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Introduction

Mauritius has been emerged as a alone investing finish and a great topographic point of making concern over the last 15 old ages. The state enjoys a vivacious economic system, stable democracy and high life criterions. Mauritius offers both a low revenue enhancement legal power and competitively priced concern costs. The Mauritius revenue enhancement government is one of the lowest in the universe:

Corporate and income revenue enhancement of 15 %

Tax free dividends.

No capital additions revenue enhancement.

Up to 100 % foreign ownership.

Exemption from imposts responsibility on equipment.

Free repatriation of net incomes, dividends and capital.

No minimal foreign capital required.

50 % one-year allowance on worsening balance for the purchase of electronic and computing machine equipment.

An extended revenue enhancement pact web with several states ( Mc Millan Woods, 2011 ) .

However, the instance of Madagascar showed different overview than that of Mauritius. During the last five old ages, with the support of the World Bank, the IMF, and other givers, the Government of Madagascar ( GOM ) was seeking to travel towards a market economic system contributing to private sector development, openness to foreign investing and backdown of the GOM from productive sectors. In general there are no specific barriers to market entry but direct selling for American-made merchandises is hard. The Malagasy consumer is unaccustomed to Western selling manners. In add-on, Gallic linguistic communication niceties may non be as apparent to an American bourgeois ( US Commercial Service, 2010 ) .

Harmonizing to the Real Clear World ( 2011 ) , Mauritius was ranked 17th on the easiness of making concern whereas Madagascar was ranked 134th for 2010. However, for the twelvemonth 2011, Mauritius was ranked 21th while Madagascar was 144th on the overall rank for the easiness of making concern on a graduated table of 183. These figures demonstrated that Mauritius as a state fared better than Madagascar for the two old ages due to the undermentioned grounds mentioned below.

Start up cost

Start up cost in Mauritius and Madagascar both refers to the engagement of all costs by entering all processs officially required by an enterpriser to get down or run a concern. It besides records the paid-in minimal capital that companies must lodge before enrollment ( or within 3 months ) . The ranking on the easiness of get downing concern is merely the simple norm of the percentile rankings on processs, clip, cost and paid-in minimal capital.

Procedures

Start up processs is those needed to get down a concern, including interactions to obtain necessary licenses and licences and to finish all letterings, confirmations and presentments to get down operations. It besides involves all the bureaucratic and legal stairss that an enterpriser must finish for the incorporation and enrollment of a new house. There are 5 processs to lawfully get down a concern in Mauritius in 2010 and 2011. The processs are broken down in footings of Preregistration, like name confirmation, reserve, notarization, Registration and Post Registration. Post Registration includes societal security enrollment and company seal.

The first get down up processs involves the incorporation and enrollment of the concern and to seek for the name of the company. Entrepreneurs are able to organize a company without holding to travel through notary services. An one-year enrollment fee of Rs2000 must be paid to the Registrar of Companies by companies with a turnover of less than Rs30 Million. The company must besides register with the Commercial Registry to acquire a concern enrollment card. This process should be done within 2 yearss. This process is the same for both 2010 and 2011.

The 2nd process is to have review by local governments. There was no charge involved and should be done within 4 twenty-four hours for both 2010 and 2011. However compared to 2010, the concern licensing procedure was simplified in 2011. Once the company is registered, the Commercial Registry provides relevant bureaus with an electronic notice about the freshly registered concern and the expected start day of the month of its activities. So the local governments will choose those prospective concerns that intend to merchandise within its legal power and will pass on fees, relevant guidelines and any other commissariats.

Third, the enterpriser should pay licence fee. This process involves a license fee of Rs6000 that must be paid by the company to the local authorization. This process remains the same from 2010 to 2011. The fee for the current fiscal twelvemonth must be paid in 15 yearss of the start of the concern and no latter that January 15th in the subsequent fiscal twelvemonth. The authorization can besides impose a 50 % surcharge on any unpaid sum within the prescribed period. The process should be completed in 1 twenty-four hours coincident with the old process.

The forth process concerns the enrollment with societal security office. This process is similar in 2010 and 2011. It is free in both old ages. In this process, the enterpriser must finish an application signifier and subject the employment contracts to the employer enrollment and the certification of incorporation on the Central Registration database. This process shall be completed 1 twenty-four hours coincident to the 2nd process.

Finally, the last process is to do a company seal. For both 2010 and 2011, it costs USD12 to do a company seal and takes topographic point 1 twenty-four hours coincident with the 2nd process. Start up processs are completed when the concluding paperss is received.

In Madagascar, there were 2 get downing processs in 2010 and 3 get downing processs in 2011. In 2010, the first process involves the enterprisers lodging registered position and using for licence ( Carte Professionnelle and Statiscal designations ) . It costs MGA 88,899 and takes 5 yearss. On the other manus, in 2011 the first process is to obtain a new financial designation figure. The enterpriser has to use for this online and must supply some paperss. This process is free and lasts for 1 twenty-four hours.

The 2nd and last process in 2010 was to register a notice of fundamental law to be published in a day-to-day newspaper in French. It takes 2 yearss and costs MGA 15,000. However the fee to print a notice of fundamental law in a day-to-day newspaper varies between MGA 10,000 and MGA 20,000. On the other manus the 2nd process involves the enterpriser lodging registered legislative acts and use for licence ( carte professionnelle ) , and statistical designations. The k-bis, statistical card, revenue enhancement enrollment verification, commercial enrollment figure, and professional card ( carte professionelle ) can be obtained in approximately 2 yearss. Owing to reforms, a notice of publication is no longer needed to obtain the k-bis. The company can go on with subsequent processs in the interim. It takes on mean 4 to 8 yearss to acquire registered with the EDBM. This process cost MGA 93,350. The fee agenda is as follows:

– Commercial enrollment fee: MGA 15,500.

– Institute National de la Statistique Malgache ( INSTAT ) ( see Decree

2005-380, dated June 22, 2005 ) : MGA 20,000.

– K-bis: MGA 2,000.

– Deed enrollment costs: MGA 9,100

– Registration fees: 0.5 % of the start up capital

– Lease enrollment: 2 % of the rental.

In 2011 there is a last process and this involves the file a notice of fundamental law to be published in a day-to-day newspaper in French. The fee to print a notice of fundamental law in a day-to-day newspaper varies between MGA 10,000 and MGA 20,000. It should be completed in 2 yearss and costs MGA 15,000.

Time

Refering the clip involved to finish the processs, it was 6 yearss for both 2010 and 2011for Mauritius. However, this does non include clip spent to garner information. Furthermore, each process will get down on a separate twenty-four hours. Furthermore, the process is completed once the concluding papers is received. There are no anterior contacts with functionaries. For the instance of Madagascar refering the clip involved to finish the processs, it was 7 yearss in 2010 and 8 yearss in 2011. However this does non include clip spent to garner information. Furthermore, each process will get down on a separate twenty-four hours. Furthermore, the process is completed once the concluding papers is received. There are no anterior contacts with functionaries.

Paid-in Minimum Capital

The Paid-in Minimum capitals are financess deposited in a bank or with notary before enrollment. It is measured as a per centum of income per capita. It remains the same in both 2010 and 2011 that is it remains 0.0 % .

So it can be concluded that in 2010, get downing a concern in Mauritius would necessitate 5 processs, takes 6 yearss to be completed, be 3.8 % of income per capita and required paid in minimal capital of 0.0 % of income per capita. On the other manus, in 2011, everything remains the same except that it cost 3.6 % of income per capita for that fiscal twelvemonth.

When all the four factors have been taken into consideration, the starting costs are obtained. In 2010, Mauritius was ranked tenth while in 2011, it was ranked 12th out of 183 states on the get downing rank. This showed that get downing costs was less in 2010 than in 2011 for Mauritius ( Making Business, 2011 ) .

For Madagascar, paid in minimal capital was 248.1 % in 2010 and 0.0 % in 2011. So it can be concluded that in 2010, get downing a concern in Madagascar would necessitate 2 processs, takes 7 yearss to be completed, be 12.9 % of income per capita and required paid in minimal capital of 248.1 % of income per capita. On the other manus, in 2011, get downing a concern in Madagascar would necessitate 3 processs, takes 8 yearss to be completed, be 12.1 % and required paid in capital 0.0 % ( World Bank, 2011 ) .

When all the factors have been taken into consideration, the starting costs are obtained. In 2010, Madagascar was ranked 12th while in 2011, it was ranked seventieth out of 183 states on the get downing rank of making concern. This showed that get downing costs was more in 2011 than in 2010 for Madagascar.

It was found that that start up processs of concern for Madagascar was 12.9 % of GNI per capita whereas for Mauritius amounted to 3.8 % per capita for the twelvemonth 2010 ( Making Business, 2011 ) . Despite the fact that Mauritius had a higher GNI per capita than Madagascar ( Madagascar has a GNI of $ 950 while Mauritius has a much higher GNI of $ 13800 ) , the cost of startup processs for Madagascar was $ 123 while for Mauritius, it was $ 524 which implies that cost of startup processs is higher in Mauritius than in Madagascar. This might be because of the advantage in the type of economic system that Mauritius had over Madagascar. For the twelvemonth 2011, startup cost of Madagascar was 12.1 % of GNI per capita and Mauritius resulted in 3.6 % of GNI per capita. Mauritius had a GNI of $ 14,760 while Madagascar resulted in the same value of $ 950. The cost of startup for Madagascar decreased to $ 115 while for Mauritius increased by $ 531 ( World Bank informations, 2012 ) . This shows another favourable state of affairs of startup cost for Madagascar for the twelvemonth 2011 because of the lower criterion of life of the people and the deficiency of a good judicial system unlike Mauritius where jurisprudence and order is rather rigorous, therefore taking to much complexness of get downing concern.

Furthermore, for paid in minimal capital it was found that Madagascar had removed wholly the minimal capital which was set in 2010 as 248.1 % . This might be a sense of motive for Madagascar to pull investors in the state and encouraging concern activity. However, for the instance of Mauritius, there were no inflictions for the paid in minimal capital. This implies that the Mauritanian Government was ever promoting for concern activity and pulling new companies.

The clip to register the company for Mauritius was 6 yearss but for Madagascar, it was 7 yearss. As such, a company is incorporated quicker in Mauritius than in Madagascar. A possible ground for this is the promotion of Mauritius in the concern universe compared to Madagascar which is still dawdling behind. This will actuate companies to bring forth in Mauritius as it takes them less clip to integrate their company which in bend will let them to get down concern quickly and perchance gain a higher net income in Mauritius than in Madagascar.

To reason, for startup cost, apart for startup processs, Mauritius has a lower cost than Madagascar and it explains the ranking of start up concern whereby Mauritius is 10th while Madagascar is 12th for the twelvemonth 2010. For 2011, Mauritius was ranked 12th and Madagascar was on the 70th. If Madagascar is able to bring around the political instability, it may see it a favourable state of affairs whereby it may even hold a lower cost of startup cost than Mauritius.

Cost of registering belongings

Cost of registering belongings in the twelvemonth 2010 showed Mauritius at the 66th topographic point and Madagascar is at the 152th topographic point. It is a cost that will be incurred before the concern starts to run. Therefore, it can be found that Mauritius had a low registering belongings cost compared to that of Madagascar. The ground might be because of the high degree of corruptness such as graft and political instability, which might non be actuating for investors. More so, investors will seek advantage in Mauritius because of the lower sum of land enrollment. As a consequence, cost of registering belongings in Mauritius is lower than in Madagascar. The undermentioned twelvemonth 2011, showed Madagascar in the 141th in the cost of registering belongings while Mauritius was ranked sixty-fifth. The alteration in ranking showed Mauritius still in better place than Madagascar because of the increasing political instability predominating since long in Madagascar.

Cost of building licenses

The building license cost ranked Mauritius in the 39th place while Madagascar on the 130th for 2010. This put Mauritius in a favourable ranking compared to Madagascar chiefly because of several undertakings set up by the Government to pull investing. Although there were 18 processs in Mauritius, it requires merely 107 yearss finishing it as compared to Madagascar who need 172 yearss to finish 16 processs. So building licenses will be received more quickly in Mauritius than in Madagascar. The cost of building licenses processs for Madagascar was of 468.8a„… of Gross National Income ( GNI ) per capita while for Mauritius, it was only32.3a„… . Although Mauritius has a GNI per capita of $ 13,800 which is higher than the GNI per capita of Madagascar which is $ 950, the cost of startup processs was lower in Madagascar than in Mauritius. In other words the cost of startup processs was $ 4453 in Madagascar while in Mauritius, it was $ 4457. However this is non a large difference. This can be explained by the higher cost of life and there is a sound legal system found in Mauritius which explains the complexness of the processs for Mauritius.

Furthermore, cost ( a„… of income per capita ) for Mauritius is 32.3a„… while for Madagascar, it is 468.8a„… . Investors would prefer to put in Mauritius than in Madagascar due to the lower costs involved when covering with the building permits. This will take to higher net incomes for the company puting in Mauritius.

As illustrated above, an investor will hold more advantage covering with building licenses in Mauritius than in Madagascar in 2010.

For the 2011 Mauritius was ranked 53th while Malagasy republic was at the 131th topographic point in cost of building licenses. Both states was better ranked the old twelvemonth, nevertheless the autumn in the rank for Mauritius is greater comparative to Madagascar. Both states have 16 processs to cover with the building permits. However Madagascar still required more yearss to finish its processs that are 172 yearss which is more than Mauritius which is 136 yearss. The cost ( a„… of income per capita ) was besides much lower in Mauritius than in Madagascar.

Inflation

In 2011, rising prices rate is 6.7 % compared to 6.5 % in 2010. Therefore, this means that cost of life is increasing and besides a rise the general degree of monetary values of goods and services in Mauritius. Furthermore, you have to pay more for comestible merchandises, energy trade goods and conveyance. We besides have imported rising prices by importing goods such as oil and gas. As a consequence, this will increase the cost of making concern. Hence, cost of making concern in 2011 has risen. In 2010, the rising prices rate is 9.2 % and in 2011, the rising prices rate has increased till 9.5 % in Madagascar. Hence, this would deter the new puting up of concern as the overall monetary values is increasing and therefore diminishing demand. In add-on to this, cost of natural stuffs, machines and merchandising costs will besides increase as a consequence of the rising prices. Hence, cost of production will besides increase. The companies will look for greener grazing lands ; look for states holding lower cost than Madagascar. Thus, rising prices will increase cost of making concern and affect Madagascar economic system in general.

Political state of affairs

As we are cognizant, there is political instability in Madagascar since early 2009. This was due to the tenseness between the resistance motion, Andry Rajoelina and the elective president, Marc Ravalomanana which ended by Andry Rajoelina prehending power. This has vastly affected the economic system and several AIDSs of over $ 260 million were given to seek to resuscitate its economic system but all were in vain as its existent GDP growing rate is merely 0.5a„… in 2010. So, the political crisis has created fright for companies and they will prefer to put in states where there is political stableness like Mauritius. In Mauritius, the existent GDP growing rate is 4a„… which is much higher to that of Madagascar. Hence, investors will be acute to put in Mauritius and as there will be more production, cost of natural stuffs will fall which in bend will besides cut down cost of production. As a consequence, cost of making concern will besides be low. So, cost of making concern in Mauritius is once more lower than that of Madagascar.

Cost of obtaining recognition.

Mauritius

Malagasy republic

2010

2011

2012

2010

2011

2012

Strength of Legal rights

6

6

6

2

2

2

Depth of recognition information on index ( 0-6 )

3

3

3

1

0

0

Public register coverage ( % of grownups )

36.8

49.8

49.8

0.1

0

0.1

Private agency coverage ( % of grownups )

0

0

0

0

0

0

Strength of Legal rights

The strength of legal rights index measures the protection of rights of borrowers and loaners through collateral and bankruptcy Torahs. A greater mark implies that collateral and bankruptcy Torahs have been better designed to spread out entree to recognition.

Mauritius scored 6 while Madagascar scored 2 in all the three old ages. This implies collateral and bankruptcy Laws have been better designed in Mauritius. Creditors and Debtors are protected. Madagascar needs to better its Torahs as it seems truly hapless as compared to Mauritius.

Depth of recognition information index

It measures the regulations and patterns impacting the coverage, range and handiness of recognition information available through either a public recognition register or a private recognition agency. This index ranges between 0 and 6. A 6 indicates that recognition information is available either through a public recognition register or a private recognition agency therefore easing imparting determinations while a 0 indicates that the recognition register or the private agency is non operational or has coverage of less than 0.1 % of the grownup population.

Mauritius scored 3 in 2010, 2011 and 2012 while Madagascar scored 1 in 2010, and 0 in 2011 and 2012. This implies that Mauritius has recognition information available as compared to Madagascar which has no recognition information available. Lending determinations are better made in Mauritius than in Madagascar.

Public recognition register coverage ( PCRC )

This is managed by the populace sector which has all informations available on the recognition worthiness of borrowers in the fiscal system and facilitates the exchange of recognition information amongst Bankss and other regulated fiscal establishments. The public recognition register coverage is an index which reports the figure of persons and houses listed in a public recognition register with information on their borrowing history from the past 5 old ages. It is expressed as a per centum of the grownup population.

Mauritius has a PCRC of 36.8 in 2010, and 49.8 in 2011 and 2012 While Madagascar has PCRC of 0.1 in 2010, 0 in 2011 and 0.1 in 2012. Mauritius has a comparatively less than half of big population involved in the fiscal system while Madagascar has really low PCRC which implies the population in the state has no great engagement in the fiscal system.

Private Credit Bureau coverage ( PCBC )

A private recognition agency is one which is managed by private houses or non-profit-making organisations which has information on the recognition worthiness of borrowers in the fiscal system and facilitates the exchange of recognition information among creditors. The PCBC is an index which reports the figure of persons and houses listed by a private recognition agency with information in their borrowing history from the past 5 old ages. It is expressed as a per centum of the grownup population. The coverage value is 0 no private agency operates.

Mauritius and Madagascar has no PCBC which implies that the fiscal system is non managed in private.

Cost of implementing contracts

Mauritius is ranked 66th while Madagascar is ranked hundred-and-fifty-fifth in implementing contracts. Costss are comprised of lawyer fees and other legal duties that need to be honoured to implement the contract. Since Mauritius has a sound legal system and many lawyers, it is able to cut down cost of implementing contracts to a low degree.

On the other manus, the legal system of Madagascar is non well-developed and there is deficiency of lawyers which tend to elate cost of implementing contracts. Hence, companies will look for states which have lower cost of implementing contracts. A house has to honor many contracts and if it is able to cut down this cost, this will significantly cut down its entire cost and better its profitableness. Thus, cost of making concern will be lowered if houses manage to run in a state where cost of implementing contracts is low like Iceland which is graded 3rd in implementing contracts. Hence, Mauritius has a lower cost of implementing contracts than Madagascar which tends to ensue in lower cost of making concern in Mauritius compared to that of Madagascar.

Cost of labor

In Mauritius, there is no bound for cumulative continuance for fixed term contract while in Madagascar, it is 24 months. Hence, in Mauritius, there is no demand to reemploy labor if it is needed for 30 months while it will be necessary to reemploy labor in Madagascar. Hence, clip spent in looking for labor in Madagascar will take to chance cost in net income. Opportunity cost besides forms portion of cost and hence, cost of making concern in Mauritius will be lower than in Madagascar. In add-on to this, workers can work for above 50 hours per hebdomad for 2 months in Mauritius unlike they can non make so in Madagascar. Thus, production will be more clip consuming in the latter than in the former which will increase the company ‘s cost. As a consequence, cost of making concern in Madagascar is once more higher than in Mauritius. Furthermore, the company has to pay $ 26 000 for dismissal in Madagascar but in Mauritius, it is $ 21 667. Hence, cost of dismissal is higher in Madagascar and cost of labor will therefore be higher.

However, a worker is required to work at least 24 yearss in Madagascar compared to 16 in Mauritius. Thus, in Madagascar, there is likely to be more production and better labor efficiency than in Mauritius. Hence, labour cost will be reduced which in bend will do a autumn in cost of making concern in Madagascar. Despite the autumn in labour cost due to compulsory on the job yearss in Madagascar, entire labor cost in Madagascar is still higher than in Mauritius. Thus, cost of making concern in Mauritius is lower than in Madagascar.

Taxs

In 2010, in conformity to paying revenue enhancements ‘ ranking, Mauritius was at the 12th place in comparing to Madagascar which was at the 74th place. Analyzing those superior carefully, it can be deduced that revenue enhancements are lower in Mauritius as compared to Madagascar. In 2011, Mauritius was ranked 11th as compared to Madagascar was ranked 74th in revenue enhancements. Madagascar rank remained unchanged while Mauritius became favorable by 1. This was due to that there has been no alteration in its financial policy whereby revenue enhancement policy has maintained same. In Mauritius, there has besides been no alteration in the financial policy but since it has attracted more companies, revenue enhancement gross has increased. In the eyes of houses, revenue enhancements are ever seen as an add-on cost to the concern.

Having lower revenue enhancements, Mauritius was able to pull FDI by holding lower revenue enhancements since when cost of revenue enhancements is low, FDI increases. Madagascar, on the other manus, has a high revenue enhancement rate as the ego interested adult male, Andry Rajoelina, wanted to increase his wealth by raising revenue enhancement in the state which led to an addition cost of making concern. There are few companies in Madagascar and this causes another factor for the high revenue enhancement rate.

To be able to finance its outgo, revenue enhancement gross will necessitate to be raised which will be shared by few companies. Therefore there will be an increased in the degree of cost on the companies. With a high figure of companies in Mauritius, to be able to increase revenue enhancement gross significantly must be followed by an insignificant increased in the revenue enhancement rate. This will assist companies to be better able to pay since it will non be a load on them. As a consequence, cost of making concern in Mauritius is lower than in Madagascar.

Cost of shutting concern

Mauritius is ranked 73th while Madagascar is ranked 183th in shuting a concern. Prior to make up one’s mind whether to put or non, a house wants to cognize what are their cost of closing in instance of bankruptcy In 2012, Mauritius was positioned at 62nd while Madagascar was ranked hundred-and-fiftieth. It can clearly be deducted that Mauritius has a lower cost of shuting concern than Madagascar and companies will choose to put in Mauritius than in Madagascar. It means that there are fewer processs to follow to shut down concern in Mauritius than in Madagascar which makes cost of shuting concern in Madagascar higher than in Mauritius. Bing non at the best ranking, nevertheless both Madagascar and Mauritius are trying their best so as to increase the degree of investors. Mauritius remains to hold a lower cost of shuting concern than Madagascar.

Decision

In contrast Mauritius has proved to hold a lower cost of making concern than Madagascar in 2010 from the exclusion that startup processs were high. It can be seen that in the two back-to-back old ages, 2010 2011, that for both states, the cost of making concern has increased. However, for Madagascar, the cost of making concern has risen as compared to that of Mauritius since of the political instability regulating the state. This had an consequence on investors as there was non changeless steps applied on them and this was unfavorable for them. It can be shown through their ranking that Mauritius losing 3 topographic points while Madagascar losing 6 topographic points. As a consequence, Mauritius took advantages by holding a lower cost of making concern than in Madagascar.

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