September 6, 2006—Reforms of regulation are making it easier to do business worldwide, including in Africa, a region where the private sector faces some of its biggest challenges. The World Bank and IFC, in their fourth yearly Doing Business report, rank 175 economies on the ease of doing business. The report pinpoints some 213 specific reforms in over 100 economies. It explores when and how it is most effective for governments to streamline their business regulations.
Rwanda, for example, recently eliminated a colonial-era law that allowed only one notary for the entire country. Already some 36 notaries are working throughout the country, greatly reducing the time needed to start a business.
In Yemen, the government eliminated a 10 percent production tax that businesses paid each time they sold their products to other businesses. In many cases, by the time products reached consumers, these hidden turnover taxes far exceeded any profits for the companies involved. By replacing the production tax with a 5 percent sales tax levied only at the final consumer level, Yemen has decreased the total tax rate from 79 percent to 48 percent, helping both businesses and consumers.
This year’s report, Doing Business 2007: How to Reform, identifies top reformers of business regulations and describes best practices in how to reform. It measures quantitative indicators on business regulations and compares their enforcement across 175 economies—from Afghanistan to Zimbabwe—as well as over time. This year the report ranks Singapore first on the ease of doing business. New Zealand moved to second place after two years at the top spot.
The Economist has called Doing Business “a mine of useful as well as disturbing information” and “a handbook of how to put things right.” Since its launch with the 2004 edition, the Doing Business project is credited with inspiring some 48 reforms around the world. “The lesson is that what gets measured gets done,” said Caralee McLiesh, an author of the report.
Measurement Inspires Competition By publishing comparative data, IFC and the World Bank give governments and their policymakers the ability to measure their regulatory performance versus other countries, learn from global best practices, and prioritize reforms. The indicators created by Doing Business are being used worldwide to analyze economic and social outcomes, including corruption, unemployment, and poverty. They have also increased understanding of the informal economy, which puts much of the business activity in developing countries beyond the reach of government regulation and revenues.
Many governments now compete to improve their rankings on the ease of doing business. Georgia, for example, has used the Doing Business indicators as benchmarks for its progress, and it emerged this year as the top reformer worldwide. Even within countries, there has been an effect—recent comparisons among cities in India and Mexico have created fierce competition for the best regulatory environment to attract investors. Mayors are working hard to explain why it takes longer or costs more to start a business in their city than in others in the same country.
Africa: Reforms Gain Momentum A year ago, World Bank Group Vice President Michael Klein, whose joint IFC-World Bank team produces the Doing Business report, noted that Sub-Saharan Africa had the most complicated business environment and had made the least effort to reform. But this year, Africa moves up to third place among regions, and two-thirds of its countries have made at least one regulatory reform. Ghana and Tanzania are now among the top 10 reformers worldwide. Noting this positive development, Klein said, “This progress is sorely needed. Africa will benefit greatly from new enterprises and formal sector jobs, gains that will come with more business-friendly regulations.”
A Window of Opportunity Georgia, the top reformer this year, improved its ranking in six of 10 areas the report studied. Its progress also highlights that new governments with fresh mandates often have the best window of opportunity for reform. This year’s report finds, in fact, that 85 percent of reforms on the ease of doing business take place within 15 months of a new government taking office. And this holds true across all countries—poor, middle-income, or wealthy. Hence Doing Business 2007 offers clear advice for recently elected governments: take advantage of your new mandate and push through significant reforms at the start of your term.
Whatever reformers do, they should ask, “Who will benefit most?” If reforms are seen to benefit only foreign or large investors, or bureaucrats who have become investors, they reduce the legitimacy of the government’s efforts. “Reforms should ease the burden on all businesses: small and large, domestic and foreign, rural and urban. This way there is no need to guess where the next boom in jobs will come from. Any business will have the opportunity to thrive,” said Simeon Djankov, an author of the report.
Visit the report’s Web site for more information on the Doing Business project, to order copies of Doing Business 2007, or to generate your own reports using the latest Doing Business data: www.doingbusiness.org.
Note: A high ranking on the ease of doing business means that a government has created a regulatory environment conducive to operating a business, yet the rankings do not tell the whole story. They do not account for such other factors as the quality of infrastructure services, proximity to large markets, or law and order.
A joint World Bank-IFC product, Doing Business is based on the efforts of more than 5,000 local experts—business consultants, lawyers, accountants, government officials, and leading academics around the world—who provide methodological support and review.
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