| September 12, 2005 —Imagine having a company in Sierra Leone where if you paid all your business taxes, it would eat up 164 percent of your company’s gross profit. Or imagine being in Syria, where you’re expected to put up at least US$61,000 in capital – 51 times the average annual income – to register a business. Perhaps try Mozambique – where an entrepreneur must go through 14 separate procedures over 153 days to register a new business. In Lao PDR, the start-up procedures take 198 days. By contrast, in Australia it takes 2 days. But many countries are reforming startup and other business procedures. Recent efforts to cut red tape in Serbia and Montenegro now mean a company can start operating in just 15 days. It’s that kind of reform which led to Serbia and Montenegro being among the top reformers in a new report on key business regulations, laws and taxes.
The report, Doing Business in 2006: Creating Jobs, a joint production of the World Bank and its private sector arm, the International Finance Corporation (IFC), surveyed 155 economies in ten areas including business regulations, taxes, trade costs, property rights and access to credit. The World Bank-IFC Vice President for Private Sector Development, Michael Klein, says overall 99 countries – two thirds of the Doing Business survey – brought in 185 reforms – showing a clear trend in countries to making it easier to do business.  |  | The 12 top reformers were Serbia and Montenegro, Georgia, Vietnam, Slovakia, Germany, Egypt, Finland, Romania, Latvia, Pakistan, Rwanda and the Netherlands. |
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“Eastern Europe had the most dramatic reforms, “Klein says. “A lot of that was driven by European Union (EU) integration.” Every country in Eastern Europe took at least one step to make things easier for business. “Five of the top reformers were from Eastern Europe led by Serbia and Montenegro. So from setting up a business, through dealing better with construction licenses, improving property registration, hiring new workers, to paying taxes, contract enforcement and bankruptcy and access to credit – Serbia and Montenegro covered the waterfront.”
Africa: Most Complicated By contrast though, Klein says the Africa region was the slowest reformer over the past year. For every three African countries that improved regulation, one made it more difficult. “Africa has the most complicated business environment. At the same time, we find least reform effort so far on the indicators we measure. So there’s quite an agenda there.” Klein says while Africa as a region has made major progress on micro-economic reforms, including reducing debt and inflation, the ease of doing business emerges as a key focus for the coming years. If reformers of business regulation in Africa are seeking an example, they only need to look to Rwanda. The country has already revised its new company and labor laws, making it easier to start businesses and hire workers. It has also reformed access to credit, customs and judicial procedures. Since initiating reform – back in 2001 – Rwanda has had economic growth averaging 3.6 percent a year – among the highest levels in Africa.
Doing Business Easy
The report also delves into the issue of where in the world are there the most business friendly regulations. For the second year in a row, New Zealand came out on top, followed by Singapore and then the United States. Five other East Asian countries – Hong Kong (China), Japan, Thailand Malaysia and Korea were among the top 30. So were the Baltic countries – Lithuania, Estonia and Latvia. “The big surprise here is the Nordic countries. There, as well as in the other top 30, reformers do not have to choose between making it easy to do business and providing social protection. They can do both,” says Simeon Djankov, an author of the report. For example, Denmark has the world’s best infrastructure. Norway ranks highest on human development indicators, with Sweden right behind it.
More Jobs
It’s a finding which highlights a key message of the report – better performance on the ease of doing business is linked with more jobs. The global leader on the ease of doing business, New Zealand, has 4.7 percent unemployment. But in Greece, an OECD country with the worst ranking on Doing Business indicators, the jobless rate is 10.9 percent. “At the end of the day that’s what this is about – more jobs. Making life easier for business - and we cover here the environment for small and medium businesses - is essential for new jobs to be created,” Klein says. The report stresses reforms will also lead to more jobs in the formal sector, because the benefits of being in the formal sector – with easier access to credit and better services – will often outweigh other costs for business such as taxes.
Formal Jobs More Benefits
“Firms that operate in the formal sector can have, in principle, better access to credit. They have better access to the court system. They can trade with partners they don’t know directly. So they can benefit from the division of labor that underpins economic growth and welfare worldwide,” he says. “When you have very complicated regulations that make it difficult to set up a business formally and make it very hard to operate a business – and actually don’t enforce your contracts and don’t protect your property rights - then people stay in the informal sector. They have less of a chance to create jobs that eventually pay more and benefit from social protections.” Klein says women and youth would benefit from more jobs being created in the formal sector. Women now make up three quarters of workers in the informal sector – a move that means they have no access to protections such as pensions, safety regulations and health benefits.
Conflict Affected Countries
Now in its third year, the report has already had an impact on business environment reforms around the world. “The Doing Business benchmarking has inspired and supported reforms in more than 20 countries, and since last year, nine governments have asked for their countries to be included in the Doing Business analysis,” says Caralee McLiesh, an author of the report. Many of these are conflict affected countries – Afghanistan, Eritrea, Iraq, Sudan and Timor-Leste. Afghanistan was the top reformer among the group. In that country there’s now only one start up procedure to set up a new business, compared to 28 previously with the process taking only seven days rather than 90. The report says governments in conflict affected countries are especially hard pressed to find jobs. Continued peace depends on demobilizing rebel armies and finding livelihoods for thousands of refugees and former combatants. Improving the environment for private businesses to operate and create jobs is a priority.
Footnote
While it provides rankings of the 155 countries around the globe, the Doing Business authors stress the rankings don’t take into account a number of variables. It does not for instance take into consideration macroeconomic policy, the quality of infrastructure, currency volatility, investor perceptions or crime rates. And while a Bank-IFC production, Doing Business is also based on the efforts of more than 3,500 local experts – business consultants, lawyers, accountant, government officials and leading academics from around the globe. Order Doing Business in 2006 Read the Report’s Overview or view the data online in English View the data online in Spanish |
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