Investment Compass: Navigating African Markets

Unlocking African Investment: Does the World Bank's "Ease of Doing Business" Index Really Matter?

Lena Voss in Business & Economy June 2025 • 4 min read.

"A deep dive into whether the World Bank's index is a reliable compass for foreign direct investment in Africa."

For investors eyeing the diverse landscapes of Africa, the question isn't just about potential, but also about predictability. How do you navigate the complexities of different economies and political environments to make informed decisions? Enter the World Bank's "Ease of Doing Business" index—a tool designed to measure market friendliness and provide a snapshot of investment climates across the globe.

But how reliable is this index, especially when it comes to predicting actual foreign direct investment (FDI) in African nations? This question is particularly critical given the continent's unique challenges and opportunities, which often defy simple metrics. After all, Africa is not a monolith; it’s a continent of varied economies, each with its own set of rules, regulations, and realities.

This article dives deep into the connection between the World Bank's index and FDI flows into Africa, drawing on a research paper that investigated four countries: Mauritius, South Africa, the Democratic Republic of Congo (DRC), and the Central African Republic (CAR). By examining the data and analyzing the trends, we aim to uncover whether the index is a trustworthy compass for investors or if other factors play a more significant role.

Decoding the 'Ease of Doing Business' Index: What Does It Actually Measure?

Investment Compass: Navigating African Markets

The World Bank’s “Ease of Doing Business” index is more than just a ranking; it's a detailed assessment of various factors that affect businesses, from the cost of starting a company to the efficiency of trading across borders. Since its inception in 2003, the index has become a benchmark for governments worldwide, eager to attract foreign investment by improving their scores. But what exactly does it measure?

The index focuses on quantitative indicators related to business regulations and property rights. Here’s a glimpse at the core areas:

Starting a business
Dealing with licenses
Employing workers
Registering property
Getting credit
Protecting investors
Paying taxes
Trading across borders
Enforcing contracts
Closing a business

Within each of these areas, the index drills down into specific metrics. For example, when assessing the ease of starting a business, it considers the number of procedures required, the time it takes to register, the cost as a percentage of income per capita, and any minimum capital requirements. These factors combine to create an overall score, which is then used to rank countries against each other.

Beyond the Index: What Really Drives Investment in Africa?

While the "Ease of Doing Business" index offers valuable insights, it's crucial to recognize its limitations. The research clearly demonstrates that the relationship between index scores and FDI is not always linear. Other factors, such as political stability, infrastructure quality, access to markets, and even the influence of specific investors like China, can significantly impact investment decisions. Ultimately, a holistic understanding of these interconnected elements is essential for making informed investment choices in Africa’s dynamic markets.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2401.00227,

Title: Does The World Bank'S Ease Of Doing Business Index Matter For Fdi? Findings From Africa

Subject: econ.gn q-fin.ec

Authors: Bhaso Ndzendze

Published: 30-12-2023

Everything You Need To Know

What is the World Bank's "Ease of Doing Business" index, and what is its purpose?

The World Bank's "Ease of Doing Business" index is a tool that assesses various factors affecting businesses, ranging from the ease of starting a company to the efficiency of trading across borders. Its main purpose is to provide a benchmark for governments worldwide, encouraging them to improve their business regulations to attract foreign investment by achieving higher scores on the index.

What specific areas does the "Ease of Doing Business" index focus on when evaluating a country's business environment?

The "Ease of Doing Business" index drills down into ten core areas: starting a business, dealing with construction permits (licenses), employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency (closing a business). Within each of these areas, the index measures specific metrics such as the number of procedures required, the time taken, and the cost involved.

Is a high score on the "Ease of Doing Business" index a guarantee of increased foreign direct investment (FDI) in African countries?

While the "Ease of Doing Business" index offers valuable insights, a high score is not a guarantee of increased FDI in African countries. Research indicates that the relationship between index scores and FDI is not always linear. Factors like political stability, infrastructure quality, access to markets, and the influence of specific investors, such as China, also significantly impact investment decisions. A holistic understanding of these interconnected elements is essential.

Beyond the "Ease of Doing Business" index, what other critical factors should investors consider when making investment decisions in African markets?

Investors should consider factors beyond the "Ease of Doing Business" index, such as political stability, which can significantly affect the risk and security of investments. Infrastructure quality, including transportation and communication networks, is also crucial for efficient operations. Access to markets, both domestic and international, determines the potential for growth and profitability. Furthermore, understanding the influence of specific investors like China and their strategic interests in the region can provide valuable context.

How has the "Ease of Doing Business" index been used by countries, and what are some potential criticisms or limitations of relying solely on this index for investment decisions?

Since its inception in 2003, governments worldwide have used the "Ease of Doing Business" index as a benchmark and have strived to improve their scores to attract foreign investment. However, relying solely on this index has limitations. Criticisms include its focus on quantitative indicators, which may not capture the nuances of local business environments, and its potential to incentivize governments to prioritize regulatory reforms that boost index scores without necessarily improving overall economic conditions. Neglecting factors such as political stability and infrastructure quality can lead to incomplete or misleading investment assessments. A balanced approach, considering multiple factors, is crucial.