Uganda adopts Zambia-style reforms to improve business

Uganda is borrowing from Zambia’s reform blueprint to raise its doing business ratings in the East African Community bloc and Comesa. This is part of the country’s aspirations to attain a preferred investment destination after years of economic bottlenecks in the energy, transport and business licensing sectors.

Zambia has won admiration in the Common Market for Eastern and Southern Africa (Comesa) bloc and has acquired lower compliance costs.

Zambia’s reforms blueprint among other things has fewer trade licences, integration of regulatory processes, mitigation of revenue losses from non tax sources and faster turnaround times for acquisition of business permits — a situation that has minimised incidents of corruption in the regulatory systems.

Interventions

So far, Uganda’s notable interventions such as the construction of the Bujagali hydropower dam and other smaller power generation projects and upgrading of major highways have brought optimism to the business community.

But glaring hurdles persist in the regulatory chain. Though some gaps have not been addressed, the overall administrative burden exerted on local business has sharply dropped, according to Eva Jhala, a trade consultant attached to the Zambian government.

The relative success of the reforms pushed Zambia’s global business rating to 76, up from 84 according to the World Bank’s doing business indicators for 2010. This achievement has directly boosted foreign direct investment flows and raised its sovereign credit rating to B+, a sign of sound economic capacity necessary for servicing its foreign debt obligations.

In contrast, Uganda’s global doing business rating fell from 84 to 133 in the same period on account of increased hurdles in the registration of new businesses and failure to tackle systemic corruption. However, renewed government attention towards rectifying persistent business constraints has compelled it to adapt proven reform models developed in the country’s favoured trading blocs.

Adoption of Zambia’s reform model also carries a significant opportunity for Comesa member states eager to bridge critical gaps in their regulatory frameworks. “Comesa has been harmonising procurement laws and Uganda’s legislation has proved instrumental in that process. However, harmonisation of Customs laws has proved difficult because of complexities in national rules that have constrained many business people. Streamlining such laws is critical for promotion of trade activities within and outside the Comesa region,” explained Ms Jahla.

Prior to implementation of business reforms, Zambian businesses were subjected to approximately 517 trade licences, with some adding little or no value to local entrepreneurs. The latter were merely used to generate revenues for local authorities desperate to finance administrative operations. Enforcement of such licences proved a drain to local enterprises and consequently hindered business growth. However, vigorous screening of the trade licences revealed only 287 licences were economically justifiable, rendering most of them illegitimate. Another 85 were condensed into 15 licences in an attempt to minimise overlapping risks.

Uganda, on the other hand, is still grappling with severe business hurdles reflected in multiple business licences, enforcement of illegal trade licences and poor regulatory capacity. Some local authorities for instance, require separate licences for construction projects, parking space and garbage collection, all of which apparently compound transaction costs for local business people.

Besides trade licence barriers, huge information requirements enforced by stand alone agencies were also cited as a substantial burden to local businesses, due to prohibitive financial expenses coupled with administrative delays. In response, the Zambian government introduced an integrated documentation system that enabled regulatory agencies access company files for scrutiny without requiring fresh submissions.

Despite direct revenue losses incurred by local governments due to elimination of numerous trade licences, decentralisation of revenue collection is considered a key remedy to the dilemma. “The government commissioned a study on the impact of business reforms on its revenue base. It revealed that revenue losses tied to local governments were projected at about 15 percent which was considered relatively small. Nevertheless, the government adopted a fiscal decentralisation model that allows local governments collect trade licence payments and earn fixed commissions on them, thereby enabling them sustain income streams,” said Jhala.

As a result of extensive business reforms, the number of days taken to register a new business fell to less than a week while the net administrative burden suffered by local businesses dropped by 197 billion Zambian Kwachas compared to 2.2 trillion kwachas ($420million) equivalent to 5 percent of Gross Domestic Product (GDP) prior to the reforms.