Easy Doing Business, Cost and Procedures of Business Registering in Africa. Investigation of the Relationship

Table of content

Abstract

Table of content

1. Introduction

2. Literature Review

3. Methodology

4. Data Analysis
4.1. Descriptive Statistics
4.2. Correlation Analysis

5. Conclusion

References

Appendix: Countries analysed

1. Introduction

Governments, development aid agencies and researchers around the world agree that entrepreneurship is essential to economic development, the creation of jobs and the improvement of people's living conditions in different societies (Ndofirepi, 2020). Most of African countries are characterized by extreme povery, hunger, high unemployment rate, higher fertility rate, higher population growth, low economic growth, etc. The estimated poor population because of the high rate of population growth in Africa was 330 million in 2012 (World Bank, 2016). Futhermore, Sub-Saharan Africa remains one of the weak-performing areas with an average score of 51.88 on the ease of doing business (World Bank, 2020).

According to the World Bank (W.B.) (2020) there is a causal association between economic freedom and growth of gross domestic product. While in the top performing easy doing economies there is no African countries, the bottom 20 economies are from the Sub-Saharan Africa region, only two African economies rank in the top 50 on the ease of doing business (W.B., 2020). According to this report, there is too much to do in Africa to improve easy doing business. Many countries are actively reforming their procedures in pursuit of making a better business environment. A great difference is observed in starting a business in in top-and bottom performing economies as indicated by the W. B. (2020). For instance, on average, it takes almost six times longer to start a company in economies ranked in the bottom 50 than in the top 20.

According to Simplice & Nicholas (2018) African population is expected to double by 2036 and stands about 20% of the world population by the middle of this century. These authors identified many factors that constitute challenges to start business in Africa inclunding cost of starting a business and doing business, lack of energy and electricity, deficiency in accessing to finance, and high taxes and low cross-border trade. Mangasini & Damian (2016) concluded that unsuitable teaching methods, deficiency in business experience, inappropriate in the university programmes, obligations of extended families, and bureaucratic tendencies were among factors impeding business start-ups in Tanzania university graduates.

According to the W. B. (2020) economies with high score in doing business will have higher levels of entrepreneurial activity. By increasing entrepreneurship, it will generate better employment opportunities, higher government tax revenues, and improved personal incomes. As it is indicated by the W.B. (2020) there is a positive relationship between greater ease of doing business and higher levels of entrepreneurship.

Satarting business is among regulations affecting 12 areas of the life of a business analysed by the World Bank in doing business report covering 190 economies. Items used to measure the concept of starting business include procedures, time, cost, and paid-in minimum capital to start a limited liability company for men and women (World Bank, 2020). However, no study has identified what can be done first to make better easy doing business in Africa based on those items. Additionnally, the relationship between each item and easy doing business in Africa did not get much attention from policy makers and academicics. The relationship between easy doing business and entrepreneurial activity claimed by the W.B. was not tested in Africa.

Research Questions: To address this gap of knowledge, the research questions are:

What was the relationship between easy doing business and cost of business start-up procedures in Africa?

What was the relationship between easy doing business and start-up business procedures in Africa?

What was the relationship between easy doing business and gross national income per capita in Africa?

What was the relationship between easy doing business and new business registered in Africa?

Purpose of the Study: The purpose of this paper is to examine the relationship between easy doing business (EBD) and cost of business start-up procedures (CBSP) and start-up procedures to register a business (SPRB) in Africa. The study also investigated the relationship between EBD and gross national income (GNI). Finally, the study examined the relationship between EBD and new business registered (NBR).

2. Literature Review

There is a high believes in academic and policymakers that entrepreneurship constitutes innovative and creative process offering potential in adding value to products, creating job opportunities, raising productivity, revitalizing and diversifying markets, improving social welfare, and more largerly developing the economy (Kourosh, Mohamad, Stephen &Levent, 2019). In this study ease of doing business score was used, and refers to the absolute level of regulatory performance and indicates how countries are improving over time. Many studies focued on the determinant of entrepreneurial intention. Howwever, the role played by easy business environment in stimulating new business creation did not get much attention in Africa. Futhermore, the determinant of easy doing business was not empirically analysed in Africa

The impact of EBD on business creation is not neutral. Tristan (2018) concluded that EBD had a positive effect on business creation, after anaysing panel data of about 120 countries. Addtionnally, financial cost was found to be most influential rather than the time and administrative cost in high-income countries. However, constrast results are observed when the analysis is applied to non-high-income countries only.

New businesses registered in this study refers to the number of new annual companies officially opened. Start-up procedures refers to all procedures needed to start a company, including interactions in order to obtain the requisite licenses and permits and to complete all registrations, verifications and start-up business activities. GNI per capita mueasure in current international $ refers to the amount of value added by all resident producers plus all taxes on goods (less subsidies) that are not included in the production valuation plus net primary income receipts (employee wages and property income) from abroad. Cost of business start-up procedures as percentage of GNI per capita is normalized expenses of registering a new company. Ease of doing business score as the performance is close to zero it means lowest performance, but when it is near 100 it indicates best performance. The score indicates how away an economy is from the frontier constructed from the best performances across all economies and across time. The distance from the frontier score shows an economy's distance from the frontier, which represents the best performance observed in all economies and years since 2005 on each Doing Business subject (W.B., 2020). The ease of doing business score shows an economy’s absolute position relative to the best regulatory performance (World Bank, 2020). Moreover, higher company start-up costs reduce aspiring entrepreneurs from setting up businesses and deciding to become workers as an alternative, thus restricting job growth and increasing the number of people vying for a job.

According to the W.B. (2020) 722 reforms have been adopted by 178 economies since 2003. By launching a range of company metrics, either reducing or removing obstacles to entry. In total, 106 economies, around 80 existing or enhanced one-stop shops, removed or reduced minimum capital requirements, and more than 160 simplified formalities for pre-registration and registration. In a low-income economy, an entrepreneur usually spends about 50 percent per capita income on starting a company, compared to only 4.2 percent for an entrepreneur in a high-income economy. Based on these indications, it can be hypothesised that reducing cost and starting busines procedures increases easy doing business. Entrepreneurial intention got much attention from academics. Based on the theory of planned behaviour, researchers tried identifying the determinant of the intention of becoming entrepreneur.

Takawira (2020) concluded that risk-taking propensity, need for achievement, and internal locus of control explained entrepreneurial intentions in Zimbabwe. Kourosh, Mohamad, Stephen & Levent (2019) concluded that desirability, self-efficacy, feasibility, opportunity, attitude, and collective-efficacy were the main determinant of entrepreneurial goal intention of of tourism students in Iran. Mirjana, Ana & Marjana (2018) based on theory of planned behaviour, they examined how personal attitudes, subjective norms and perceived behavioural control affect one’s intentions to become an entrepreneur in Slovenia. They concluded that personal attitudes towards entrepreneurship, subjective norms and perceived behavioural control wer positively correlated to one’s entrepreneurial intentions.

3. Methodology

Secondary data were collected on the World Bank official web site (https://data.worldbank.org/indicator ) to answer the research questions. Annual data 2019 related to NBR, EBD, CBSP, SPRB, and GNI were gathered. 53 countries were included in the study. Missing data were checked. Countries with full data are changing according to the variable considered. As it can be seen in Table one, 32 coutries are counted for NBR, 53 for EBD, CBSP, SPRB, and 50 for GNI per capita. To get better understanding of the data, descriptive statistics were calculated such as mean, median, minimum, and maximum. Data dispersion was analysed using skewness. The analysis indicates that NBR, CBSP, SPRB and GNI are skewed as skewness is greater than 0.5. This indicates that data are not normally distributed. Therefore, no parametric test will be used as they do not make any assumption on data distribution. According to Todd & Karen (2007) parametric tests are used when data are normally distributed, with equal variance and same standard deviation. Finally, data must be continuous. As EBD is normally distributed while other aren’t, the study used Pearson product correlation coefficient and Spearman rank coefficient to examine how well variables are correlated to EBD.

4. Data Analysis

4.1. Descriptive Statistics

The Table 1 shows the main descriptive statistics. It indicates the mean, median, skewness, minimum, and maximum values. As itcan be seen, there is a difference between mean and median for some variable except for EBD and SPRB. Moreover, data are not normally distribted as the skewness is greater than zero except for EBD where skewness is near zero.

Table 1 Descriptive Statistics

Abbildung in dieser Leseprobe nicht enthalten

Source: Extrapolated from World Bank Indicator (2019).

4.2. Correlation Analysis

This study aims to answer the following question: What was the relationship between easy doing business and cost of business start-up procedures in Africa? What was the relationship between easy doing business and start-up business procedures in Africa? What was the relationship between easy doing business and gross national income per capita in Africa? Pearson and Spearman correlation analysis was used to depect the relationship between variables. Table 2 presents the results of correlation analysis.

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