Risk Assessment of Southern Africa for Business Development: Trade Africa Seminar

1. „Doing business with Southern Africa: Risk Assessment of Africa and its Competitiveness in a Global Context- empirical data -Seminar "Trade Africa - Transfer des Fachprogramms und der Erfahrungen in Deutschland“ in Johannesburg, South Africa, March 2-7, 2008 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

2. Country risk with a specific focus on the impact of the business environment on corporate activity is measured via different indicators, for example: comprehensive indices of economic freedom indices with a focus on competitiveness indices with a focus on specific conditions for starting a business 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

3. 1. Comprehensive indices of economic freedom (examples): • Economic Freedom of the World, Fraser Institute • Size of government • Legal structure and security of property rights • Access to sound money • Freedom of trade internationally • Regulation of credit, labor, and business • Index of Economic Freedom of the World, The Heritage Foundation / Wall Street Journal • Business Freedom and Trade Freedom • Fiscal Freedom and Freedom of Government • Monetary Freedom, Investment Freedom and Financial Freedom • Property Rights • Freedom of Corruption • Labor Freedom 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

4. 1.1. Economic Freedom of the World, Fraser Institute - Africa still lacking behind 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

5. 1.1. Economic Freedom of the World, Fraser Institute 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

6. 1.1. Economic Freedom of the World, Fraser Institute Due to the Economic Freedom of the World Index • Malawi ranks 122 with a rating of 5,5 • Tanzania ranks 86 with a rating of 6,3 • Zambia ranks 67 with a rating of 6,7 • The following table sheds light on the ratings in the different areas of the index: 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

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8. 1.2. Index of Economic Freedom of the World, The Heritage Foundation / Wall Street Journal • Economic Freedom of the World, Fraser Institute • Malawi ranks 106 with a rating of 55,5 • Tanzania ranks 103 with a rating of 56,4 • Zambia ranks 92 with a rating of 57,9 • All three countries are facing negative changes from 2006 to 2007 • The following table sheds light on the ratings in the different areas of the index: 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

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10. 2. Indices with a focus on competitiveness: The Global Competitiveness Index of the World Economic Forum In order to assess national competitiveness, the World Economic Forum has developed the Global Competitiveness Index (GCI). Competitiveness is defined as the set of institutions, policies, and factors that drive productivity and therefore set the sustainable current and medium-term levels of economic prosperity. 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

11. 2. The Global Competitiveness Index The nine pillars of the GCI: 1. institutions (public and private), 2. infrastructure, 3. the macroeconomy, 4. health and primary education, 5. Higher education and training, 6. market efficiency (goods, labor, financial), 7. technological readiness, 8. business sophistication, 9. innovation. 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

12. 2. The Global Competitiveness Index • The GCI sample covers 128 countries at different stages of economic development with GDP per capita in the wealthiest country surpassing that of the poorest country by a factor of 117, based on purchasing power parity. To take this into account the concept of stage of development introduces three different stages: • Factor-driven: focus on pillars 1 to 4 • Efficiency-driven: focus on pillars 5 to 7 • Innovation-driven: focus on pillars 8 and 9 • which are shown in the next chart 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

13. 2. The Global Competitiveness Index 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

14. 2. The Global Competitiveness Index • Africa and the international context 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

15. 2. The Global Competitiveness Index 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

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17. 2.2. GCI - The Business Climate in Africa • Improving the investment climate is one of the most important ways to increase economic growth • Identification of the priorities of necessary reforms • World Bank’s program of Enterprise Surveys (70.000 firms in 104 countries worldwide - 11.600 firms in 34 African countries). • For comparison: • Productivity in Africa varies tremendously • Every country has firms that are above the regional median: productive firms can succeed in every location, but ... • 80 % of Brazilian firms surpass the African median, 60 % in China and 55 % in India 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

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19. 2.2. GCI - The Business Climate in Africa • How to identify the priorities of reform? • Firms are asked to rank a list of issues based on how constraining they are to the operations and growth of their business • Subjective rankings reflect objective measures with the exception of “finance” • Access to finance, tax rates, and electricity are top constraints • For upper-middle income countries crime, skills, and labor regulations raise some concern 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

20. 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

21. 2.2. GCI - The Business Climate in Africa • Do constraints vary across groups of countries? • Landlocked or access to ports • Endowment with natural resources • More or less manufacturing intensive • Geographic and geological characteristics do have some impact on reported constraints; but a firm’s prospects are not determined by these conditions • Infrastructure matters more in landlocked countries • Access to finance appears to matter more in resource-rich countries • Firms in countries that have achieved a high level of manufacturing exports reported significantly fewer constraints than firms in manufacturing-intensive countries 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

22. 2.2. GCI - The Business Climate in Africa Differences in government efficiency and infrastructure are more pronounced 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

23. 2.2. GCI - The Business Climate in Africa Differences in power outages are more pronounced 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

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28. 2.2. GCI - The Business Climate in Africa Reducing irregular payments (corruption) by 10 % is associated with a a 2 % increase in productivity 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

29. 2.2. GCI - The Business Climate in Africa Increasing by 10 % the extent to which firms have overdrafts or use formal external source of finance investments would be associated with a 4 % increase in employment growth 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

30. 2.2. GCI - The Business Climate in Africa 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

31. 3. Indices with a focus on specific conditions for starting a business: Doing Business Index of World Bank The criteria of the Doing Business Index and the top ten reformers 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

32. 3. Doing Business Index of World Bank 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

33. 3. Doing Business Index of World Bank Malawi fact sheet 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

34. 3. Doing Business Index of World Bank Tanzania fact sheet 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion

35. 3. Doing Business Index of World Bank Zambia fact sheet 4.04 Business Development and Infrastructure: Trade Africa - Training in Export Promotion