69479 Report No – The Gambia THE GAMBIA: An Assessment of the Investment Climate Public Disclosure Authorized June 2009 Africa Region Private Sector and Finance Unit Regional program on Enterprise Development Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank _____________________________ THE GAMBIA – FISCAL YEAR January 1st – December 31st CURRENCY (Nominal Exchange Rate as of June 22, 2009) Currency Unit: Gambian Dalasi 1,00 US$ = 26.8397 GMD ABBREVIATIONS AND ACRONYMS C. PCT COLUMN PERCENTAGE CET COMMON EXTERNAL TARIFF DB 2009 DOING BUSINESS 2009 REPORT EPZ EXPORT PROCESSING ZONE ECOWAS ECONOMIC COMMUNITY OF WEST AFRICAN STATES ES ENTERPRISE SURVEY FDI FOREIGN DIRECT INVESTMENT FEZ FREE ECONOMIC ZONE GAMTEL GAMBIA TELECOMMUNICATIONS COMPANY GCI GLOBAL COMPETITIVENESS INDEX GDA GAMBIA DIVESTITURE AGENCY GIPFZA GAMBIA INVESTMENT PROMOTION & FREE ZONES AGENCY GOG GOVERNMENT OF THE GAMBIA GPA GAMBIA PORTS AUTHORITY HDI HUMAN DEVELOPMENT INDICATOR IEF INDEX OF ECONOMIC FREEDOM IMF INTERNATIONAL MONETARY FUND ICJ INTERNATIONAL COURT OF JUSTICE IPC INVESTMENT PROMOTION CENTER JIC JOINT INDUSTRIAL COUNCIL AGREEMENT LDCS LEAST DEVELOPED COUNTRIES NAWEC NATIONAL WATER AND ELECTRICITY COMPANY NER NOMINAL EXCHANGE RATE PCT PERCENTAGE PPPA PURCHASING POWER PARITY PRSP POVERTY REDUCTION STRATEGY PAPER ROA RETURN ON ASSETS R. PCT ROW PERCENTAGE SSA SUB SAHARAN AFRICA TFP TOTAL FACTOR PRODUCTIVITY ULC UNIT LABOR COST UNDP UNITED NATIONS DEVELOPMENT PROGRAM WAEMU WEST AFRICAN ECONOMIC AND MONETARY UNION WDI WORLD DEVELOPMENT INDICATORS WDR WORLD DEVELOPMENT REPORT WTO WORLD TRADE ORGANIZATION Vice President: Obiageli Ezekwesili Country Director: Madani M. Tall Sector Director: Marilou Uy Sector Manager: Iraj Alikhani Country Economist: Hoon Sahib Soh Task Team Leader: Jean-Michel N. Marchat 2 AUTHORS Zena Angesom (Consultant, World Bank) James Habyarimana (Consultant, World Bank) Philippe Alby (Consultant, Arqade – Toulouse, France) George Clarke (ECSPF, World Bank) Magueye Dia (Consultant, World Bank) Jean-Michel Marchat (MNSED, World Bank – Team Leader) AKNOWLEDGMENTS The authors wish to thank Mr. Fares Khoury, President of "Étude Économique Conseil" in Montreal, whose teams were in charge of improving the survey instrument and collecting the data in The Gambia. The authors would like to express their gratitude to the Gambian authorities, to the various business associations of the country, and especially to the managers and staff of the 301 firms visited in the Gambia in late 2006 for their contribution, their patience and kindness. Finally, the authors wish to thank Iraj Alikhani, Demba Ba, Françoise Perrot, McDonald P. Benjamin, Ganesh Rasagam, Ivan Rossignol, Hoon Sahib Soh, and Michaela Weber for their valuable assistance, comments and suggestions on preliminary versions of this document. 3 FOREWORDS In recent years, the World Bank Group has created several tools aimed at analyzing the Investment Climate in its member countries. The two most important instruments are: the Doing Business Indicators and the Enterprise Surveys. The Doing Business database provides measures of business regulations. The 10 annual Doing Business indicators are comparable across 181 economies in 2008-2009. They indicate the regulatory costs of business and can be used to analyze specific regulations that enhance or constrain investment, productivity, and growth. The database was created thanks to contributions of lawyers, judges, business people and public officials in the countries covered (www.doingbusiness.org). The Enterprise Survey database provides detailed information on the investment climate in about 110 countries. Enterprise surveys provide insights, analysis and benchmarking for countries seeking to promote private investment and enterprise growth. Each survey is based on a standardized establishment level survey methodology designed at measuring a number of investment climate constraints in a country and compares the findings across countries. In each country, between 300 and 2000 formal and informal establishments are surveyed in manufacturing, trade and the rest of the economy (www.enterprisesurveys.org). The World Bank Group’s Investment Climate Assessments (ICA) serie of reports, of which this report belongs to, identify and prioritize investment climate constraints, benchmark progress on reforms, provide cross-country comparisons of investment climate indicators, and aims at helping countries forge a broad consensus on priority areas for reform. These assessments feed into World Bank and IFC operations and technical assistance. This type of comprehensive report uses both the Doing Business and the Enterprise Survey Data. 4 TABLE OF CONTENT AKNOWLEDGMENTS ......................................................................................................................................... 3 FOREWORDS ....................................................................................................................................................... 4 EXECUTIVE SUMMARY .................................................................................................................................. 10 INTRODUCTION ................................................................................................................................................ 21 1 THE ENVIRONMENT OF FIRMS. ................................................................................................................. 23 1.1. RECENT ECONOMIC DEVELOPMENTS. ........................................................................................... 23 1.1.1. Robust growth and recent efforts at improving macroeconomic management. ................................ 23 1.1.2. A service based economy which attracts large FDI inflows. ............................................................ 24 1.2. RECENT REFORMS IN THE PRIVATE SECTOR AREA. .................................................................... 25 1.2.1. Trade policy. ..................................................................................................................................... 25 1.2.2. Divesture of public assets. ................................................................................................................. 26 1.2.3. Incentives for investors: The Gambia Investment Promotion Act. ................................................... 27 1.3. CHALLENGES FACED BY THE GAMBIA. ......................................................................................... 29 1.4. GAMBIA’S BUSINESS ENVIRONMENT ACCORDING TO INTERNATIONAL RANKINGS. ...... 30 1. 5. CONCLUSION. ....................................................................................................................................... 31 2. MANUFACTURING’S FIRM PERFORMANCE IN THE GAMBIA ............................................................ 32 2.1. FIRM PERFORMANCE. ......................................................................................................................... 32 2.1.1. Labor Productivity. ........................................................................................................................... 32 2.1.2. Labor Costs and Unit Labor Costs. ................................................................................................... 34 2.1.3. Capital Intensity. ............................................................................................................................... 35 2.1.4. Factor productivity by types of firms. ............................................................................................... 37 2.2. TOTAL FACTOR PRODUCTIVITY. ..................................................................................................... 39 2.3. EXPORTING. ........................................................................................................................................... 40 2.4. PROFITABILITY. .................................................................................................................................... 41 2.5. CONCLUSION. ........................................................................................................................................ 42 3. BUSINESS ENVIRONMENT IN THE GAMBIA: THE POINT OF VIEW OF FIRMS ............................... 43 3.1 FIRM PERCEPTIONS: A STARTING POINT. ....................................................................................... 43 3.1.1. The Leading Constraints. .................................................................................................................. 43 The formal sector ................................................................................................................................... 43 The informal sector ................................................................................................................................ 47 Other noticeable constraints .................................................................................................................. 48 3.1.2. What is the Intensity of Constraints outlined above? ........................................................................ 49 3.2. THE BUSINESS ENVIRONMENT FACED BY FIRMS. ...................................................................... 50 3.2.1. Variation in constraints across categories of manufacturing firms. .................................................. 50 Exporters versus non-exporters. ............................................................................................................