Business Climate: Mirror, Mirror, say, “Who Is the Fairest?”

Mauritius leapfrogs to the 25th place in the 2018 World Bank’s Doing Business Report

The Doing Business Index (DBI) was created by the World Bank in 2003. Its main purpose is to assess the real impact of government policies on the ease of doing business in 190 countries, whether they are developing, emerging or developed economies.

It should be emphasized that the spirit behind this ranking is to promote healthy competition amongst economies to egg them on to improve their business climate. The DBI has a direct impact on the strategies of listed countries regarding the effectiveness of business regulations.

For any country, a high ease-of-doing-business ranking as compared to other countries means that its regulatory environment is business friendly and conducive to economic and commercial activities. The World Bank poses a simple premise: overly constraining conditions discourage entrepreneurship and, as a result, value creation, wealth generation, job creation and, ultimately, growth.

In 2016, 189 countries were in the starting blocks. To establish the DBI ranking, the World Bank assessed the conditions under which the following services and procedures were provided: (a) starting a business; (b) dealing with construction permits; c) getting electricity; d) registering property; e) getting credit; f) protecting investors; g) paying taxes; h) trading across borders; i) enforcing contracts and j) resolving insolvency. Addressing all these factors satisfactorily makes it possible for the economies to be ranked from 1st (the most business-friendly) to 189th position (the least business-friendly, the total number varies according to the number of countries under assessment).

 

The crash, from 32nd to 49th position!

In the newly released 2018 World Bank report, Mauritius ranks 25th on the DBI score board. We indeed have every reason to be pleased, since this index sets us in a higher position than many very competitive countries. But as the wheel of fortune keeps turning, the performance in one specific year does not necessarily match that of the preceding one.

Graph 1: Evolution of DBI for Mauritius from Doing Business Report 2006 to 2018

The release of last year’s ranking doused us with a cold shower, for our DBI ranking tumbled down from the 32nd to the 49th position. The national investment promotion agency (the Board of Investment) and other stakeholders could not simply turn their face the other way, waiting for fairer weather. The Board of Investment therefore took the decision to devote important resources to address the situation and ensure that the business facilitation agenda is taken seriously.

This new strategy was installed despite the lure of warding off scathing criticism pouring down from a poor score through “specious arguments” about alleged changes in the assessment methodology. BOI refused to succumb to that fallacious posture, preferring to acknowledge that an objective assessment of the ease of proceeding in the ten indicators was indeed not favourable to our jurisdiction.

The refusal to face the facts would have been tantamount to intellectual dishonesty. Faced with our downhill slump that plunged us lower than the last countries in the first quarter of the score chart, BOI chose to take a step back. This allowed us to elaborate and implement a plan, a serious and very ambitious one aimed at allowing Mauritius to secure anew an acceptable ranking in the subsequent DBI annual chart.

 

 

The wake-up call

In these types of situations, when looking for real tangible results and not just putting up a façade, it is important to divest oneself of every streak of what might look like the trappings of “institutional ego”. For BOI - but also for Mauritius - it was imperative to look beyond the embarrassment in the wake of that relegation.

This state of mind allowed us to consider that setback as a blessing. It was indeed a blessing in disguise, for it allowed BOI, through close collaboration with other agencies and ministries, to rectify the situation and conduct an analytical audit of our regulatory and institutional, if not systemic, weaknesses.

Those shortcomings had in fact been highlighted - and in far from flattering terms - in the World Bank report. However, since the DBI ranking was based solely on the actual implementation of the various suggested reforms, BOI management was confronted in this crisis with the very raison d’être of the organization.

Faced with the risk of another substandard performance, it was imperative for BOI to recover from the shock, but above all to be able to identify effective reforms, formulate their rationale, their justification, and promote their implementation. Mere cosmetic reforms would have condemned us, right from the publication of the next report of the World Bank, to a real descent into hell.

So, we were not short of valid reasons to rather embark on a series of “genuine reforms”. This move would offset the weaknesses that had been the cause of our downfall. We are pleased to say that we could count on a staff galvanized by the prospect of picking up many challenges, and at a great risk of losing the first place in the DBI ranking in Africa which was staring BOI in the face!

 

In-depth Analysis

This battle could not have been won had we not succeeded in putting our regulatory reform strategy in a framework of innovation. An easy way out would have consisted in adopting a tactic of beat and cheat the DBI, in a poor ploy to outwit others.

In 2005, Invest Mauritius called for the necessity to jettison red tape but, specifically to overhaul our marketing strategies. Prospective missions abroad, as they were conducted in the 80s and 90s, were no longer effective. The urgent need then was to enhance the competitiveness of the economic sectors, to put an end to the duplication of tasks among organizations involved in promoting investment, to synergize efforts so that the public authorities would work hand in hand with the private sector with a view to creating a more stimulating framework for the benefit of the companies.

In the meantime, other countries have entered the fray, working hard to catch up in the competition. The technological revolution has also motivated us to rethink our practices.

The challenge today is to address marketing imperatives, electronic commerce, the dematerialization of foreign direct investment and a decline in Greenfield investments. The challenge is not without adverse consequences because if we fail to leverage all modern techniques and new economic development strategies (clusters, value chains, targeted sectoral policies, industrial policies), we will miss the boat, condemned to be passive spectators watching the race for competitiveness pass by.

 

Determination for Reform

Let me spare readers a detailed list of all the measures taken to address the shortcomings and weaknesses identified in the 2017 World Bank report. It should, however, be noted that immediately after that cold shower, the public authorities worked with the private sector to improve the performance of Mauritius in the light of the ten indicators applicable for the assessment.

However, I want to emphasize some of the key actions undertaken during this challenging trek to implement reforms:

• There is often talk of undue delays, heavy procedures, computation of costs in the ten indicators of evaluation. How else are we to reform, if not through the leveraging of new information technologies or innovation?

• Our march towards a digital economy is progressively taking shape, through online platforms for license applications, property registration, and electronic tax filing.

• One of the most revolutionary measures, the Regulatory Sandbox License, now allows innovative companies to operate according to their specific modalities, for a fixed time, in the absence of a properly defined legal framework for the sector in which they operate. In this way, we make sure that innovation does not remain just wishful thinking, an idea or a practice condemned to a slow death in the real world of business.

The adoption of the Regulatory Sandbox License allows a small country like Mauritius which lacks human capital, know-how and financial means to create an appropriate ecosystem to foster innovation. It is now possible to encourage innovative projects using the simple concept of a “sandbox for innovative projects”.

 

Global competitiveness index

The DBI sets parameters. It allows us to benchmark with other countries and to compare our efficiency in terms of regulation in the conduct of business. This World Bank index is, however, not the only comparative measuring tool available to countries.

Economic observers also consider the Global Competitiveness Index (GCI) of the World Economic Forum (WEF) which has just released its 2017-2018 report. This index, which has undergone many improvements, was developed by renowned economists, such as Xavier Sala-i-Martin, Elsa V. Artadi, Jeffrey Sachs and the guru of competitiveness, Michael Porter, Harvard professor, author of the best-seller The Competitiveness of Nations and creator of the value chain concept.

The GCI assesses the competitiveness of a country and its competitiveness is ranked according to some hundred indicators. These are categorized into 12 pillars and measure several variables.

They apply not only to national regulations but also to institutions and their performance, infrastructure, the macroeconomic environment, health and justice systems, levels of corruption, education and research, economic policies, the efficiency of goods markets, the labour market, the functioning of various markets and innovation. The GCI of countries is conducted after consultation with 14,000 entrepreneurs from several countries.

On 27th September 2017, the WEF published its 2017-2018 edition of the Global Competitiveness Report. This year, out of the 132 countries screened according to established criteria, Mauritius ranked 45th  in the world, ahead of Rwanda (58th) and South Africa (61st).

 

 

Graph 2: Evolution of GCI for Mauritius from 2008-2009 to 2017-2018

It would be wrong to think that there is a direct correlation between the DBI and GCI rankings. In the table below, the case of Georgia which ranks 15th in the DBI chart and 90th in the GCI shows that there is no statistical correlation between the two measuring systems, no relation of direct causality between the ease of doing business in a country and its relative competitiveness internationally.

The DBI and GCI mirrors do not necessarily reflect an identical picture. In the case of the GCI, its objective and methodology is to assess the forthcoming capacity of governments to build effective institutions, physical infrastructure and an entire ecosystem so that the jurisdiction can make the shift to an “innovative economy”. Whereas the DBI has a narrower scope, for it only assesses the regulatory environment of a country.

 

 

 

 

 

 

 

Table 1: Comparative table, for the year 2009, of the performances according to DBI ranking and GCI ranking of the first 20 countries in the Ease of Doing Business Report 2009

 

Setting the standards higher

What lessons could be drawn from the results of these two indices? Their existence testifies to the omnipresence of competition in our life marked by inescapable globalization.

This global phenomenon cannot be shirked. What these two indices attempt to measure is the performance of a nation, not that of an institution. Thus, despite sustained proactivity on BOI’s part, in the long-term Mauritius is not immune to the same disappointment that followed last year’s cold shower and plummeting.

The least wavering or lack of vigilance regarding some of the indicators may send us rolling headlong in the DBI and GCI rankings. The main purpose of these rankings is to help policymakers in developing and emerging economies operate in conditions as beneficial as those prevailing in high-income countries.

We are, therefore, expected to defend our rank preciously vis-à-vis certain African countries that are increasingly distinguishing themselves by their dynamism and boldness. Again, it is imperative, for survival’s sake, to always benchmark one’s performance with that of other countries. 

However, whether it is the ease of the Doing Business Index or the Global Competitiveness Index, we are first among the African countries this time around. But should we be content with a first place in Africa at this juncture when we are endeavouring entering the league of “high-income countries”?

Should we remain in competition with mainland African countries which are still in the low-income category? Is it not in our interest to raise the stakes and measure ourselves with contenders competing in a higher category?

Should not Mauritius, a middle-income economy on the threshold of the club of higher-income countries, aim to be among the top ten countries in the DBI and GCI rankings? The objective should not be less ambitious! Let us remember that it is with a similar ambition that the formerly puny fishing port of Singapore began its ascent to the summit.

The more so that we already have all the required logistics and modern infrastructure, as well as a more qualified human capital than our neighbours’. What applies to life in general is equally true in the world of business: not to grow is to slide backwards. Our quantum leap of 25 places in the DBI ranking should not be a one-off feat but a stepping stone from which we should aim higher!

 

Rankings and their limitations

As useful as they may be, rankings have their limitations. While regulations contribute to the smooth functioning of markets, yet the product offered must be worth buying. Let us imagine, for a moment, a bakery with a most appealing shop window, posh and spotless clean, hinting at impeccable hygiene, a welcoming staff, an air-conditioned facility but offering, unfortunately, mediocre pastries of poor taste...

Like the negatives of a photograph, this situation evokes, in contrast, another one which is part and parcel of our daily experience, namely the informal food sector where people patiently queue up, under uncomfortable conditions, because the taste of the food is most pleasing to the palate and, regardless of any suspicion about hygienic conditions, the consumer is convinced that he has value for his money.

This would explain the fact that, on a larger scale, entrepreneurs and even multinationals continue to work in very poorly regulated countries. Otherwise, how else can one explain why India remains the most competitive country in South Asia, ranking 40th in the world out of the 137 countries assessed by WEF? Yet, the Great Peninsula maintains a low rank in the DBI chart, 100th this year, 130th last year.

 

Being Alert to Signals Sent by Indices

Country rankings are already an essential tool widely used by international bodies concerned with global governance. Some even speak of the “tyranny of indices”. Whether we like it or not, Mauritius will be judged by many indices that can potentially harm its high repute and the InvestMauritius brand.

The level of corruption, the respectability of our politicians, the quality of our democracy, the solvency of our banks, the independence of our judiciary, the freedom of our press, the effectiveness and independence of our police force, our business climate or the competitiveness of the Republic of Mauritius are all domains that will be regularly covered and splashed in the media. One can of course, in the wake of a poor rank, want to hide behind the fact that these indices are tainted by value judgments, questionable methodological choices and implicit political agendas.

As a matter of fact, one may well be vexed by the terminology coined to name and shame countries, namely as “moderately compliant”, “largely compliant”, “provisionally partly compliant”, “moderately corrupt” or “very corrupt”. These tags affect not only the perception of the performance of Mauritius and the choice of investors, but some comparisons publicized at the international level can potentially cause irreparable economic damage to a country’s reputation.

However, notwithstanding its limitations, the DBI is a great help, for we would not be able to cope with the challenges of globalization if we did not have an institutional environment conducive to the establishment of new business hubs. It should not be forgotten that even though the services sector is an important generator of jobs, it is the first to be adversely impacted in times of crisis. Hence, the need to be attentive to the signals emitted by our ranking on the DBI chart of the World Bank and that of the GCI of the World Economic Forum.

By way of conclusion, it is clear that to achieve our ends we have no other choice than to design effective regulations which are readily accessible and easy to implement for the judicious conduct of business and for the higher competitiveness of our economy. Furthermore, it is incumbent upon us to create the enabling environment for our dynamic and innovative entrepreneurs to operate in the best possible conditions, in anticipation of their expectations and needs.

In other words, we have the moral obligation to remain proactive over time. In this regard, the DBI and the GCI are, despite their inadequacies, strong assets to identify the gaps in our various ecosystems, especially so at the very moment when we think that we have finally won our fight against self-satisfaction and complacency.

 

Gérard Sanspeur

Chairman Board of Investment (BOI)

Monday 6th November 2017

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