In This Era Of Globalisation

Published Date: 02 Nov 2017

Introduction

In this era of globalisation, it is becoming increasing important for investors to decide on which country to invest in to make a profitable gain. Investment could be made in the home country itself or abroad. In order to assess the performance of a country, the World Bank has come up with the Doing Business report in 2002 to facilitate the task of investors.

In fact, the Doing Business Report provides objective measures of business regulations and their enforcement across 185 economies and selected cities at the subnational and regional level. By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages countries to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each country. In addition, Doing Business offers detailed subnational reports, which exhaustively cover business regulation and reform in different cities and regions within a nation. These reports provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas.

For the purpose of this project, cost of doing business will be assessed in Mauritius and Madagascar for each of the factors that World Bank takes into consideration when assigning a rank to a country. Consequently, a comparison will be made between Mauritius and Madagascar.

It is in fact worthwhile to compare the performance of Mauritius and Madagascar because there are indeed many similarities between these two countries. Both are developing countries of the Indian Ocean and are geographically close to each other. At the same time, these two countries are prone to same climatic conditions such as periodic cyclones. Coming to the languages used in these two Sub-Saharan countries, it is found that both have English and French as their official languages (Malagasy is also an official language in Madagascar). There are also many similarities between the legal systems of the two countries; while Madagascar derived its legal system from the French colony, Mauritius follows a hybrid legal system where many of its legislations is also derived from French Law. Further, Mauritius and Madagascar are both part of Small Island Developing States (SIDS). However, it is to be noted that when it comes to country size, Mauritius is very small compared to Madagascar. Considering all the common factors between these two countries, any investor would be tempted to compare their cost of doing business in attempt to resolve the best place to invest.

Getting credit

‘Getting credit’ has been deemed by the World Bank to be a stage of tremendous importance in the life of any business. Access to credit and allocation of credit can be enhanced through two mechanisms: credit information systems which detail borrowers past credit behaviour and allow lenders to assess their credit risk, and the extent to which creditors and borrowers rights are protected by the collateral and bankruptcy legal framework.

What does ‘Getting Credit’ measure?

The Getting Credit indicator is sub-divided into 4 components. First, the strength of legal rights index on a scale ranging from 0 to 10- which measures the degree to which creditors and borrowers interests are protected by collateral laws and the level of protection enjoyed by secured creditors through bankruptcy laws). Second, the depth of credit information supplied by private credit bureaus and public credit registries marked on a 0 to 6 scale. Third, the percentage of the adult population and the number of firms whose credit history is recorded at a public registry and at a private credit bureau is measured. The latter components however do not are not used for ranking purposes.

It is assumed for the legal rights index that the debtor is a private limited liability company whose headquarters and base of operations is in the largest city. Also, the loan obtained by the creditor must be from a local bank and sums up to less than 10 times Gross National Income (GNI) per head.

Where did the economy stand in 2010?

The performance of Mauritius regarding the ‘Getting Credit’ component of the Cost of doing business is tabulated below.

Mauritius

2010

Malaysia

2010

Rank

87

1

Strength of legal rights index (0-10)

5

10

Depth of credit information index (0-6)

3

6

Private bureau coverage (% of adults)

0.0

82

Public registry coverage (%of adults)

36.8

48.5

It might be argued that our country had an average performance in 2010as shown by its 87thrank for this topic. The extent to which bankruptcy and collateral laws protect creditors and borrowers could be much improved since we obtained a mere 5/10 under this sub-heading. Similarly, access to information on the credit history of borrowers should be increased.

Public bureau coverage was a shameful 0.0% in 2010. In fact no private credit bureau was in existence in Mauritius to gather data about the credit-worthiness of borrowers. However, in the same year several legal reforms were introduced by the authorities and amendments were made to the Banking Act 2004 to allow for the setting up of such a body.

Note is made that a public registry is in operation in Mauritius since December 2005, namely the Mauritius Credit Information Bureau (MCIB)whose purpose - according to the Bank of Mauritius - is to «ensure the development of an overall sound credit environment in Mauritius and assist in fighting over-indebtedness, principally of households, which has detrimental effects on family life. »(Le Mauricien, 21 July 2012). In 2010, the MCIB’s register covered 36.8% of firms and individuals of the Mauritian population. Most participants with the MCIB were local commercial banks in 2010, but more and more financial institutions such as leasing companies and insurance companies are joining the MCIB each year.

Further analysis can be made about the Mauritius’ performance under the ‘Getting Credit’ heading by comparing it to the global top-performer in this category, which is Malaysia. The latter fared twice better than Mauritius in strength of legal rights index and depth of credit information index and obtained the maximum score under these two sub-headings.Anamazing82% of Malaysian firms and individuals had their credit history registered ina private credit bureau. Regarding public registry coverage, Malaysia surpassed Mauritius by 11.7 percentage points.

What are the changes over time (from 2010 to 2011)?

After one year in 2011, the performance of our countryworsened. Indeed, Mauritius fell from the 87th to the 89thplace in relation to the ‘Getting Credit’ indicator while Malaysia remained the global leader that category. We also made no progress with regards to the extent to which the legal framework protects borrowers and creditors’ rights and with regards to the accessibility and scope of credit information about borrowers. Similarly, no improvement was made under the private bureau coverage sub-heading. Yet, the number of adults and firms covered by the MCIB was on an uptrend and increased by 13 percentage points.

Mauritius

2011

Malaysia

2011

Rank

89

1

Strength of legal rights index (0-10)

5

5

Depth of credit information index (0-6)

3

6

Private bureau coverage (% of adults)

0.0

100

Public registry coverage (%of adults)

49.8

62

Madagascar

Where did Madagascar stand in 2010?

The performance of Madagascar regarding ‘Getting credit’ in 2010 is summarised in the table below:

Madagascar

2010

Malaysia

2010

Rank

175

1

Strength of legal rights index (0-10)

2

10

Depth of credit information index (0-6)

1

6

Private bureau coverage (% of adults)

0.0

82

Public registry coverage (%of adults)

0.1

48.5

Madagascar in 2010 was listed among the countries where it was the most difficult to obtain credit. The country obtained a pale 2/10 in the ‘strength of legal rights’ subindicator, revealing that the legislation supposed to protect borrowers and lenders rights in reality provided very poor protection. In the same vein, access to entrepreneurs and other businesses’ credit history was so limited that Madagascar obtained a very low score for the ‘depth of credit information’ index .As at 2010, no private credit bureau were in existence in the country, but for every 1000 inhabitant, on average only one had its past credit information registered at a public credit registry.

A comparison with the benchmark Malaysia (on the positive extreme of the rankings) will reveal more information about the performance of Madagascar. The former’s collateral laws protected creditors and borrowers five times as well as the corresponding laws in Madagascar. The other four subindicators also show that Madagascar has a long way on the road to improvement if it wants to catch up with Malaysia. In fact, the authorities made no attempt to reform in 2010.

Situational analysis

The legislation provides for specific assets to be used as collateral such as Real Estate including tangible real property, fixtures, shares and financial instruments, intellectual property like patents, trademarks, copyright and designs, debt securities and other receivables.

What are the changes over time (from 2010 to 2011)?

While Malaysia managed to retain its 1st place worldwide and even improved its coverage of credit history, Madagascar did worse than 2010. Indeed, the latter got closer to the bottom rank by falling to the 179th place of the ladder in relation to the ‘Getting Credit’ indicator. Madagascar lost four places in 2011 because the number of people whose past borrowing behaviour was covered by a public registry in 2011 was half the number covered the year before.

Madagascar

2011

Malaysia

2011

Rank

179

1

Strength of legal rights index (0-10)

2

5

Depth of credit information index (0-6)

1

6

Private bureau coverage (% of adults)

0.0

100

Public registry coverage (%of adults)

0.05

62

Mauritius v/s Madagascar

Studying the efficiency level of other countries in the African region in ‘Getting credit’ will enable us to make a better analysis of the performance of Mauritius and Madagascar.

African countries have varying degrees of success in helping entrepreneurs to obtain credit, as exhibited in the above diagram. While Kenya recorded the best performance and stood at the 6th place worldwide, Madagascar recorded the worst performance and stood at the last place among its African peers. With regard to the difficulty of getting credit, Mauritius has an average performance. It seems that even in Seychelles, the collateral laws provide poor protection in borrower-lender transactions.

Mauritius and Madagascar are often compared in empirical studies due to their geographical closeness and some characteristics which they share. We shall therefore undertake to analyse and contrast these two countries performance in the year 2011.

GETTING CREDIT

Mauritius

2010

Madagascar

2010

Rank

89

179

Strength of legal rights index (0-10)

5

2

Depth of credit information index (0-6)

3

1

Private bureau coverage (% of adults)

0.0

0.0

Public registry coverage (%of adults)

49.8

0.05

Of the 183 countries considered in the doing business rankings, it might be said that Mauritius and Madagascar both performed poorly for the ‘getting credit component’, with Madagascar even dangerously close to the bottom rank.In both countries no private credit bureau was in existence as at 2011 but Mauritius still had a stronger framework than Madagascar for protecting creditors and borrowers’ interests, access to the credit history of borrowers was better in Mauritius than in Madagascar and more citizens were covered by a public registry in Mauritius.

Paying taxes

The vast majority of governments must levy taxes so as to finance the supply of goods and services to society, such as infrastructure, education, courts and company land registries, to name a few examples of services benefiting businesses. High tax rates means that more revenue can be obtained to finance government projects, but this will also encourage tax evasion. Thus, the government must strike the right balance to ensure that enough revenue is obtained while businesses remain compliant.

What paying taxes measure

The ranking for ‘Paying taxes’ is based on the subsequent three indicators, each having an equal weight in the computations:

The annual number of tax payments to be made by a manufacturing company in 2009, after adjustment for electronic filing as well as joint filling and payment. Consumption taxes like value added tax, sales tax or goods and services tax are also included.

The time (in hours per year) required to comply with three major taxes. This consists in the time taken to collect information and compute the tax payable on the basis of the information obtained, the time taken to fill in tax return forms, to arrange payment and prepare separate accounting books where applicable.

The total tax rate as a percentage of profit, that is, corporate income tax as well as labour taxes borne by the employer, property taxes, levies on dividends, capital gains plus other financial transactions, and taxes on waste collection, vehicle and road taxes.

Where Mauritius stood in 2010

Mauritius’ performance in relation to the ‘Paying taxes’ indicator is summarised in the table below:

Mauritius

2010

Maldives

2010

Rank

11

1

Total tax rate (% of profit)

22.9

9.1

Payments (number per year)

7

1

Time (hours per year)

161

0

On the face of the face of the above figures, Mauritius had a very good performance for the year 2010 in the ‘Paying taxes’ topic. Compared to other countries, the total tax rate of 22.9% is quite acceptable. A higher rate would however increase the tax burden of companies so that many of them would opt out of the formal sector.

The number of tax payments stood at 7 per year, which also places Mauritius among the ten best countries for this particular sub-indicator. On the other hand, the number of hours needed to comply with tax laws is substantial at 161 hours annually.

More analysis can be made about the performance of our country under the ‘Paying taxes’ heading by comparing it to the global leader in this category, which is Maldives. The latter fared twice better than Mauritius in total tax rate as it levies 13.8 percentage points less than Mauritius. Also, revenue authorities in Maldives collect taxes from businesses only once in a year, which gives more incentive to companies to remain compliant. Above all, collecting information for tax purposes and returning tax forms takes absolutely no time at all.

Changes over time – 2010 to 2011

After one year in 2011, the performance of our country deteriorated. Indeed, Mauritius was degraded from the 11th to the 12th place with regards to the ‘Paying taxes’ indicator while Madagascar remained the world top-performer in that category. We also made no progress in relation to the total taxes paid by businesses. Indeed, Mauritian businessesin 2011 had to pay1.2 percentage points more taxes than during the previous year. The number of payments and number of hours needed to comply with tax issued however remain unchanged at 7 and 161 hours per year respectively. Maldives also experienced a 0.2% increase in total taxes payable and the number of payments collected by the Maldives Inland Revenue Authority (MIRA) worsened.

Mauritius

2011

Maldives

2011

Rank

12

1

Total tax rate (% of profit)

24.1

9.3

Payments (number per year)

7

3

Time (hours per year)

161

0

Madagascar

Where did Madagascar stand in 2010?

The performance of Madagascar in the topic ‘Paying taxes’ is tabulated as follows:

Madagascar

2010

Maldives

2010

Rank

67

1

Total tax rate (% of profit)

39.2

9.1

Payments (number per year)

23

1

Time (hours per year)

201

0

Madagascar was ranked 67th among 183 countries, which means it had a mediocre performance in 2010 with regards to ‘Paying taxes’. Corporate taxes plus other taxes affecting medium-size businesses stood at 39.2% of profits. This is a relatively high tax rate and may encourage businesses to understate their profits when filing their annual return to the revenue authorities, or simply pay no taxes at all.

The number of tax payments to be made annually stood at 23, which means that on average, companies had to make tax payments twice per month. Businesses also had to spend an exorbitant 201 hours per year in complying with tax laws.

Maldives, on the other hand, collected only 9.1%of the profits of medium-size businesses through taxes – 4 times less than Madagascar. Payments of taxes occurred 22 times fewer in Maldives than in Madagascar, and completing tax return forms could be done in zero hours – no wonder why Maldives stood at the higher end of the ladder.

Situational analysis

Foreign and local investors in Madagascar benefit from tax exemptions provided that their business is part of the Export Processing Zone (EPZ) or that they provide services to EPZ companies or that they themselves invest in export-oriented manufacturing industries. EPZ companies in general enjoy many tax incentives in Madagascar. For instance, these firms are exempted from paying taxes for 15 years and don’t incur Value Added Tax (VAT) or customs duties on imported raw materials. The country has also entered into double taxation treaties with Mauritius and France. In 2011, corporate tax rates were reduced.

Changes over time – 2010 to 2011

Maldives retained its first rank concerning the ‘Paying taxes’ indicator in 2011.Conversely, Madagascar’s efficiency showed a slight deterioration over the previous year. In fact, in the rankings the country fell 5 places lower in 2011.However, the proportion of corporate earnings going to government vaults due to taxes was 1.5 percentage points lower than in 2010 – a positive sign for Madagascar. The number of hours taken to compute tax payable and the frequency of tax payment remained unchanged.

Madagascar

2011

Maldives

2011

Rank

72

1

Total tax rate (% of profit)

37.7

9.3

Payments (number per year)

23

3

Time (hours per year)

201

0

Mauritius v/s Madagascar

In this section we analyse the difficulty of other African countries in complying with tax rules so as to make better comparison with the Mauritian and Malagasy situation.

Just like with ‘Getting credit’ or ‘Enforcing contracts’, the above graph reveals that there is substantial variation in the performance of African countries with regards to ‘Paying taxes’. In Africa, Kenya recorded the worst performance while Maldives was the best performer in the region and globally. Mauritius fares quite well and is the second best in the SADC area whereas Madagascar and Namibia remain the African countries where taxes represent a heavy burden for entrepreneurs. The ease/difficulty of complying with tax rules in Mauritius may be compared to that of Madagascar for better analysis.

Madagascar

2011

Mauritius

2011

Rank

72

12

Total tax rate (% of profit)

37.7

24.1

Payments (number per year)

23

7

Time (hours per year)

201

161

Our country fared substantially better than Madagascar in the indicator under scrutiny. In Mauritius, the total tax rate was 13.6 percentage points lower than in Madagascar, and Mauritian businesses made 16 fewer tax payments than businesses incorporated in Madagascar during the year 2011. Also, Mauritian businesses tookless time than Malagasy firms to comply with major taxes.

Protecting investors

Stronger investor protections through better laws increases the incentive of investors, especially minority shareholders) to invest in corporate equities, thereby enabling businesses to raise capital needed to become more competitive, innovate, grow and for society to prosper. In fact, improvements to the laws regulating investor protections have been associated with increases in number of companies listed on stock markets, for instance in Indonesia and Thailand, and with decreases the number of prejudicial corporate transactions. Promoting investor protection is therefore of paramount importance for investors, businesses and society.

What paying taxes measure

The ‘Protecting Investors’ indicator is subdivided into four components. First, the ‘extent of disclosure’ index on a scale ranging from 0 to 10- which answers the question of who can approve related-party transactions and assesses the presence/effectiveness of requirements for external and internal disclosure in relation to related-party transactions. Second, the extent to which Chief Executive Officers (CEOs) and non-executive directors can be held liable in related-party transactions marked on a 0 to 10 scale. Third, the ability and ease with which shareholders can sue directors for misconduct is measured on a scale ranging from 0 to 10. Fourth, the strength of investor protection index, which is a simple average of the previous three indices, is calculated.The latter component however doescountin the ranking procedure.

It is assumed that purchasing companyis a company listed on the economy’s most important stock exchange and having a board of directors and CEO who may legally be the company’s agent where allowed, even if unspecified by the legislation. Moreover, the transaction relates to a purchase made from another business owned by the purchasing company’s director/majority shareholder, at a price higher than the market price. Further, all required approvals with regards to the transaction are obtained and all required disclosures are made despite the transaction being detrimental to the purchasing company.The last assumption made is that shareholders sue the board of directors members and the interested parties.

Where Mauritius stood in 2010

The performance of Mauritius regarding the ‘Protecting investors’ indicator of the Cost of doing business is tabulated below.

Mauritius

2010

New Zealand

2010

Rank

12

1

Extent of disclosure index (0-10)

6

10

Extent of director liability index (0-10)

8

9

Ease of shareholder suits index (0-10)

9

10

Strength of investor protection index (0-10)

7.7

9.7

Mauritius fared quite well in 2010 as shown by its 12thrank for this topic. Requirements for external and internal disclosure regarding related-party transactions seem to suffice seen we obtained 6/10 in this subindicator. Similarly, Mauritius obtained an outstanding8/10 under the ‘extent of director liability’ index. This implies that legal remedies to sue director for misconduct are abundant and equity-holders can easily sue them in case of self-dealing.

The ‘ease of shareholder suits’ index was nearly perfect at 9/10, which denotes that access to information and internal corporate documents during trial were very satisfactory. It should be noted that Mauritius was the 7th best country of the world for this topic. On average, Mauritius obtained 7.7/10 for the last three subindicators, which is excellent.

Comparing the performance of Mauritius with that of the benchmark New-Zealand for this category might assist policy-makers in designing measures for the improvement of investors’ protection. The latter fared slightly better than Mauritius in ‘extent of director liability’ index and ‘ease of shareholder suits’ index, where it obtained the maximum score. On average, New-Zealand obtained 9.7/10, merely 2 marks higher than Mauritius, which means we can easily become the global leader in the coming years for ‘Protecting investor’ if policy-makers make a few amendments to the legislation.

What are the changes over time (from 2010 to 2011)?

The performance of Mauritius and New-Zealand remained the same after one year in 2011. In fact, both nations retained their previous rank for the ‘Protecting investors’ indicator.

Mauritius

2011

New Zealand

2011

Rank

12

1

Extent of disclosure index (0-10)

6

10

Extent of director liability index (0-10)

8

9

Ease of shareholder suits index (0-10)

9

10

Strength of investor protection index (0-10)

7.7

9.7

Madagascar

Where did Madagascar stand in 2010?

In the following table, the efficiency of the laws enacted to protect investors is summarised.

Madagascar

2010

New Zealand

2010

Rank

66

1

Extent of disclosure index (0-10)

5

10

Extent of director liability index (0-10)

6

9

Ease of shareholder suits index (0-10)

6

10

Strength of investor protection index (0-10)

5.7

9.7

The 66th rank of Madagascar in the ‘Protecting investors’ subindicatoris proof of the unsatisfactory level of efficiency of the legal framework in protecting minority interests in Madagascar. Internal and external disclosure requirements were rather insufficient (the country obtained the average score of 5/10 in the ‘Extent of disclosure index’) but the legal means available to sue directors for misconduct were acceptable, just like the ease of access to documents needed for courts trials purposes. On average, Madagascar obtained 5.7/10 for the last three subindicators.

In New-Zealand, disclosure requirements of related-party transactions were twice as efficient as in Madagascar. In the former jurisdiction, directors and CEOs could be sued more easily by minority shareholders than in Madagascar and all internal documents needed by the plaintiff during trials could be obtained. Overall, Madagascar obtained 4 marks fewer than New-Zealand in 2010.

Situational analysis

The authorities undertook no reforms to strengthen investor protections during 2010.

What are the changes over time (from 2010 to 2011)?

Madagascar

2011

New Zealand

2011

Rank

59

1

Extent of disclosure index (0-10)

5

10

Extent of director liability index (0-10)

6

9

Ease of shareholder suits index (0-10)

6

10

Strength of investor protection index (0-10)

5.7

9.7

Madagascar climbed up the ladder in 2011 but this is not necessarily synonymous to improved performance over the preceding year. In fact, in 2011 no reforms were undertaken by the Malagasy authorities. Furthermore, the marks obtained for the three subindicators which are used for the rankings remained the same in 2011.In all probability, some countries which were better ranked than Madagascar in 2010 experienced a worsened performance in 2010, and Madagascar remaining stagnant, it climbed up the ladder.

Mauritius v/s Madagascar

For ‘Protecting investors’ too we compare the performance of Mauritius and Madagascar with that of its African peers.

The above graph demonstrates less variability in the performance of the countries in Sub-Saharan Africa, except for Mauritius which is far ahead its peers.In fact our country in 2011 was the best regional performer, while Kenya was the worst.Madagascar and Seychelles were equally placed in the 59th position for ‘protecting investors’.

A deeper analysis is required to compare the efficiency of Mauritius protecting investors with that of Madagascar in 2011.

Madagascar

2011

Mauritius

2011

Rank

59

12

Extent of disclosure index (0-10)

5

6

Extent of director liability index (0-10)

6

8

Ease of shareholder suits index (0-10)

6

9

Strength of investor protection index (0-10)

5.7

7.7

‘Protecting investors’ is, among the 10 indicators used by the World Bank to measure the ease of doing business, the area where Madagascar performs best. However, it still lags behind Mauritius which is 47 places ahead, but with regards to the subindicators, Madagascar scores slightly less than Mauritius.

Trading across borders

Trading across borders has always been of paramount importance for Mauritius for we are dependent on imports because of lack of resources in our island and dependent on exports for our market is too small.

What does trading across borders measure?

Documents required to export and import (number)

Bank documents

Customs clearance documents

Port and terminal handling documents

Transport documents

Time required to export and import (days)

Obtaining, filling out and submitting all the documents

Inland transport and handling

Customs clearance and inspections

Port and terminal handling

Does not include sea transport time

Cost required to export and import (US$ per container)

All documentation

Inland transport and handling

Customs clearance and inspections

Port and terminal handling

Official costs only, no bribes

Assumptions about the traded goods

The traded product travels in a dry-cargo, 20-foot, full container load. It weighs 10 tons and is valued at $20,000. The product:

Is not hazardous nor does it include military items.

Does not require refrigeration or any other special environment.

Does not require any special phytosanitary or environmental safety standards other than accepted international standards.

Is one of the economy’s leading export or import products.

Assumptions about the business

The business:

Has at least 60 employees.

Is located in the economy’s largest business city.

Is a private, limited liability company. It does not operate in an export processing zone or an industrial estate with special export or import privileges.

Is 100% domestically owned.

Exports more than 10% of its sales.

Where did the economy stand in 2010?

The table below describes the situation in 2010 regarding the cost of doing business with respect to trading across borders.

Trading across borders (rank)

19

Documents to export (number)

5

Time to export (days)

14

Cost to export (US$ per container)

737

Documents to import (number)

6

Time to import (days)

14

Cost to import (US$ per container)

689

According to data collected by Doing Business, exporting a standard container of goods requires 5 documents, takes 14 days and costs $737. Importing the same container of goods requires 6 documents, takes 14 days and costs $689.

Globally, Mauritius stands at 19 in the ranking of 183 economies on the ease of trading across borders. Mauritius is quite well ranked being in the first 20 countries.

The rankings for comparator economies and the regional average ranking provide other useful information for assessing how easy it is for a business in Mauritius to export and import goods. To compare the performance of Mauritius, it is worth having a look at its benchmark – the 1st ranked country being Singapore with regards to trading across borders.

Mauritius

Singapore

Trading across borders (rank)

19

1

Documents to export (number)

5

4

Time to export (days)

14

5

Cost to export (US$ per container)

737

456

Documents to import (number)

6

4

Time to import (days)

14

3

Cost to import (US$ per container)

689

439

As seen above, with regard to the number of documents needed for both imports and exports, we are not very far from Singapore with only 1 additional document for export and 2 additional documents for imports. The problem lies in the time and cost we take for both import and export.

In fact, Doing Business 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

Payment is made by letter of credit, and the time, cost and documents required for the issuance or advising of a letter of credit are taken into account.

Local freight forwarders, shipping lines, customs brokers, port officials and banks provide information on required documents and cost as well as the time to complete each procedure. To make the data comparable across economies, several assumptions are made about the business and the traded goods are used.

Situational analysis of Mauritius in 2010

The Board of Investment considered the following elements in analyzing the cost of doing business in 2010.

Customs declarations

To enter goods in Mauritius, i.e. for importation of goods, an electronic Customs Declaration must be processed. The submission of an electronic declaration can be done by customs broker. The customs broker requires a software licence from the Mauritius Network Services which costs Rs 40,000 for a 5 user licence.

Service charges for submission of electronic declarations are as follows: Subscription per account (1 mailbox) Rs 100/month; Subscription for additional mailbox Rs 50/month Receipt/Delivery Notification; Rs 1 per notification EDI Transmission charges (local); Rs 3/KB Service charges; Rs 140 per Import BOE/11 items; Rs 70 per export BOE/11 items; Rs 50 per post entry.

If you seek the services of a Freight Forwarding Company, the average cost for submission and processing of electronic declarations varies from Rs 500 to Rs 800.

Import Documentation

Mauritius has a liberalised import sector, which enables almost all types of goods to be brought into the country, some of which may require special permits or certificates.

Nature of Import Procedures

Duration (days)

US$ Cost

Documents preparation

11

382

Customs clearance and technical control

2

85

Ports and terminal handling

2

110

Inland transportation and handling

1

100

Total

16

677

Exporting Goods

Although exports of almost all items can be conducted freely, there exist a few controlled items for which export permits are required prior to effecting exports.

Nature of Export Procedures

Duration (days)

US$ Cost

Documents preparation

12

375

Customs clearance and technical control

1

150

Ports and terminal handling

2

100

Inland transportation and handling

2

100

Total

17

725

Warehousing charges

The indicative rent cost warehousing is as follows:

TYPE

PRICE (Rs)

Dry Warehousing

10 per m³ per day

Cold warehousing

45 per ton per day

Processing units (Freeport)

$7-$8 per m²

Warehousing charges include vessel tariffs, cargo tariffs and detailed cargo handling fees (container tariffs, general cargo tariffs, vehicles, fish, bulk cargo, extra men or gangs, extended hours, labour stand-by, waiting time, other services, storage charges, empty container depot.

What are the changes over time (from 2010 to 2011)?

For the purpose of this project, a comparison is required between the cost of doing business in 2010 and that of 2011. The main differences regarding trading across borders are as follows:

Mauritius

2010

Mauritius

2011

Singapore

2010

Singapore 2011

Trading across borders (rank)

19

22

1

1

Documents to export (number)

5

5

4

4

Time to export (days)

14

13

5

5

Cost to export (US$ per container)

737

737

456

456

Documents to import (number)

6

6

4

4

Time to import (days)

14

13

3

4

Cost to import (US$ per container)

689

689

439

439

As seen above, the ranking of Mauritius concerning cost of doing business fell significantly by three places which is not a good sign for the country for trading across borders is very important for a small economy as ours. However, if we consider our performance during that year, we maintained almost the same number of documents required, time to trade and the cost. What has changed actually is only the time taken to trade and that also positively (time to trade has been reduced by one day for both import and export).

Basically, the fall in rank attributed to Mauritius is mainly due to the improved performance of other countries. In fact while in 2010, we saw the introduction of electronic submissions of customs declarations and bills of lading which has expedited trade, in 2011 according to the World Bank, there was no reforms made in Mauritius regarding trading across borders.

In economies around the world, trading across borders as measured by Doing Business has become faster and easier over the years. Governments have introduced tools to facilitate trade—including single windows, risk-based inspections and electronic data interchange systems. These changes help improve the trading environment and boost firms’ international competitiveness.

With regards to Mauritius, it has eased trading across borders by implementing a new computerized risk management system for inspections.

The indicators reported here for Mauritius are based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport. Information on the

procedures as well as the required documents and the time and cost to complete each procedure is collected from local freight forwarders, shipping lines, customs brokers, port officials and banks.

Madagascar

Madagascar is not a very attractive land for investment when it comes to trading across borders because the documents needed for such trade is cumbersome and are quite expensive. At the same time, the time taken to trade is quite long compared to other countries. It is to be noted that Madagascar is one of the poorest countries in the world with approximately 70% of its inhabitants living below the poverty line. Obviously, if the economy itself is in a miserable shape with high political instability, we cannot expect that the ‘trading across borders’ index will indicate good results.

Where did the economy stand in 2010?

The ‘Trading across borders’ index of the World Bank in 2010 reveals the following information:

Trading across borders (rank)

111

Documents to export (number)

4

Time to export (days)

21

Cost to export (US$ per container)

1,279

Documents to import (number)

9

Time to import (days)

26

Cost to import (US$ per container)

1,660

According to data collected by Doing Business, exporting a standard container of goods requires 4 documents, takes 21 days and costs $1279. Importing the same container of goods requires 9 documents, takes 26 days and costs $1,660.

In order to understand how far Madagascar is from the best country when it comes to trading across borders, a comparison needs to be made between the two countries.

Madagascar

Singapore

Trading across borders (rank)

111

1

Documents to export (number)

4

4

Time to export (days)

21

5

Cost to export (US$ per container)

1,279

456

Documents to import (number)

9

4

Time to import (days)

26

3

Cost to import (US$ per container)

1,660

439

From the above table, it can be deduced that with regards to exportation of goods, Madagascar lies far behind the benchmark being Singapore when it comes to the time and cost to export. Time to export is 16 days more than in Singapore while the cost to export is approximately three times of that of Singapore.

As far as imports is concerned, not only time and cost pose problems but also the number of documents required to import is more than doubled in Madagascar compared to Singapore.

Situational analysis in 2010

According to the World Bank, there has been no reform in 2010 in Madagascar with regards to trading across borders.

What are the changes from 2010 to 2011?

In 2011, significant improvements were seen in communication and coordination between customs and the terminal port operators through its single-window system (GASYNET), reducing both the time and the cost to export and import.

Madagascar

2010

Madagascar

2011

Trading across borders (rank)

111

106

Documents to export (number)

4

4

Time to export (days)

21

21

Cost to export (US$ per container)

1,279

1,197

Documents to import (number)

9

9

Time to import (days)

26

24

Cost to import (US$ per container)

1,660

1,555

It can clearly be seen from the above table that GASYNET improved the trading across borders index of Madagascar to the 106th rank. It is also to be noted that cost to export and import commodities dropped quite significantly. Similarly, the number of days to import a product has been reduced by 2 days to 24 days.

Mauritius v/s Madagascar

Before comparing the performance of Mauritius and Madagascar, it is worth having a look at the general performance of countries in the Sub- Saharan region with respect to trading across borders.

As it can be seen from the above chart, the performance of countries in the Sub-Saharan region varies a lot with regard to this index. Mauritius remains the best ranked country in the region at the 22nd position. Apart from Seychelles, all the other countries we have chosen for our analysis are not even in the first half countries when it comes to trading across borders.

For the purpose of this project, Mauritius’ performance will be compared to that of Madagascar. The data as per the Doing Business 2011 report is as follows:

Mauritius

2011

Madagascar

2011

Trading across borders (rank)

22

106

Documents to export (number)

5

4

Time to export (days)

13

21

Cost to export (US$ per container)

737

1,197

Documents to import (number)

6

9

Time to import (days)

13

24

Cost to import (US$ per container)

689

1,555

Indeed, there is much sense in comparing the performance of Mauritius to that of Madagascar when it comes to trading across borders because both countries are geographically near to each other and almost same routes are used by vessels to transport cargo.

The overall rank for trading across borders reveals much information about the performance of the two countries. While Mauritius is ranked in the first quarter of the 183 countries, Madagascar is far behind at the 106th place. With regards to the number of documents required to import and export, Madagascar has 3 and 1 more documents respectively. The time taken is very different; Mauritius required 8 days less to export commodities and 11 days less to import commodities. Finally, trading across borders appears to be very costly in Madagascar with $460 per container higher than that of Mauritius and cost to import is more than doubled in Madagascar.

Enforcing contract

Mauritius has a ‘hybrid’ legal system; combining both the civil and common law practices. Its legal system is governed by principles derived both from the French Code Napoleon and the British common law. The Supreme Court of Mauritius is the superior court of the island, having unlimited jurisdiction to hear and determine any civil or criminal proceedings under any law other than a disciplinary law and such jurisdiction and powers as may be conferred upon it by the Constitution or any other law.

Well-functioning courts help businesses expand their network and markets. Without effective contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where contract enforcement is efficient, firms are more likely to engage with new borrowers or customers, and they have greater access to credit.

What the enforcing contracts measure?

Procedures to enforce a contract through the courts (number)

Any interaction between the parties in a commercial dispute, or between them and the judge or court officer

Steps to file and serve the case

Steps for trial and judgment

Steps to enforce the judgment

Time required to complete procedures (calendar days)

Time to file and serve the case

Time for trial and obtaining judgment

Time to enforce the judgment

Cost required to complete procedures (% of claim)

No bribes

Average attorney fees

Court costs

Enforcement costs

Assumptions

It is assumed that the dispute involves the breach of a sales contract between 2 domestic businesses. It is also assumed that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, several assumptions are also made about the case:

The seller and buyer are located in the economy’s largest business city.

The buyer orders custom-made goods, then fails to pay.

The seller sues the buyer before a competent court.

The value of the claim is 200% of income per capita.

The seller requests a pretrial attachment to secure the claim.

The dispute on the quality of the goods requires an expert opinion.

The judge decides in favor of the seller; there is no appeal.

The seller enforces the judgment through a public sale of the buyer’s movable assets.

Where did the economy stand in 2010?

The table below describes the situation in 2010 regarding the cost of doing business with respect to enforcing contract.

Enforcing contract (rank)

66

Procedures (number)

36

Time (days)

720

Cost (% of claim)

17.4

The above collected data shows that the process of resolving a commercial dispute through the courts in Mauritius is not very efficient. According to data collected by Doing Business, enforcing a contract takes 720 days, costs 17.4% of the value of the claim and requires 36 procedures.

Globally, Mauritius stands at 66 in the ranking of 183 economies on the ease of enforcing contracts. For comparison purposes, Mauritius’ performance could be compared with the benchmark in this category being Luxembourg.

Mauritius

2010

Luxembourg

2010

Enforcing contract (rank)

66

1

Procedures (number)

36

26

Time (days)

720

321

Cost (% of claim)

17.4

9.7

It is interesting to note that though Luxembourg stands first under the enforcing contract criterion, it stands at the 64th rank when it comes to overall cost of doing business.

Luxembourg gains the first position as the easiest country to enforce a contract. Luxembourg precedes Hong Kong SAR (2nd) and Iceland (3rd). This historic ranking will undoubtedly contribute to comfort Luxembourg’s most positive image to the eyes of investors and business players. In addition to its well-established reputation as a top-ranking location and business attractiveness by virtue of the combined local expertise, legislative stability and political willingness, the World Bank’s report evidences that the Luxembourg court system also provides a strong support for legal certainty, which is ultimately at the core of the business players’ concerns.

Mauritius is far behind Luxembourg standing at the 66th position with 10 procedures, 399 days and 7.7% of claim more than Luxembourg.

Situational analysis of Mauritius in 2010

A local newspaper, "The independent" on Friday 5th November 2010 made mention of Mauritius’ performance with regards to enforcement of contracts.

"Mauritius has come third among countries that improved most in enforcing contracts and the list was topped by Malawi. This was vastly due to the fact Mauritius speeded up the resolution of commercial disputes by recruiting more judges and adding courtrooms."

As a matter of fact, it is in this very year that an important reform regarding the enforcement of contract was done: Mauritius set up a specialized commercial division of its Supreme Court, thus improving contract enforcement. 

What are the changes over time (from 2010 to 2011)?

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

Mauritius

2010

Mauritius

2011

Luxembourg

2010

Luxembourg

2010

Enforcing contract (rank)

66

61

1

1

Procedures (number)

36

36

26

26

Time (days)

720

645

321

321

Cost (% of claim)

17.4

17.4

9.7

9.7

While the situation of our benchmark Luxembourg remained the same from 2010 to 2011, the situation of Mauritius improved considerably such that its position increased by 5 places from the 66th position to the 61st position. Only one factor being the time required to complete the procedures reduced by 75 days from 720 days to 645 days.

Luxembourg, on the other hand, stayed at the same position of the previous year with no improvements and no deterioration in its condition.

The improved performance of Mauritius in the year 2011 is attributed to an important reform done in that year:

Mauritius speeded up the resolution of commercial disputes by recruiting more judges and adding more courtrooms.

Madagascar

The Malagasy judicial system is based on the French tradition. In fact, the legal system is based on the old French civil code and customary law in matters of obligation. Since a contract and its enforcement involve one or more obligations of one party towards the other, it is the French Civil Code that will govern the legal aspects of the contract in Madagascar. Presently, the administration of justice in Madagascar is subject to severe criticism. [1] There is the need to ensure an effective execution of legal decisions. In fact, many foreign investors and even nationals want to invest in Madagascar because of its economic potential. Yet, many of them refrain from doing so due to the fact that investing in Madagascar is risky. For this reason, a proper legal system needs to be established to restore the confidence of investors.

Where did the economy stand in 2010?

As mentioned earlier, the legal system and as such the enforcement of contracts in Madagascar has many loopholes. It is for this very reason that Madagascar is ranked at the 155th place among 183 countries.

Madagascar

2010

Enforcing contract (rank)

155

Procedures (number)

38

Time (days)

871

Cost (% of claim)

42.4

The number of procedures to enforce a contract in Madagascar is 38 and last approximately 2.3 years. The cost to enforce a contract is 42.4% of the claim which is quite expensive.

To evaluate this performance, we shall compare the performance of Madagascar with of the benchmark being Luxembourg.

Madagascar

2010

Luxembourg

2010

Enforcing contract (rank)

155

1

Procedures (number)

38

26

Time (days)

871

321

Cost (% of claim)

42.4

9.7

As it can be seen from the above, there are 12 more procedures in Madagascar than Luxembourg. Further, not only the time taken to enforce a contract is 1.5 years more in Madagascar but also enforcing a contract appear to be very expensive in Madagascar. All these factors have contributed to make Madagascar stood at the 155th place in 2010 with regards to the enforcement of contract.

Situational analysis of Madagascar in 2010

According to the doing business report, there has been no improvements or reforms in the process of resolving a commercial dispute through the courts in Madagascar in 2010. 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.

What are the changes from 2010 to 2011?

Madagascar

2010

Madagascar

2011

Enforcing contract (rank)

155

153

Procedures (number)

38

38

Time (days)

871

871

Cost (% of claim)

42.4

42.4

The situation remained the same from 2010 to 2011 with only a change in overall rank of enforcing contract from the 155th place to the 153rd place. This improvement has most probably been noted because of deteriorating legal system in other countries.

Mauritius v/s Madagascar

Let us have a look at the performance of some of the Sub Saharan countries in attempt to compare the performance of Mauritius and Madagascar.

Here again, we find that Mauritius is the best ranked country in the sub-Saharan region at the 61st place while Madagascar at the 153rd place is the last country ranked amongst the Sub Saharan countries we chosen for our analysis. The other countries are ranked in between Mauritius and Madagascar.

Coming to the comparison between Mauritius and Madagascar, it is worth noting that when it comes to the enforcement of contracts, in both countries, the law of contract is inspired from French law. As such, we should somehow expect that the legal aspect of enforcing a contract should be almost the same. Nonetheless, empirical evidence seems to be showing the contrary.

Mauritius

2011

Madagascar

2011

Enforcing contract (rank)

61

153

Procedures (number)

36

38

Time (days)

645

871

Cost (% of claim)

17.4

42.4

As shown in the above table, there are 92 countries separating Mauritius and Madagascar such that their performance with respect to the enforcement of contracts is not the same at all. A very poor performance is again noted for Madagascar. While the number of procedures involved is not significantly different from the other, the major difference comes from time and cost to be undertaken. Approximately 1.7 years and 2.4 years are taken in Mauritius and Madagascar respectively to deal with the enforcement of contract. The big difference in time will definitely be an important factor for investors to consider; indeed they will prefer to invest in Mauritius. Cost involved in any legal issue is very important for investor because it is these costs that will determine level of profits. High legal costs will obviously imply lower profits. A cost of 42.4% of claim in Madagascar is huge (2.4 times greater than that of Mauritius).

An important factor to consider here is probable the reforms made by both countries in the year 2011. While in Mauritius, there was the recruitment of more judges and more courtrooms was made available which speeded up the legal proceedings, no reform was noted in Madagascar.

Resolving Insolvency

A robust bankruptcy system functions as a filter, ensuring the survival of economically efficient companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses to normal operation and increase returns to creditors. By improving the expectations of creditors and debtors about the outcome of insolvency proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable businesses and thereby improve growth and sustainability in the economy overall.

Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic entities. It does not measure insolvency proceedings of individuals and financial institutions. The data are derived from survey responses by local insolvency practitioners and verified through a study of laws and regulations as well as public information on bankruptcy systems.

The ranking on the ease of resolving insolvency is based on the recovery rate, which is recorded as cents on the dollar recouped by creditors through reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a function of time, cost and other factors, such as lending rate and the likelihood of the company continuing to operate.

What does resolving insolvency measure?

Time required to recover debt (years)

Measured in calendar years

Appeals and requests for extension are included

Cost required to recover debt (% of debtor’s estate)

Measured as percentage of estate value

Court fees

Fees of insolvency administrators

Lawyers’ fees

Assessors’ and auctioneers’ fees

Other related fees

Recovery rate for creditors (cents on the dollar)

Measures the cents on the dollar recovered by creditors

Present value of debt recovered

Official costs of the insolvency proceedings are deducted

Depreciation of furniture is taken into account

Outcome for the business (survival or not) affects the maximum value that can be recovered

Assumptions about resolving insolvency

To make the data comparable across economies, Doing Business uses several assumptions about the business and the case. It assumes that the company:

Is a domestically owned, limited liability company operating a hotel.

Operates in the economy’s largest business city.

Has 201 employees, 1 main secured creditor and 50 unsecured creditors.

Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation.

Where did the economy stand in 2010?

The following situation resumes the situation regarding resolving insolvency in the year 2010 in Mauritius.

Resolving insolvency (rank)

73

Time (years)

1.7

Cost (% of estate)

15

Recovery rate (cents on the dollar)

33.6

According to above data collected by Doing Business, resolving insolvency takes 1.7 years on average and costs 15% of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The average recovery rate is 33.6 cents on the dollar.

Globally, Mauritius stands at 73 in the ranking of 183 economies on the ease of resolving insolvency.

The performance of Mauritius is compared to its benchmark for a better analysis as follows:

Mauritius

2010

Japan

2010

Resolving insolvency (rank)

73

1

Time (years)

1.7

0.6

Cost (% of estate)

15

4

Recovery rate (cents on the dollar)

33.6

92.5

With respect to resolving insolvency, our 73rd position on the ranking list of the 183 countries is quite weak. Japan, the first ranked country has in all aspects of resolving insolvency performed better than Mauritius. The time taken to close out a business is less than half compared to that of Mauritius. The cost for Japan to resolve insolvency is by far less than that of Mauritius (by nearly 4 times). Further, creditors will feel safer in Japan for they will recover 92.5 cents on every dollar the business has to pay them as compared to Mauritius where they will be obtaining only 33.6 cents on each dollar they are supposed to get.

Situational analysis of Mauritius in 2010

With the introduction of the new Insolvency Act 2009 ("the Act") only the previous year on the 1st June 2009, the Mauritian legislator has introduced a novel rescue procedure for companies. If there is any reason to believe a company is or will be unable to pay its debts, the Act now affords a new regime whereby an administrator may be appointed under the voluntary administration provisions. 

In fact, the objective of the voluntary administration regime is to provide for the business, property and affairs of an insolvent company to be administered in a way that (a) maximises the chances of the company, or as much of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence, results in a better return for the company's creditors and shareholders that would result from an immediate liquidation of the company.

Prior to 2010, the most important reform which was proposed and implemented is in 2008 where Mauritius adopted a legislation that made the process of sale of immovable property after default on a credit agreement more efficient and less susceptible to abuse by creditors.

In 2010, another important reform took place with respect to insolvency. It was a new insolvency law which introduced a rehabilitation procedure for companies as an alternative to winding up, and which defined the rights and obligations of creditors and debtors and sanctions for those who abuse the system. 

What are the changes over time (from 2010 to 2011)?

The changes regarding insolvency from the year 2010 to 2011 are shown bel