Open for business: Efforts to improve the country’s pull for investors are bearing fruit

While Côte d’Ivoire has a natural advantage in the West African Economic and Monetary Union (Union Economique et Monétaire Ouest-Africaine, UEMOA), with the region’s largest market and most developed infrastructure, authorities are striving to improve the country’s soft infrastructure to improve rankings in international investment climate indexes. From revising the Investment Code to establishing a commercial court and streamlining registration and tax procedures, the government has made a headstart over the past two years, although its ranking remains low. The next steps will be to address challenges in financing small and medium-sized enterprises (SMEs) and improve the transparency in the awarding of public contracts.

Improvement

The country has made significant progress recently, being the only country listed among the top-10 improvers for two years in a row on the World Bank’s “Doing Business” report. In the 2015 report, Côte d’Ivoire ranked 147th overall, up from 167th in 2014. Meanwhile, the country rose 11 places to 115th of 144 in the World Economic Forum’s (WEF’s) 2014-15 “Global Competitiveness Report”.

The most notable improvements have been in ease of establishing a business, where Côte d’Ivoire rose 71 places to 44th and enforcing contracts, where it moved up 16 places to 72nd. It also rose 10 places to 85th in resolving insolvency, though it slipped by 18 places to 180th in dealing with construction permits, partly due to an increase the number of processes. In the WEF’s ranking, Côte d’Ivoire has improved significantly on three of the four key basic requirements including institutions, which rose 18 ranks to 86th; infrastructure, which rose 14 ranks to 93rd; and macroeconomic environment, which jumped 38 ranks to 68th. The fourth basic requirement, health and primary education, continues to be a challenge, at 140th, up only two ranks from 142th in 2013-14.

Codifying Change

Enactment of a new Investment Code in June 2012 paved the way for these improvements. The law sets out two investment regimes – declarative and approval – and provides for exemptions from a host of taxes for five- to 15-year periods, depending on the location of investments. Projects further away from Abidjan qualify for the highest incentives. These include taxes of industrial and commercial profit, non-commercial and agricultural profits, taxes on land holdings and income tax on housing for staff as well as business taxes and licences. It also provides for exemptions from value-added tax and a 50% rebate on Customs duties. The new law has also reduced notary fees and simplified key requirements – for instance business founders must sign a sworn declaration rather than provide a copy of criminal records.

The code brought the creation of the Investment Promotion Agency (Centre de Promotion des Investissements en Côte d’Ivoire, CEPICI), a one-stop shop for investors aimed at reducing bureaucracy. It has reduced the time taken to register a business from up to 32 days to under 48 hours. While the current one-stop shop provides tax office and social security services, CEPICI plans to broaden this to include Customs, notary services and utilities. A similar service is planned for import procedures, while a one-stop shop for land registration has reduced the time and cost of attaining building permits.

Judicial Review

Another key piece of infrastructure established is the Commercial Court in Abidjan, which has been functioning since October 2012. While the legal system in Côte d’Ivoire has traditionally been slow and costly, the transparency of proceedings has been boosted significantly by the online publication of legal documentation. “The commercial court has been a very welcome development, and the Cabinet resolution in early 2014 aimed at establishing more such courts in secondary cities should speed up dispute resolution, with courts required to give verdicts within 90 days,” Amina Coulibaly, economist at the IMF, told OBG. “This was a prerequisite of the US’s Millennium Challenge Corporation (MCC).” The new courts are expected in towns like Bouaké and the capital Yamoussoukro, although Abidjan’s court will remain the largest. By the end of 2013 the existing court had handled 1739 procedures and received 3262 requests.

Transparency

The government has also taken important steps in improving transparency, even if its ranking in international indexes remains poor. It rose 21 places to 115th in Transparency International’s 2014 Corruption Perceptions Index, behind neighbours like Burkina Faso and Ghana but ahead of Nigeria, although concurrently it improved 45 places to 103rd in the Heritage Foundation’s Freedom from Corruption Index. The government issued two ordinances in September 2013 to improve the legal framework for fighting corruption and establish the Good Governance Authority. Another important step was reached in May 2013 when the country became compliant with the standards of the Extractive Industries Transparency Initiative, an audit that reconciles natural resource proceeds between extracting company and host government.

No-Bid Contracts

Challenges remain, however, as the government admits. “During the crisis, very bad habits were acquired and they’re difficult to get rid of,” the commerce minister, Jean-Louis Billon, told press in February 2014. A key challenge has been the amount of public contracts awarded in no-bid discretionary allocations since the end of the crisis.

By law, any public contract of over CFA30m (€45,000) must be tendered competitively through the National Public Procurement Regulating Authority (Autorité Nationale de Régulation des Marchés Publics, ANRMP). However, the level of discretionary allocations rose from 40% of all contracts in 2012 to 80% in 2013, according to the IMF. Independent observers have recognised that discretionary awards of public contracts tend to accelerate toward the end of the year, when the authorities seek to speed up budget disbursement. While this was justified in the administration’s early days as a means of driving the economic recovery, donors have increasingly questioned these contracts recently. In 2014 the ANRMP launched an audit into contracts awarded by six ministries between 2011 and 2013, in conjunction with the World Bank. Meanwhile, discretionary contract allocations seem to have declined in the past year. “Although discretionary awarding of public contracts continued at a high rate in 2013, it has fallen significantly in 2014,” Coulibaly told OBG.

Future Developments

The authorities intend to build on recent successes to further improve the business environment for investors both foreign and local. In particular, the country still lags in providing easy access to credit for SMEs, logistics infrastructure, and the mismatch between its labour force and the needs of industry. With only 13% of Ivorians having access to a bank or microcredit account, and over 70% of SMEs claiming no access to financing, according to the Ministry of Economy and Finance, there are big gaps to be filled.

The short-term nature of credit – with 60% of loans to SMEs being under one year in tenor – is another obstacle to financing investments. While donor-funded partial credit guarantee schemes have had some impact, the government’s new dedicated policy for SMEs aims for a more comprehensive approach to unlocking credit. This will also involve the launching of regional credit information bureaux, which should also improve the country’s ranking in the various indices (see Banking chapter).

More significant improvements in the ease of doing business in Côte d’Ivoire will depend largely on the successful implementation of broader government programmes, including achieving new electricity generation capacity through public-private partnerships and upgrades to the transmission and distribution network; rehabilitation and upgrades to the road network; and moves to ease cross-border trade by deepening regional integration, both within UEMOA and ECOWAS (see analysis).

Momentum for further improvement is being generated, as the government is intent on easing the bottlenecks on trade. Edouard Fongh-Gbei, secretary-general of the National Committee of Remote Sensing and Geographic Information, told OBG, “There has been an increase in demand for new technologies, particularly from the public sector. For example, we are seeing the roll-out of technologies such as geomatic engineering benefit a variety of segments, such as e-government and cadastral mapping.”

Donor funding requirements are also driving reforms, for instance the MCC has strict requirements for rule of law and transparency in contract awards. With a pro-business government that is intent on easing the bottlenecks on both investment and trade, successful reforms will depend to a large extent on the maintenance of peace and the rule of law. Investors encouraged by recent reforms are watching for signs of sustained improvements.

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The Report: Côte d'Ivoire 2015

Economy chapter from The Report: Côte d'Ivoire 2015