Taking the measure of the Doing Business Indicators: An Independent Evaluation

2 2 ‘Ease of Doing Business’ averages rankings on 10 indicators Starting and closing a business Enforcing contracts Trading across borders Closing a business Registering property Protecting investors Dealing with licenses Paying taxes Employing workers Getting credit

3 3 DB covers less than half of businesses’ top constraints 1. Access and/or cost of financing7. Anticompetitive or informal practices 2. Corruption8. Restrictive labor regulations 3. Inefficient government bureaucracy 9. Political instability 4. Infrastructure (e.g. electricity, transportation) 10. Macroeconomic instability 5. Tax rates11. Skills and education of workers 6. Tax administration12. Economic and regulatory policy uncertainty Shaded items are covered by DB

4 4 RECOMMENDATION: Be clearer about what DB does and does not measure Since DBI measures…. Only a few of the constraints on business Written rules, not actual practice Regulations’ burdens, not benefits ….it should avoid overstating the indicators’ scope and explanatory power

5 5 DB informants are mostly lawyers

6 6 Few informants per indicator Employing Workers Enforcing Contracts Getting Credit Paying Taxes Starting a Business Legal Rights Public/ Private Credit Bureau Average number of informants per country

7 7 RECOMMENDATION: Get more informants ► Disclose how many informants per indicator per country ► Establish selection criteria ► Recruit more informants… especially for indicators with fewest informants and the countries with least reliable information

8 8 DB changes its published data… ► Of the 5600 data points used for the 2007 country rankings, DB changed 40% after publication ► Changes not mentioned on website ► Previous data no longer available

9 9 …and the changes would alter the country rankings FIVE BIGGEST WINNERS Guyana+40 Italy+33 Turkey+27 St. Kitts and Nevis+24 Bhutan+18 FIVE BIGGEST LOSERS Nicaragua-18 Samoa-18 Tajikistan-18 Papua New Guinea-22 Uruguay-23

10 RECOMMENDATION: Disclose the data changes ► disclose data changes as they are made ► explain their effect on the rankings ► make available the removed data for research

11 Anomalies in Paying Taxes ► One firm provides data on 142 countries ► “Total tax rate” reflects fiscal policy -- not ‘red tape’ ► Top-rated countries on tax rate include tax havens and oil states

12 RECOMMENDATION: Simplify Paying Taxes ► Collect information on tax rates but exclude it from the rankings ► Simplify the calculations and get more informants to reduce dependency on PwC

13 Usefulness of the DB Indicators High ► sparking dialogue on regulatory issues Low ► designing and sequencing reform programs

14 Considerations for the World Bank Group ► Does the World Bank Group inadvertently signal that reducing regulation is its most important development goal? How can it celebrate other development achievements ? ► Can the DB approach be applied to other development issues? Only where actionable indicators can proxy the target outcomes and where the direction of improvement is uniform for all countries.

15 Learn more at….

16 Where do civil law countries do poorly? ► Civil law countries score significantly lower than common law countries on 12 subindicators DBISubindicator Employing Workers Difficulty of Hiring index, Difficulty of Firing index, Rigidity of Hours index Getting Credit Legal Rights index Protecting Investors Extent of director liability index, Ease of shareholder suits index Starting a Business Procedures, Cost, Minimum Capital Requirement, Time* Paying Taxes Time, Payments* Dealing with Licenses Time* * All differences are significant at the 99% level unless noted with an asterisk (*) indicating significance level at 95%

17 Not all reforms are rewarded equally Countries at the more dispersed sections of the distribution must work harder to change their overall rankings Total Tax Rate as a Share of Profits Number of Countries Latvia Belarus no change in rankreduced tax rate 42% Belarus up 17 ranksreduced tax rate 10% Latvia

18 Why do they participate?

19 Where do civil law countries do poorly? ► Civil law countries score significantly lower than common law countries on 12 subindicators DBISubindicator Employing Workers Difficulty of Hiring index, Difficulty of Firing index, Rigidity of Hours index Getting Credit Legal Rights index Protecting Investors Extent of director liability index, Ease of shareholder suits index Starting a Business Procedures, Cost, Minimum Capital Requirement, Time* Paying Taxes Time, Payments* Dealing with Licenses Time* * All differences are significant at the 99% level unless noted with an asterisk (*) indicating significance level at 95%

20 Employing workers is consistent with letter of ILO provisions but not the spirit ► Ease of hiring index and Rigidity of hours index – Consistent ► Firing cost and Ease of firing index – 6 questions are consistent, 4 questions are consistent with the letter but not the spirit Reassignment or retraining activities before layoffs? ILO does not require but asks for such consideration DB ranks countries higher who have no such requirement Clearly established criteria applying to redundancies? ILO does not require but recommends criteria DB ranks countries higher who have no such requirement How much severance pay must a redundant worker get? ILO does not set a specific severance scale but stipulates pay should be based on seniority, wage level, etc. DB ranks countries higher if less than 8 weeks pay given Notification of a third party for terminating a group of workers? ILO does not specify a cut-off number or percentage of workers to qualify as a group DB specifies cut-off as a group fewer than 25 workers