Cost Is So Important And Engrossed

Published Date: 02 Nov 2017

INTRODUCTION

Cost is so important and engrossed in daily life and not knowing your costs can cost you. Eventually, cost is a fundamental concept such that investment decisions are influenced by it. If the costs are not calculated accurately for a business entity, this can result to good investment opportunities being considered as non-viable. For most business, bringing down costs should be of great concern. It is a necessity to have a system that grabs information on cost precisely and trustworthily.

The cost of doing business is a precious tool for success of an investor as it properly captures cost information. It is an integral part of the business environment. The cost of doing business is in fact a mechanism of analyzing the costs that are associated in setting up an enterprise in whatever sector. It follows from the very beginning of the investment decision to transaction costs involved and finally up to operating that investment. The different costs are important to determine the business environment of a country and also the type of limitations that are being faced by businesses.

One should first acquire a comprehensive discernment of the information that you require to begin and operate your business. After that, one can cut down costs associated to your business. Additionally, carry out a cost-benefit analysis and thus take a decision supported by how investment is conducted and its environment.

From the World Bank, regulations affecting 11 areas of the life of a business are the variables that capture such costs and 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

Getting electricity

Employing workers

The getting electricity and employing workers data are not included in the ranking on the ease of doing business in Doing Business 2011. Research is ongoing in 2 new areas: getting electricity and worker protection. In addition, data are presented for regulations on employing workers and for a set of pilot indicators on getting electricity.

Indeed, the above variables are the areas in the business life cycle. The fact of doing business sheds light on how easy or difficult is it to open and manage a business when complying with appropriate regulation affecting the areas.

There are customary assumptions that are used in the process of collecting data that comparison and benchmark are credible across economies. The data put emphasis of the extent of hindrance to doing business, facilitates the determination of the source of those hindrances and assists policy makers in designing regulatory reform.

To this effect, the work will be based on two economies namely, Mauritius and Madagascar. From the numbered indicators outlined above, Mauritius and Madagascar will be assessed on an individual basis for the year 2010 and 2011 and an intra comparison between Mauritius and Madagascar. Finally, a special attention is given to appropriate benchmark which will further support the analysis.

OVERVIEW

On the overall assessment, globally Mauritius is ranked 17th in 2010 and 20th in 2011 while Madagascar is ranked 134th in 2010 and 140th in 2011 in the ease of doing business among 183 economies. Mauritius experienced a drop of 3 ranks and Madagascar also experiences a worsening in its ranking of a fall of 6 positions. Many countries in Africa look to Mauritius - the region’s strongest performer on Doing Business indicators - as a source of good practices for reform. Successful Doing Business reformers are comprehensive. Over the past 5 years Mauritius implemented at least 19 reforms, covering 8 or more of the 10 areas measured by Doing Business.

Equally helpful may be the benchmarks provided by the economies that today have the best performance regionally or globally on the ease of doing business. These economies may provide a model for Mauritius and Madagascar on ways to improve the efficiency of doing business. And changes in regional averages can show where Mauritius and Madagascar are keeping up and where it is falling behind. It is to be noted that in both 2010 and 2011 Singapore stand first in doing business.

To delve deeper into the discussion, each indicators that capture the cost will be analysed specifically.

Starting a business

To formally register a company confers many immediate advantages not only to the company that is being incorporated but also to the business owner as well as its employees. Legal entities can outlive their founders. Resources are pooled as several shareholders join forces to start a company. Where governments make registration easy, more entrepreneurs start business in the formal sector, thus creating jobs and thereby generating more revenue for the government.

The index of starting a business records all procedures that are 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 (or within 3 months). The ranking on the ease of starting a business is the simple average of the percentile rankings on the 4 component indicators namely: procedures, time, cost and paid-in minimum capital requirement. To standardise data and make comparison among economies easier, there are several assumptions about the business and the procedures that must be met.

Procedures

A procedure is defined as any interaction of the company founders with external parties (for example, government agencies, lawyers, auditors or notaries). Procedures that must be completed in the same building but in different offices or at different counters are counted as separate procedures. If the services of professionals are required, procedures conducted by such professionals on behalf of the company are counted separately. Each electronic procedure is counted separately. If 2 procedures can be completed through the same website but require separate filings, they are counted as 2 procedures. Both pre (for example, name verification or reservation) and post (for example, social security registration, company seals) incorporation procedures that are officially required for an entrepreneur to formally operate a business are recorded. Only procedures required to all businesses are covered.

Time

Time is recorded in calendar days. The measure captures the median duration that incorporation lawyers indicate is necessary in practice to complete a procedure with minimum follow-up with government agencies and no extra payments. It is assumed that the minimum time required for each procedure is 1 day. Also, each procedure starts on a separate day. 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. The time that the entrepreneur spends on gathering information is ignored.

Cost

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. Fees for purchasing and legalizing company books are included if these transactions 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 up to 3 months following incorporation and is recorded as a percentage of the economy’s income per capita. Many economies require minimum capital but allow businesses to pay only a part of it before registration, with the rest to be paid after the first year of operation.

Discussion:

Starting a business

DB2010

DB2011

Mauritius

Madagascar

Benchmark

Mauritius

Madagascar

Benchmark

Rank

10

52

1-New Zealand

15

70

1-New Zealand

Procedures

5

2

1- Canada

5

2

1- Canada

Time (days)

6

7

1- New Zealand

6

7

1- New Zealand

Cost (% of income per capita)

4.1

6.1

0- Denmark

3.8

12.9

0.0- Denmark

Paid-in minimum capital

0.0

207.4

428- Burkina Faso

0.0

248.1

387 - Chad

Inter-comparison: Mauritius 2010 and 2011

Mauritius experiences a drop of 5 ranks behind, ranking itself in the 10th position in 2010 to 15th in 2011. Not much changes were made for by the Mauritian government to ease the starting a business index during these two years. Only a slight improvement can be found in comparing between the two time periods; a thin decrease in the cost (as a percentage of income per capita) from 4.1 in 2010 to 3.8 in 2011. This can be due to the fact that in 2008 Mauritius made starting a business faster by implementing a centralized database linking the company registry with tax, social security, and local authorities. For 2009, the government employed an on-line reforms to further simplified registration process and formalities were streamlined, thereby reducing the number of procedures. Also, the start-off was made easier by the introduction of online name verification for new company. All this combined could have reduced the cost.

Since 2009, no reforms had been made in the starting a business index. On lighter notes, Mauritius maintained its position for both years, ranking itself first in the sub-Saharan region.

Inter-comparison: Madagascar 2010 and 2011

Madagascar experienced a worsening in its ranking throughout 2010 enduring a fall of 18 positions, ranking itself at the 70th place in 2011 to a 52th in 2010. The number of procedures remain the same, with an increase in one day in the time taken for the completion of the starting a business process. The cost (as a percentage of income per capita) also swelled from 6.1 in 2010 to 12.9 in 2011 which goes against a reform done in 2009 that abolished professional tax which were meant to reduce the cost and also facilitating publication with the option of online publication to cut time.

The component that aggravate the performance of the starting a business index for Madagascar was in fact the paid-in capital which rose to 248.1 in 2011 which was previously 207.4 in 2010. One reform was implemented in 2010, whereby 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. For its regional performance, Madagascar is ranked 3rd in the sub-Saharan region.

Intra-comparison between Mauritius and Madagascar

The performance of Mauritius and Madagascar for 2010 and 2011 had both worsen, but the one who suffer a greater fall was indeed Madagascar ranking itself in the 70th place globally. For the regional (sub-Saharan) performance of both countries: Mauritius keeps the first position for both 2010 and 2011; Madagascar occupies the second place closed behind Mauritius. The comparison between Mauritius and Madagascar can be quiet tricky since Mauritius is classified by Doing Business in upper middle income category and Madagascar in lower income category. Although on the number of procedures, Madagascar outstand Mauritius; Mauritius still secure a far better performance not only on the number of days taken to complete the starting business process but also in the paid-in minimum capital. Mauritius operates a system whereby the paid-in minimum capital is not compulsory prior to the incorporation of the business but is not the case in Madagascar.

Benchmark comparison

On a global level, New Zealand occupied the first position for starting a business quite some times now. New Zealand is one among the most developed nations in the twenty first century, it is without qualm that it would be among the best performer; it is third only to Singapore and Hong Kong for ease of doing business. There are few restrictions on establishing, owning and operating a business there. The process of starting a business can take as little as three days in New Zealand. The country focus more on an online system to limits the wastage of resources, time and cost.

For each sub-index, New Zealand does not necessarily take the first place. For the procedures, Canada was ranked in the first with only one procedure which is to file for federal incorporation and provincial registration via Industry Canada’s online Electronic Filing Centre. The use of online system helps to boost up the procedure level. Mauritius had understand the importance of the online system and had implement a reform in 2009 that on-line reforms that was to further simplified registration process and formalities were streamlined, reducing the number of procedures. As for Madagascar, the procedures are still very bureaucratic and chaotic. The government cannot permits reforms to be done to change all procedures to be dealt online and not many people does have access to internet, it would but a wastage of resources if such a process were to be approved.

As for the time required to complete the starting a business process, New Zealand top the list which only required one day. With Mauritius requiring around 6 days for full completion of the process it does in fact lack behind. Reforms must be done to decrease the number of days and to merge certain requirements together. For Madagascar, the completion of all procedures requires 7 days; there too reforms must be required.

The cost (as a percentage of income per capita) needs to be reduced for both Mauritius and Madagascar since Denmark - which tops the list – requires zero cost. For the paid-in minimum capital, Madagascar needs to reduce the amount required as it is not too far from the worst performance, that is, Chad in 2011.

Dealing with construction permits

The regulation of construction is essential to protect the public. Not only does it need to be efficient but also to avoid excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations that can be rather costly in time and money, many builders opt out. They may even choose the bribery route thereby leading to hazardous construction that might put the public safety at risk.

This index records the procedures, time and cost for a business to obtain all the necessary approvals to build a simple commercial warehouse in the largest business city. The ranking on the ease of dealing with construction permits is the simple average of the percentile rankings on its component indicators: procedures, time and cost.

To make the data comparable across economies, several assumptions about the business, the warehouse project and the utility connections are used.

Procedures

A procedure is any interaction of the company’s employees or managers with external parties, including government agencies, notaries, the land registry, technical experts apart from in-house architects and engineers. Procedures that the company undergoes to connect to water, sewerage and telephone services are included. All procedures that are legally or in practice required for building a warehouse are counted, even if they may be avoided in exceptional cases.

Time

Time is recorded in calendar days. The measure captures the median duration that local experts indicate is necessary to complete a procedure in practice. 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). If a procedure can be accelerated legally for an additional cost, the fastest procedure is chosen. The time that BuildCo spends on gathering information is ignored. It is assumed that BuildCo is aware of all building requirements and their sequence from the beginning.

Cost

Cost is recorded as a percentage of the economy’s income per capita. Only official costs are recorded. All the fees associated with completing the procedures to legally build a warehouse are recorded, including those associated with obtaining land use approvals and preconstruction design clearances; receiving inspections before, during and after construction; getting utility connections; and registering the warehouse property.

Discussion

Dealing with construction permits

DB2010

DB2011

Mauritius

Madagascar

Benchmark

Mauritius

Madagascar

Benchmark

Rank

42

108

Hong Kong

39

110

Hong Kong

Procedures

18

16

6 - Denmark

18

16

6 - Denmark

Time (days)

107

178

25 - Singapore

107

178

25 - Singapore

Cost (% of income per capita)

35.5

630.7

0.6 - Qatar

32.3

654.9

0.8 - Qatar

Inter-comparison Mauritius: 2010 and 2011

For dealing in construction permits, Mauritius had managed to move up the ranking, grading itself on the 39th position in 2011 on over 183 countries as compare to its 42th ranks in 2010. Mauritius has indeed a long way to go to be able to position itself among the best in this category. In contrast to the starting a business index which it was ranked in first place in the sub-Saharan region; for the index of dealing with construction permits it found itself in the 3rd place in 2011. No real reforms were made during 2010 or 2011. The last reform made was in 2008 where Mauritius made obtaining construction permits easier by combining procedures of getting development permit and building permit, and it also set an official time frame to process the permit application. What is alarming is the number of days required for the completion of this index. The government should try to boost up the procedure of obtaining sewage connection from WasteWater Management Authority (WMA), this procedure in alone take 60 days to complete. Also, the number of procedures need to be decreased, procedures like: receive foundation level inspection and roof inspection, which rarely occurred in practice needs to be removed in the procedures or merged into one.

Inter-comparison Madagascar: 2010 and 2011

For both 2010 and 2011, Madagascar drops two places ending at 110th place in 2011 as compared to its 108th rank in 2010. No actual reforms were ever made in the last 5 years. The government needs to react quickly to limits the fall. What is alarming is the costs (as a percentage of income per capita) figure, increasing from 630.7% in 2010 to 654.9% in 2011. The procedures of obtaining building permit alone cost around MGA 7803000; this figure is way too high for an entrepreneur willing to start a business. Also the time taken to complete this procedure should be decreased.

Intra-comparison between Mauritius and Madagascar

In this index Mauritius excel Madagascar in mostly all sub-indices, except for the procedures as Madagascar can complete these procedures is lesser days, that is only 16 procedures, to that of Mauritius that takes 18 procedures. The 18 procedures for Mauritius are less bulky than that of Madagascar. The number of days required for the completion of dealing with construction permits is better for Mauritius and within 3 and a half month, the business can start operating. Whereas with for Madagascar approximately 6 months which is twice the amount of time than Mauritius. This is due to the fact Mauritius system are more computerise than that of Madagascar.

Benchmark comparison

With most products coming from China it without doubt that Hong Kong took the first place for the ease of dealing with construction permits for both 2010 and 2011. Hong Kong requires 7 procedures and among them, 3 are done simultaneously. But this does not mean that it top the rank with the least number of procedures, Denmark precedes Hong Kong in both 2010 and 2011 with only 6 procedures to complete the process of dealing with construction permits. With 16 procedures Mauritius needs to cut on some procedures such as inspection of roof or foundation level inspection to be in line with the global trend. The same thing applies for Madagascar.

With only 25 days, Singapore can complete all its dealing with construction permits procedures; whereas Mauritius took about 4 times more with 107 in total and Madagascar is beyond comparison. The only procedure that took quite so time- 14 days- to finish for Singapore is to obtain written permission from the Urban Redevelopment Authority. Relatively the same procedure for Mauritius, building and land use permit takes about 21 days to be over.

Qatar attain an impressive figure that necessitate only 0.6 percent of its cost (as a percentage of income per capita) in 2010 to a slight increase in cost of 0.8 percent in 2011 to complete the dealing with construction permits process. The figures for Mauritius are still better as compared to that of Madagascar that exceeds all heights. But Mauritius need to work s toward decreasing the cost to be better in line with the global trend.

Registering property

Formal property rights are one of these things that need to be ensured since they are fundamental. The effective administration of land form part of formal property rights. Formal property transfer cannot be too costly nor complicated, since these formal titles might go informal again. The risk of poorly administered or informal property reduces the chance of being accepted as collateral for loans that is limiting access to finance.

This Registering Property index records all sequence of procedures necessary for a business to purchase property from another business and transfer the property title to the buyer’s name. For the transaction to be considered complete is when it is opposable to third parties and when the buyer can use the property, that it, can used as a collateral for a bank loan or for resale. The ranking on the ease of registering property is the simple average of the percentile rankings on its component indicators; procedures time and cost. There are also some assumptions that are required to make comparison between economies easier.

Procedures

A procedure is defined as any interaction of the buyer or the seller, their agents, including government agencies, inspectors, notaries and lawyers, among others. Interactions within the company are not considered. All procedures that are legally or in practice required for registering property are recorded, even if they may be avoided in exceptional cases. It is assumed that the buyer follows the fastest legal option available and used by the majority of property owners. Although the buyer may use lawyers or other professionals where necessary in the registration process, it is assumed that the buyer does not employ an outside facilitator in the registration process unless legally or in practice required to do so.

Time

The time captures the median duration that property lawyers, notaries or registry officials indicate is necessary to complete a procedure. It is assumed that the minimum time required for each procedure is 1 day. It is assumed that the buyer does not waste time and commits to completing each remaining procedure without delay. If a procedure can be accelerated for an additional cost, the fastest legal procedure available and used by the majority of property owners is chosen. It is assumed that the parties involved are aware of all requirements and their sequence from the beginning. Time spent on gathering information is not considered.

Cost

Cost is recorded as a percentage of the property value, assumed to be equivalent to 50 times income per capita. Only official costs required by law are recorded, including fees, transfer taxes, stamp duties and any other payment to the property registry, notaries, public agencies or lawyers. Other taxes, such as capital gains tax or value added tax, are excluded from the cost measure. Both costs borne by the buyer and those borne by the seller are included.

Discussion

Registering Property

DB2010

DB2011

Mauritius

Madagascar

Benchmark

Mauritius

Madagascar

Benchmark

Rank

66

152

Saudi Arabia

69

162

Saudi Arabia

Procedures

4

7

1 - Norway

4

7

1 - Georgia

Time (days)

26

74

2 – New Zealand

26

74

1 – Portugal

Cost (% of property value)

10.7

9.7

0.0 – Saudi Arabia

10.6

9.8

0.0 - Bhutan

Inter-comparison Mauritius: 2010 and 2011

Mauritius ranking falls down to the 69th place in 2011 as compared to its 66th position in 2010. The number of procedures remained the same for both years, which comprise of 4 procedures: Notary checks for encumbrances at the Registrar General which can be dealt simultaneously with a land surveyor prepares for a new survey plan and a situation plan and both process takes approximately 9 days to be completed. The other procedures which are: a notary prepares and notarizes the deed of sale. Various reforms had been implemented by the government during the last 3 years; the 2009 reforms abolished two procedures, the requirement to obtain clearance certificate from the Waste Water Authority and to obtain a tax clearance certificate for municipal tax. As for the 2010 reforms, Mauritius made it easier to register property by setting a statutory time limit of 15 days to obtain the final property title from the Land Registry. Nevertheless all these reforms do not seems to have had any effects in the improvement of the index of Registering Property but instead worsen its performance on a global scale. For its performance in the sub-Saharan region, Mauritius found itself to be ranked in the 2nd place closed behind Botswana.

Inter-comparison Madagascar: 2010 and 2011

The performance of Madagascar drops by 10 places ranking itself on the 162th in 2011 as compared to its 152th place in 2011. The number of procedures, time and cost remains the same throughout both years. In 2009, Madagascar made a notable reform which was to reform its Land Registry, thereby hiring more staff, introduction of more computers and the number of offices increased. In addition, Madagascar abolished two taxes and removed the mandatory stamps duty on documents. This resulted in a decrease in the number of procedures, the time and also the cost. In contrast to this reform, Madagascar made a reform in 2010 that impact negatively on this index is the Madagascar made it more costly to transfer a property by introducing the mandatory use of notary for property transactions. For its sub-Saharan ranking, Madagascar ranked itself below the regional average, ranking itself in the 5th place.

Intra-comparison between Mauritius and Madagascar

As stated before, the comparison between Mauritius and Madagascar can be pretty problematic, since Mauritius benefits from a more advance operating system than that of Madagascar, where the paper works is lesser than that of Madagascar. Both economies require notary services which something takes time and the cost associated to such services are quite high especially for Mauritius. That is why Madagascar managed to surpass Mauritius in the cost (as a percentage of property value) even by a small amount. Mauritius can be found to be among the best performance in the sub-Saharan region classifying itself in the 2nd place right behind Botswana and above the regional average whereas Madagascar is very much below the average level. The authorities of Madagascar need to put greater efforts in raising its ranking.

Benchmark comparison

The one that top the list for the year 2010 and 2011 for Registering Property on is Saudi Arabia; the country require 5 procedures to complete the registering property process. What helps Saudi Arabia to be on the first place is the cost (as a percentage of property value) which is zero; all procedures do not carry any cost associated with them. As compared to Mauritius which cost are approximately 10.7 percent of their property values. It is quite impossible for Mauritius to attain a zero cost amount for registering neither property since the Notary’s fees cannot be cut out nor the tax that the government receive from such transactions. This also cannot be applicable for Madagascar as the fees which form part of the cost are revenues for other entity that helps the economy function.

For the number of procedures, Norway was ranked first in 2010 and Georgia was its successor in 2011. For both, the number of procedure they required to complete their property registration is only one. For both countries no notary services is required, thereby reducing the cost and also the days for the completion of the project. As compared to Mauritius which the notary services is include in two procedures; the government cannot of course remove all the notary services but at least reduce it to only one process, thus reducing the cost, number of procedures and time.

New Zealand again the ease of registering property by ranking itself first in 2010 with only two days for the completion of this process. But it lost it place to Portugal in 2011, which only required one day to complete the procedures. Neither Mauritius nor Madagascar can compete on such a scale, new reforms are indeed crucial to decrease the number of days, especially Madagascar with required 74 days in total. What takes too much time and which is one or the most important procedures is for Madagascar is the request transfer that needs to be recorded in the books at the Registrar of the Property Registry, which just this procedure alone took 60 days to be over. The government of Madagascar should look into this process and maybe develop a computerise system to ease the transfer and abolish the "Duplicata" that needs to be attached to the sale and purchase agreement duly notarized.

Getting credit

Getting credit is important for a newly formed company. There exist two types of frameworks which can facilitate access to credit and improve its allocation: credit information systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. The credit information systems enable lenders to view the credit history of their potential borrowers and help them to assess the level of risk if the engage in contract with the lender. Sound collateral laws enable business to use their assets, especially movable property, as security to generate capital- while strong creditors’ rights have been associated with higher ratios of private sector credit to GDP.

This indicator assesses the sharing of credit information and the legal rights of borrowers and lenders with respect to secured transactions trough 2 sets of indicators. The Getting Credit indicator cover: strength of legal rights index, depth of credit information index, public credit registry coverage and private credit bureau coverage. Doing business uses a case scenario to determine the scope of the secured transactions system, involving a secured borrower and a secured lender and examining legal restrictions on the use movable collateral.

What do the getting credit indicators measure?

Strength of legal rights index (0–10)

Protection of rights of borrowers and lenders through collateral laws

Protection of secured creditors’ rights through bankruptcy laws

Depth of credit information index (0–6)

Scope and accessibility of credit information distributed by public credit registries and private credit bureaus

Public credit registry coverage (% of adults)

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

Private credit bureau coverage (% of adults)

Number of individuals and firms listed in largest private credit bureau as percentage of adult population

Discussion

Getting Credit

DB2010

DB2011

Mauritius

Madagascar

Benchmark

Mauritius

Madagascar

Benchmark

Rank

87

167

1-Malaysia

89

176

1-Malaysia

Strength of legal rights index (0-10)

5

2

10 – Hong Kong

5

2

10 – Hong Kong

Depth of credit information index (0-6)

3

1

3

0

Public registry coverage (% of adults)

36.8

0.1

49.8

0.0

Private bureau coverage (% of adults)

0.0

0.0

0.0

0.0

Inter-comparison Mauritius 2010 and 2011

Mauritius experiences a fall in its position, ranking in the 89th place in 2011 to its 87th place in 2011 on over 183 economies. On the regional level, that is, the sub-Saharan region ranking, Mauritius placed itself on the 3rd position far behind Namibia. The strength of legal rights index is 5 over 10 meaning that both lenders and borrowers can benefits from a fairly decent legal protection. As for the depth of credit information index, meaning there is an average availability of credit information, from either a public credit registry or a private credit bureau, to facilitate lending decisions. No reforms were made for the past 5 years. No private bureau coverage is available for Mauritius.

Inter-comparison Madagascar 2010 and 2011

Madagascar stands among the 10 worst economies in the ease of getting credit for both 2010 and 2011. Its actual rank in 2011 was 176th as compared to its 167th place in 2010. The sub-index, strength of legal rights is just 2 over 10, that is, information are not well flowing from the lenders and borrower. The country does not provide for private bureau coverage. What is undeniably worrisome is that fact that the government of Madagascar is not reacting and not taking or making any reforms to at least stop the falls. To cater for the getting credit index, the whole financial system needs to be review in hope to prevent any further degradation of its current position. If indeed a reform is initiated in the getting credit in Madagascar, this will not only help the index but also the economy in itself.

Intra-comparison between Mauritius and Madagascar

The comparison between the two countries here is very complex, Mauritius may not find itself among the very best performer in this index, but at least it position itself above the regional average and top the list in the sub-Saharan region. For both countries, reforms are crucially important, reforms that must be carried of it’s to stop the fall and try to consolidate the present index. The availability of information for credit purposes is really scarce in Madagascar, to improve this situation, the government of Madagascar need to pass certain laws that required people to release these information for getting credit.

Benchmark Comparison

For the ease of getting credit, Malaysia scores the first place on over 183 economies. For the strength of legal right index, Malaysia score all 10 of them. In addition, what sets Malaysia apart and allowed the country to be ranked 1st is in the depth of credit information, whereby in this sub-index also scored the full 6 point. With a ranking of 89 and 176 for Mauritius and Madagascar respectively, they are in no way able to compete with such an advance economy.

Hong Kong again appears on top while scoring 10 over 10 on the index of legal rights index. The country is ranked 4th in the ease of getting credit. Mauritius should allow any business move assets as collateral while keeping possession if the assets; and any financial institution accept such assets as collateral. As for Madagascar it needs to reform its entire system to improve its performance.

Protecting investors

The protection of investors is fundamental for a company since the investors is a way by the company to raise capital to finance certain projects. If the laws do not provide adequate protection for investors, the latter may be reluctant to provide the fund to finance these projects.

Doing Business measures the strength of minority shareholder protections against directors’ misuse of corporate assets for personal gain. The indicators distinguish 3 dimensions of investor protections: transparency of related-party transactions (extent of disclosure index), liability for self-dealing (extent of director liability index) and shareholders’ ability to sue officers and directors for misconduct (ease of shareholder suits index).

To make the data comparable across economies, several assumptions about the business and the transaction are used.

What do the protecting investors indicators measure?

Extent of disclosure index (0–10)

Who can approve related-party transactions

Requirements for external and internal disclosure in case of related-party transactions

The index ranges from 0 to 10, with higher values indicating greater disclosure.

Extent of director liability index (0–10)

Ability of shareholders to hold the interested party and the approving body liable in case of a prejudicial related-party transaction

Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission of the transaction)

Ability of shareholders to sue directly or derivatively

The index ranges from 0 to 10, with higher values indicating greater liability of directors.

Ease of shareholder suits index (0–10)

Documents and information available during trial

Access to internal corporate documents (directly and/or through a government inspector)

The index ranges from 0 to 10, with higher values indicating greater powers of shareholders to challenge the transaction.

Strength of investor protection index (0–10)

Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices.

The index ranges from 0 to 10, with higher values indicating more investor protection.

Discussion

Protecting investors

DB2010

DB2011

Mauritius

Madagascar

Benchmark

Mauritius

Madagascar

Benchmark

Rank

12

57

1-New Zealand

12

59

1-New Zealand

Extent of disclosure index (0-10)

6

5

10- Bulgaria

6

5

10- Bulgaria

Extent of director liability index (0-10)

8

6

9- Albania

8

6

9- Albania

Ease of shareholder suits index (0-10)

9

6

10- Kenya

9

6

10- Kenya

Strength of investor protection index (0-10)

7.7

5.7

7.7

5.7

Inter comparison: Mauritius, year 2010 and 2011

In both 2010 and 2011, for the indicator protecting investors, Mauritius was ranked 12th place. In this index also, Mauritius top the list, taking the second place right behind South Africa in the sub-Saharan region. On a rating of 0-10, again in both 2010 and 2011, Mauritius is rated 6 for the extent of disclosure index, 8 for the extent of director liability and 7.7 for strength of investor protection index with a higher score indicating stronger protections. Mauritius is among the ten best countries in ease of shareholder suits index for both 2010 and 2011. There is no great difference between the two years for this indicator for Mauritius. No actual reforms had ever been made for the protection of investors. Although no reforms were made, what could explain the good performance of Mauritius is that the government had long promoted corporate governance measures that specially cater for minority shareholders among others.

Inter comparison: Madagascar, year 2010 and 2011

For Madagascar also there are no great changes between the two years. Madagascar came 57th in 2010 and in 2011 it was ranked 59th. On a rating of 0-10, the latter rated 5 in both 2010 and 2011, for extent of disclosure index. Madagascar rated 6 in extent of director liability index and ease of shareholder suits index in both years. For strength of investor protection index, the country rated 5.7 for both years. No reforms were made for the last 5 years. But the overall ranking on the strength of investor protection index tells only part of the story. Economies may offer strong protections in some areas but not others.

Intra comparison between Mauritius and Madagascar

Mauritius is far better off than Madagascar in both 2010 and 2011 when we see the ranking. What may distinct Mauritius from Madagascar is the fact that Mauritius benefits from a well diversified and sound legal system, where the legal system operates freely and fairness basis. One should not forget that the paste at which Madagascar is developing is not the same as Mauritius. In addition to be able to maintain a sound and fair legal system is quite costly for the government. Mauritius is a good example for good practices around the world in protecting investors in allowing rescission of prejudicial related-party transactions.

Benchmark comparison

The most protected investors are from New Zealand; it attain such a rank by being able to satisfy all four sub-indices, scoring 10 in extent of disclosure index and ease of shareholder suits index, as for the 2 others, they scored 9 over 10. Mauritius is ranked 12th which is somehow not far from the benchmark. Madagascar stands slightly after the half of the number of countries in protecting investors.

For the extent of disclosure index, Bulgaria was ranked first for both 2010 and 2011 achieve the full 10 point. For Mauritius the immediate disclosure of the transactions to the public and shareholders is not a mandatory procedure, nor is it for Madagascar.

As for the extent of director liability index, Albania obtained 9 over the 10 point allocated to it. It is important to point out that no economies can score the full 10 point. With a score of 8, Mauritius found itself in a good position. The only thing that needs improvement for Mauritius to match the benchmark is to allowed shareholders to hold members of the approving body liable for the damage that the Buyer-Seller transaction causes to the company and hold them liable for unfair, oppressive transaction and prejudicial to minority shareholders.

Paying taxes

Doing Business records the taxes and mandatory contributions that a medium-size company must pay in a given year as well as measures of the administrative burden of paying taxes and contributions. The project was developed and implemented in cooperation with PricewaterhouseCoopers (PwC). Taxes and contributions measured include the profit or corporate income tax, social contributions and labor taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and any other small taxes or fees.

Doing Business uses a case scenario to measure the taxes and contributions paid by a standardized business and the complexity of an economy’s tax compliance system. This case scenario uses a set of financial statements and assumptions about transactions made over the course of the year. To make the data comparable across economies, several assumptions about the business and the taxes and contributions are used.

Tax payments

The tax payments indicator reflects the total number of taxes and contributions paid, the method of payment, the frequency of payment, the frequency of filing and the number of agencies involved for this standardized case study company during the second year of operation. It includes taxes withheld by the company, such as sales tax, value added tax and employee-borne labor taxes. These taxes are traditionally collected by the company from the consumer or employee on behalf of the tax agencies. Although they do not affect the income statements of the company, they add to the administrative burden of complying with the tax system and so are included in the tax payments measure.

Time

Time is recorded in hours per year. The indicator measures the time taken to prepare, file and pay 3 major types of taxes and contributions: the corporate income tax, value added or sales tax, and labor taxes, including payroll taxes and social contributions. Preparation time includes the time to collect all information necessary to compute the tax payable and to calculate the amount payable. Filing time includes the time to complete all necessary tax return forms and file the relevant returns at the tax authority. Payment time considers the hours needed to make the payment online or at the tax authorities. Where taxes and contributions are paid in person, the time includes delays while waiting.

Total tax rate

The total tax rate measures the amount of taxes and mandatory contributions borne by the business in the second year of operation, expressed as a share of commercial profit.  The total amount of taxes borne is the sum of all the different taxes and contributions payable after accounting for allowable deductions and exemptions. The taxes withheld (such as personal income tax) or collected by the company and remitted to the tax authorities (such as value added tax, sales tax or goods and service tax) but not borne by the company are excluded. The taxes included can be divided into 5 categories: profit or corporate income tax, social contributions and labor taxes paid by the employer (in respect of which all mandatory contributions are included, even if paid to a private entity such as a requited pension fund), property taxes, turnover taxes and other taxes (such as municipal fees and vehicle and fuel taxes).

Discussion

Paying taxes

DB2010

DB2011

Mauritius

Madagascar

Benchmark

Mauritius

Madagascar

Benchmark

Rank

12

74

1- Maldives

12

72

1- Maldives

Payments

(number per year)

7

23

1- Maldives

7

23

2- Sweden

Time (hours per year)

161

201

0- Maldives

161

201

0- Maldives

Total tax rate (%of profit)

22.9

39.2

0.2-Timor-Leste

24.1

37.7

0.2-Timor-Leste

Inter comparison: Mauritius, year 2010 and 2011

On average, firms in Mauritius make 7 tax payments a year, spend 161 hours a year filing, preparing and paying taxes and pay total taxes amounting to 22.9% of profit in 2010 and in 2011, firms make 7 tax payments a year, spend 161 hours a year filing, preparing and paying taxes and pay total taxes amounting to 24.1% of profit. Globally, Mauritius stands at 12 in the ranking of 183 economies on the ease of paying taxes in both years. Mauritius implemented a major tax reform in 2006. It reduced the corporate income tax rate from 25% to 15% and removed exemptions and industry-specific allowances, such as its investment allowance and tax holidays for manufacturing. Authorities aimed to increase revenue by combining a low tax rate, a transparent system, a reinforced tax administration and efficient collection—and they did. In the 2007/08 fiscal year corporate income tax revenue grew by 27% and in 2008/09 it increased by 65%. Moreover Mauritius undergone reform that makes it easier to do business in 2008 whereby it reduced the tax burden for companies by reducing CIT. this explained the good performance of Mauritius in the ease of doing business. However in 2011, Mauritius implemented doing business reform making it more difficult to do business which is the introduction of a new corporate social responsibility tax.

Inter comparison: Madagascar, year 2010 and 2011

Globally, Madagascar stands at 74th in the ranking of 183 economies on the ease of paying taxes in 2010 and in 2011 72nd. On average, firms in Madagascar make 23 tax payments a year, spend 201 hours a year filing, preparing and paying taxes and pay total taxes amounting to 39.2% of profit in 2010 and also for 2011 except that firms pay total taxes amounting to 37.7% of profit. Madagascar has made it easier to do business with the reform of continuing to reduce corporate tax rates in 2011. The improvement from 2010 to 2011 in the position of Madagascar from 74th to 72nd and in the amount of tax paid from 39.2% of profit to 37.7% of profit can be explained by the fact that Madagascar continued to reduce corporate tax rate which act as an incentive.

Intra comparison between Mauritius and Madagascar

In this indicator also Mauritius performs better than Madagascar in terms of the ranking on the ease of paying taxes. Mauritius introduced a new corporate social responsibility tax which makes it more complicated to do business whereas Madagascar has undergone major cuts in corporate income tax rates in 2010 from 25% to 23%. As seen from the above table, indeed there is a gap between Mauritius and Madagascar both in 2010 and 2011. The payments have a difference of 16 per year and a difference of 40 hours per year. As well for total tax rate, we can notice a difference.

Benchmark comparison

Maldives globally has the best performance where it is easy to pay tax. In Maldives it is easiest for both 2010 and 2011. For 2010, concerning payments (number per year) and time (hours per year) Maldives stand first with the fewest number of one and the fastest time of zero hours per year. However as regards to the total tax rate, Timor-Leste has the lowest with only 0.2% of profit. However Maldives drop down in 2011 whereby Sweden takes the place of having the fewest payments of 2 per year. The rest remained the same as in 2010.

The rankings for comparator economies and the regional average ranking provide other useful information for assessing the tax compliance burden for businesses in Mauritius and Madagascar. Mauritius is ranked 12th which is not that far from the benchmark, Maldives, compared to Madagascar which is quite distant. Some economies, especially small ones, rely on 1 or 2 sectors to generate most government revenue. This enables them to function with a narrower tax base than would be possible in larger, more diverse economies. Maldives and Kiribati, for example, choose to tax mainly hotels and tourism, sectors not captured by the Doing Business indicators, which focus on manufacturing.

Reformers in economies such as Mauritius has underscored the importance of tax reform in enhancing economic growth and investment, increasing competitiveness, combating unemployment and achieving good governance. In reforming their tax systems they have sought to eliminate various exemptions, broaden the tax base and modernize their tax systems. Mauritius shifted from a tiered rate to a single rate with a broader tax base. It also streamlined tax administration and made it electronic.

Trading across Borders

With the advent of globalization, trading between economies becomes increasing important for business. There is a need to facilitate any procedures such as reducing document requirements, inadequate infrastructure or even inefficient port all may add up to extra costs. Research shows that exporters in developing countries gain more from 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in global markets.

The index of Trading Across Borders measures the time and cost (excluding tariffs) associated with exporting and importing a standardized cargo of goods by sea transport. The time and cost necessary to complete every official procedure for exporting and importing the goods are recorded; however, the time and cost for sea transport are not included. All documents needed by the trader to export or import the goods across the border are also recorded. For exporting goods, procedures range from packing the goods into the container at the warehouse to their departure from the port of exit. For importing goods, procedures range from the vessel’s arrival at the port of entry to the cargo’s delivery at the warehouse.

Documents

All documents required per shipment to export and import the goods are recorded. It is assumed that a new contract is drafted per shipment and that the contract has already been agreed upon and executed by both parties. Documents required for clearance by relevant agencies—including government ministries, customs, port authorities and other control agencies—are taken into account. Since payment is by letter of credit, all documents required by banks for the issuance or securing of a letter of credit are also taken into account. Documents that are requested at the time of clearance but that are valid for a year or longer and do not require renewal per shipment (for example, an annual tax clearance certificate) are not included.

Time

The time calculation for a procedure starts from the moment it is initiated and runs until it is completed. If a procedure can be accelerated for an additional cost and is available to all trading companies, the fastest legal procedure is chosen. Fast-track procedures applying only to firms located in an export processing zone, or only to certain accredited firms under authorized economic operator programs, are not taken into account because they are not available to all trading companies. Sea transport time is not included. But it is assumed that document preparation, inland transport, customs and other clearance, and port and terminal handling require a minimum time of 1 day each and cannot take place simultaneously. The waiting time between procedures—for example, during unloading of the cargo—is included in the measure.

Cost

Cost measures the fees levied on a 20-foot container in U.S. dollars. All the fees associated with completing the procedures to export or import the goods are taken into account. These include costs for documents, administrative fees for customs clearance and inspections, customs broker fees, port-related charges and inland transport costs. The cost does not include customs tariffs and duties or costs related to sea transport. Only official costs are recorded.

Discussion

Trading across borders

DB2010

DB2011

Mauritius

Madagascar

Benchmark

Mauritius

Madagascar

Benchmark

Rank

19

111

1- Singapore

22

106

1-Singapore

Documents to export (number)

5

4

2- France

5

4

2- France

Time to export (days)

11

21

5-Singapore

10

21

5- Denmark

Cost to export (US$ per container)

737

1279

450-malaysia

737

1197

450-malaysia

Documents to import (number)

6

9

2-france

6

9

2- France

Time to import (days)

11

26

3-Singapore

10

24

4-Singapore

Cost to import (US$ per container)

689

1660

439-Singapore

689

1555

439-Singapore

Inter comparison: Mauritius, year 2010 and 2011

For the year 2011 Mauritius endure a fall in its ranking from the 19th place in 2010 to 22th in 2011. The figures for nearly all sub-index remained the same; only a slight fall in the number of days –one day less- taken to complete for both imports and exports procedures. Mauritius is one of the most active reformers; the last reform was in fact in 2010 whereby this decrease in the number of day can be due to the implementation by the country to introduce an electronic submission of the customs declaration and bill of lading without requirement of physical copies, thus speeding up trade process. Mauritius is known for its strategic location as it is a gateway from Asia to Africa and vice versa. Recently much development had been made and are still being made to improve the both the air port and the ship port, in that way giving exporters and importers a better infrastructure for the performance of their business.

Inter comparison: Madagascar, year 2010 and 2011

Madagascar is ranked 111 in 2010 and 106 in 2011. A fair improvement can be seen in Madagascar, this improvement was due to a decrease in cost associated with both exports and imports. This reducing is due to the fact that Madagascar now benefiting from having privatized the management of their container terminals. The decrease in the number of time taken for import had been decease; this reduction may be due to the reforms made in 2009 where by an implementation of EBI, a single window, risk-based inspections, and improvement of port infrastructure can be the cause of this decrease. No reforms were made in 2010, but a reforms was announced in 2011 where Madagascar was to improved communication and coordination between customs and the terminal port operators through its single-window system (GASYNET), this will help in reducing both the time and the cost to export and import, to know whether this reform was indeed benefit for Madagascar only time will tell.

Intra comparison between Mauritius and Madagascar

Over the years the gap between Madagascar and Mauritius seems to be decrease, the 92 place were the difference between the two countries in 2010 to a decrease to 84 in 2011. This is highly due to the decline in the cost associated with both imports and exports. One of the benefits that Mauritius has over Madagascar is the potential of attracting international exports and imports as Mauritius is known for its bilinguist workforce as some countries in Africa a rather francophone thus speaking French and there trading partner deals in English. On the regional level, Mauritius is ranked 1st in the sub-Saharan region where as Madagascar took the 3rd place far behind Mauritius.

Benchmark comparison

Singapore stands first, where trading is the easiest; Singapore is the fastest for both importing and exporting. It takes less days. Mauritius had long taken Singapore as model on how to develop the economy; it is without doubt that Mauritius will not be too far from Singapore in the ranking.

France requires the lesser documents to exports and imports, only bill of landing and customs export declaration is needed. For the amount of imports documents required by Madagascar is far too much, such as cargo tracking note can all be done on computer now. But one should realize that not all documents can be abolished, with the threat of terrorism, and drug and arm trafficking, requesting certain additional documents is better to safeguard the economy.

As for the time taken for the completion of the procedures, Singapore again top the list for imports and as for exports, in 2011 it was rob from this place by Denmark which requires only 5 days to that of Singapore. Both Denmark and Singapore help speed up procedures by computerizing most of its procedures, thus Mauritius and Madagascar needs to take them as example and start investing in a more computerize system, which will help reduce cost and time in the long run.

For the cost related to imports and exports, Malaysia stand on top with a cost of $450 for export both 2010 and 2011. The cost for documents preparation in Malaysia is quite low, $85, as compared to that of Mauritius which is$285 and for Madagascar $200. For the cost to import Singapore again rank itself in the first place with a cost of only $439 for both 2010 and 2011. There again Mauritius and Madagascar need to find a way to decrease the cost, high cost in the long run may discourage exporters and imports.

Enforcing contracts

Indicators on enforcing contracts measure the efficiency of the judicial system in resolving a commercial dispute. The data are built by following the step-by-step evolution of a commercial sale dispute before local courts. The data are collected through study of the codes of civil procedure and other court regulations as well as surveys completed by local litigation lawyers and by judges. The ranking on the ease of enforcing contracts is the simple average of the percentile rankings on its component indicators.

Procedures

The list of procedural steps compiled for each economy traces the chronology of a commercial dispute before the relevant court. A procedure is defined as any interaction, required by law or commonly used in practice, between the parties or between them and the judge or court officer. Other procedural steps, internal to the court or between the parties and their counsel, may be counted as well. Procedural steps include steps to file and serve the case, steps to assign the case.

Time

Time is recorded in calendar days, counted from the moment the plaintiff decides to file the lawsuit in court until payment. This includes both the days when actions take place and the waiting periods between. The average duration of different stages of dispute resolution is recorded: the completion of service of process (time to file and serve the case), the issuance of judgment (time for the trial and obtaining the judgment) and the moment of payment (time for enforcement of the judgment).

Cost

Cost is recorded as a percentage of the claim, assumed to be equivalent to 200% of income per capita. No bribes are recorded. Three types of costs are recorded: court costs, enforcement costs and average attorney fees.

Court costs include all court costs that Seller (plaintiff) must advance to the court, regardless of the final cost to Seller. Enforcement costs are all costs that Seller (plaintiff) must advance to enforce the judgment through a public sale of Buyer’s movable assets, regardless of the final cost to Seller. Average attorney fees are the fees that Seller (plaintiff) must advance to a local attorney to represent Seller in the standardized case.

Discussion

Enforcing contracts

DB2010

DB2011

Mauritius

Madagascar

Benchmark

Mauritius

Madagascar

Benchmark

Rank

66

155

1- Luxembourg

61

153

1- Luxembourg

Procedures (number)

36

38

20-Ireland

36

38

20-Ireland

Time (days)

720

871

150-Singapore

645

871

150-Singapore

Cost (% of claim)

17.4

42.4

0.1-bhutan

17.4

42.4

0.1-bhutan

Inter-comparison: Mauritius 2010 and 2011

The World Bank has rated Mauritius as one of the best business friendly climate in Africa even though it has dropped four places in the world ranking. Mauritius ranked 66th out of 183 countries in 2010. Further ahead, even though Mauritius speeded up the resolution of commercial disputes by recruiting more judges and adding more courtrooms, there has been deterioration in the enforcement of contract one year later, taking Mauritius on the 61th place in 2011. The procedure for the enforcement of contract remained constant for the one year time; however it takes us less time to enforce a contract in 2011 according to the Doing business Report 2011. This is due to the government offering better reliable and efficient services to individuals and companies compare to 2010.

Inter-comparison: Madagascar 2010 and 2011

Madagascar is ranked 155th out of 183 countries in 2010, furthermore, according to the World Bank’ Doing Business report it has slipped by two places, taking it on the 153th place in 2011. Its ranking for enforcing contract is particularly poor. Enforcement of contract cannot be guaranteed in Madagascar, due t