Comparison Of Mauritius And Madagascar Business Essay

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The doing business index ranks economies according to the ease businessmen have in carrying out their businesses in the different economies. It takes into account different topics which affect business activities. These are starting a business; dealing with construction permit; getting electricity; registering property; getting credit; protecting investors; paying taxes; trading across borders; enforcing contracts; closing a business and employing workers. The report also analyses reforms undertaken by governments in order to make their economies conducive for carrying out business. It encourages reforms in the sense that governments have to continually improve their business environment in order to achieve a good positioning in the Doing Business rankings. Since its first publication in 2003, Doing Business has become an international benchmark for investors wishing to carry out business in different economies. It has also established itself as the yardstick with which banks and governments measure the business environment in developing countries. According to the Wall Street Journal, Doing Business is "a way to encourage countries to reduce obstacles to entrepreneurship. Developing countries compete to land a spot on the top 10 list of most-improving countries because it is seen as a way to get attention and investment." The index covers 185 economies and this year Singapore is ranked first followed by Hong Kong and New Zealand which take the second and third position respectively. Mauritius is at the 19th position globally but ranks first in the Sub-Saharan African region. This report will compare Doing Business rankings for the different topics between Mauritius and Madagascar for the year 2010 and 2011. But first, we will carry out a PEST (Political Economic Social Technological) analysis of the two countries.

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From a political point of view, Mauritius is a democratic state as proclaimed by the Constitution which is the supreme law of the island. The Constitution provides basic human rights and freedoms and any statement inconsistent with the Constitution is held to be null. Elections are held every five years and the elected members constitute the National Assembly, the country's law making institution. In addition, the best loser system ensures that all ethnic groups are adequately represented in parliament. Mauritius has an independent judiciary and is a member of various organizations such as the Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC), Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC) and the World Trade Organization (WTO).

The political situation in Madagascar however is being portrayed by violent unrest and continuing scuffles for power since 1960. Like Mauritius, Madagascar has a constitution and holds elections every five years though this has not been respected lately due to political instability. Madagascar also has a Senate with 33 members and forms part of various organizations like the COMESA, IOR-ARC, Indian Ocean Commission (IOC), and the Francophone Organization (OIF). The island has strong ties with France as well as economic and cultural links with French-speaking West Africa (BBC News).

Economically, Mauritius is ranked as a middle income country and is 67th globally out of 173 countries for the Human Development Index. The island enjoys a stable and modern environment with good infrastructure. The main pillars of the economy are sugar, textile, tourism, financial services and information and telecommunication technology (ICT). The Seafood Hub is on the way of becoming another pillar of the economy. Inflation has been lower than 10% since 1993 and was at 3.9% in December 2012 (Trading Economics). On the contrary, Madagascar is one of the poorest countries in the world. The World Bank has estimated that 70% of Malagasy live on less than $1 per day. But it has very fertile land, for which there is strong competition and which is causing the decline of its forests. These forests are home to a unique diversity of wildlife and could be an emerging tourist industry. Madagascar is rich in natural resources and mining is one of the major industries of the economy along with fishing, coffee, cotton and spices like clove and pepper. With an inflation rate of 9.5% in 2011(Trading Economics), for over three decades Madagascar recorded the fifth-lowest rate of GDP growth in the world -0.5% per annum (World Bank)

From a social viewpoint, Mauritius is a highly overpopulated island with people of diverse religious groupings. Education is compulsory and free up to the age of 16. The citizens also benefit from free health care available round the clock, which caters specially to the ageing population. Festivals are celebrated on a national level such that there are 13 public holidays in a year. In Madagascar, the Malagasy ethnic group forms over 90 percent of the island's population and is typically divided into eighteen ethnic sub-groups. Malagasy pay a lot of attention to their dead and spend much effort on ancestral tombs, which are opened from time to time so the remains can be carried in procession, before being rewrapped in fresh shrouds (BBC News). Education is currently free and compulsory up to the age of 16. However the quality of education provided is considered weak with average pupil to teacher ratios of 47:1 in 2008 (Trading Economics)

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Technologically, the ICT sector has been promoted as the fifth pillar of the economy. Home to numerous BPOs (Business Process Outsourcing), broadband internet services is also easily available at a reasonable price. ICT literacy courses are offered to the public with the aim to make Mauritius a cyber-island. As for Madagascar, technology is not a priority due to the many problems it is currently facing. Because of poverty, the locals do not have access to computers or internet. The few that do have access are mostly companies.

Comparison of Mauritius and Madagascar in cost of doing business

Below are the ranks of the ability to own and operate a business in Mauritius and Madagascar for the year 2010 and 2011, as per the study of the World Bank. A strong ranking on the ease of doing business index means the regulatory environment is more open to starting and operating a firm.

Year

2010

2011

Country

Mauritius

Madagascar

Mauritius

Madagascar

Starting a business

10

12

12

70

Dealing with construction permits

42

107

54

130

Getting Electricity

-

-

45

181

Registering business

66

152

65

141

Getting credit

87

167

75

177

Protecting investors

12

57

12

60

Paying Taxes

12

74

11

74

Trading Across Barriers

19

111

21

110

Enforcing Contracts

66

155

60

156

Resolving Insolvency

-

-

76

147

Note: Getting Electricity was a new category that was introduced by Doing Business in 2011. In our further analysis of the different topics, Getting Electricity could not be included as we were not able to access Doing Business reports for Mauritius and Madagascar for the year 2011.

The above table clearly shows that Mauritius has a comparative advantage over Madagascar in all the different categories. The ranking of the different indicators changed between the year 2010 and 2011 to a better ranking. For the year 2010 the ranking was as follows: starting a business (10th), dealing with construction permits (42nd), registering business (66th), getting credit (87th), protecting investors (12th), paying taxes (12th), trading across barriers (19th) and enforcing contracts (66th). While for that of 2011, the ranking changed for instance starting a business (12th), dealing with construction permits (54th), registering business (65th), getting credit (75th), protecting investors (12th), paying taxes (11th), trading across barriers (21st), enforcing contracts (60th) and two new categories was introduced namely getting electricity and resolving insolvency (76th).

Madagascar's rankings for the year 2010 and 2011 are fairly low compared to that of Mauritius. This is because of the fact that important supporting indicators such as starting a business, dealing with construction, getting electricity, paying taxes, trading across barriers, resolving insolvency are placed in an uncompetitive position for the year 2010 and 2011. It should also be of concern that the country's ranking in many of these areas remains the same or deteriorated between 2010 and 2011. These are illustrated in the above table.

Starting a business

Doing Business measures the ease of starting a business in an country by recording all procedures that are required by a businessman to put in place and run a business. It also records the time, cost and the paid-in minimum capital that companies must deposit before registration. The ease of starting a business is based on the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement.

To make the data comparable across economies, Doing Business assumes that all information is readily available to the entrepreneur and that there has been no prior contact with officials. It also assumes that all government and nongovernment entities involved in the process function without corruption.

In 2010 Mauritius was ranked 10th while Madagascar was 12th on the list for ease of starting a business. In 2011, Mauritius was 12th while Madagascar faced a serious decline to the 70th position.

In order to start a business in Mauritius, one must follow these procedures:

Incorporate and register the business and search for company name online

Receive inspection by local authorities

Pay license fees

Register with the Social Security Office

Make a company seal

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In Madagascar it requires 2 procedures and takes 7 days to start a business. The procedures are as follows:

Obtain a new fiscal identification number

Deposit registered status, apply for license, statistical identifications and file a notice of constitution to be published in a French newspaper.

The table below compares Mauritius and Madagascar on their ease of starting a business for 2010 and 2011.

Countries

Madagascar

Mauritius

Year

2010

2011

2010

2011

Rank

12

70

10

12

Procedures

2

2

5

5

Time

7 days

7 days

6 days

6 days

Cost (% of income per capita)

12.9

6.2

3.8

4.1

Paid-in Min.Capital (% income per capita)

248.1

207.4

0.00

0.00

Source: Doing Business database

Reforms Worldwide

In 2010/11, 42 economies made starting a business easier, with streamlining registration formalities the most popular feature of reforms that have been undertaken. These include Ghana, Hungary, Montenegro, Samoa and Singapore. Peru improved the ease of starting a business the most, establishing a one-stop shop and simplifying post registration formalities at the district council level. This reduced the number of procedures for starting a business by 33%, the time by 34% and the cost by 18%. Reforms that were undertaken were to simplify the registration formalities, to introduce online application procedures, to create a one stop shop and to reduce or eliminate minimum capital requirement.

Mauritius made name verification go online in 2009 and experience a slight decrease in cost from 2010 to 2011. 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 requirement in 2010. No reforms were undertaken by either country in 2011.

The last reform done in Mauritius was in 2009 where name verification for a new company was done online making the start-up easier. Although no reform was undertaken from 2010 to 2011, Mauritius climbed from the 10th position to the 12th. This may be due to the slight increase in cost from 3.8% to 4.1% of income per capita.

In 2010, Madagascar simplified business start-up through the streamlining of procedures at one stop shop together with the elimination of stamp duty and minimum capital requirement. There were no reforms in 2011.

The reason behind the decline of Madagascar to the 70th position may partly be attributed to the rise in paid in minimum capital, but it is also due to the fact that in 2011 many other countries undertook reforms to make business start up easier. For example, Peru improved the ease of starting a business the most establishing a one stop shop and simplifying post registration formalities at the district council level. This reduced the number of procedures to start a business by 33%, the time by 34% and the cost by 18%. (DB report 2011). The table below shows some good practices that have been adopted around the world making it easy to start a business.

Practice

Economies( out of 183)

Examples

Putting procedures online

105

Cape Verde, Maldives, New Zealand, Saudi Arabia, Singapore

Having no minimum capital

Requirement

80

Bangladesh, Belarus, Canada, Colombia, Tunisia,

Vietnam

Having a one-stop shop

72

Afghanistan, Azerbaijan, Italy, Jordan, Peru, Philippines

Source: Doing Business database

This explains why Madagascar was ranked 70th although it had done nothing to make business start-ups more difficult. In fact, other economies have surpassed Madagascar by putting in place reforms as described above.

Dealing with construction permits

Regulation of construction is vital for public protection. But it requires to be efficient, to avoid undue restrictions on an important sector of the economy. Where complying with building regulations is excessively costly in time and money, many builders opt out. Bribery may become the preferred way of passing inspections or builders may simply build illegally, making compromises on public safety. For this sake, compliance ought to be simple, straightforward and inexpensive. Doing Business measures the procedures, time and cost for a small to medium-size business to obtain all the necessary approvals to build a simple commercial warehouse and connect it to basic utility services.

In 2010 Mauritius was ranked 42nd in the ease of dealing with construction permits and moved to the 54th position in 2011. Madagascar moved from 107 in 2010 to 130 in 2011.

The ranking on the ease of dealing with construction permits is based on three component indicators: procedures, time and cost.

Countries

Madagascar

Mauritius

Year

2010

2011

2010

2011

Rank

107

130

42

54

Procedures

16

16

16

16

Time(days)

172

172

136

136

Cost (% of income per capita)

1250.6

1298.7

35.5

32.3

Source: Doing Business database

Reforms Worldwide

Eastern Europe and Central Asia was the region with the most reforms of construction permitting in the past 6 years. Twenty economies implemented 33 new regulations, mainly to revamp outdated construction formalities from the communist era. Georgia, after 6 years of steady improvements, has the most efficient permitting system. Among the reforms that were put in place in 2011 were to adopt new building regulations, to introduce risk-based approvals, to have an approved building code and to reduce time for processing permit applications.

In 2010/11, neither Mauritius nor Madagascar undertook reforms in the case of dealing with construction permits and no reform has been put in place in both countries since 2009. This explains why both countries are lagging behind.

Since 2008 neither Mauritius nor Madagascar has undertaken any reform in the ease of dealing with construction permits. But they have not done anything to make the process more difficult either. The reason why these two countries have moved down the ladder still lies in the fact that other economies have been reforming their procedures so that dealing with constructions permits become easier. According to Doing Business, the Democratic Republic of Congo improved the ease of dealing with construction permits the most in 2011 by reducing the time to deal with constructions permits from 248 days to 128 and the average cost from $6,908 to $4,307. The table below shows what economies around the world have done in 2011 to make dealing with construction permits easier.

Features

Economies

Some Highlights

Reduced time for processing permit applications

Benin, Burkina Faso, Democratic Republic of Congo,Croatia, Hungary, Kazakhstan, Mexico

In Benin a new commission to process building permit applications reduced the average time for dealing with construction permits from 410 days to 320.

Streamlined procedures

Côte d'Ivoire, Croatia, Kazakhstan, Mali, Mexico, Saudi

Arabia, Ukraine

Ukraine cut 9 of 31 procedures, reducing time by a third and cost by 6%.

Adopted new building regulations

Croatia, Hungary, Kazakhstan, Romania

Amendments to Romania's construction law and building regulations cut time by 15 days and cost by 12.9%.

Reduced fees

Burkina Faso, Democratic Republic of Congo, Rwanda

Vietnam's new registration fee for completed

buildings cut total cost by 43%.

Introduced or improved one-stop shop

Kazakhstan, Paraguay, Russian Federation, Saudi Arabia

In Paraguay a new single-window approach in

the municipality cut time from 291 days to 179

Introduced risk-based approvals

Kazakhstan, Mali

Mali's new simplified environmental impact assessment for noncomplex commercial buildings cut time by 9% and cost by 32.7%.

Improved electronic platforms or online services

Colombia

Colombia improved its electronic verification of prebuilding certificates, which cut 1 procedure.

Source: Doing Business database