Doing Business in Africa: Togo
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: Togo.
Sandwiched between Ghana to its west and Benin to its east, Togo occupies a thin, north-south strip of territory in tropical West Africa. As one of the smallest countries in Africa, Togo owes its existence as a sovereign state to the peculiarities of European colonialism in the 19th century that saw it emerge as a buffer zone between the British presence in Ghana and the French in Benin.
As history would have it Togo initially came under the control of neither and was instead incorporated into the German empire in 1887 shortly after the Conference of Berlin.
As a German colony the territory became a treasured part of the Kaiser’s African possessions and after some investment into infrastructure it became a self-supporting part of the empire.
Outbreak of the First World War, however, saw Togo conquered by the French in 1916 and then later incorporated into France’s colonial holdings in West Africa until after the Second World War. The western part of the country bordering Ghana was allowed to join British Ghana in 1956 after a plebiscite and in 1960 Togo became an independent republic.
Like its neighbors, Togo suffered similar bouts of political instability with the country’s first president— Sylvanus Olympio—being assassinated during a military coup in 1963. Thereafter the country suffered several years of instability as a succession of military officers schemed and plotted against one another.
Coups, rumors of coups, and generalized instability took its toll until order was finally established in 1967 when Gnassingbé Eyadéma took power in a military coup and successfully transformed the political system into a single-party state with him at its head.
Despite suffering declining popularity due to economic decline and being seriously threatened by the wave of democratizations that hit Africa in the 1990s, Eyadéma remained in office until his death in 2005 by using the usual mix of authoritarianism, corruption, and rigged elections.
After his death his son, Faure Gnassingbé, took power in what was deemed an unconstitutional soft coup backed by the military and won a fraudulent election in which he received 60% of the vote.
Protests by the opposition in turn led to the killing of over 400 citizens and the fleeing of 40,000 people into neighboring Benin and Ghana. Peace talks with the opposition subsequently led to more elections in 2007 which the ruling party won.
Since then the country has remained relatively quiet as Gnassingbé has consolidated power in the partly-free system his father bequeathed to him. Reelected in 2010, he is unlikely to lose when the stands for reelection in 2015.
Ease of Doing Business
So how does all this influence business conditions? According to the World Bank, Togo currently ranks 160th 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, 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 Togo, the Bank finds that Togo ranks 169th out of 183 in ease of starting a business, making Togo one of the most difficult places on Earth to start a legal commercial enterprise. To start a business in Togo one has to complete seven bureaucratic procedures that take a total of 75 days at a total cost of about $780 with a minimum capital requirement imposed by the government of about $2,156.
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 Togo in a number of other areas. To obtain a construction permit, for instance, Togo does much worse by ranking at 152nd out of 183 as it takes the completion of 15 procedures, which takes on average 277 days at a cost of $5,500. Clearly this is a very high price to pay and an obvious barrier to the citizen of Togo when trying to build or expanding a business.
Continuing in its assessment, the World Bank has determined that in order to obtain and register property, Togo also does poorly as it ranks 158t out of, again, 183 countries measured. To register property in Togo the Bank finds it takes the completion of five bureaucratic procedures that takes, on average, 295 days and costs 13-percent of the property’s financial value in fees and other costs to complete. This makes Togo a rather difficult place in which to register property.
Togo does about the same when it comes to obtaining credit, where it ranks 152nd out of 183—making the country one of the worst in the world in this area. 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. Togo performs relatively poorly in this category because creditors have relatively few rights and there is very little information on borrowers.
Figure 2:
How the World Banks Conceptualizes Credit Acquisition
Next, when it comes to protecting investors and minority shareholders Togo improves slightly. Here, the country ranks 147th out of 183 countries. Togo receives this score because while it requires moderately strong disclosures from corporate officials but otherwise has very weak director liability laws. Also important, the country is only somewhat friendly to minority shareholder lawsuits.
Togo returns to form in the area of taxation. The World Bank estimates that pleasing the tax man in Togo requires a total of 53 payments over the course of a year which, in turn, takes up to 270 hours to complete and can consume up to 50.8% of a company’s profits. Accordingly, Togo’s tax burden is ranked 157th out of 183 nations, making it one of the very worst in the world in this area.
When it comes to engaging in cross-border trade, however, Togo improves a great deal. In Togo, to import goods into the country one is required to have eight documents for customs officials to inspect. On average, it takes a total of 28 days to import goods into Togo with the cost amounting to $963 (excluding tariffs) per container shipped into the country.
The cost to export goods is similar as Togo requires six documents to be inspected by customs’ officials while the total cost (excluding taxes) is $940 per container with delivery taking up to 24 days from point of origin. Compared to global averages this gives Togo a ranking of 93rd out of 183 on ease of engaging in cross-border trade.
Togo once again does very poorly when it comes to contract enforcement, where it ranks 151st out of 183 countries ranked on this issue by the Bank. On average, reports World Bank analysts, it takes a total of 41 legal procedures to take a contract from dispute to resolution, at the cost of 588 days spent in court or otherwise attending to legal issues. The financial cost of pursing a contract claim, says the Bank, typically accounts for 47.5-percent of the value of the claim.
Finally, in terms of closing a business, Togo ranks 84th out of 183 countries measured. Typically it takes three years to close a business at a cost of 15-percent of the cost of an estate with an estimated recovery rate of 30.6 cents on the dollar.
Table 1 presents a summary of these rankings as well as Togo’s overall ease-of-doing business rating. As one can see, Togo has two bright spots when it comes to business. First, cross-border trade is only moderately difficult when compared to other places in Africa while closing a business is also relatively straightforward. However, in all other areas Togo does poorly compared to other African states.
Table 1:
World Bank Ease of Doing Business
Assessment and Rankings: Togo
Prospects
Like much of the rest of Africa, Togo’s primary economic sector remains subsistence agriculture which employs the majority of the population and makes up 42% of the country’s GDP. Coffee and cocoa are cash crops and have been cultivated since the colonial era, but more recently cotton has also begun to be produced. Togo’s tropical climate means that much more could be produced if agricultural productivity could be improved, but unfortunately the continuing of subsistence farming soaks still soaks up too much of both land and labor.
In terms of industry, the major sector of note is phosphate mining, of which the country produces around 1.0 million metric tons a year in product off a reserve base of approximately 60 million metric tons. Additionally, large deposits of limestone, marble, iron, and magnesium are also to be found so far commercial exploitation of these resources has been minimal due. Outside of mining there is some light manufacturing of consumables for local consumption while in the service sector the country has potential as a transport and postal hub.
Figure 3:
Togo Economic Growth,
Percent Increase, 2003 – 2013
Togo’s growth can best be described as slow and steady and heavily dependent upon good weather to sustain the country’s agricultural output. However, being sandwiched between Ghana and Nigeria means it is potentially well placed to serve as a communications hub and, indeed, as growth and trade have picked up in West Africa in recent years Togo’s economy has grown along with it. Unfortunately, several problems remain.
Among them is the continuing corruption that impacts the country and largely stems from the lack of democratic accountability that is associated with the incumbent president and his regime. Clearly further reform efforts need to be made and the costs associated with doing business in Togo that are documented above need to come down significantly. This is unlikely though given the present state of politics there and so the country is likely to poke along, making the best of its situation, for some time to come.
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.