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What does Doing Business measure?

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Presentation on theme: "What does Doing Business measure?"— Presentation transcript:

0 DOING BUSINESS 2015 Going beyond efficiency
Global Indicators Group DEVELOPMENT ECONOMICS Frederic Meunier, Private Sector Specialist Washington, D.C. December 6th 2014

1 What does Doing Business measure?
Doing Business indicators: Focus on regulations relevant to the life cycle of a small to medium-sized domestic business. Are built on standardized case scenarios. Are measured for the most populous city in each country. Are focused on the formal sector. DOES NOT measure all aspects of the business environment such as macroeconomic stability, corruption, level of labor skills, proximity to markets, or of regulation specific to foreign investment or financial markets.

2 The 11 areas of business regulation measured by Doing Business affect firms throughout their life cycle At start-up Starting a business Labor market regulation When things go wrong Enforcing contracts Resolving insolvency In daily operations Paying taxes Trading across borders In getting a location Dealing with construction permits Getting electricity Registering property In getting financing Getting credit Protecting minority investors

3 Doing Business indicators reflect on some of the most important obstacles firms face
Based on Enterprise Surveys in 135 countries around the world Direct responses from representative samples of the private sector Access to finance, and tax rates are the top obstacles across the developing world Source: Enterprise Surveys database

4 What are the advantages and limitations of the Doing Business methodology?
a. In economies with a population of more than 100 million, Doing Business covers business regulation in both the largest business city and the second largest one.

5 How does Doing Business collect and verify data?

6 How many experts does Doing Business consult?
These organizations supported the Doing Business project on a global scale: Advocates for International Development Allen & Overy LLP American Bar Association, Section of International Law Baker & Mckenzie Cleary Gottlieb Steen & Hamilton LLP Deloitte DLA Piper Ernst & Young IUS Laboris, Alliance of Labor, Employment, Benefits and Pensions law firms KPMG Law Society of England and Wales Lex Mundi, Association of Independent Law Firms Mayer Brown Panalpina PWC Russel Bedford International SDV International Logistics 6

7 Where is it easier to do business?

8 Share of economies implementing at least one reform making it easier to do business in 2013/2014
OECD high Income 85% Europe and Central Asia 65% Middle East and North Africa 55% 60% 50% East Asia and Pacific Latin America & the Caribbean 50% 74% South Asia Sub-Saharan Africa Worldwide, 123 economies implemented 230 reforms in 2013/2014, with 145 reforms aimed at reducing the complexity and cost of complying with business regulation, and 85 reforms aimed at strengthening legal institutions.

9 The metric on “distance to frontier”: tracking economies’ progress over time

10 Strong convergence across economies since 2005 Averages by group
Note: Economies are ranked in quartiles by performance in 2005 on the indicator shown. The data refer to the 174 economies included in Doing Business 2006 (2005). Fifteen economies were added in subsequent years. Source: Doing Business database.

11 Following Doing Business best practices would significantly decrease the time to start a business
In the 107 economies covered by both Doing Business and the World Bank’s Entrepreneurship Database, an estimated 3.1 million limited liability companies were newly registered in 2012 alone. Assuming that they followed the rules and regulations for company incorporation in their home economy as measured by Doing Business, these 3.1 million firms together spent 40.7 million days to get incorporated. Because not all economies followed best practice, entrepreneurs spent an extra 39.2 million days satisfying bureaucratic requirements (this figure was 45.4 million days in 2013). Days to start a business (millions) Note: the Entrepreneurship database collects data every 2 years. The latest happened in 2013 with data collected for 2012. Source: World Bank’s Entrepreneurship Database; Doing Business database.

12 Reforms making it easier to start a business were once again most common in 2013/14 – and show results over time in reduced delays… 2005 It was possible to start a business in less than 20 days in only 41 economies, mostly in North America and Northern and Central Europe 2014* Now, the time to start a business is less than 20 days for entrepreneurs in 127 economies *Based on samples of 174 economies in 2005 and 189 economies in 2014 Development impact: Countries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality of public or private goods. (Quarterly Journal of Economics, February 2002, Djankov, La Porta, Lopez de Silanes, Shleifer.) 4

13 Following Doing Business best practices would also significantly decrease the time to pay taxes
In the 93 economies covered by both Doing Business and the World Bank’s Entrepreneurship Database, an estimated 28.6 million limited liability companies were in operation in 2012. Assuming that they followed the rules and regulations for paying taxes in their home economy as measured by Doing Business, these firms together spent 1.1 billion days to file their taxes. Time saved if economies followed the best practices in paying taxes  751 million days Days to pay taxes (billions) 1.1 Note: The time being used for best practice is not the lowest in the series. The one being used here refers to the time for Switzerland (60 hours = 11 business days). The lowest time is observed in the UAE (12 hours=2.1 days). Source: World Bank’s Entrepreneurship Database ; Doing Business database.

14 Time and motion indicators focus on the process Example: The complexity and time it takes to register property varies significantly among economies Registering property in Belgium requires 8 procedures, takes 64 days and costs 12.7% of the property value. Measure procedural efficiency of the regulatory process Follow the entrepreneur from the beginning to the end of a basic transaction Record every step of the process, and the associated time and cost Gather all the relevant laws, regulations, decrees and fee schedules

15 Time and motion indicators focus on the process Example: The complexity and time it takes to register property varies significantly among economies Registering property in Peru requires 4 procedures, takes 6.5 days and costs 3.3% of the property value.

16 Registering Property – Methodology
What does the indicator measure? The transfer of a commercial warehouse between two domestic companies How is the indicator constructed? Through three sub-indicators: Procedures, Time and Cost The indicator does not measure: Legal security offered by registration or overall value of registering for citizens Overall use of the formal registration system vs. informal Equity of land policies, including registration policies and practices.

17 Registering Property - Methodology What procedures of the transfer do we measure?
Conducting due diligence (title search, encumbrance checking, cadastral map) Signing of sales contract Payment of Stamp duty, transfer tax and registration tax Registration at the land/property registry All legally required procedures Starting Point: Seller decides to buyer and found the buyer, price already defined End point: All procedures complete so buyer can use the property, resell it, or use as collateral. Transaction opposable to third parties Assumptions About the transfer: Transfer of existing title of land and building – ie. not initial registration in the economy’s largest business city (peri-urban area, within city limits) About the buyer and seller: 100% domestic limited liability SMEs The seller has owned the warehouse for 10 years About the property: Fixed property value (50xGNI per capita) Property is registered in the land registry/cadastre and is free of title disputes/mortgages

18 Registering Property reforms in 2013/14 21 economies made it easier for businesses to register property Feature Economies Some highlights Combined or reduced procedures Colombia; Greece; Mozambique; Russian Federation; Senegal Colombia eliminated the requirement for provisional registration. Greece removed the requirement for the municipal tax clearance certificate. The Russian Federation eliminated the requirement for the notarization of corporate documents. Increased administrative efficiency Guinea; United Arab Emirates Guinea reorganized the records at the land registry reducing the time to register property by 15 days. The United Arab Emirates increased the number of service centers cutting time by 3 days. Computerized procedures Albania; Azerbaijan; Côte d'Ivoire; Ireland; Korea, Rep.; Poland; Sweden; Vanuatu Albania extended the use of the electronic registry system saving 11 days. Côte d'Ivoire and Vanuatu digitized their land registries. Sweden introduced a new electronic system for property registration reducing time by 14 days. Introduced fast-track procedures Kazakhstan; Sierra Leone Sierra Leone introduced a new fast-track procedure for property registration reducing cutting time by 11 days. Set up effective time limits Kazakhstan Kazakhstan introduced time limits for issuing non-encumbrance certificates saving 12 days. Reduced taxes or fees Bahrain; Côte d'Ivoire; Greece; Guinea; Poland; Togo; San Marino; Spain Greece reduced the property transfer tax from 10% to 3% of the property value. Togo lowered the property registration tax rate from 8% to 6% of the property value.

19 In 2013/14 Greece made the biggest improvement on the ease of registering property
In December 2013 Greece established a new property transfer tax of 3% of the property value, substantially lower than the previous one of 10%. In addition, it simplified property transfers by eliminating the need to submit a tax clearance certificate from the municipality before signing the sale agreement. Note: In 2014 procedures 3, 4 and 5 occur simultaneously with procedure 2 (although procedures may take place simultaneously, they cannot start on the same day). Procedure 6 starts after procedure 2. Source: Doing Business database.

20 How to measure the overall quality of land management systems?

21 How to provide reliable information?
A reliable land administration system provides clear information on the ownership of property, supports the security of tenure and facilitates the development of a land market. One key to fulfilling these functions is to have in place the infrastructure needed to maintain land information, supported by an appropriate institutional framework and adequate capacity. Questions on reliability focus mainly on how land records are stored at the land registry, whether the information is kept in an electronic database, whether the databases for landownership and maps are linked and whether each parcel has a unique, searchable identification number.

22 How transparent is the land management system?
Fee schedules Accountability mechanisms Transparency is a key element in the quality of land administration systems. It helps eliminate asymmetries in information between users and officials in a land administration system and increases the efficiency of the land market. A transparent land administration system—one in which all land-related information is publicly available, all procedures and property transactions are clear, and information on fees for public services is easy to access—minimizes the possibilities for informal payments and abuses of the system. Doing Business has collected data about transparency through a set of questions focusing on who has access to land information, whether the fee schedule for land registry services is publicly available, whether there are service standards for property transactions, whether statistics about land transactions are collected and made available to the public and whether any specific mechanism is in place for filing a complaint.

23 Where is coverage complete?

24 How to deal with land disputes?
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