Procedures For Starting A Business In Mauritius Accounting Essay

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From the evidence from the World Bank Group, it is crystal clear that Mauritius has laid down the stepping stone for an economy which will boom itself over the oncoming years. Mauritius projects itself as a developed economy over the next decade and the requirements of such depicts dramatic changes in the business and economic panorama of the country. As compared with Madagascar, the figure from the 'Ease of Doing Business Report' from the World Bank Group clearly demonstrates that Mauritius is ahead of the 'Largest Island in the Indian ocean' in terms of infrastructure of doing business. The reason for such a position by Mauritius is attributed to the various economic reforms enhanced recently. With the advent of technology which is one of various measures taken by the Government, Mauritius has taken a significant step ahead of Madagascar in the ability of its economy to attract investors thereby implying greater foreign direct investment. The literature advocates that one of the pillars for economic growth is the ability to 'attract foreign direct investment' and Mauritius as opposed to Madagascar has taken the critical step for such.

The ease of doing business Report depicts several criteria which the World Bank Group has designed in order to monitor the ability of an economy to facilitate business activities. They are as follows:

Starting a Business

Dealing with Construction Permits

Registering Property

Getting Credit

Protecting Investors

Paying Taxes

Trading across Borders

Enforcing Contracts

Resolving Insolvency

Starting a Business

Many economies have undertaken reforms to smooth the starting a business process in stages and often as a larger regulatory reform program. A number of studies have shown that among the benefits of streamlining the process to start a business have been greater firm satisfaction and savings and more registered businesses, financial resources and job opportunities. Economies with higher entry costs are associated with a larger informal sector and a smaller number of legally registered firms. In fact, Doing Business measures the ease of starting a business in an economy by recording all procedures officially required or commonly done in practice by an entrepreneur to start up and formally operate an industrial or commercial business as well as the time and cost required to complete these procedures. It also records the paid-in minimum capital that companies must deposit before registration. The ranking on the ease of starting a business is the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. In order to compare it among the various economies, the business is assumed to be:

A limited liability company, located in the largest business city.

Has between 10 and 50 employees.

Conducts general commercial or industrial activities.

Has a start-up capital of 10 times income per capita.

Has a turnover of at least 100 times income per capita.

Does not qualify for investment incentives or any special benefits.

Does not own real estate and leases the commercial plant and offices.

Is 100% domestically owned.

What do the starting a business indicators measure?

Procedures:

A procedure is defined as any interaction of the company founders with external parties (for example, government agencies, lawyers, auditors or notaries). Interactions between company founders or company officers and employees are not counted as procedures. Both pre and post incorporation procedures that are officially required for an entrepreneur to formally operate a business are recorded. Procedures required for official correspondence or transactions with public agencies are also included. For example, if a company seal or stamp is required on official documents, such as tax declarations, obtaining the seal or stamp is counted. Similarly, if a company must open a bank account before registering for sales tax or value added tax, this transaction is included as a procedure.

Time:

Time is recorded in calendar days. It is assumed that the minimum time required for each procedure is 1 day. Although procedures may take place simultaneously, they cannot start on the same day (that is, simultaneous procedures start on consecutive days). A procedure is considered completed once the company has received the final document, such as the company registration certificate or tax number. If a procedure can be accelerated for an additional cost, the fastest procedure is chosen if that option is more beneficial to the economy's ranking. It is assumed that the entrepreneur does not waste time and commits to completing each remaining procedure without delay. The time that the entrepreneur spends on gathering information is ignored. It is assumed that the entrepreneur is aware of all entry requirements and their sequence from the beginning but has had no prior contact with any of the officials.

Costs:

Cost is recorded as a percentage of the economy's income per capita. It includes all official fees and fees for legal or professional services if such services are required by law. In all cases, the cost excludes bribes.

Paid-in Minimum Capital:

The paid-in minimum capital requirement reflects the amount that the entrepreneur needs to deposit in a bank or with a notary before registration and is recorded as a percentage of the economy's income per capita.

Mauritius

The table below shows the ease of starting a business in Mauritius for 2010 & 2011 and how easy it is for an entrepreneur to start business in Mauritius.

Indicator

DB 2010

DB 2011

Rank

11

12

Procedures (number)

5

5

Time (days)

6

6

Cost (% of income per capita)

4.1

3.8

Paid-in Min capita (% of income per capita)

0.0

0.0

Table 1

Globally, there has been a decline in the rank of starting a business from 11 in 2010 to 12 in 2011. On the other hand, there has been an improvement in the costs by 0.3%. The Paid-in minimum capita has remained nil for both years and numbers of days taken have not changed.

Procedures for starting a business in Mauritius:

Incorporate and register the business and search for company name online.

This section addresses the cost incurred in the formation of a company under the Companies Act 2001 which came into force on 1st Dec 2001. Any one or more persons may apply for incorporation of a company. The name of the Company must be reserved with the Registrar of Companies prior to incorporation. The application for incorporation must be on the prescribed form and signed by each applicant. It must state:

The full name and address of each applicant.

Particulars of any business occupation and directorships of any public company or subsidiary of a public company.

In the case of a company having a share capital, the full name and residential address, the class, the number of shares to be issued, the amount to be paid or other consideration for each shareholder.

The table below provides the fees for 2010 and 2011 as prescribed in the regulations for different categories of company.

Matters in respect of which a fee shall be payable

Within the due date

After the due date

In the case of a small private company:-

At the time of its incorporation &

In respect of every subsequent year

Rs 2,100

Rs 2,000

-

Rs 3,000

In the case of a company holding a category 2 Global Business License:-

At the time of its incorporation &

In respect of every subsequent year

US$65

US$65

-

US$100

In the case of a foreign company:-

At the time of its registration &

In respect of every subsequent year

Rs 9,100

Rs 9,000

-

Rs 13,000

In the case of a company:-

Recorded by the Registrar as being a dormant company

In respect of every subsequent year

Rs 2,000

Rs 2,000

Rs 3,000

Rs3,000

In the case of any other company:-

At the time of its incorporation &

In respect of every subsequent year

Rs 2,000

Rs 6,000

-

Rs 9,000

Table 2

Receive inspection by local authorities.

The business licensing process was simplified. Once the company is registered, the Commercial Registry provides relevant agencies with an electronic notice about the newly registered business and the expected start date of its business activities. These agencies include other relevant ministries and the local authorities (the sanitary authority, the police department, the fire services department, ministry of health, ministry of the environment, and so forth). Subsequently, local authorities will select those prospective businesses that intend to trade within its jurisdiction and will communicate fees, relevant guidelines, and any other provisions. It takes 4 days to complete and no cost is charged for this.

Pay license fees.

Every individual carrying a business is required to pay a fee to the local authority (municipal or district council) where it is located, within 15 days of start-up. The fee for the current financial year must be paid in 15 days of the start of the business and no later than January 15th in subsequent financial years. The authority will levy a 50% surcharge on any unpaid amount within the prescribed period. It takes 1 day to complete this procedure and is done simultaneously with procedure 2 and costs Rs6,000.

Register with social security service.

The entrepreneur must complete an application form and submit the employment contracts, the employer registration, and the certificate of incorporation on the Central registration database (two copies). Data is downloaded from the Central Business Registration Database system located at the Registrar of Companies. Potential employers are contacted by the Social Security Office. Online registration for social security at the time of registration is possible. However, the system is not completely operational. This procedure is done simultaneously with procedure 2 and takes 1 day to complete and is not chargeable.

Make a company Seal.

It is done simultaneously with procedure 2 and takes 1 day to complete and costs $12.

In order to prove whether Mauritius is doing well or is falling behind, we shall compare it with the benchmark to show if it is possible to improve the ease of starting a business.

Indicator

Mauritius

2010

Mauritius

2011

New Zealand

2010

New Zealand

2011

Rank

11

12

1

1

Procedures (number)

5

5

1

1

Time (days)

6

6

1

1

Cost (% of income per capita)

4.1

3.8

0.4

0.4

Paid-in Min capita (% of income per capita)

0.0

0.0

0.0

0.0

Table 3

Comparing Mauritius with the 1st ranked economy in starting a business, we find that Mauritius has fallen by 1 place in ranks which is not something that should be encouraged. In New Zealand, it takes only 1 day and a single procedure to start a business. Moreover, the cost of starting the business is extremely low compared to Mauritius. However, in Mauritius the cost has fallen from 4.1 to 3.8 which is indeed an improvement. We also note that for both economies, the paid-in minimum capita is nil that is zero and that made start up easy and inexpensive.

As such, no reform was made in 2010 and 2011 as measured by Doing Business.

Madagascar

First of all, before calculating the costs of any business, we should decide upon the structure of the business we shall be setting up. The choice of business structures are as follows:

Sole Proprietorship which includes only an individual but it is not recommended for anything other than to small scale businesses.

Limited liability Company - between 7 and 50 persons

Limited Company - atleast 7 persons.

Company Incorporation

A company is incorporated by registering all documents at a "one-stop" office in Madagascar called the Economic Development Board of Madagascar (EDBM).

The following documents are required:

name, activities, and registered office of the future company;

incorporation documents of the company initialed on each page;

amount of the company's expected share capital;

proof of residency/domiciliation contract;

declaration of existence;

identification of shareholders, residence certificates, long-term visas and attestation of no criminal convictions with a birth certificate for foreigners;

capital investment form;

fiscal identification form.

Once all of these have been submitted, the EDBM issues:

registered incorporation documents;

an extract from the Commerce Registry;

a company number;

a fiscal identification number.

Lastly, the company must make an announcement in the official journal or in a legal announcement journal.

The table below shows the ease of starting a business in Madagascar for 2010 & 2011 and how easy it is for an entrepreneur to start business in Madagascar.

Indicator

DB 2010

DB 2011

Rank

52

70

Procedures (number)

2

2

Time (days)

7

7

Cost (% of income per capita)

6.2

12.9

Paid-in Min capita (% of income per capita)

207.4

248.1

Table 4

Globally, there has been a decline in the rank of starting a business from 52 in 2010 to 70 in 2011. Moreover, both the cost (% of income per capita) and the Paid-in minimum capita have increased but the number of days taken has remained 7.

Procedures for starting a business in Madagascar

Deposit registered statutes and apply for license , and statistical identification.

The k-bis, statistical card, tax registration confirmation, commercial registration number, and professional card can be obtained in about 2 days. Owing to reforms, a notice of publication is no longer needed to obtain the k-bis. Since 2007, the one stop-shop sends the company the certificate for the deposit of statutes. (When filing all documents needed to obtain the k-bis, the company must provide GUIDE with a stamped envelope.) The company can continue with subsequent procedures in the meantime. It takes on average 4 to 8 days to get registered with the EDBM. The firm's management also needs to file forms for each employee with the National Social Security Fund. The required forms, the registration application and the application for workers affiliation must be filed along with the corporate registration certificate and notarized copies of each employee's passport and birth certificate, if under age 18. To file for health insurance, the company promoters must file two copies of an application form along with a list of names of all employees and their identity cards. According to "Nouvelles N°1534 N°1534 du 21 mars 2009" it is possible to register at the one stop shop (at the EDBM) for the Caisse Nationale de Prevoyance Sociale and the Organization Sanitaire Tananarivienne Inter-Entreprise. It takes on average 4 to 8 days to get registered with the EDBM

Fee schedule:

Commercial registration fee: MGA 15,500.

Institut National de la Statistique Malgache (INSTAT): MGA 20,000.

K-bis: MGA 2,000.

Deed registration costs : MGA 9,100

registration fees: 0.5% of the startup capital

lease registration: 2% of the lease

The above procedures take 5 days to complete and cost MGA 88,899.

File a notice of constitution to be published in a daily newspaper in French.

The fee to publish a notice of constitution in daily newspaper varies between MGA 10,000 and MGA 20,000.

The above procedure takes 2 days to complete and cost MGA 15,000.

In order to prove whether Madagascar is doing well or is falling behind, we shall compare it with the benchmark to show if it is possible to improve the ease of starting a business.

Indicator

Madagascar

2010

Madagascar

2011

New Zealand

2010

New Zealand

2011

Rank

52

70

1

1

Procedures (number)

2

2

1

1

Time (days)

7

7

1

1

Cost (% of income per capita)

6.2

12.9

0.4

0.4

Paid-in Min capita (% of income per capita)

207.4

248.1

0.0

0.0

Table 5

Comparing Madagascar with the 1st ranked economy in starting a business, we find that Madagascar has fallen by 18 places in ranks which is not something that should be encouraged. In New Zealand, it takes only 1 day and a single procedure to start a business which is not the case for Madagascar. In fact, for Madagascar the number of procedures and time taken has remained 2 and 7 respectively, that is, unchanged for both years. Moreover, the cost of starting the business is extremely low compared to Madagascar. Also, in Madagascar the cost has increased from 6.2 to 12.9. We also note that for New Zealand, the paid-in minimum capital is nil for both years on the other for Madagascar, the paid-in minimum has risen and hence deteriorating the ease of doing business in Madagascar.

Reforms have made it easier to start a business in Madagascar. In 2010, Madagascar simplified business start-up through the streamlining of procedures at the one stop shop, elimination of stamp duty and elimination of the minimum capital requirements. In 2011, there was no reform as measured by Doing Business.

Mauritius v/s Madagascar

The table below shows the comparison between Mauritius & Madagascar for 2010 & 2011.

Indicator

Mauritius

2010

Mauritius

2011

Madagascar

2010

Madagascar

2011

Rank

11

12

52

70

Procedures (number)

5

5

2

2

Time (days)

6

6

7

7

Cost (% of income per capita)

4.1

3.8

6.2

12.9

Paid-in Min capita (% of income per capita)

0.0

0.0

207.4

248.1

Table 6

When a comparative analysis is performed between Mauritius and Madagascar, it can be observed an appreciation for Mauritius has been noted from 2010 to 2011 in terms of ranking as opposed to Madagascar which has experienced a downfall in position from 2010 to 2011. This indicates that Mauritius presents better condition in the eyes of investors for starting a business. However, it should be observed that Madagascar presents less number of procedures with figure of 2 as compared to Mauritius which accounts for 5. In this aspect, better facility is proposed by Madagascar as to Mauritius.

The number of days for Mauritius is fewer than Madagascar for starting a business. However, there is no significant number of days between the two countries. On the other side of the coin, the cost per capita for Mauritius for the year 2010 to 2011 has noted a decrease of 7.32% as opposed to Madagascar which has encountered an increase of 108.1%. The decrease in the cost (% of income per capita) for Mauritius reveals that cost for starting a business from the year 2010 to 2011 has noted an improvement. This indicates also that the efficiency for starting a business in Mauritius has noted amelioration. On the hand, Madagascar, has noted an increase in the cost as a percentage of income per capita from the year 2010 to 2011 at a figure of 108.1%. This signifies that the cost for carrying business activities in Madagascar has noted an increase hence, directly effecting on the profit potential of the business. Conclusively, it can be said that Mauritius is leading Madagascar in this parameter of starting a business criteria.

For Mauritius, Paid-in Min capita as a percentage of income per capita is 0% for both financial years 2010 to 2011. However, for Madagascar it has noted an increase of 19.6% (increasing from 207.4% to 248.1%). Hence, again Mauritius presents the better infrastructure for doing business as opposed to Madagascar.

Dealing with construction permits.

Compliance with business regulation is vital for proper business operations. It often involves a costly time process and cash investment. Often, given those constraints, many builders may abandon projects, pay bribes to pass inspections or even build on illegal terms leading to dangerous constructions. It is estimated that 60-80% of construction plans are carried out without a permit because of the complex regulations. World Bank Enterprise Surveys established that in countries where it is more difficult to deal with construction permits faces more corruption.

Thus, there is a need for forthright, transparent and affordable compliance to prevent constrictions on sectors that are important for our economy. Good regulation warrants that safety principles are complied with and at the same time encourage business to operate officially.

Further, the entire process should be monitored. This allows the building authorities to recognize bottlenecks and ensuring better quality and efficient allocation of resources.

Dealing with constructions permit indicator covers the procedures to legally build a warehouse, the time required to complete each procedure and cost required to complete the procedures.

Procedures:

These procedures include submitting all significant project-specific documents to the authorities, obtaining the necessary approvals, licenses and permits, completing all necessary notifications and obtaining all necessary inspections, the procedures for obtaining utilities, the procedures of registering the property so as to be able to use it as collateral.

Time

The time required to complete the procedures are recorded in calendar days. It does not include the time spent on gathering the information. The minimum time required for each procedure is assumed to be one day. The procedures cannot occur simultaneously. The procedure is completed once the final document is obtained.

Cost

The cost required to complete each procedure is recorded as a percentage of income per capita. It consists of official cost only. All the charges related with constructing legally a warehouse are recorded, encompassing those associated with gaining land use approvals and preconstruction design approvals, getting inspections, getting utility connections and registering the warehouse property. Further records are that of nonrecurring taxes that are required for the completion of the warehouse.

Assumptions

For the data to be comparable across economies, several assumptions of the business and the warehouse have to be complied with.

The business is a limited liability company and functions in the economy's largest commercial city. It is one hundred percent internally and privately owned. It has builders and other employees, has paid all taxes and taken out all required insurance appropriate to its general activity. It should at least have one worker which is a licensed architect. It owns the land on which the warehouse is constructed.

The warehouse is a new edifice. It will be used for common storage activities of harmless goods such as stationery. It has two stories both above ground, with a total surface of about 14000 square feet and each floor is 3 meters high. It should have a complete architectural and practical plan prepares by a licensed architect. It will take 30 weeks to build it. It will be connected with the necessary utilities.

Mauritius

The details

The indicators stated in Mauritius are established according to some explicit procedures that must be legally complied with in order to build a warehouse.

Below is a detailed summary of the procedures, time and costs to build a warehouse in Mauritius. These information was obtained from the doing business project which compares regulations associated to the duration of a small to medium sized domestic business. The procedures are those relating to a company and corresponding to the assumptions used by the project.

Assumption

Standardized company

Estimated value of Warehouse Mur 10,405,000

City Port Louis

1 Obtain plan approval from Central Electricity Board (CEB) and Central Water Authority (CWA)

Obtention of a plan approval from the CEB and CWA will necessitate a notice and a check that all the requirements have been met, instead of just an approval. The time schedule for these procedures will range up to 15 days with discrete costs of MUR 250.

2 Obtain plan approval from Waste Water Management Authority (WMA)

It is also compulsory to obtain a building sewerage clearance before requesting for a building and land-use permit. Two sets of the building plan must be submitted to either the Port-Louis Sewerage office for buildings located in Port-Louis and in the northern parts of the island or Beau-Bassin sewerage office for buildings situated in upper and lower Plaines-Wilhelm's and southern parts of the island. Upon proper reception of documents, an acknowledgement receipt will be issued and clearance will be issued within 15 days

3 Approvals from the utilities and the Fire Department

These are prerequisite for the building and land-use permit. The time schedule for these procedures will range up to 15 days with discrete costs of MUR 250.

4 Obtain building and land use permit

The Business Facilitation Act 2006 has been put in place to cater for an organized legal framework that allows businesses to start operations on the basis of self-adherence to comprehensive and clear-set guidelines.

Every person who intended to either start construction work or make extensive alterations, additions or repairs to existing buildings or carry out land development activities as of October 1, 2006 must apply to the local authority for a building and land-use permit (BLP).

The BLP is a single permit that consolidates both the development permit and the building permit procedures effectively into one. The power for execution and enforcement of the Building Act and of the Town and Country Planning Act rests with the local authority of the area where the relevant establishment is to be built or the land to be developed.

It is to note that the applications for a building and land-use permit must be in agreement with the provisions of the Building Act, the Town and Country Planning Act, and the Planning and Development Act of 2004.

The following documents are also required along with the application:

Copy of title deed

Copy of the lease and planning permission from the Ministry of Housing and Lands

Copy of National Identity card

There is a need to notify the public by announcement in two daily newspapers. Consent of neighbours is required if the distance between the new edifice and adjoining edifice constructions is less than 1 meter for one-story building and 1.5 meters for two story buildings.

Further all plans must be signed by a licensed architect. The plans should comprise of the total floor area and floor area for each level. When the application is in conformity with the act and guidelines, the development and building permits should, under the power of the Chief Executive be issued within a time frame of two weeks upon the receipt of the application. The cost associated with the application of the dual permit includes a charge of Mur 500 and additional charges based on the square meter of the land. The time schedule for the procedures amount to 14 days with a cost of Mur 65.530.

5 Inspection

By law, the company must inform the Municipality when it plans to start construction activities. Further there is the obtention of Foundation level inspection and roof inspection and inspection from CWA. The company should request for fire inspection. After completing the construction and before beginning business activities the construction business should inform the fire department which will send its inspectors and give a fire certificate instantly after the inspection. Each of these inspections will take one day and is free charge and is free of charge except for the fire inspection which cost Mur 100.

6 Obtaining water connection from CWA, phone connection from Mauritius Telecom. The time schedule for connection of water is 14 days at a discrete cost of Mur 1,500 and that of phone connection is 10 days at Mur 1,500.

7 Inform Municipal Authorities of the end of the construction and obtain final inspection. This will be conducted within 10 days and the results of this inspection will be sent to the Evaluation office of the Ministry of Local Government where the occupancy permit will be assesses. This evaluation will take 10 days more

Benchmark

Globally, Mauritius stands at 39 in 2011 in the ranking compared to good practice and selected companies. In 2010 Mauritius stands at 40 in the ranking Hong Kong tops the rankings in both years on the ease of dealing with construction permits. Hong Kong has succeeded to cut the number of procedures from 14 to 6 which is one of the most effective reforms in construction permits.

Figure 1

 

Mauritius

Hong Kong SAR, China

 

2010

2011

2010

2011

Procedures

18

18

6

6

Time

107

107

67

67

Cost

35.5

32.3

18.7

19.4

Table 7

As compared to Hong Kong, we are very far in all three indicators. Hong Kong has completed its "Be the Smart Regulator" reform program in 2010. It has merged 8 procedures and saving 52 days .In 2009 the number of procedures was 14 and the days taken to carry out the procedures was 147.

Comparison between 2010 and 2011 for Dealing with Construction Permits in Mauritius

The Table below shows which aspect of the process to deal with construction permits has changed overtime and which one has not, where the potential for improvement is utmost.

The Historical Data-Dealing with Construction Permits

Year

Rank

Procedures (number)

Time (days)

Cost (% of income per capita)

DB2008

..

18

107

43.3

DB2009

..

18

107

41

DB2010

40

18

107

35.5

DB2011

39

18

107

32.3

Table 8

Based on the data above, the ranking of Mauritius concerning dealing with construction permits has increased by 1 place. The positive signal may come from the reduction of cost to carry out the procedure. As seen above, cost fell by 3.2%. The number of procedures and time taken to carry them out has not changed overtime. The improvement in ranking may be due to more coherent and simple rules, efficient allocation of resources.

Constructors are more likely to conform to the procedures when the time limits are respected, strong guidelines exist and the authorities are answerable. When the regulations are liable, companies spend less resource on pursuing applications and paying bribes.

Madagascar

In most economies the construction industry accounts for 5%-7% of Gross Domestic Product. This in part could explain why governments are keen to increase spending in the construction sector during economic crisis. A survey carried out by the French Development Agency AFD in 2011 found that construction is found among the key potential employment sectors in Madagascar. However it was found that the construction sectors are in a chronic shortage of qualified workers.

Steps in dealing with construction permit in Madagascar.

Below is a table summarising the procedures, time and costs to build a warehouse in Madagascar. These information was obtained from the doing business project which compares regulations associated to the duration of a small to medium sized domestic business.

Assumption

Building a warehouse

City Antananarivo

Procedures

Time

Cost

Procure property registration certificates

30 days

MGA 2000

Get hold of official topographical plan of the plot

7 days

MGA 6000

Obtain lot plan with the seal of municipality

7 days

No cost

Acquire initial approval from urban municipality

1 day

No charge

Give in the application for building permit

1 day

No cost

Inspection by the Provincial Service of Land Development

1 day

No cost

Acquire building permit

90 days

MGA 1,170,540

Obtain final inspection at the end of construction by SPAT

1 day

No cost

Application for telephone line

1 day

No cost

Reveive inspection by Malagasy Telecom

1 day

Acquire telephone connection

30 days

MGA 100000

Application for electricity and water connections

1 day

No charge

Inspection received by JIRAMA

1 day

No cost

Acquire water and electricity connections

21 days

MGA 4,000,000

Table 9

Benchmark

Globally, Madagascar is ranked 110th in 2011 compared to good practice and selected companies. In 2010 Madagascar stands at 107th in the ranking. Hong Kong tops the rankings in both years on the ease of dealing with construction permits with its effective reforms of cutting the number of procedures from 14 to 6.

Registering Property-global Rank (2011)

Hong Kong SAR, china

1

Kenya

44

Mauritius

62

South Africa

69

Comoros

129

Madagascar

136

Mozambique

162

Table 10

Comparison between 2010 and 2011 for Dealing with Construction Permits in Madagascar

Doing business data shows which aspect of the process to deal with construction permit has changed overtime in Madagascar. The data over the two years show where the potential for improvement or deterioration is most.

The Historical Data-Dealing with Construction Permits

Madagascar

Year

Rank

Procedures (number)

Time (days)

Cost (% of income per capita)

DB2010

107

16

178

630.7

DB2011

110

16

178

654

Table 11

Based on the data above, the ranking of Madagascar concerning dealing with construction permits has fallen by 3 places. The negative signal may come from the rise in cost to carry out the procedure. As seen above, cost rose by 3.56%. The number of procedures and time taken to carry them out has not changed overtime. . In fact, the Doing Business report 2013 reveals that from 2008 to 2013, no reforms as measured by Doing Business has been identified in Madagascar.

Madagascar v/s Mauritius

A look at the following table will enable a comparative analysis of the performance of Mauritius compared to Madagascar for the year 2010 and 2011.

Mauritius

2010

Mauritius

2011

Madagascar

2010

Madagascar

2011

Rank (rank)

40

39

107

110

Procedures (number)

18

18

16

16

Time (days)

107

107

178

178

Cost

35.5

32.3

630.7

654

Table 12

As it can be seen from the above, for both years Mauritius has outperformed Madagascar. Compared to some other countries in the sub region, Madagascar is far behind Madagascar by 67 places in 2010 and 71 places in 2011. Though the numbers of procedures are only slightly different for both countries, the cost and time taken in dealing with construction permit are significantly different from each other. A major gap can be noted from the time and cost taken to carry the procedures. It seems indisputable that the big difference between time and cost will be considered by the investors before deciding in which country to invest.

Another factor that is to be considered is whether potential improvement was made by the countries in the year 2011. While in Mauritius more coherent and simple rules were being used for an efficient allocation of resources, no reform was reported by doing business 2011 for Madagascar.

Registering Property

Land is an essential economic asset in every economy. Safeguarding formal property rights is important. Where property systems are poorly controlled, this can inhibit land to become productive capital. Hernando de Soto describes such land as "dead capital" assets which cannot be accepted as collateral security. Making property administration simple, effective, cheap and fast permits businessmen to concentrate on their business.

Indicators

Doing business covers the procedures essential to purchase a property from another business and to transfer the title deed on the buyer's name so that the buyer can use it as collateral when taking loans or if ever it will sell it to another business, the time required to complete each procedure and cost required to complete the procedures.

Procedures to legally transfer title on immovable property

It is considered as any interaction between the buyer or the seller, their agents, third parties, government agencies, inspectors, notaries and lawyers. The procedures are as follows:

Preregistration

Registration in the economy's largest commercial city

Post registration

Time required to complete each procedure (calendar days)

The measure seizes the median duration that property lawyers, notaries and registry officials designate is indispensable to complete a procedure.

Does not comprise of the time spent tol gather information

Procedure does not occur simultaneously

No former contact with officials.

Cost required completing each procedure

(% of property value)

Official costs only required by law are recorded (for example notary fees, stamp duties, transfer taxes)

Capitals gain tax or Value added tax are excluded

Costs borne by both the buyer and seller are recorded.

Assumptions

For the data to be comparable across economies, several assumptions about the parties to the transaction, the property and procedures are made.

The parties

Are limited liability companies

Are 100% internally and privately owned

Have 50 employees each, all of whom are residents

Are located in the Periurban area of the economy's largest commercial city.

Carry out general commercial activities.

The property

Has a value of 50 times income per capita and which equals the sales price

Fully owned by the seller

Is listed in the land registry or cadastre, or both, and is free of title disputes

Is situated in a periurban commercial zone, and no rezoning is necessary

Mauritius

The indicators stated in Mauritius are established according to some explicit procedures that must be legally complied with to register a property in Mauritius.

Below is a detailed summary of the procedures, time and costs involved in registering a property in Mauritius. It takes a standardized case of a businessman who wants to acquire a land and a building that is previously registered and free of title dispute. These information was obtained from the doing business project which compares regulations associated to the duration of a small to medium sized domestic business.

Standardised Property

Property Value MUR 11,115,926.90

City Port Louis

A summary of the procedures:

Notary checks for inconveniences at the Registrar General.

The notary public accesses the register of transcriptions and the list of deeds waiting for transcription in order to establish the title of the seller, the status of encumbrances, charges, etc. The notary pays an annual subscription to the Registrar General, which permits him to check the registers without charge. He may nonetheless pass the cost to the client as part of the payments charged for the entire transaction. The time schedule is 2 days.

A land surveyor arranges a new survey plan and a situation plan.

The time schedule for these procedures will range up to four to eight days with a discrete cost of MUR 1,500.

A notary arranges and notarises the deed of sale.

The seller is liable to give the required documents to the notary. The deed is signed by the parties and the notary. According to the law the notary has up to 7 days from the date of deed to submit the deed to the Land Registry. The time schedule will range up 4 days and the fees in accordance to a cumulative schedule ranging from Mur 250,000 to Mur 1,750,000.

The notary will provide the signed deed and one copy of the deed to the Registrar-General for registration.

The transfer tax rate is 5%. Registration fee, the stamp duty and the transfer tax will be paid by the notary on behalf of the seller when applying to the Registrar-General for registration. The stamp duty aggregate to Mur 1000. The registration fee is equal to 5% of the property value. As soon as payment is made, the transaction will be recorded by the Land Registry and a Transcription Number will be given to the notary. Once the Transcription number is available to the land registry, the property is opposable to third parties. The Finance Bill Act 2008 provided that a statutory time of 15 days for the registrar to complete the transcription and to give a transaction number.

The Board of Investment considered the following components in evaluating the cost of doing business in 2010.

Registration Duty

Registration Duty settled by the buyer on the purchase of an immovable property is 5% of the value of the property.

A land transfer tax is liable on a deed of transfer of immovable property and is due to the seller where the transfer is prepared

For property where the value does not exceed Mur 50,000,000, a rate on 10% is charged on the value of the property. The time schedule for the transfer is a period not exceeding 5 years of the date of acquisition of the property. For property where the value exceeds Mur 50 million, the rate charged is 5% and the time schedule is more than five years for the transfer. A rate of 1.15% is also charged on the value of land and the transfer does not exceed 5 years of the date of acquisition of the property.

Benchmarking

The benchmark provided by the economies that over time have had the best performance globally on the procedures, time and cost prerequisite to complete a transfer property is helpful to show what are the possibilities needed to make registering property easier. The ranking for comparator economies and the regional average ranking provide suitable information for gauging the easiness for a business in Mauritius to register property.

Registering Property-global Rank (2011)

Saudi Arabia

1

Botswana

44

Seychelles

62

Mauritius

69

Kenya

129

Namibia

136

Madagascar

162

Table 13

Globally, Mauritius stands at 69 in 2011 in the ranking compared to good practice and selected countries. In 2010 Mauritius has stands at 66 in the ranking Saudi Arabia tops the rankings in 2011.

Changes overtime.

Doing business data mirror how easy or difficult it is register property in Mauritius. The data over the two years show which features of the process has improved or deteriorate.

 

Mauritius

Saudi Arabia

 

2010

2011

2010

2011

Rank

66

69

-

1

Procedures

4

4

5

5

Time

26

26

8

8

Cost (%of property value)

10.7

10.6

0

0

Table 14

The ranking of Mauritius concerning cost of doing business fell significantly by three places. Considering our indicators we can see that the number of procedures and time required to carry out each procedure has remained the same and the cost has been reduced. So basically what could attribute for the fall in the ranking could be due to the improved performance of other countries. In fact in 2010 Doing Business reported Mauritius as one of the top reformer, moving up 63 places in the rankings on the ease of registering property. The property registry was made completely electronic and there was the setting of a strict statutory time limit. Six months were removed from the process. In 2011 no reform was reported.

Madagascar

In spite of the political and economic uncertainty since 2009, the business environment in madagascar has lately improved to a certain extent. The total firms created in 2011 has increased by 48% to 20710 from 13977 in 2010. Despite this, the investment condition remains problematic. Madagascar score badly in the doing business report for registering property.

Steps to registering property in madagascar

Below is a summary of the procedures, time and costs involved in registering a property in Madagascar. These information was obtained from the doing business project which compares regulations associated to the duration of a small to medium sized domestic business.

Standardised Property

Property Value 40,299,187.15

City Antananarivo

Procedures

Time

Cost

Two topographical excerpts with coordinates at the 'service de la Topographie' is needed

5 days (concurrent

With steps 2 and 3)

MGA 1,000 per plan

Two photocopies of the certificate of registration and the legal state of the land at the Registrar of the Property Registry are requested

7 days (together

With steps 1 and 3)

MGA 2,000 (MGA 1,000

per copy)

Approval to conduct a real estate transaction with the Ministry of Urban Planning is demanded

3 days (simultaneous

with steps 1 and 2)

no charge

Notary draft and certify the sale agreement

2 - 7 days

1,125,000 MGA of the

property value

Registering of sale agreement at the Office of Property Registry

4 days

6 % property value for

registration fees

Transfer to be documented in the books at the Registrar of the Property Registry must be requested.

30 days

1% property value (transfer

tax) + MGA 15,000 (fixed

fee)

Acquire the new certificate of transfer and legal standing and the copy at the Registrar of the Property Registry

30 days

no charge

Table 15

Benchmarking

The ranking for comparator economies and the regional average ranking provide suitable information for gauging the easiness for a business in Madagascar to register property.

Registering Property-global Rank (2011)

Saudi Arabia

1

Mauritius

69

South Africa

91

Comoros

99

Kenya

129

Mozambique

144

Madagascar

156

Table 16

Globally, Madagascar stands at 162 in 2011 in the ranking compared to good practice and selected countries. In 2010 Madagascar has stands at 156 in the ranking with Saudi Arabia topping the rankings in 2011.

Changes overtime.

Doing business data reflect how easy or difficult it is register property in Madagascar. The data over the two years show which features of the process has improved or deteriorate.

 

Madagascar

Saudi Arabia

 

2010

2011

2010

2011

Rank

156

162

-

1

Procedures

7

7

5

5

Time

74

74

8

8

Cost (%of property value)

9.4

9.8

0

0

Table 17

The ranking of Madagascar concerning cost of doing business fell significantly by 6 places. The number of procedures and time required to carry out each procedure has remained the same, but the cost has been increases. Madagascar has increased the cost of transferring property by making use of notaries mandatory. Previously, the signatures were legalized at the municipality itself. Further World Bank's doing business 2012 report that there was no reform in 2011 for Madagascar in registering property.

Mauritius v/s Madagascar

Below is a table which mirrors the performance of some of the Sub Saharan countries in an attempt to compare the performance of Mauritius and Madagascar.

Mauritius

Madagascar

 

2010

2011

2010

2011

Rank

66

69

156

162

Procedures

4

4

7

7

Time

26

26

74

74

Cost (%of property value)

10.7

10.6

9.4

9.8

Table 18

It can be noted that there are 93 countries separating Mauritius and Madagascar such as their performance is not similar at all. We can see that the time taken and cost for registering property differs for both countries to a large extent. This difference will account as an important factor for investors before choosing their destination for doing business.

Another feature to consider is the possible reforms made by both countries in the year 2011. While in Mauritius there were possible reforms, such as doing business report the introduction of electronic means of registration and the settlement if stich statutory time limit in Mauritius in Madagascar an increase in cost was reported due to the use of notaries mandatories.

GETTING CREDIT

All businesses, whether engaged in mining, lumbering, agriculture, manufacturing, distributing, providing services or retailing, require working capital to operate, to grow and to compete successfully in the marketplace. It is well established that one of the most effective means of providing working capital to commercial enterprises is through secured credit (UNCITRAL 2007, p. 1.)

Getting credit indicators:

Strength of legal rights index

Protection of borrowers' and lenders' rights through collateral laws, Protection of secured creditors' rights through bankruptcy laws.

Depth of credit information index

Availability of credit information offered by public credit registries and private credit bureaus.

Public credit registry coverage

Number of individuals and firms listed in public credit registry as a percentage of the adult population.

Private credit bureau coverage

Number of individuals and firms listed in private credit bureau as a percentage of the adult population.

Assumptions (only to legal rights index):

Debtor being a private Ltd company

Has headquarters and business operations in largest cities

Obtaining loan from domestic bank for an amount up to 10 times the income per capita

Debtor and creditor completely domestically owned.

Though the Public Registry and Private Bureau Coverage are measured, those are not used for ranking. Only the Legal Rights Index and the Depth of Credit Information Index are used and weighted as shown below:

Figure 2

Mauritius

In 2009, the global financial crisis affected the access to finance around the world. Recent research has shown that the volume of loans declined by 9% of global GDP. Mauritius forms part of the Sub-Saharan Africa, which leads in the number of legal rights reforms.

Standpoint of getting credit in Mauritius in 2010 and 2011 (shown by the table below):

Year

2010

2011

Overall ranking

87

89

Strength of Legal rights index (0-10)

5

5

Depth of credit information Index (0-6)

3

3

Public Registry Coverage (%)

36.8

49.8

Private Bureau Coverage (%)

0

0

Table 19

The data collected shows that on a scale up to ten, the strength of legal rights Index for Mauritius is five in both years. This is the case as given on a specific set of questions; five turn out to be positive as opposed to the rest [1] .

The Depth of credit information Index is also carried out in the same way as the Strength of Legal rights Index, given a set of 6 questions whereby three yields positive outcomes once again in 2010 as well as 2011. This set of indicator describes how well collateral and bankruptcy laws facilitate lending.

However, for the Public registry coverage and the Private bureau coverage, it is calculated with the number of individuals and firms in respect to the adult population for the given coverage. In the Mauritian case in 2010, the Public registry coverage was 36.8% changing to 49.8% in 2011 and the Private Bureau coverage zero for both 2010 and 2011.

Thus, in 2010 Mauritius was ranked 87th and 89th in 2011 upon 183 countries in ease of Getting Credit. It is to be noted that Mauritius has strengthened access to credit information by allowing the licensing of Private Credit Information bureaus and by expanding the coverage of the bureau to all credit facilities in 2010.

In Mauritius, interest rates decisions are taken by the Bank of Mauritius. The BoM's official interest rate is the repo rate. A record low of 4.8% was recorded in September 2010. Below is the graphical representation of the interest rate for the year 2010 and 2011:

Historical Data Chart

Figure 3 (Trading economies, BOM)

The Lending interest rate is the rate charged by banks on loans to prime customers. The diagram below shows the Mauritian lending rate for the year 2010:

Historical Data Chart

Figure 4 (Trading economies, BOM)

The Lending interest rate (%) in Mauritius was last reported at 8.92 in 2011, according to a World Bank report published in 2012.

In order to compare the performance of Mauritius, it is to be benchmarked to the Malaysia, being the 1st ranked in terms of ease of getting credit. The table below compares Mauritius and Malaysia statistics for year 2010 in the given field:

Mauritius

Malaysia

Overall ranking

87

1

Strength of Legal rights index (0-10)

5

10

Depth of credit information Index (0-6)

3

6

Public Registry Coverage (%)

36.8

48.5

Private Bureau Coverage (%)

0

82.0

Table 20

With the given information it can be seen that Mauritius is ranked 87th which is around the midst of overall countries.

Nonetheless, when compared to Malaysia which is ranked 1st in this category Mauritius is quite behind on the list. In all the indicators of getting credit Mauritius lags behind Malaysia.

Mauritius has average statistics for both the Strength of legal rights index as well as the depth of credit information index. And it has a difference of only 11.7% with Malaysia in the case of Public Registry Coverage.

But in the case of the Private Bureau Coverage there is a large gap between Mauritius and Malaysia of 82% because the statistics for Mauritius in this case is zero.

For purpose of this project, an intertemporal comparison will also be carried out for the years 2010 and 2011:

Mauritius

Malaysia

2010

2011

2010

2011

Overall ranking

87

89

1

1

Strength of Legal rights index (0-10)

5

5

10

10

Depth of credit information Index (0-6)

3

3

6

6

Public Registry Coverage (%)

36.8

49.8

48.5

62

Private Bureau Coverage (%)

0

0

82.0

100

Table 21

In the above table it can be seen that Mauritius has dropped to the 89th rank by Doing Business. Though it does not seem to be a big fall, it is actually significant to the small Mauritian economy.

This fall in ranking cannot be explained by the statistics provided for Mauritius as only the Public Registry Coverage has changed, and this, in a good way whereby the coverage has increased by 13%. Thus, it can be said that the fall in the ranking of Mauritius in 2011 would be the better performance of other countries which get to higher ranks and none to do with the performance of Mauritius.

One example of better performance statistics may be seen in the table 3 where Malaysia's Public registry coverage and Private bureau coverage have increased by 13.5% and 18% respectively in year 2011.

Madagascar

As required for this project, the performance of Madagascar will also be seen for the year 2010 and 2011:

Year

2010

2011

Overall ranking

167

176

Strength of Legal rights index (0-10)

2

2

Depth of credit information Index (0-6)

1

0

Public Registry Coverage (%)

0.1

0.0

Private Bureau Coverage (%)

0.0

0.0

Table 22

With the given information, it can be stated that in both years Madagascar was ranked quite low. However, from 2010 to 2011 Madagascar's ranking in ease of getting credit dropped by 9 and became 176th of the 183 countries.

The strength of legal rights index stayed the same for both years even though it is very low while the Depth of credit information index fell and became zero. The Public registry coverage which was 0.1 for 2010 fell to 0.0 in 2011 meanwhile the Private bureau coverage stayed zero for both years.

Doing Business has put forward that Madagascar is among the 10 countries having the least legal rights and credit information and also where borrowers are being the least covered by credit registries.

The diagram below shows the lending rate for Madagascar for 2010:

Historical Data Chart

Figure 5 (Trading Economies)

The Interest rate for Madagascar for 2010 and 2011 is shown below:

Historical Data Chart

Figure 6 (Trading Economies, CBM)

In Madagascar, interest rates decisions are taken by the Central Bank of Madagascar's Monetary Policy Committee. Its Interest Rate averaged 13.9 Percent reaching its highest of 33.0% in April of 1995 and a record low of 7.0% in January of 2002.

Mauritius v/s Madagascar

A comparison for Mauritius and Madagascar is shown in the table below for the years 2010 and 2011:

Madagascar

Mauritius

Year

2010

2011

2010

2011

Overall ranking

167

176

87

89

Strength of Legal rights index (0-10)

2

2

5

5

Depth of credit information Index (0-6)

1

0

3

3

Public Registry Coverage (%)

0.1

0.0

36.8

49.8

Private Bureau Coverage (%)

0.0

0.0

0

0

Table 23

From the data it can be deduced that Mauritius is an average performer ranked 87th and 89th in 2010 and 2011 respectively while Madagascar in a very low performer in the ease of getting credit.

In both indices it can be seen that Mauritius is better performing than Madagascar for both years. It is the same situation for the Public registry coverage. However, for the Private bureau coverage both Mauritius and Madagascar had zero for both 2010 and 2011.

In 28 countries of the 183 ones around the world reforms have been carried out in the year 2010 to improve the ease of getting credit. Those include reforms such as new laws on secured transactions, broadening scope of assets to be used as collateral, establishment of legal framework for credit bureaus, access to credit information by allowing online access to banks, among many other reforms.

PROTECTING INVESTORS

Protection of investors is essential for it helps and defines companies' ability to collect capital, invest and grow. Minority investors' protection matters since one of the most important issues of corporate governance is self-dealing. It is of view that stronger legal protections make minority shareholders more confident about their investment, reducing concentration of ownership and eliminating gaps in corporate governance.

The following indices are used Protecting investors indicators:

Extent of Disclosure Index

Approval and disclosure of related party transactions.

Extent of Director liability index

Possibility of making interested party and approving body liable in case of prejudiced related-party transaction by shareholder, availability of legal solutions, shareholders' ability to sue.

Ease of shareholder suits index

Access to internal documents, information available during trial.

Strength of investor protection index

Mere average of the three above indices.

The three indicators make up the rankings as weighted below:

Figure 7

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