In 2008 The Doing Business Report rated Mali 162 on a scale with 1 being the easiest to do business. There are many reasons why it’s so difficult to do business in Mali. One of the reasons it’s so difficult is there are no rules or regulations. For example if I came up with an idea to sell chocolate covered bananas there’s absolutely nothing to stop anyone else from doing the same. In the US I might be able to patent this idea and there would be enforceable legal recourse against anyone who would steal my idea but here in Mali there are no rules, regulations, or recourse. People are free to do whatever they want.
The lack of barriers to entry makes it easy for people to enter the market but what happens when they go seeking capital? Instead of going to a bank and taking out a loan most would-be small business owners would just fold because credit is so hard to find. Most banks only offer checking accounts to the “rich” and most microfinance institutions provide tools that may help people save but for most are still out of the realm of possibility (one of the models I was assigned to help out, mobile banks, is a terrible idea).
But let’s say someone is able to get credit and start his or her business. At this point most don’t have the experience or technical expertise to manage a business. Many Malians attend primary school (~70%) but the level of schooling is not very good. If a child makes it through primary school they graduate learning through rote education and subsequently lack creativity. As for secondary school the rate drops to 35% and few if at all go on to pursue higher education (less than 10%). As for higher education the only university in Mali is The University of Bamako and the quality of education there, again, is not so great. Thanks to the French, Malians love protesting and for much of the school year it’s either the students striking or the teachers striking. Unfortunately the school doesn’t adjust the school year due to days lost from strikes and therefore someone can attend The University of Bamako without REALLY attending The University of Bamako.
What happens to this graduate? More often than not they spend time looking for a job that isn’t there and will try to use their family connections instead to find a job that really doesn’t require a university degree at all. So then what was the point of going to university? Most businesses prefer looking for employees through social connections anyway. Therefore if I start my chocolate banana business and I’m looking for someone to manage daily operations I won’t start by putting up postings on a career website, instead I’ll ask my family members and friends if they know anyone good. Of course they do because everyone and their brother is looking for a job so I end up with someone who’s under qualified but “eager to learn.” I then have to spend time and capital I don’t have to train someone who has an outside shot of fulfilling the position. Even if I were able to successfully train this person I still run the risk of losing him/her to an NGO who would be able to compete compensation-wise or with the prestige such a position brings since NGOs are the only true industry in Mali.
Let’s say I have my chocolate banana shop and I’ve found someone to run operations. At this point I have to consider the market. Typically Malians don’t sell products in unit packaging. You don’t go to a corner store and ask for a bag of sugar, you ask for 200 CFA worth of sugar. Malians sell nearly everything in terms of how much your money can buy instead of in retail packaging. Therefore the margins are razor thin because the reality is THERE IS NO MARKET. Most people spend about 4-5 USD on food to feed their family each day and there really is no extra money to spend on frivolous things. The reality is I could spend millions of dollars on marketing and education and even then people wouldn’t buy my product. As an investor there is a high degree of risk and very little chance of reward. If people had extra money they would just buy more food, or tea, or cigarettes. So it’s either too much product differentiation or not enough. Most of the time the people running the corner stores are themselves poor, the only difference is they have product they can use/eat should things get really bad.
But let’s assume I got my chocolate banana stand off the ground and it’s doing fine. I want to formalize operations and even though most businesses are informal I file papers to make my operation a formal business. Formalizing operations requires filing ten separate documents and could take months or maybe even years. On top of that I’ll have to pay taxes, which is something most businesses avoid (only 15% of GDP is captured through tax revenues). The government does not receive money for taxes and there are no rules or regulations, therefore there is no incentive to make the business environment any better and so there is very little effort to improve infrastructure.
I’m not sure if it’s really that bad but can only speak on what I’ve personally observed. What needs to be done? What should be done? As the world finally turns towards the once so-called Dark Continent these are questions Africa’s leaders face to hopefully make sure things can and will change for the better.