GAMBIA RANKED POOR IN PROTECTING INVESTORS, GETTING CREDIT

Indicators presented and analysed in World Bank Doing Business have put forthright startling revelations of doing business in the world with the African continent standing at a vicious circle, as South Africa becomes the only country in Africa to top the world list in terms of ‘Getting credit’ to start up a business – all the others are left lingering at the bottom of the list, with The Gambia in a no-win situation, says author.
The latest World Bank Doing Business indicators which are benchmarked to June 2011 and looked at business regulation and the protection of property rights, featured 183 countries in the world of which The Gambia stands at 159 for ‘Getting Credit’ and 174 for ‘protecting investors’, leaving neighbouring Senegal at 126 for ‘Getting Credit’ and 166 for ‘protecting investors’ – a vicious circle for The Gambia; a country of around 1.8 million people.

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In carrying out the research, the more than two thousand experts who did the work, first documented the complexity of regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauged the time and cost of achieving a regulatory goal or complying with regulation, such as the time and cost to enforce a contract, go through bankruptcy or trade across borders.
Third, they measured the extent of legal protection of property, for example, the protection of investors against looting by company directors or the range of assets that can be used as collateral according to secured transactions laws. Fourth, a set of indicators documented the tax burden on businesses, and finally a set of data covering different aspects of employment regulation.

“Economies are ranked on their ease of doing business, from 1 – 183. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country's percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic,” the report stated.
The report assesses regulations affecting domestic firms in 183 economies and ranks the economies in 11 areas of business regulation, such as starting a business, resolving insolvency, getting credit, paying taxes, protecting investors, trading across borders, dealing with construction permits, getting electricity, enforcing contracts, and finally registering property. The report reveals that getting an electrical connection for business start-up is most efficient in Iceland, Germany, Taiwan, China, Hong Kong SAR, and Singapore.

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Whilst the report puts Guinea Conakry at the same level as The Gambia in terms of ‘protecting investors’ – an unfortunate scenario – it however scales Conakry to 150 in terms of ‘getting credit’.
Eritrea, Djibouti, and Madagascar have the poorest ranking in Africa – at 177 -- for ‘Getting Credit’, followed by Democratic Republic of Congo, 174, and Burundi, Mauritania, and Sudan at 166 and The Gambia at 159.
Guinea Bissau, Benin, Niger, Ivory Coast, Togo, Senegal, Mali, Sierra Leone, and Cape Verde all stood at 126 for ‘Getting Credit’, but Sierra Leone jumped on the list with 29 in ‘protecting investors’, with Ghana and Botswana sharing the same figure of 46 and Morocco stands at 97. Zambia breaks the record for Africa in terms of ‘Getting Credit’, standing at 8, followed by Namibia at 24; but the two southern African countries shared the same points of 79 for protecting investors, whilst neighbouring Mozambique stands at 46.

Apart from South Africa, the United Kingdom and Malaysia ranked 1st in the world for ‘getting credit’, New Zealand also tops the world for ‘Protecting Investors’, and Singapore came second on the table of 183 countries for this indicator.
South Africa stands at 10 for protecting investors, making it the only African country to be amongst the first ten, followed by Ghana and Botswana at 48 for ‘Getting Credit’, and Liberia and Morocco sharing the similar figure – 98 -- for getting credit.

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Thus, in West Africa, if not in the world, The Gambia and Guinea are among the countries that have the poorest documentation in terms of protecting investors. Afghanistan closed the table with 183, followed by Lao PADRE at 182, Suriname at 181, and Djibouti at 179.
In West Africa, apart from Banjul, Conakry, Dakar, and Cotonou; Niamey and Abidjan also have poor records.
The UK ranks 10 in ‘Protecting Investors’, whilst the US stands at fourth for ‘Getting Credit’ and 10 for ‘Protecting Investor’. Singapore is ranked at eight for protecting investors and fifth for getting credit and Ireland stands at eight for the former and fifth for the latter.

WHY PROTECTING INVESTORS MATTERS?
Minority investor protections can have important implications for firm valuation. Researches on 539 large firms in 27 economies show that firm valuation is higher in economies with good investor protection than in those with poor protection.

Other researches show that corporate risk-taking and firm growth rates are positively related to the quality of the system of investor protection. Better systems may lead corporations to undertake riskier but value-enhancing investments.

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However, the Doing Business report, which was prepared in collaboration with the International Finance Corporation (IFC), measures the strength of legal protections of minority investors against misuse of corporate assets by company directors for their personal gain.

The indicators distinguish three dimensions of investor protections: rules on the approval and disclosure of related party transactions (extent of disclosure index), liability of company executives for self-dealing (extent of director liability index), and shareholders’ ability to access corporate information before and during litigation (ease of shareholder suits index). The standard case study assumes a related-party transaction between Company A (“Buyer”) and Company B (“Seller”) where “Mohamed Keita” is the controlling shareholder of both Buyer and Seller and a member of both their boards of directors. The transaction is overpriced and thus causes damages to the Buyer.

In the report, a high ranking indicates that an economy’s regulations offer stronger investor protection against self-dealing in view that stronger legal protection make minority investors more confident about their investments, reducing the need for concentrated ownership to mitigate weaknesses in corporate governance.

Therefore, investor protection matter for the ability of companies to raise the capital needed to grow, innovate, diversify, and compete.

“Without investor protections, equity markets fail to develop and banks become the only source of finance. Economies that have dynamic capital markets tend to effectively protect investors; thus making investors receive financial information they can trust; they participate in major decisions of the company, and directors are accountable for their managerial decisions. If the laws do not provide such protections, investors may be reluctant to invest, unless they become controlling shareholders,” the report explained.