Sao Tome and Principe to shorten time needed to set up company to less than three days

9 July 2007

Washington, United States, 9 July – Sao Tome and Principe plans to reduce the time it takes to set up a company from over 140 days to less than three in order to boost the private sector and gain access to funding from the US Millennium Challenge Account.

The commitment to move up in the ranking of the Doing Business list is part of the Memorandum of Economic and Financial Policies sent to the International Monetary Fund (IMF) by the Ministry of Finance and the Central Bank, published last Friday.

As well as the time taken to set up a business, the Sao Tome authorities mentioned that the “cost of investing and doing business in Sao Tome has to be reduced to promote the economic growth set off by the private sector.”

With the aim of reducing bureaucracy and the regulatory constraints on starting a business, legislation is about to be submitted to the country’s parliament, which was based on a consultation of the private sector.

“We believe that this and other efforts will improve the investment climate and attract private investment,” said the Ministry of Maria Tebus Torres and the bank led by Arlindo de Carvalho.

The Sao Tome authorities have also said that improving the business climate would “ease discussions with the United States’ Millennium Challenge Corporation, to secure financing for development projects.”

Currently Mozambique and Cape Verde are the only two Portuguese-speaking African countries that are included in the United States Millennium Challenge Account program, which annually provides US$5 billion in development aid, in exchange for fulfilment of good governance criteria.

According to a recent report in the Africa Monitor newsletter, Angola is also focused on joining the group, which also includes Benin, Ghana, Lesotho, Madagascar, Mali and Senegal.

In the Memorandum sent to the IMF, the Sao Tome authorities have also proposed to reduce corporate tax, from 45 percent to 25 percent, via a set of reforms that will be passed through the country’s National Assembly.

In order to increase tax revenues and reduce the primary deficit to 7 percent of GDP this year (1.6 percentage points below the figure for 2006), the tax reform will also include a rise of service tax from 5 percent to 7 percent, excluding electricity and water, as well as increasing the charges applied to some imported products, such as alcoholic beverages and tobacco.

The reform, which will be put into force next year, also includes new tax codes on individual income tax and urban property.

These measures are expected to boost economic growth on teh archipelago, which last year rose to 7 percent.

“Growth in the construction, retail and services sectors was particularly strong, driven by private investment and capital flows from tourism and oil sector projects,” said the Sao Tome aiuthorities.

According to figures in the report handed in to the IMF, inflation fell to 17 percent in March, or 9 percentage points less than in August 2006.

“This deceleration reflected corrective fiscal measures and more active use of monetary policy to manage liquidity growth, which has slowed the depreciation of the dobra,” against the US dollar, which reached 10 percent last year.

With the aim of increasing State revenue, the authorities also want to implement a plan to collect late taxes and a new fiscal and pricing structure for the oil sector.

On the expenditure side, the authorities have pledged to reduce salary spending by 8.2 percent, in line with the 8.7 percent reduction last year, whilst also cutting down on current expenses.

The list of priorities presented to the IMF also includes several measures to improve the archipelago’s financial and budgetary management, which this year saw its foreign debt almost entirely written off, thanks to a pardon by the World Bank and, later, the Paris Club.

The government this year expects to present its first budget based on the new law (SAFE), as well as adopting a computer-based integrated public finance management system (eSAFE).

However, the Sao Tome authorities have said this process has been delayed due to difficulties in finding an international financial consultant to help draw up the new public accounting plans and manuals, as well as the difficulties faced in using the existing IT platform. (macauhub)