Rwanda and Kenya are the only regional economies that have recorded improvement in the Ease of Doing Business Index in two years in a row.
A new World Bank ranking blames new laws, inability to repatriate funds, poor political environments and business registration bottlenecks for the other countries' poor showing on the index.
Rwanda ranked position 29, from last year's 41 while Kenya registered the biggest jump, from last year's position 80 to 61 this year. Tanzania dropped to position 144 from 137, Uganda fell to 127 from 122 and South Sudan is now at position 185.
Kenya's performance was buoyed by key reforms to improve the business climate for small- and medium-sized businesses, says the World Bank Group's Doing Business 2019: Training for Reform report. The reforms earned Kenya a spot among the global top improvers, a distinction it has earned four times in the past 11 years.
Growth of SMEs
Felipe Jaramillo, World Bank Kenya country director, said that in recent years, Kenya has embraced a strong reform agenda to boost investment and create jobs.
"Kenya has once again showcased itself as one of the global leaders in adopting international best practices in business regulation. I encourage the government's to address the remaining hurdles that affect the establishment and growth of SMEs in the country, a segment that is critical to the creation of more jobs and opportunities for Kenyan youth," Mr Jaramillo said.
The reforms of the past year included making registering property easier by introducing an online system to pay fees and obtain digital certificates. As a result, the time for a business to register a property transfer has now reduced to 49 days, from 61.
Kenya also strengthened its access to credit by introducing a new law on secured transactions that created a unified secured transactions legal framework. The country also established a new unified and notice-based collateral registry.
Nairobi also strengthened the protection of minority investors by increasing disclosure requirements, regulating the approval of transactions with interested parties, increasing shareholder rights and role in major corporate decisions, and requiring greater corporate transparency.
Since the launch of the Ease of Doing Business Index 15 years ago, Rwanda has implemented the most number of reforms at 52, followed by Kenya at 32 and Mauritius at 31.
Kenya's Trade and Industry Cabinet Secretary Peter Munya said the country's performance is a continuous improvement.
Despite the marked 2017 improvement on property registration, where it increased the transparency at its land registry, the World Bank says a business has to go through nine procedures to effect a property transfer in Kenya, compared with an average of six in the region. Kenya ranks 122nd globally in the registering property segment.
Kenya also continues to underperform in several other areas, such as construction permits, which take 156 days to obtain, compared with the sub-Saharan Africa average of 146 days, and far longer than 113 days in Rwanda. Starting a business also remains a cumbersome process in Kenya, taking 23 days, compared with just four in Rwanda.
Rwanda, which implemented five reforms last year, including ease of tax payment, the construction permit process saw it ranked second on the continent after Mauritius. Rwanda has tightened quality control and risk-based inspections, which improved the construction permit process.
Resolving insolvency remained Rwanda's only negative point, the report said.
Infrastructure Minister Claver Gatete attributed the good ranking to the country's leadership, which prioritises reforms as central to private sector development.
President Paul Kagame said his government would work "even harder and smarter and move faster... From 41 we came all the way to 29 in just one year. Rwanda is the only low-income country in the top 100, though we do not intend to remain in that group any longer."
Electronic billing system
Rwanda was second globally for ease of registering property, and third for its quality of credit information systems and procedures. It is also among the top 10 world reformers. Kigali was also lauded for implementing digital solutions to ease property registration.
"Rwanda has recorded tremendous improvements in terms of starting a business by replacing the electronic billing system with free software from the Rwanda Revenue Authority that allows taxpayers to issue Value Added Tax invoices from any computer," the report said.
Online business registration has seen a sharp increase in domestic business registrations from 418 in 2008 to 13,394 as of December 2017. In Rwanda the cost of registering a new business has dropped from 317 per cent of annual per capita income in 2005 to 15 per cent in 2018.
This reduced the time and cost of doing business. For instance, it took 354 days on average to register property in Rwanda in 2005, but this has been reduced to an average of seven days.
However, getting construction permits is still slow, which has led to several projects and the country also scored poorly in the trading-across-borders index.
Developers in Kigali have in the past 15 years found it difficult to obtain construction permits, a sluggish process that worsened when authorities started remodelling the city master plan.
Uganda, which dropped to position 127, recorded three reforms as compared with one the previous year: Trading across borders, dealing with construction permits and resolving insolvency.
Kampala was faulted for making it difficult for SMEs to thrive due to longer processes for business registration and tax documentation. It also fell back on the time it takes businesses to obtain a permanent electricity connection.
Tanzania recorded a single reform: Starting a business is easier with online company registrations. There were also improvements in dealing with construction permits, which Dar made easier by implementing a one-stop shop and streamlining the building permit process.
-- Additional reporting by Kabona Esiara