Sub-Saharan Africa had the second-highest percentage of countries with positive business reform in 2010–2011 Countries in the region that made at least one positive reform (%) 100
80
60
40
20
0
East Asia & Pacific
Europe & Central Asia
Latin America & Middle East & Caribbean North Africa
South Asia
Sub-Saharan Africa
Source: World Bank, Doing Business database
financial and labor markets. The quality of the investment climate also contributes strongly to increased productivity and employment creation, both necessary for poverty reduction. Poor governance increases transaction costs, encourages unproductive activities such as lobbying, and reduces transparency. Hence, it leads to misallocation of resources and discourages new investment. Countries in Sub-Saharan Africa made rapid changes to their economies’ regulatory environment. Regulatory reforms were implemented in 36 of the 46 economies between 2010 and 2011, representing 78 percent of countries in the region. Europe and Central Asia was the most active reformer for the eighth year in a row: 88 percent of countries in the region
made at least one positive reform to make doing business easier. Although China and some of the other ‘tigers’ in the East Asia and the Pacific region have obtained spectacular growth rates, high levels of investment do not guarantee high growth rates. Investment produces growth, but investment also chases growth. More investment is likely in places where high returns are possible. Over 1995–2010, most developing regions invested an average of 19 to 36 percent of their GDP each year. The results obtained have varied, from Latin America and the Caribbean, where an investment ratio of 20 percent produced growth of only 3.1 percent, to South Asia, where an investment ratio of 28 percent resulted in annual growth of 6.5 percent. Sub-Saharan Africa is an interesting exception: an investment ratio of 19 percent led to an annual growth rate of 4.3 percent, as good as or better than several regions with higher investment ratios.
Asian countries have invested heavily and grown rapidly, but other regions have not obtained the same results Annual average GDP growth rate (%), 1995–2010 9 East Asia & Pacific 8 7
South Asia
6 5
Sub-Saharan Africa
Europe & Central Asia
Middle East & North Africa
4 Latin America & Caribbean
3
High-income 2 1 0 10
15
Source: World Development Indicators database
20
25
30
35
40
Average gross capital formation (% of GDP), 1995–2010
Economy
79