A weak judiciary prevails in the country which is influenced by the executive and subject to corruption, and investors face a legal and judicial environment in which the enforcement of contracts cannot be guaranteed. Non-transparent decision-making and complicated administrative procedures introduce delays and uncertainties and multiply the opportunities for corruption, which is pervasive.
Starting a business
Procedures for starting a business have been simplified, and no minimum capital is required. However, the cost of completing licensing requirements remains 10 times the level of average annual income. Obsolete labour laws undermine the development of a dynamic labour market. Inflation has averaged 10 percent over the most recent three years. The government influences prices through state-owned enterprises.
In order to assess whether the starting up of a business in Madagascar has become easier, the below sub-indicators should be taken into account which are equally important.
Procedure (number)
Time (days)
Cost (% of income per capita)
Paid-up minimum capital (% of income per capita)
The following table shows the summary of the procedures, time, cost and rank of the 'Starting a Business' in Madagascar for the period 2010 & 2011.
Indicators
2010
2011
Starting a business
Procedure (number)
2
2
Time (days)
7
7
Cost (% income per capita)
6.2
12.9
Paid-up minimum capital (% income per capita)
207.4
248.1
Rank (th)
12
70
Source: International Finance Corporation and The World Bank (2010 & 2011)
From the above table, it can be noted that the number of procedure and time for the year 2010 and 2011 have remained unchanged. The cost of starting business has however increased from 6.2% to 12.9% as well as the minimum capital requirement rose to 248.1%. The start-up burden was eased by abolishing the professional tax and facilitating publication during 2009 which may have impacted in the following year. In 2010, business start-up was simplified by reorganizing procedures at the one-stop shop and eliminating the stamp duty and minimum capital requirement and in the year 2011 there were not any reforms.
The table below shows a detailed summary of procedures that is the bureaucratic and legal steps that an entrepreneur must complete to incorporate new business in Madagascar along with the time and cost needed. These procedures are those that apply to a company matching the standard assumption (the "standardized company") on collecting the data.
No.
Procedures
2010
2011
Time (days)
Cost
Time (days)
Cost
1
Deposit registered status and apply for license (carte professionnelle), and statistical identifications
5
MGA 88,899
2
File a notice of constitution to be published in a daily newspaper in French
2
MGA 15000
Source: International Finance Corporation and The World Bank (2010 & 2011)
The standardized company in Madagascar is as follows:
City: Antananarivo
Legal form: Socièté a ResponsabilitéLimitée (SARL)
Start-up capital: 10 times GNI per capita
Paid-in minimum capital: (% of income per capita): 0.0
Dealing with construction permits
The regulation of construction is vital to protect the public. However it should be efficient so as to avoid excessive constraints on a sector having a great importance in the economy. Regulations which turn out to be costly in both time and money is usually opted out by builders.This may lead to problems such as bribes to inspectors or illegal business deals, putting public safety at risk. Everyone is better off where the agreement is simple, straightforward and costless.
The indicator Dealing with Construction permits is divided into three other sub-indicators. These are:
Procedures to build warehouse legally (numbers)
Submit all relevant documents and obtaining all necessary clearance, licenses and certificates.
Completing all essential connections for electricity, water, sewerage and a land telephone line.
Registering a warehouse after it is completed.
Time required to complete each procedure (days)
Time spent on collecting information is not considered.
Each procedure begins on a separate day.
The final document is received only when procedure is completed.
No prior contact with officials.
Cost required to complete each procedure.(% of income per capita)
No bribes, only official costs.
The following table shows the summary of the procedures, time, cost and rank of the Dealing with Construction Permits in Madagascar.
Indicators:
Sub-indicators
2010
2011
Dealing with Construction Permits
Procedures (number)
Time (days)
Cost (% of income per capita)
Rank (th)
16
178
630.7
107
16
178
654.9
110
Table 2.1;Source: International Finance Corporation and The World Bank (2010 & 2011)
From the above table it can be noticed that during the year 2010 and 2011, the number of procedures has not changed. The same is for the time required. This my be due to the absence of reforms during the year 2010 and 2011 concerned with the indicator Dealing with business permits. It can also be noted that the cost involved has increased by 24.2% in 2011 as compared to the previous year.
The table that follows shows the comparison between the numbers of days needed and the cost as well for the procedures needed for the construction permits in Madagascar between 2010 and 2011.
No.
Procedures
2010
2011
Time (days)
Cost
Time (days)
Cost
1
Acquire property registration certificates
30
MGA 2000
2
Obtain official topographical plan of the plot
7
MGA6000
3
Acquire lot plan with municipal seal
7
No charge
4
Obtain preliminary approval from the urban municipality
1
No charge
5
Submit application for a building permit
1
No charge
6
Receive an inspection by the Provincial Service of Land Development
(SPAT)
1
No charge
7
Obtain a building permit
90
MGA 1,170,540
8
Receive final inspection at the end of construction by SPAT
1
No charge
9
Receive an inspection by the fire protection service
1
No charge
10
Obtain an occupancy certificate
7
No charge
11*
Apply for a telephone line
1
No charge
12*
Receive an inspection by Malagasy Telecom to prepare an estimate
1
No charge
13*
Obtain a telephone connection
30
MGA 100,000
14*
Apply for electricity and water connections
1
No charge
15*
Receive an inspection by JIRAMA to prepare an estimate
1
No charge
16*
Obtain water connections
21
MGA 2,500,000
Table 2.2; Source: International Finance Corporation and The World Bank (2010 & 2011)
*Takes place simultaneously.
Registering property
The registering property measure is also a very important indicator in analyzing the cost of doing business. It is extremely important to ensure formal property rights, comprising of also the effective administration of land. Registering property is divided into three sub-indicators:
Procedures to legally transfer title on immovable property.
Preregistration (e.g. checking for liens, notarizing sales agreement, paying property transfer taxes)
Registration in the economies largest business city
Post registration(e.g. filing title with the municipality)
The time required to complete each procedure.
Ignores time spent in gathering information
Each procedure starts on a separate day
Once final document is received, the procedure is completed
Cost required to complete each procedure.
No bribes, only official cost
Not includes value added or capital gains taxes.
The following table shows the A summary of the procedures, time, cost and rank of 'Registering Property' in Madagascar.
Indicator:
Sub-indicators:
2010
2011
Registering Property
Procedures (number)
Time (days)
Cost (% of property value)
Rank (th)
7
74
9.4
156
7
74
9.8
162
Source: International Finance Corporation and The World Bank (2010 & 2011)
The above table depicts that the number of procedures remained unchanged for the year 2010 and 2011. The time required to complete the procedure were also the same for both of the years. The cost, however, increased insignificantly by 0.4 % of property value and Madagascar was ranked 162th in 2011 as compared to the year 2010 where it was classified at 156th. In 2009, the operation of the land registry was improved through development of its human and technical capacity. This reduced the total time required to register property by two months. It also abolished the stamp duty, among other taxes, which helped reduce the total cost to register property. During the year 2010, reforms were made on the Registering property indicator. Transferring a property was made more expensive by the introduction of the mandatory use of notary for property transactions. The reform had negative impacts on the country.
The table that follows shows the comparison between the numbers of days needed and cost as well for the procedures required for registering a property in Madagascar between 2010 and 2011.
No.
Procedures
2010
2011
Time (days)
Cost
Time (days)
Cost
1
Request two topographical extracts with coordinates at the 'Service de la Topographie
5 days (simultaneous with procedures 2 and 3)
MGA 1,000 per plan
2
*Request two copies of the certificate of registration and the legal situation of the land at the Registrar of the Property Registry
7 days (simultaneous
with procedures 1 and3)
MGA 2,000 (MGA 1,000
per copy)
3
Request authorization to conduct a real estate
transaction at the Ministry of Urban Planning
(Ministere de l'Urbanisme)
3 days (simultaneous
with procedures 1 and 2)
no cost
4
Notary draft and notarize the sale agreement
2 - 7 days
1,125,000 MGA of the
property value
5
Registration of sale agreement at the Office of Property Registry
4 days
6 % property value for
registration fees
6
Request transfer to be recorded in the books at the Registrar of the Property Registry
30 days
1% property value (transfer
tax) + MGA 15,000 (fixed
fee)
7
Obtain the new certificate of transfer and legal standing and the "Duplicata" at the Registrar of the Property Registry
30 days
no cost
Source: International Finance Corporation and The World Bank (2010 & 2011)
Getting credit
There exist two types of frameworks that enable to help access to credit and improve its allocation: credit information system and the legal rights of borrowers and lenders in collateral and bankruptcy laws. The credit information system helps to better understand the potential borrower's financial background (negative or positive) which is an important feature while considering risks. The credit indicator measures the following:
Strength of legal rights index (0-10)
Protection of rights of borrowers and lenders through collateral laws.
Protection of secured creditor's rights through bankruptcy laws.
Depth of credit information index (0-6)
Scope and accessibility of credit information distributed by public credit registries and private credit bureaus.
Public registry coverage (% of adults)
Number of individuals and firms listed in public credit registry as percentage of adult population
Private credit bureau coverage (% of adults)
Number of individuals and firms listed in private credit bureau as percentage of adult population.
* Note: Private bureau coverage and public credit registry coverage are measured but do not count for the rankings.
The following table shows a summary of the sub-indicators and rank of the 'GettingCredit' for the period 2010 & 2011.
Indicator:
Sub-indicators:
2010
2011
Getting Credit
Strength of legal rights index (0-10)
Depth of credit information index (0-6)
Public registry coverage (% of adults)
Private bureau coverage (% of adults)
Rank (th)
2
1
0.0
0.1
167
2
0
0.0
0.0
176
Source: International Finance Corporation and The World Bank (2010 & 2011)
The information in the table shows that there have not been any significant changes in the indexes such as the depth of credit information index and the private bureau coverage while the strength of legal rights index and the public registry coverage remained unaffected. Madagascar was ranked 176th in the year 2011 which is a bit far away from 2010's ranking at 167th. During those two years, no reforms were made in getting credit indicator.
Protecting investors.
Investor protection is importantsuch that companies are able to raise the capital they need in order to grow, innovate, expand and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling shareholders. Strong regulations clearly define related-party transactions, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the company and set clear standards of accountability for company insiders. This is all the more crucial in periods of financial crisis when entrepreneurs should find the way through defiant environments to finance their activities. The sub-indicators of protecting investors are as follows:
Extent of disclosure index (0-10)
Approval of transactions
Disclosure requirements when dealing with related-party transactions
Extent of director liability index (0-10)
Ability of shareholders to hold fascinated parties and members of the approving body responsible in case of related-party transactions
Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission of the transaction)
Ability of shareholders to sue directly or derivatively
Ease of shareholder suits index (0-10)
Access to internal business documents (directly or through a government inspector)
Documents and information available during trial
Strength of investor protection index (0-10)
Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices
Note: Ranking is not based on the strength of investor protection index
The following table shows the summary of the sub-indicators used by the 'Protecting Investors' for ranking in Madagascar:
Indicator:
Sub-indicators:
2010
2011
Protecting Investors
Extent of disclosure index (0-10)
Extent of director liability index (0-10)
Ease of shareholder suits index (0-10)
Strength of investor protection index (0-10)
Rank (th)
5
6
6
5.7
57
5
6
6
5.7
59
Source: International Finance Corporation and The World Bank (2010 & 2011)
It can clearly be depicted in the table that Madagascar's sub-indicators in Protecting investors have not changed during the years 2010 and 2011. It was ranked 57th in 2010, a slightly better position than in the next year. There has been no reform during the two years.
Paying taxes
Taxes are vital. They fund the public facilities, infrastructure and services that are critical for a properly operating economy. But the level of tax rates needs to be cautiously selected-and unwanted complexity in tax rules avoided. In economies where it is more difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector-where businesses pay no taxes at all. The following are the sub-indicators used to assess the Paying tax measure:
Tax payments for a manufacturing company (number per year adjusted for electronic or joint filing and payment)
Total number of taxes and contributions paid, including consumption taxes (value added tax, sales tax or goods and service tax)
Method and frequency of filing and payment
Time required to comply with 3 major taxes (hours per year)
Collection of information and computing the tax payable
Completion of tax return forms, filing with proper agencies
Arrangement of payment or withholding
Preparing separate tax accounting books, if required
Total tax rate (% of profit before all taxes)
Profit or corporate income tax
Social contributions and labor taxes paid by the employer
Property and property transfer taxes
Dividend, capital gains and financial transactions taxes
Collecting waste, vehicle, road and other taxes
The following table shows a summary of the sub-indicators and rank of the 'Paying Taxes' for the period 2010 & 2011.
Indicator:
Sub-indicators:
2010
2011
Paying Taxes
Total tax rate (% profit)
Time (hours per year)
Payment (number per years)
Rank (th)
39.2
201
23
72
37.7
201
23
72
Source: International Finance Corporation and The World Bank (2010 & 2011)
Madagascar's paying taxes rank has been the same for the years2010 and 2011. It can also be noted that apart from the total tax rate which decreased by 1.5% in 2011, all the sub-indicators remained idle. There has been no reform in the year 2010 but 2011, Madagascar continued to diminish corporate tax rate which may have had an impact on the year's rank.
The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Madagascar, as well as measures of administrative burden in paying taxes:
Tax or Mandatory contribution
Payment
(numbers)
Notes on payment
Time
(hours)
Statutory tax rate
Tax
base
Totaltax rate (% profit)
Notes on TTR
Value added tax
12
120
20.0%
Value added and land sale
Fuel tax
1
Included in fuel price
0.10
Tax on interest
0
withheld
24.0%
Interest income
0.60
Property tax
1
10.0%
Rental value
1.50
Health insurance contribution
4
5.0%
Gross salaries
5.60
Social security contribution
4
72
13.0%
Gross salaries
14.70
Corporate income tax (CIT)
1
9
24% or 0.5% of annual gross revenue + 100000
Taxable profit or turnover
15.80
Totals
23
201
37.7
Source: International Finance Corporation and The World Bank (2010 & 2011)
Trading across borders
In today's globalized world, trading between economies more smoothly is progressively more important for business. Excessive document requirements, burdensome customs procedures, inefficient port operations and insufficient infrastructure all lead to additional expenses and delays for exporters and importers, stifling trade potential. Research shows that exporters in developing countries gain more from a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in global markets. The indicator Trading across borders has three sub-divisions:
Documents required to export and import (number)
Bank documents
Customs clearance documents
Port and terminal handling documents
Transport documents
Time required to export and import (days)
Obtaining all the documents
Inland transport and handling
Customs clearance and inspections
Port and terminal handling
Does not include ocean transport time
Cost required to export and import (US$ per container)
All documentation
Inland transport and handling
Customs clearance and inspections
Port and terminal handling
Official costs only, no bribes
The following table shows a summary of the sub-indicators and rank of the 'Trading across borders for the period 2010 & 2011.
Indicator
Sub-indicator
2010
2011
Trading across border
Cost to export (US$ per container)
1279
1197
Cost to import (US$ per container)
1660
1555
Documents to export (number)
4
4
Documents to import (number)
9
9
Time to export (days)
21
21
Time to import (days)
26
24
Rank(th)
114
106
The above table clearly illustrates that the cost to exports has fallen from US$ 1279 to US$ 1197.Cost to imports has also decreased to US$ 1555 in the year 2011. The number of documents to exports, to imports and the time to exports has remained unchanged and the time taken for imports has fallen by 2 days. Madagascar's Trading across border ranked has also a bit improved to 106th in the year2011. No reforms was made in 2010 whereas in 2011, Madagascar improved communication and coordination between customs and the terminal port operators through its single-window system (GASYNET), reducing both the time and the cost to export and import.
The following tables depict the procedure necessary concerning the Trading across borders in Madagascar.
Nature of export procedures
Duration (days)
US$ cost
Documents preparation
14
200
Customs clearance and technical controls
2
272
Ports and terminal handling
2
225
Inland transportation and handling
3
500
Totals
21
1197
Nature of import procedures
Duration (days)
US$ cost
Documents preparation
17
189
Customs clearance and technical control
3
315
Ports and terminal handling
2
551
Inland transportation and handling
2
500
Totals
24
1555
The documents for Exports and imports are:
Exports
Bill of lading
Certificate of origin
Commercial invoice
Customs ex[orts declaration
Imports
Bill of lading
Cargo release order
Commercial invoice
Customs import declaration
Delivery order
Cargo tracking note
Insurance certificate
Packing list
Terminal handling receipts
Enforcing contracts
Businesses are assisted by well functioning courts to enjoy growth and expansion of network and markets. Efficient contract enforcement permits firms and businesses to have greater credit accessibility. They are also more likely to trade with new customers. Without the enforcement of contracts, businesses are limited only within the family, relatives and friends. The three sub-indicators upon which ranking are based are as follows:
Procedures to enforce a contract through the courts (number)
Any interaction between the parties in a commercial dispute, or between them and the judge or court officer
Steps to file and serve the case
Procedures for trial and judgment
Steps to enforce the judgment
Time required to complete procedures (calendar days)
Time to file and serve the case
Time for trial and obtaining judgment
Time to enforce the judgment
Cost required to complete procedures (% of claim)
No bribes
Average attorney fees
Court costs, including expert fees
Enforcement expenses
The following table shows a summary of the sub-indicators and rank of the 'Enforcing contracts' for the period 2010 & 2011.
Indicators:
Sub-indicators
2010
2011
Enforcing contracts
Procedures (number)
Time (days)
Cost (% of claim)
Rank (th)
38
871
42.4
154
38
871
42.4
153
Source: International Finance Corporation and The World Bank (2010 & 2011)
It can be noted from the above table that all of the three sub-indicators are the same for the years 2010 and 2011. Even the ranking position has been almost the same for these two years. This may be due to the absence of necessary reforms which would affect the Enforcing contract indicator.
The table that follows shows a summary of procedures for enforcing a contract in Madagascar-and the time and cost:
Nature of procedure
Indicator
Time (days)
871
Filling and services
Trial and judgment
enforcement of judgment
21
700
150
Cost (% of claim)
42.4
Attorney cost (% of claim)
Court cost (% of claim)
Enforcement cost (% of claim)
19.8
7
15.6
Procedures (number)
38
Resolving insolvency
A strong bankruptcy system serves as a filter, ensuring the survival of economically efficient companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses to normal operation and increase returns to creditors. By improving the expectations of creditors and debtors about the outcome of insolvency proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable businesses and thereby improve growth and sustainability in the economy overall. The sub-indicators are as follows:
Time required to recover debt (years)
Measured in calendar years
Appeals and requests for extension are included
Cost required to recover debt (% of debtor's estate)
Measured as percentage of estate value
Court fees
Fees of insolvency administrators
Lawyers' fees
Assessors' and auctioneers' fees
Other related fees
Recovery rate for creditors (cents on the dollar)
Measures the cents on the dollar recovered by creditors
Present value of debt recovered
Official costs of the insolvency proceedings are deducted
Depreciation of furniture is taken into account
Outcome for the business (survival or not) affects the maximum value that can be recovered
The following table shows a summary of the sub-indicators and rank of the 'Resolving insolvency' for the period 2010 & 2011.
Indicators:
Sub-indicators
2010
2011
Resolving insolvency
Time (days)
Cost (% of income per capita)
Recovery rate (cents on dollar)
Rank (th)
2
30
14.3
183
2
30
14.3
183
Source: International Finance Corporation and The World Bank (2010 & 2011)
It can be noted from the above table that there had been no major changes during the year 2010 and 2011 in the Resolving Insolvency indicators. This may be due to the lack of reforms during the years.
