Doing Business in Africa: Burundi
In this AFKInsider series, we explore the regulatory conditions that an entrepreneur is likely to face when setting up a business in sub-Saharan Africa. AFKI presents Doing Business in Africa: Burundi.
Bordering Rwanda to the south, Burundi is small Central African state that was colonized first by Germany and then administered by Belgium after the World War I. Effectively governed as part of Rwanda while under Belgian rule, Burundi was deeply affected by the region’s Hutu-Tutsi ethnic conflict almost immediately upon independence in 1962. Even before independence Burundi became something of a refuge for Tutsi driven out by ethnic massacres in Rwanda.
Under the country’s first leader, King Mwami Mwambutsa IV, ethnic tensions between Hutu and Tutsi led to a failed Hutu coup against the monarchy that was ruthlessly suppressed by the Tutsi-dominated military. In 1966 the monarchy and any pretense at ethnic comity was abolished and a military-led, Tutsi-dominated republic was instituted. From there, things unsurprisingly spiraled out of control as the Tutsi-led government was confronted by an increasingly militant Hutu-led organization called the Burundi Workers’ party that carried out attacks against Tutsis both inside and outside government.
Fighting between the two sides culminated in a at least 100,000 deaths and created as many refugees in neighboring countries – mimicking on a small scale the later ethnic mass killings that would hit Rwanda in the 1990s. From the 1970s into the mid-1980s Burundi effectively became a one-party state dominated by ethnic Tutsis fearful of the Hutus they dominated. The country was led by Jean-Baptiste Bagaza, a colonel who came to power in a bloodless coup in 1976.
The colonel was, in turn, replaced by a major in yet another coup in 1987 that brought Pierre Buyoya, another ethnic Tutsi, to power. Buyoya, a relative liberal, attempted economic and political reform and made a stab at ethnic reconciliation. Unfortunately, a Hutu uprising in 1988 led to 20,000 deaths. It also, however, led to the creation by Buyoya of a constitutional commission that would aim at both democratization and reconciliation between Hutu and Tutsi.
Peace was not to be had, however, because while democratic elections instituted an ethnically neutral government in 1993, the winner of that election, Hutu intellectual Melchior Ndadaye, was deposed and executed by the Tutsi-dominated Burundian military in October of that year after just three months in office. The country promptly returned to civil war – with 150,000 people slaughtered in the process. Chaos reigned until former President Buyoya was able to cobble together enough military support to take over via military coup in 1996.
Buyoya’s second term as Burundi’s ruler, like the first, was marked by efforts at ethnic reconciliation, liberalization, and reconstruction. This effort was aided when civil war ended in Rwanda, putting a stop to the the anti-Tutsi genocide by Hutu extremists. Rwanda’s current president, Paul Kagame is still in power in Rwanda, but Buyoya stepped down in 2003 as a result of a UN-backed peace deal between the Tutsi government and Hutu rebels. He was replaced by Domitien Ndayizeye, a Hutu, who shepherded further democratic reforms and was in turn peacefully replaced by Pierre Nkurunzizza, a former Hutu rebel commander and the country’s current president, who won democratic elections 2005.
Ease of Doing Business
So how does all this influence business conditions? According to the World Bank, Burundi currently ranks 181st 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 4th 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. The bank defines business-creation costs as the time and money involved in the series of legal steps an entrepreneur must take to legally establish an in-country firm. Using this framework, the bank then tasks researchers to establish in-country averages.
When this metric is applied to Burundi, the bank finds that Burundi ranks 135th out of 183 in ease of starting a business, making Burundi one of the more difficult places on Earth to start a legal commercial enterprise. To start a business in Burundi one has to complete 11 bureaucratic procedures that take a total of 32 days at a total cost of about $194, with no minimum capital requirement imposed by the government for the start-up. For Westerners this is a miniscule amount, but for most Burundians this represents more than a year’s income.
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 Burundi in a number of other areas. To obtain a construction permit, for instance, Burundi is ranked 175th out of 183 as it takes the completion of 25 procedures, which takes on average 212 days at a cost of nearly $10,575 – an insurmountable amount for the average Burundian.
Continuing in its assessment, the World Bank has determined that in order to obtain and register property, Burundi ranks 115th out of, again, 183 countries measured. To register property in Burundi, the Bank finds, it takes the completion of five bureaucratic procedures that takes, on average, 94 days and costs 5.8-percent of the property’s financial value in fees and other costs to complete. Given this improvement from the previous score, this makes Burundi only a moderately difficulty place in which to register property.
Burundi does worse when it comes to obtaining credit, where it ranks 168th out of 183. 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. Unfortunately, Burundi couples weak creditor rights with very little information being available on potential borrowers.
Figure 2:
How the World Banks Conceptualizes Credit Acquisition
When it comes to protecting investors and minority shareholders, Burundi improves slightly. Here, the country ranks 154th out of 183 countries. It has received this score because Burundi requires only moderate levels of conflict-of-interest disclosure and is middlingly difficult place to bring a shareholder lawsuit while directors are rarely held liable.
Burundi again marginally improves in the area of taxation. The World Bank estimates that pleasing the tax man in Burundi requires a total of 32 payments over the course of a year which, in turn, takes up to 211 hours to complete and can consume up to 153.4-percent of a company’s profits. Accordingly, Burundi’s tax burden is ranked 141st out of 183 nations, making it a country with one of the highest tax burdens on Earth.
When it comes to engaging in cross-border trade, however, Burundi does very poorly. In Burundi, to import goods into the country one is required to have 10 documents for customs’ officials to inspect. On average, it takes a total of 71 days to import goods into Burundi with the cost amounting to $4,285 (excluding tariffs) per container shipped into the country.
The cost to export goods is somewhat lower as Burundi requires only eleven documents to be inspected by customs’ officials, while the total cost (excluding taxes) is $2,747 per container, with delivery taking up to 47 days from point of origin. Compared to global averages this nets Burundi a ranking of 176th out of 183 on ease of engaging in cross-border trade.
Burundi does about the same when it comes to contract enforcement, where it ranks 171st out of 183 countries ranked on this issue by the Bank. On average, reports World Bank analysts, it takes a total of 44 legal procedures to take a contract from dispute to resolution, at the cost of 832 days spent in court or otherwise attending to legal issues.
The financial cost of pursing a contract claim, says the Bank, typically accounts for 38.6-percent of the value of the claim – clearly a huge deterrent to the legal enforcement of contracts and why Burundi ranks so low given its otherwise good scores in this area.
Finally, in terms of closing or liquidating a business Burundi ranks 183rd out of 183 countries as there is no history of practice in the country.
Table 1 presents a summary of these rankings as well as Burundi’s overall ease-of-doing business rating. By any measure Burundi is a hard country to do business. It does least badly, however, in the area of registering property, openings a business, and paying taxes.
Table 1:
World Bank Ease of Doing Business
Assessment and Rankings: Burundi
Prospects
If the sad story of Burundi’s history were not enough to warn one away from the country, then the sad state of its economy just might. Burundi is one of the five poorest countries in the world and according to the Global Hunger Index, a measure of food security put out by the International Food Policy Research Institute, is the hungriest country on the planet. Civil war, corruption, and years of authoritarian rule have destroyed what little infrastructure existed in the country at independence and the country’s landlocked status has helped to make it the least globalized country in not just all of Africa, but the entire world.
Burundi is thus a hard place – perhaps the hardest in all of Africa to do business given its isolation and history. Even next-door Rwanda, which was the locus of war and genocide in the 1990s, is a better place to do business due to the legal reforms put in place there by Paul Kagame. What’s more, the infamy of the genocide puts more of a spotlight on that country and, as a result, means Rwanda gets more attention and aid money, too. Burundi, in so many ways Rwanda’s twin, gets much less attention, support, and investment as a consequence.
Figure 3:
Burundi Economic Growth,
Percent Increase, 2003 – 2013
This does not mean all is lost when looking for business opportunities in the country, though. As the chart above shows the economy – underdeveloped and based totally on subsistence agriculture as it may be – has nonetheless been growing.
Setbacks to growth have, since the return of political stability and the cessation of ethnic war, have mostly been due to bad weather impacting agricultural output than any policy failure per se given such grim business conditions as noted above. Being such a poor, hungry, and desperate place, Burundi has almost no place to go but up.
So where are the opportunities in Burundi? Here, the country has abundant natural resources, especially minerals. Tanzania Nickel belt, for instance, extends across the border into Burundi and estimates peg the country’s known reserves of that mineral at six percent of the world’s total.
Other commercial possibilities when it comes mineral extraction include uranium, tin, cobalt, copper, and platinum-group metals, columbium, tantalum, gold, tungsten, chromium, and vanadium. Oil, too, possibly exists in Burundi in some quantity. Oil sips, for example, have been sighted on the Rusizi basin along the border with the Democratic Republic of Congo and petroleum firms have expressed interest in exploring the area more fully.
Another opportunity exists in hydroelectric power potential, most especially in the long-stalled but now World Bank approved Regional Rusumo Falls Hydroelectric Project, an 80MW project which aims to benefit people in Burundi, Rwanda and Tanzania. While technically located along Tanzania and Rwanda’s mutual border, the scheme if completed, will add significant amounts of hydroelectric power to all three countries. Electrification of course would be a boon to development in Burundi, but could especially be transformative for the country’s primitive mining sector, which is as of yet is mostly comprised of small-scale, subsistence mines and miners. So far, the Bank has said it will approve $340 million for the project.
Separately, the bank has also approved two additional hydroelectric projects in Burundi itself that will produce a combined 48 megawatts at a cost of about $100 million. Another project, located on the River Kaburantwa in the north-western part of the country and funded by India, will add another 20 MW to this tiny country. All this is party of the Burundian government’s plan to develop small power stations on the five big rivers of the country for a total of 97 megawatts.
Then, of course, there are traditional opportunities in agriculture, another highly underdeveloped sector begging for capital injections and foreign expertise. Coffee and tea are the primary cash crops with coffee alone accounting for 39-percent of the country’s foreign receipts in the mid-2000s. Cotton and Palm oil are also possible cash crops that can grow well in Burundi.
Thus, when considering Burundi one should think of potential, not necessarily problems. If political stability can be maintained after the vast slaughter of previous years then it, like neighboring Rwanda, is well positioned to take advantage of the growing economies to its east. Likewise, if Eastern Congo can ever be stabilized, Burundi, like Rwanda, is well positioned to be a transport hub for regional trade. Given all the region has gone through in the last several decades, one would think the sun is finally about the shine in this once darkest part of Africa.
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 AFK Insider, Mint Press News and BAM South.