WORLD BANK GROUP AFRICA REGION, PRIVATE SECTOR UNIT 33681 Summary of 2005 Mali Investment Climate Assessment EPTEMBER S is note summarizes the Investment Climate Assessment (ICA) undertaken in Mali in 2004. e objective of the ICA was to analyze the current business climate in Mali using a survey of a representative sample of 200 manufacturing, trans- port, and tourism firms. 11 e current macroeconomic environment in Mali is correct, and its GDP growth was about 5.6 percent from 1994 to 2003, a performance superior to the overall growth in Sub-Saharan Africa (which averaged 3.2 percent between 1994 UMBER N and 2003). e engine of this growth, however, is largely exogenous; inflows of foreign capital and the development of gold E exports were the main drivers of the recent growth in Mali. OT N To reach a more sustainable growth, Mali must develop and diversify its economy; to do so, it must create a better investment climate. Although firms in Mali enjoy a sound macroeconomic environment and maintain correct productivity levels (relative to firms in East Africa), several investment climate issues hinder the development of the private sector, such as the extent of corruption, weak infrastructure, strong regulatory constraints, and factor market issues. Macroeconomic Environment and Nevertheless, as of 2002/2003 and in spite of such Productivity a decline, firms in Mali remain relatively productive by African standards (albeit less than in Senegal), with a Despite Mali's record of sustained growth and important relatively high labor and capital productivity and strong improvements in its business environment during the 1990s capacity utilization levels (about 73 percent). is high and early 2000s (including price liberalization, simplifica- level of factory ­floor productivity, combined with the tion of the tax system, reform of the labor code, creation current low wages, implies a low unit labor cost indica- of a Presidential Investor's Advisory Council, and a major tor (that is, wages adjusted for productivity levels). So, as tariff reform), structural deficiencies still remain that hin- shown in Figure 1, although Mali is in a better position der its current and potential growth, including a vulnerabil- ity to climatic shocks and a strong concentration of export Figure 1. Unit Labor Costs in Mali and Other Countries revenues on a few commodities. Such vulnerabilities lead foreign investors to have mixed views about the country-- 0.60 views that are further influenced by the negative economic 0.52 impact of the current crisis in Cote d'Ivoire, one of Mali's 0.50 main trading partners. According to data from the World 0.40 Economic Forum and Institutional Investor, Mali remains 0.32 in the last quarter of the rankings in 2003 (Table 1). 0.29 0.30 0.27 Such mixed perceptions among investors can also 0.21 0.19 0.20 partially be explained by the productivity levels in Mali, 0.13 which, while still higher than those in eastern Africa, have 0.10 declined since the 1980s. Research shows that labor pro- 0.00 ductivity in Mali was halved between 1980 and 2002, A while labor productivity in most Asian countries increased KENY INDIA MALI (CHINE) rapidly over the same period. UGANDA SENEGAL ANZANIAT HANGZHOU Table 1. Country Ratings. World Economic Forum 2003 Institutional Investor 2003 Growth Business Rank Note Competitiveness Index Competitiveness Index Credit Rating Best Performance Best Performance Finland 1 1 Swiss 1 95.3 USA 2 2 Luxemburg 2 94.3 South Africa 42 27 South Africa 40 52.4 China 44 32 China 34 60 India 56 37 India 48 49.4 Senegal 79 87 Senegal 76 27.6 Uganda 80 74 Uganda 85 21,4 Kenya 83 67 Kenya 82 22.1 Mali 99 92 Mali 91 18.9 Worst performance Worst performance Haiti 102 Argentina 99 14.5 Angola 101 Zimbabwe 100 10.8 Source: Global Competitiveness Report 2003­2004 and Institutional Investor, March 2003. than many countries, it still faces difficulties with respect to Figure 2. Percentage of Firms that Consider Corruption a countries like China, which have similar labor costs but are Serious/Critical Issue. more productive. 80 73.8 Key Investment Climate Constraints 70 60 Another element that sheds light on investor confidence in 50 48.7 Mali is the importance of the remaining investment climate 39.9 40 constraints.Investment climate constraints in Mali,by order 30.2 of intensity, are related to corruption, infrastructure, factor 30 23.7 22.4 markets, and regulations and largely contribute to reduce 20 the advantage the country might have in terms of factory- 10 floor productivity. 0 A Corruption remains a serious impediment to entrepre- MALI KENY CHINA TURKEY SENEGAL UGANDA neurs. Almost half of entrepreneurs in the manufactur- ing sector consider corruption as a major issue. e cost is non-negligible, on average almost three and a half percent of turing firms, with industrial waste disposal topping the list. firms' annual turnover disappears into "informal payments." Sixty percent of firms consider it a major constraint because Mali finds itself among the countries that consider the issue it engenders critical environmental, health, and storage is- to be the most severe constraint to their investment climates sues. Rail-bound transport and the road network are also (Figure 2). Such results are consistent with the findings of regarded as significant problems by the surveyed firms (45 other organizations working in this area. and 43 percent, respectively). In addition, electricity supply remained a serious issue in 2004. Significant infrastructure deficiencies constrain firm ef- ficiency. ree distinct types of infrastructure services in Regulations and their enforcement are yet another seri- Mali are perceived as low quality by the surveyed manufac- ous cause of concern and uncertainty for investors. Typi- cally, entrepreneurs have a relatively low confidence in the where surveys have been conducted, Mali does not fare well enforcement of regulations and the ability of the judiciary. in this area (Figure 3). About 35 percent of manufacturers consider that officials' enforcement of regulations remains inconsistent, and 33 Policy Options percent of them do not trust the judiciary to enforce their property rights. Despite numerous important reforms carried out during the last fifteen years, Mali's investment climate still suffers Constraints in the factor market include issues related from several weaknesses that hinder private investment, to financial, labor, and land markets. Access to bank fi- productivity, and growth. Further reforms and measures are nance is a real barrier to firm growth in Mali. Bank loans therefore necessary to enable a more competitive business are not the main source of firms' working capital and invest- environment. ese reforms should aim at fighting corrup- ment financing. About 42 percent of the sample firms have tion,improving infrastructures,reducing the regulatory bur- never asked for a bank loan despite their financing needs. den, and improving the working of factor markets. Priority Small and medium enterprises (SMEs) have even less ac- should be given to reforms in the following areas: cess to bank financing because enterprise size is a key crite- rion for loan approval. e availability of audited accounts Corruption and access to export markets are also positively correlated to · Strengthen the government's internal and external con- the probability of obtaining bank loans. Furthermore, the trol mechanisms. required collateral is high; it amounts on average to 136 per- · Provide proper financing/staffing and guarantee com- cent of the value of a loan. plete autonomy to the newly created Office of the Gen- e formal labor market in Mali suffers from several eral Auditor. weaknesses as well. e workforce has a relatively low level · Implement microeconomic measures such as limiting of qualification. In addition, the training provided does not employment duration for selected sensitive positions always match the needs. Absenteeism resulting from health and reinforcing and effectively enforcing a corruption issues (malaria) remains non-negligible. punishment system with high penalties. Access to industrial land remains a serious issue in Mali, with 38 percent of manufacturing firms and 45 percent of Infrastructure tourism firms perceiving access to land as a severe constraint. · Ensure an adequate industrial waste disposal service. is problem discourages firms from initial establishment · Develop and maintain an efficient railway connection or expansion and prevents them from being able to provide between Dakar and Bamako. collateral to obtain loans. Compared with other countries · Renovate and better maintain the existing road network and ensure timely completion of existing projects. Figure 3. Percentage of Firms that Consider Access to Regulatory Framework Land a Serious/Critical Constraint. · Improve and simplify the fiscal system, disseminate fis- cal information to firms more widely, and enhance the 40 37.91 capacity of the Internal Revenue Service. 35 · Reduce the weight of regulations by limiting the num- 29.65 ber of agencies dealing with firms and cutting costs re- 30 lated to firm creation and closing procedures. 25 24.60 · Improve the judicial system through completely imple- 20 17.39 menting the Legal Reform Action Plan and promoting 15 14.70 and developing commercial courts. 10 6.00 5 Labor Market 0 · Improve dissemination of labor market­related infor- A mation. MALI KENY CHINA TURKEY · Step up the fight against malaria to reduce absentee- SENEGAL UGANDA ism. · Increase the output of the education system and pro- fessional training organizations to improve the overall is note is part of a series of summaries of analytical work of the Africa Private Sector Development Unit. is note is authored by level of qualification of the workforce. Nadia Sandi based on a report entitled Mali: Une evaluation du Financial Market climat des investissements (April 2005). e report was written · Improve firm access to bank financing by promoting the by a team in the Africa Private Sector Unit led by Jean-Michel N. establishment of stable financial statements by SMEs, Marchat,and including Jean-PaulAzam,George Clarke,Magueye reviewing the rules of the auditor/accountant profes- Dia, Philippe Alby and Mouhssine Affifi. For more information, sions, and ensuring the effective enactment of the cur- contact Melanie S. Mbuyi via email at mmbuyi@worldbank.org or via telephone on 202 473 9574. A copy of the report is also rent legislation. available from www.worldbank.org/rped Land Market · Improve access to land by upgrading the current proce- dures to the world's best practices, as defined by the do- ing business indicators, and by creating urban/mining land registers.