.
Here, as depicted in Figure 2, the Bank examines the legal rights of creditors and borrowers in secured transactions and bankruptcy law as well as the strength of credit information bureaus and exchanges.
When lenders have both strong legal rights and easy access to a wide variety of information about the client’s creditworthiness, reasons the Bank, the more available credit will be. When information on borrowers is significantly lacking – as is the case in most of Africa – legal protections for creditors must in turn be very strong. Congo does poorly here because creditor rights are relatively weak and there is relatively little information available on potential borrowers.
How the World Banks Conceptualizes Credit Acquisition
When it comes to protecting investors and minority shareholders, Congo is also a poor prospect. Here, the country ranks 154th out of 183 countries. Congo receives this score despite requiring a relatively strong degree of conflict-of-interest disclosures by directors because said directors are rarely held liable and shareholder lawsuits are difficult to carry out.
Congo does even worse in the area of taxation. The World Bank estimates that pleasing the tax man in Congo requires a total of 61 payments over the course of a year which, in turn, takes up to 606 hours to complete and can consume up to 65.5-percent of a company’s profits. Accordingly, Congo’s tax burden is ranked 180th out of 183 nations, making it one of the very worst in the world in this area.
When it comes to engaging in cross-border trade, Congo once again fails to make the grade. In Congo, to import goods into the country one is required to have ten documents for customs officials to inspect. On average, it takes a total of 62 days to import goods into Congo with the cost amounting to $7,709 (excluding tariffs) per container shipped into the country.