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Sao Tome and Principe - Fast Reform in a Small Island Country

Among the most improved reformers in
Doing Business 2012 are two small island countries off the coast of Africa: Cape Verde and São Tomé and Príncipe. What is the reform incentive for such small economies? What is the impact investment climate reforms can have at that scale? Here is the story of São Tomé and Príncipe. 

The World Bank Group prioritizes funding to the poorest countries in the world. However, that funding is allocated on a per capita basis and a small island country like São Tomé and Príncipe, which has fewer than 200,000 inhabitants, can find its access to World Bank Group programs rather limited. When the Investment Climate team of the Group began working on the country, their budget was a modest 113,000 dollars, provided by the Government of Portugal. 

"In 2008 São Tomé and Príncipe joined IFC using their own money to pay for their share of capital", said Henri Rabarijohn, IFC Country Manager for Cameroon, Chad, the Republic of Congo, Equatorial Guinea, Gabon and São Tomé and Príncipe. But only three years later, thanks to the determination of the government and the creativity of the World Bank Group team, the 2012 edition of the report Doing Business crowned the small island one of the 'most improved reformers'. 

Progress was initially slow. Several missions took place between 2008 and 2010, focusing on Doing Business-related reforms, but both the team and the government were unsure of where to start. Then in January 2011, the Investment Climate team made a bold suggestion: the abolition of the 'alvarás' system, a century-old business licensing regime introduced on the islands by the colonial Portuguese. The Minister of Finance endorsed the idea and within a few months, out went the alvarás, leaving only a few business licenses related to health, hygiene and safety. 

Sao Tome and PrincipeOne big advantage small economies enjoy is that reforms can be absorbed faster, both by implementing ministries and by businesses on the receiving end. New procedures to facilitate the creation of small and medium enterprises can be implemented quickly, without long information campaigns, and those new procedures can have a direct impact on improving inhabitants' lives. 

The government was quick to simplify its licensing procedures and, at the same time, also simplified other business procedures and streamlined construction permits. In less than a year, São Tomé and Príncipe jumped 12 places in the Doing Business ranking. At the launch of Doing Business 2012, the private sector unanimously welcomed the reforms and urged the government to continue in that direction. In fact, all stakeholders present at the event, including the governor of the central bank, the donor partners and private sector associations encouraged the government to do more. 

Based on that request, and bringing together resources from different teams, the World Bank Group is currently discussing a broader development program. "São Tomé and Príncipe is very motivated to do reforms that will enable the private sector to thrive but it has limited absorption capacity. We really appreciate the efforts of the different World Bank Group teams to propose a program tailored to a small island's circumstances and one that takes place at a pace which suits its own development agenda", said Agapito Mendes Dias, World Bank Group Executive Director for 23 African countries, including São Tomé and Príncipe. 

The investment climate component, which will act as a trigger for other components will focus on:

  • developing an e-registry, based on an inventory of licenses that was completed by December 2011;
  • reforming two main Doing Business-related areas: dealing with construction permits and closing a business;
  • setting up a single window for trade, for which a feasibility study will be completed in January 2012. 

The team will also look at how to support tourism on the islands. São Tomé and Príncipe has built a number of hotels but is not yet attracting the corresponding number of tourists. The challenge now is to identify and tackle all possible obstacles to tourism in the country. For example, the team will aim to facilitate visa requests through a semi-automated e-visa system. 

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