Policy mandarins in India’s red-tape-ridden corridors could draw lessons from an unlikely, remote source: the strife-torn east African nation of Rwanda.
When the International Finance Corporation (IFC), which fosters economic growth in developing nations by financing private sector investment, drew its annual Doing Business list this Tuesday, Rwanda emerged as the top reformer for the year.
It became the first African nation to top the “Reformers” list for 2010, completing seven of 10 regulatory reforms mandated by the the private sector arm of the World Bank Group.
Put simply, Rwanda improved its performance on such crucial parameters as starting a business, employing workers, registering property, getting credit, protecting investors, trading across borders and closing a business.
In contrast, India, which dropped a rank and came in at 133 out of the 183 countries surveyed, improved its performance on just one : closing a business.
“It isn’t just Rwanda,” says Shipra Tripathi, Director and Head for Africa for the Confederation for Indian Industries, “Countries across Africa have really pulled up their socks when it comes to governance, leading to a global change in their perception.”
The improved business environment also bodes well for Indian companies looking to do business in Africa.
The Confederation of Indian Industry has recommended that the Export Credit Guarantee Corporation of India, upgrade the creditworthiness of many African countries. “The last time they did it in 2002, Botswana received the same credit rating as Belgium,” explains Tripathi.
“Rwanda has seen a lot of policy reform since 2006,” said Rwanda’s Ambassador to India, Lt. General Kayumba Nyamwasa, singling out the creation of the Rwanda Development Board as one of the biggest factors in improving the business environment. “The board functions as a one-stop centre for a number of clearances.”
Over the last three years, Rwanda has simplified licencing, shortened business registration times to two days, abolished minimum capital requirements for starting new businesses and eased credit availability.
So why does India continue to lag behind? “Contract enforcement is one of our weakest areas,” says Dharmakirti Joshi, Director and Principal Economist, CRISIL Ltd, “The second aspect is the pathetic speed of dispute resolution.” Joshi feels that the problem is two-fold: over-regulation and compliance. “We need to streamline the regulatory process and then make enforcement quicker.”
However, it isn’t all bad news for India. Investment is not only about the business ease, but also about business opportunities. Thus, despite its many obvious flaws, India’s gigantic market and favourable demographics mean that it shall continue to be a destination for global capital. “Basically these reports are like mirrors,” says Joshi, “You look at them and see the areas you need to improve.”