96191 RWANDA SIERRA LEONE BURKINA FASO LIBERIA SOUTH SUDAN Positive Results In A Number Of Areas But Limited Influence On Growth Support to Investment Climate Reforms Burkina Faso – Key facts The World Bank Group’s (WBG) involvement in investment Burkina Faso is a medium-sized landlocked country with a climate (IC) reform in Burkina Faso began in 2006 and is still on population of 16.9 million, a GDP of US$ 11.6 billion and a GNI going. Initially, WBG assistance sought to address Burkina Faso’s per capita (Atlas method) of US$ 670 (2013). Over the 2006-2013 disappointing performance in the Doing Business (DB) rankings, period, GDP grew at an average of nearly 6% per annum. The with the objective of creating “an improved investment climate as economy is largely dominated by natural resources-based activities, measured by the Doing Business indicators”. Overtime, emphasis with agriculture (cotton) and extractives (gold) accounting for the on DB-related reforms has progressively diminished, and growing bulk of exports. Starting in the early 1990s, the country enjoyed attention was paid to other themes. a long period of political stability, under a strong but increasingly autocratic leadership. However, political tensions began to emerge WBG reform assistance has been articulated in two phases. in the 2010s, eventually leading to an abrupt change in power, During the first phase, running from early 2006 through mid-2011, following the uprising of October 2014. the focus was on five IC reform themes, namely: (i) the reform of business registration; (ii) the simplification of procedures for on just two reform areas: business licensing and debt resolution construction permits; (iii) the reform of property registration; (iv) & bankruptcy proceedings. Since late 2013, additional reform the streamlining of business licensing mechanisms; and (v) legal assistance focusing on the health sector was launched. The WBG reforms linked to DB-indicators (labor legislation, enforcement program had a total budget of US$ 6.1 million. Three quarters of contracts, etc.). During implementation, the scope of work was of available funds have been allocated to three reform areas: the expanded, with the launch of activities targeting (vi) trade logistics reform of business regulations (which includes business licensing and (vii) alternative dispute resolution (ADR) mechanisms. The and construction permits), legal reforms linked to DB indicators, second phase, started in mid-2011 and expected to continue until and trade logistics. mid-2015, is much more selective than the previous one, focusing WBG reform work has been actively supported by the Investment The Bulk of Funding Went to Three Reform Areas Climate Facility for Africa (ICF), which provided funding in Budget Composition by Reform Area 9% excess of US$ 4 million to cover for expenses not eligible under 7% WBG advisory services projects (e.g. the refurbishment of Business Regulation Commercial Courts in Ouagadougou and Bobo Dioulasso). Legal Framework 37% 8% Trade Logistics Alternative Dispute Resolution Program implementation has been fairly smooth. The WBG Industry Speci c Reforms Other Areas managed to overcome the government’s initial skepticism (the 16% accuracy of DB rankings was hotly disputed, in some cases with good reason) and this paved the way to a fruitful cooperation with 23% all the concerned parties. Initial Diagnostic Work Start of Work on Trade Logistics Launch of the Health in Africa Initiative 2005 2006 2007 2008 2009 2010 2011 2012 2013 Launch of First Phase Start of Work on ADR Launch of Second Phase 1 Results of IC Reform Efforts advocating the elimination of certain obligations (e.g. the registration of the articles of incorporation with tax authorities) The WBG program was quite successful, contributing to the and the reduction of registration fees. In addition, WBG was implementation of 19 IC reforms over the 2007-2013 period. able to mobilize additional financing from the ICF to support The bulk of IC reforms concerned DB-related themes, with the progressive decentralization of registration services, with the particularly positive results regarding business registration opening of CEFORE offices in other urban centers. procedures, construction permits, property registration, trade logistics, and the overall legal framework for private operations. Trade Logistics. Early WBG work on trade logistics focused Non DB-related reforms concerned business licensing and ADR on the simplification and consolidation of procedures and mechanisms. WBG-supported reforms greatly contributed to documentation, leading to the prolongation of the validity of improve Burkina Faso’s DB rankings, with the country passing import export documents and the elimination of police escorts on from the 163rd position in 2006 to the 154th place in 2013. A similar low risk inbound and transit freight cargo. Later work aimed at improvement is shown also by other indicators used to assess the improving border clearance procedures, namely through a better quality of the business environment, namely the World Bank’s integration of customs operations with neighboring countries (in Regulatory Quality Indicator and the Heritage Foundation’s particular, with Togo). Detailed customs statistics are not available, Economic Freedom Index. but all indications are that the average clearing time has declined, WBG-supported Reforms Addressed a Range of IC Themes although forwarding agents still report a high share of physical Number of IC Reforms inspections. Business Registration 3 Construction Permits 3 Property Registration 3 Alternative Dispute Resolution. The WBG program substantially Trade Logistics 3 contributed to the strengthening of the Centre d’Arbitrage, de Legal Framework 3 Mediation et de Conciliation de Ouagadougou (CAMC-O), Business Taxation 2 through the provision of training for arbitrators and mediators and Business Licensing 1 assistance for improving internal procedures for case management. ADR 1 As a result, CAMC-O’s ability to offer ADR services greatly DB Reform Non-DB Reform improved, and the center is currently able to handle disputes with good turnaround times (e.g. arbitration cases are usually heard Achievements in Selected Reform Areas within 3 months, compared to a benchmark of 6 months). Construction Permits and Property Registration. WBG activities Easier access to ADR is highly appreciated by greatly contributed to improve the conditions for real estate foreign investors and government entities transactions. This involved the setting up of two dedicated one- The increased availability of ADR services is particularly appreciated stop-structures, the Centre de Facilitation des Actes de Construire by foreign investors, who mainly value the confidentiality of (CEFAC) and the Guichet Unique Foncier (GUF), dealing proceedings. Disputes involving foreign investors (mostly active in respectively with construction permits and land registration. mining and banking), account for 95% of the value of cases handled The establishment of CEFAC was paralleled by a drastic by CAMC-O. Government entities also use CAMC-O’s services simplification of procedures and documentation: as a result, the for resolving legal disputes and the ‘arbitration clause’ is increasingly time required to handle applications for construction permits is used in contracts where public entities are party. usually less than one month, well within the three-month limit stipulated in relevant legal texts. Finally, the WBG was successful Business Licensing. The improvement of business licensing in advocating the reduction of a particularly onerous tax on property transfers, that was reduced twice (in 2007 and 2008), procedures is a central IC reform theme in Burkina Faso. The passing from 15% to 8%. WBG helped to set in motion a far reaching regulatory review process with the setting up of central secretariat for regulatory Business Registration. The reform of business registration reform (Secrétariat Permanent chargé du suivi des reformes des procedures started before the launch of the WBG program, licencesd’ affaires) and the screening of more than 100 pieces of with the setting up of a one-stop-shop structure, the Centre regulation. Work is still largely ongoing, but some positive results de Formalité des Entreprises (CEFORE). The WBG helped have already been achieved in the health and education sectors in further streamlining the registration process, successfully (see box). 2 Beyond red tape cutting: the reform of of ‘monetary savings’, related to the elimination or reduction private education licensing of fees and other out-of-pocket expenses. The remaining cost The reform involved the general overhauling of the regulatory savings include ‘time savings’, generated by the decrease in the framework for the establishment and operations of private schools time required to handle administrative procedures, and, to a lesser as well as the delegation of certain powers from the Ministry to extent, ‘financial savings’, linked to the cash flow benefits resulting regional directorates. Initiated in 2010, the reform process was from the introduction of more favorable payment modalities for progressively extended to cover post primary schools, pedagogical certain fees or taxes (e.g. the reduction of the deposit taxpayers are schools, and higher learning institutions. The reform entailed only required to pay when filing an appeal against an assessment made marginal cost savings for private promoters as its primary objective by the tax administration). was to increase the predictability of the licensing process, in order to provide prospective entrants with a clear reference framework. About one third of total cost savings (US$ 3 million) refer to reforms of property registration, mostly thanks to the major Private Sector’s Views on IC Reforms reduction of the tax on property transfers. Significant results were Attitudes towards IC reforms were assessed through interviews also achieved in the areas of trade logistics (US$ 2.1 million), with local small and medium enterprises (SME).The Burkinabe thanks to the prolongation of validity of customs documentation private sector is broadly appreciative of IC reforms, although the and the elimination of trade escorts, and business registration (US$ assessment is not uniform. Regarding overall IC developments, 1.8 million), with the reduction in the number and complexity of 90% of the firms interviewed expressed a positive assessment, but the procedures for the establishment of new firms, including the only one third considered the IC to have ‘significantly improved’, reduction of registration fees and other out-of-pocket expenses. the rest finding the situation to have ‘somewhat improved’. IC reforms in other areas cumulatively account for cost savings Regarding specific IC themes, views were more variegated, with a worth some US$ 2.1 million, with a combination of cost, time and significant share of interviewees unable to provide an assessment financial savings. due to lack of direct experience. The vast majority of interviewees expressed a positive assessment on tax payment procedures, an area Cost Savings are Fairly Evenly Distributed Across Reform Areas in which however WBG was scarcely involved. Changes in labor Cost Savings in US$ million (2013 Value) regulations (which instead were actively supported by WBG) 0.06 were also considered positively by a solid majority of respondents (“the fixed term contract was a real reform”). The share of non- 0.5 respondents was very high in the case of construction permits and 3.0 0.5 import procedures, but positive views largely prevailed among 0.03 1.6 1.4 0.1 those able to express an opinion. 0.8 0.7 0.4 Property Trade Business Construction Business Other Reform Reforms are Generally Appreciated But With Differences Across IC Themes Registration Logistics Registration Permits Taxation Areas Views Expressed by Interviewees (30 Enterprises) Monetary Savings Time Savings Financial Savings 100% 80% 60% The value of cost savings has been increasing overtime, due to 40% the coming on stream of new reforms and the increasing number 20% of firms/transactions benefiting from earlier reforms. In relative terms, over the 2007-2012 period cost savings accounted for 0% Overall IC Tax Payment Labor Import Construction about 0.1% of private investment, and their importance grew from Regulations Procedures Permits Signi cantly Improved Somewhat Improved Neither Improved Nor Worsened 0.03% in 2007 to about 0.15% in 2011 and 2012. Somewhat Worsened Signi cantly Worsened Don't Know Impact of IC Reforms - Enterprise Formation Impact of IC Reforms - Reduction of and Formalization Compliance Costs Enterprise Formation. In Burkina Faso, the number of business WBG-supported reforms significantly contributed to reduce the registrations increased before the start of IC reforms, reaching a administrative burden faced by private businesses, resulting in peak of some 4,800 new firms registered in 2005. In the intervening significant private sector cost savings. In fact, over the 2007-2013 period to 2009, annual registrations declined to some 4,000 per period, 14 reforms generated cost savings worth some US$ 9.1 year, followed by a new increase in following years. Extrapolating million. More than three quarters of total cost savings consist the trend prevailing in the 2000-2007 ‘pre reform period’ to the 3 subsequent years, the number of actual registrations is usually Sustainability of IC Reforms significantly lower, exceeding the predicted values only in 2013. IC reforms implemented with WBG support display a high Overall, this suggests that IC reforms did not have an appreciable degree of sustainability. Indeed, all the 11 reforms analyzed in influence on the enterprise formation process. detail can be currently regarded as fully sustainable. The assessment is equally positive regarding future prospects, with only one reform Growth in Enterprise Registrations Preceded IC Reforms Number of Newly Registered Firms possibly exposed to mild adverse developments. 8,000 7,000 Sustainability is Not an Issue in Burkina Faso 6,000 Number of IC Reforms 5,000 11 4,000 10 3,000 9 8 2,000 Fully Sustainable 7 Positive 1,000 Mostly Sustainable 6 Fairly Positive 0 Not Sustainable 5 Uncertain 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 4 Not Rated 3 Negative Post Reform Pre Reform Historic Trend 2000-2007 2 1 0 The reform of business registration procedures concerned all Current Sustainability Future Prospects enterprise types, but they were ‘deeper’ for firms adopting a corporate form, i.e. limited liability companies and share The legal and regulatory reforms implemented with WBG companies. This contributed to a growing preference for support are still in force and the likelihood of policy reversal companies over more ‘traditional’ enterprise types. Indeed, is very low. In the highly politically sensitive area of labor registration statistics show a marked increase in the incidence of legislation, there is some pressure from trade unions to modify companies, whose share in total registrations nearly doubled in the Labor Code approved in 2007 with WBG support, which less than a decade, passing from an average 11% in the pre reform greatly increased flexibility in the hiring and firing of workers, and years 2003-2004 to 21% in 2012-2013. more generally, in managing the labor force (e.g. de facto endless renewal of fixed term contracts). In 2013, the Minister of Labor Breakdown of Registrations by Enterprise Types commissioned a review of the Labor Code, and this might lead 2003-2004 2012-2013 to some amendments, but indications are that the spirit of the 21% reform will not be significantly affected. 11% Sole Proprietorships / Partnerships The institutions created or strengthened with WBG are fully Companies functional and no adverse developments are expected. Actually, in some cases the reform process ignited by the WBG program 89% 79% has been continued by government authorities. For instance, in the area of business registration, the CEFORE, initially established in the capital city, is now operating in twelve urban Formalization. The impact of IC reforms on the formalization centers, greatly extending the coverage of business registration of previously informal firms is difficult to gauge. About one services. There are occasional operational difficulties (e.g. the third of the local firms interviewed operated informally prior CEFAC in Ouagadougou is currently operating with a slim to registration. In general, economic considerations (i.e. better technical staff of only three), but these do not constitute a major access to customers, suppliers and finance) and/or pressure threat to sustainability. from government authorities were the main motivations for abandoning informality, although in some cases the simplification of registration procedures was mentioned as a facilitating factor. However, the number of available observations is quite limited (only seven firms), and no conclusive assessment is possible. This case study is part of the report Evaluation of The World Bank Group’s Investment Climate Programs: Focus on Impact and Sustainability. This evaluation was carried out as an independent evaluation by Economisti Associati on behalf of the World Bank Group. The full report is available at: 4 http://documents.worldbank.org/curated/en/2014/11/24397624/evaluation-world-bank-groups-investment-climate-programs-focus-impact-sustainability