Measuring Business Regulation Melissa Johns and Justin Yap Financial and Private Sector Development Vice Presidency World Bank/IFC December 15, 2006 Doing Business Project

2 Doing Business report Starting a business Dealing with licenses Employing workers Registering property Enforcing contracts Getting credit Trading across borders Protecting investors Paying taxes Closing a business Ten topics 175 economies Rich, poor & middle-income US and Burkina Faso and Mexico Updated each year How to reform Cross-country comparisons Policy prescriptions

3 Methodology: a time and motion study 1.Follow the entrepreneur from the beginning to the end of a basic transaction 2.Record every step of the process, and the associated time and cost 3.Gather all the relevant laws, regulations, decrees, fee schedules

4 Starting a business: The company Is a limited liability company Operates in the country’s most populous city Is 100% domestically owned and has 5 owners, none of whom is a legal entity. Has up to 50 employees 1 month after the commencement of operations, all of them nationals Has a company deed 10 pages long Performs general industrial or commercial activities

5 Starting a business in Gambia in January Check the uniqueness of the company name 2. Notarize the company statutes 3. Payment of stamp duty and deposit of corporate tax with commissioner 4. Register with commercial registry 5. Obtain operational licenses 6. Register with Labor department 7. Register employees for Social security 8. Make a company seal Procedures Time (number of days) Cost (% of GNI per capita) Cost (right axis) Time (left Axis)

6 Protecting investors against self-dealing Legal issues: Clear conflict of interest, but possible business purpose Legal requirements met, but not exceeded NOT fraud Seller Co. Buyer Co. buys trucks from Seller Co. Mr. James owns 60% of Buyer Co. shares, sits on its board of directors Mr. James owns 90% of Seller Co. shares Mr. James Buyer Co.

7 Methodology - Protecting investors Extent of disclosure who approves the transaction what needs to be disclosed, when and to whom Extent of director liability available claims against Mr. James and the other directors what needs to be proven for each claim how much they have to pay if they are found liable Ease of shareholder suits access to company information for proving the investor’s case and standard of proof applied Strength of investor protection: average of the three indices

8 Sub Saharan Africa is more difficult to do business in than any other region Average ease of Doing Business in 2007

9 Starting a business—a comparison Number of days

Antigua & Barbuda Armenia Azerbaijan Belarus Belgium Benin Bulgaria Burkina Faso China Croatia Czech Republic Egypt El Salvador Ethiopia Georgia Guatemala Honduras India Indonesia Ireland Japan Lao PDR Lesotho Lithuania FYR Macedonia Madagascar Mexico Micronesia Morocco Mozambique Netherlands Niger Peru Portugal Russia Rwanda Saudi Arabia Switzerland Syria Tanzania Uganda Ukraine Uruguay Albania Algeria Antigua & Barbuda Belarus Bosnia & Herzegovina Bulgaria Czech Republic Egypt Estonia Ghana Guinea-Bissau Hungary India Israel Latvia Lesotho Lithuania Mexico Moldova Montenegro Morocco Pakistan Paraguay Russia Rwanda Senegal Sierra Leone Sudan Switzerland Turkey Yemen Is the business environment getting better? Yes Australia Brazil Burundi Chad Croatia Denmark Dominican Rep. Estonia France Gambia Georgia Guyana Italy FYR Macedonia Nigeria Peru Rwanda Slovakia Bolivia Djibouti Maldives Norway Serbia Zimbabwe Armenia Australia Bosnia & Herzegovina Botswana CAR Côte d’Ivoire Croatia El Salvador Ghana Greece Guatemala Kuwait Kyrgyz Republic Mali Mauritania Mauritius Morocco Nicaragua Nigeria Seychelles South Africa Spain Swaziland Tanzania Algeria Armenia Azerbaijan Bulgaria China Czech Republic Denmark Dominican Rep. El Salvador France Georgia Honduras India Israel Japan Kazakhstan Kyrgyz Republic Lao PDR Mauritius Nicaragua Panama Peru Romania Serbia Thailand Uruguay China Colombia Germany Hong Kong, China India Israel Mexico New Zealand Peru Poland Romania Sweden Tanzania Tunisia United Kingdom Cambodia China Colombia France Georgia Ghana Hong Kong, China India Jamaica Jordan Kenya Nicaragua Nigeria Pakistan Romania Serbia Syria Tanzania Togo Armenia Cambodia Canada France Georgia Germany Guatemala Kenya Korea Latvia Mali Moldova Niger Romania Spain Ukraine Vietnam Burundi Chile France Italy Korea Latvia Micronesia Puerto Rico Romania Serbia Slovakia United States Argentina Australia Georgia Greece Lithuania FYR Macedonia Romania Vietnam FYR Macedonia Togo Uganda Venezuela Peru Uzbekistan CAR Dominican Rep. Sri Lanka Uzbekistan VenezuelaBelarus Hungary Venezuela Palau Swaziland Eritrea New Zealand Timor-Leste Easier to do business More difficult to do business 213 reforms made business easier in 2005/06; 25 made it more difficult

11 What gets measured, gets done 55 reforms informed or inspired by Doing Business

12 10 days of requests for reform advice on Doing Business Between November 13 and 22, 8 governments asked for and were given suggestions on improving their investment climate Azerbaijan (on licensing and entry, Ministry of Economy) Georgia (on bankruptcy and credit information, Ministry of Reforms) Guatemala (on licensing and trade, Competitiveness Commission) Korea (on court management, Ministry of Justice) Mexico (on property registration, Mexico City government) The Netherlands (on administrative burdens, Ministry of Finance) Nigeria (on entry, property, licensing, Ministry of Finance) Rwanda (on what to reform, Senate Committee) None of these requests related to World Bank loan conditionality

13 Georgia: big improvements in construction licensing

14 Serbia: top reformer in trade

15 Reform payoff: creating jobs Countries ranked by ease of doing business, quintiles HigherLower Unemployment (%) Note: Relationship is statistically significant at the 1% level and remains significant when controlling for income per capita

16 Doing Business continues to improve Using business infrastructure Not paying bribes Security of business property –from theft, vandalism