Doing Business in Africa: Ivory Coast

Located on the Gulf of Guinea, Ivory Coast, or, alternatively, Côte d’Ivoire, is a West African state that has recently emerged from nearly twenty years of political conflict and instability that came after the death of its first president, Félix Houphouet-Boigny, in 1993.

Houphouët-Boigny, a well-educated member of Ivory Coast’s indigenous colonial elite, served in a variety of administrative and political positions, including a stint in the French Parliament and ministerial positions in the French government, before assuming the leadership of his newly independent country in 1960. His tenure, which lasted for 33 years, was among the longest in Africa and he left an indelible stamp on the country.

Unlike most of Africa’s post-independence leaders, Houphouët-Boigny did not break off relations with Ivory Coast’s former colonial master. Rather, President Houphouët-Boigny maintained very strong relations with Paris and as a result became something of a stalking-horse for French interests in post-colonial Africa.

His influence was such that he became a close advisor to several French presidents and he maintained a strong line against both Pan-African socialism and the Soviet Union, resulting in significant support from his backers back in France.

Though a capitalist, Houphouët-Boigny was no democrat and he ruled via a one-party political system that dominated every level of the Ivory Coast’s politics. This one-party rule, while autocratic, was nonetheless stable as President Houphouët-Boigny kept both party and government posts open to all of his country’s many ethnic groups.

Thus, although the country was undemocratic, the incorporation of those who might have become political enemies into his system of rule diminished opposition very effectively.

For most of its independence, then, the combination of political stability and a pro-capitalist orientation set the stage for significant growth, and from independence to the late 1970s Ivory Coast was one of the fastest growing countries in Africa.

This prosperity, however, was premised on high commodity prices for the country’s agricultural goods, particularly cocoa, and when the global economy slowed and went into recession in the late 1970s those prices collapsed and Ivory Coast went into free fall. As a result, the country  spent much of the 1980s lurched from one financial crisis to another.

By the end of decade the political stability imposed by Houphouët-Boigny’s one-party regime began to crumble and the president, by now ailing from ill health, was increasingly seen as unable to deal with his country’s significant problems.

In 1990 widespread protests and opposition agitation forced the president to allow multi-party elections, but Houphouët-Boigny managed to hold on for three more years until his death – at which time his chosen successor, Henri Konan Bédié – became president.

Unfortunately, Bédié was a much less gifted politician than his predecessor and swiftly alienated many though a policy of restricting access to government posts to only his close supporters. Corruption soared and, in 1999, a military coup ousted Bédié and installed a general, Robert Guéï, as president. Elections in 2000 subsequently led to Guéï turning the presidency over to Laurent Gbagbo, a long-time leader of the anti-Houphouët-Boigny opposition.

Gbagbo’s tenure, however, was even more unproductive than his predecessors and he faced string of rebellions and uprisings during his term of office that were put down with increasing amounts of force.

In 2005 the presidential elections was delayed until 2010, which  President Gbagbo subsequently fraudulently declared he had won. This set the stage for a significant period of civil strife that resulted in French military intervention, the arrest of Gbagbo, and the installation of Alassane Ouattara as Ivory Coast’s president.

Ease of Doing Business

Given all this, what are business conditions like in Ivory Coast? According to the World Bank, Ivory Coast currently ranks 169^th out of 183 countries on its Ease of Doing Business Index – a measure created by the bank to gauge the degree to which commercial enterprises encounter regulatory hurdles, legal threats to property, and the time and money spent on things such as registering a business, ensuring right of title to property, and acquiring licenses.

By way of comparison, the United States ranks 4^th on ease of doing business, right after Singapore, Hong Kong, and New Zealand.

What does this ranking mean? Take, for instance, the bank’s measure of how easy it is to start a business, which is depicted in Figure 1 below. From the figure one can see that the bank defines business-creation costs as consisting of the time and money outlays involved in the series of legal steps necessary for the entrepreneur must take in order to legally establish an in-country firm. Using this framework, the bank then tasks researchers to go through this process in order to establish in-country averages.

When this metric is applied to Ivory Coast, the bank finds that Ivory Coast ranks 172^nd out of 183 in ease of starting a business, making Ivory Coast one of the worst places on Earth to start a legal commercial enterprise.

To start a business in Ivory Coast, one has to complete ten bureaucratic procedures that take a total of 40 days at a total cost of about $1,410, with a minimum capital requirement of $2,400 required for all new businesses in the country. Clearly, it is not easy for the average Ivorian to start a business.

Figure 1:

How the World Bank Measures Ease of Starting a Business

         

Using similar metrics for other aspects of business operations, the bank has ranked Ivory Coast in a number of other areas. To obtain a construction permit, for instance, Ivory Coast is ranks 165^th out of 183 as it takes the completion of 21 procedures, which takes on average 592 days at a cost of $2,400, or about 2.4 times national income.

Clearly, this is a significant problem and a major obstacle to business creation and expansion in the former French colony.

Continuing in its assessment, the World Bank has determined that in order to obtain and register property, Ivory Coast ranks 151^st out of, again, 183 countries measured. To register property in Ivory Coast, the bank finds, it takes the completion of six bureaucratic procedures that takes, on average, 62 days and costs 13.9-percent of the property’s financial value in fees and other costs to complete.

Ivory Coast does little better when it comes to obtaining credit, where it ranks 152^nd out of 183 – making the country one of the worst places in the world in this category. Here, as depicted in Figure 2, the bank examines the legal rights of creditors and borrowers in secured transactions and bankruptcy law as well as the strength of credit information bureaus and exchanges.

When lenders have both strong legal rights and easy access to a wide variety of information about the client’s creditworthiness, reasons the bank, the more available credit will be. When information on borrowers is significantly lacking – as is the case in most of Africa – legal protections for creditors must in turn be very strong.

In Ivory Coast, creditors have some legal rights, but these protections are offset by the near complete lack of information the creditworthiness of potential borrowers.

Figure 2:

How the World Banks Conceptualizes Credit Acquisition

When it comes to protecting investors and minority shareholders Ivory Coast continues to do poorly. Here, the country ranks 154^th out of 183 countries – making the country one of the worse in the world for shareholders. Ivory Coast received this score because even though it does have a moderate level of disclosure requirements, board members and directors are rarely held liable and it is a difficult place to bring shareholder lawsuits.

Ivory Coast has a similarly low ranking when it comes to paying taxes. The World Bank estimates that pleasing the tax man in Ivory Coast requires a total of 64 payments over the course of a year which, in turn, takes up to 270 hours to complete and can consume up to 44.4-percent of a company’s profits. Accordingly, Ivory Coast’s tax burden is ranked 153^rd out of 183 nations.

When it comes to engaging in cross-border trade, Ivory Coast receives a low score once again. In Ivory Coast, to import goods into the country one is required to have nine documents for customs’ officials to inspect. On average, it takes a total of 36 days to import goods into Ivory Coast with the cost amounting to $2,577 (excluding tariffs) per container shipped into the country.

The cost to export goods, though still bad, is somewhat smaller as Ivory Coast requires ten documents to be inspected by customs’ officials, while the total cost (excluding tariffs) is $1,969 per container, with delivery taking up to 25 days from point of origin. Compared to global averages this nets Ivory Coast a ranking of 160^th out of 183 on ease of engaging in cross-border trade – largely due to its relatively isolated, landlocked geographic location.

Ivory Coast does better when it comes to contract enforcement, where it ranks 126^th out of 183 countries ranked on this issue by the bank.

On average, reports World Bank analysts, it takes a total of 33 legal procedures to take a contract from dispute to resolution, at the cost of 770 days, or just over two year, spent in court or otherwise attending to legal issues. The financial cost of pursing a contract claim, says the Bank, typically accounts for 41.7-percent of the value of the claim.

Finally, in terms of closing or liquidating a business Ivory Coast ranks 76^th out of 183 countries. Here, it takes 2.2 years to close an estate at a cost of 18-percent of the value of said estate, for a recovery rate of 32.8 cents on the dollar.

Table 1 presents a summary of these rankings as well as Ivory Coast’s overall ease-of-doing business rating.  As one can see, Ivory Coast’s scores are for the most part universally bad. The country excels or can even be considered a middling place for business in no area except, ironically, in the area of closing businesses.

Table 1:

World Bank Ease of Doing Business

Assessment and Rankings: Ivory Coast

 

Prospects

To say that Ivory Coast has had a tough three decades is an understatement. The economic crisis of the 1980s and then unremitting political tumult in the 1990s and 2000s set the country back in a number of ways. What had once been a rich, prosperous country stagnated and fell into a prolonged period of civil strife that fundamentally altered its post-independence political status quo.

It is, for instance, increasingly apparent that ethnic and geographic divisions in the country require some degree of decentralization from the prevailing model of strong, central-government and executive-office control that has typified Ivory Coast since independence.

Houphouët-Boigny, with French support, was able to maintain this type of rule by using strong economic growth and opposition incorporation into his regime to head off discontent, but, as the crisis of the 1980s showed, when growth stops the fight over the economic pie necessarily becomes much more intense.

This is especially the case, as in Ivory Coast, when the office of the president is invested with a huge amount of power and possession of which can economically make or break huge segments of the population.

Stripping the office of some of that power and allowing some degree of decentralization should, therefore, be seen as first step necessary in Ivory Coast’s long-term rehabilitation as it weakens the incentive for contending political actors to seize power by force of arms.

In turn, devolving power to lower levels and to the legislature will allow buy-in from a wider sector of Ivorian society into desperately needed reforms that will, hopefully, free the economy from the dead hand of continued state interference.

This is needed because while Houphouët-Boigny and his predecessors ran a capitalist state, it should be understood that the president, from Houphouët-Boigny on down, was effectively the chief capitalist of that state as well.

As in much the rest of Africa, then, there has for a long time been a fine, sometimes indistinguishable line between business and government in the Ivory Coast and structural corruption remains a significant problem. Indeed, Transparency International, the anti-corruption NGO, ranks the country as the 136^th most corrupt country on the planet.

Figure 3:

Ivory Coast Economic Growth,

Percent Increase, 2003 – 2013

Still, as the chart above shows, there are nonetheless significant reasons for optimism about the Ivory Coast, too. The country’s current president, Alassane Ouattara, has made fighting corruption a major priority and the dismal ranking of 136^th most corrupt country on the planet is actually something of an improvement as the country had been ranked as the 150^th most corrupt country during his predecessors’ terms in office.

Peace and return to a semblance of stability have also allowed growth to return, with both 2012 and 2013 registering growth of over nine percent, beating IMF expectations. What’s more, 2014 is expected to be another banner year with the African Development Bank expecting growth to approach nearly ten percent.

So, things are looking up in Ivory Coast at long last. Coupled with its relatively well-educated population and the benefits of currency stability through its membership in the CFA franc zone, foreign investment is returning.

Impressive to be sure, but it should be noted just how fragile this recovery is. The country lost half of its businesses as a result of civil strife and poverty has accordingly risen to encompass half the population – up from merely 1 in 10 in years past. This means that growth is occurring on an exceptionally low base and amongst people desperate to recapture their lost wealth and position.

For this to happen, however, the business climate – as described above – needs to be radically improved. Fortunately this is another priority of President Ouattara, but past habits are hard to break and lingering political issues, particularly over the composition of the country’s security forces, needs to be resolved.

Given that corruption of the sort one sees in Ivory Coast is used as a political tool to paper over dissent, anti-corruption efforts could potentially threaten Ivory Coast’s newfound political stability.

Longer term, the country’s overwhelming dependence on commodity production needs to be reduced through diversification of economy all while infrastructure, which is in an acute state of disrepair, desperately needs investment. Still, despite all this the country’s prospects are better than they’ve been in years, and investors should plan accordingly.

Jeffrey Cavanaugh holds a Ph.D in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFKInsider, Mint Press News and BAM South.