Doing Business in Russia 2012 Augusto Lopez-Claros Director, Global Indicators & Analysis World Bank-IFC Saint Petersburg International Economic Forum June 21, 2012

Doing Business indicators reflect on some of the most important obstacles firms face Percent of firms identifying the problem as the main obstacle to their business activity Based on Enterprise Surveys in 118 countries around the world Direct responses from representative samples of the private sector Access to finance, electricity, informality and tax rates are the top obstacles across the developing world

The Doing Business indicators have a strong theoretical foundation The Regulation of Entry by Djankov and others, Quarterly Journal of Economics, Feb 2002. Countries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality of public or private goods Private Credit in 129 Countries by Djankov, McLiesh and Shleifer, Journal of Financial Economics, May 2007. Creditor protection through the legal system and information sharing institutions such as credit bureaus are associated with higher ratios of private credit to GDP. Credit rises after improvements in creditor rights and in information sharing Trading on Time by Djankov and others, Review of Economics and Statistics, Nov 2008. Each additional day that a product is delayed prior to being shipped reduces trade by more than one percent Courts by Djankov and others, Quarterly Journal of Economics, May 2003. Procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in judicial decisions, and inferior access to justice The Regulation of Labor by Botero and others, Quarterly Journal of Economics, June 2004. Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment, especially of the young The Effect of Corporate Taxes on Investment and Entrepreneurship, by Djankov and others, American Economic Journal: Macroeconomics, July 2010. The corporate tax rate has a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. It is also correlated with investment in manufacturing as well as with the size of the informal economy.

Doing Business indicators – 11 areas of business regulation (10 included in the ranking) Start-up Expansion Operations Insolvency Starting a business Minimum capital requirement, procedures, time and cost Registering property Procedures, time and cost Getting credit Credit information systems Movable collateral laws Protecting investors Disclosure and liability in related party transactions Enforcing contracts Procedures, time and cost to resolve a commercial dispute Dealing with construction permits Procedures, time and cost Paying taxes Payments, time and Total Tax Rate Trading across borders Documents, time and cost Getting electricity Employing workers (annex) Resolving insolvency (formerly Closing a business) Time, cost and recovery rate Entry Property rights Investor protection Access to credit Administrative burden Flexibility in hiring Recovery rate Reallocation of assets 4

How does Doing Business measure the ease of doing business? 1 Singapore The overall ease of doing business: 2 Honk Kong SAR, China (1) Starting a business (2) Dealing with construction permits (3) Getting electricity (4) Registering property (5) Paying taxes (6) Trading across borders (7) Enforcing contracts (8) Protecting investors (9) Getting credit (10) Resolving insolvency 3 New Zealand 4 United States 5 Denmark Top ranked countries in DB2012 6 Norway 7 United Kingdom 8 Korea, Rep. 9 Iceland 10 Ireland

New metric on ‘distance to the frontier’: tracking economies’ progress over time Narrowing the Distance to the Frontier from 2005 to 2011 (percentage points) China India …captures the absolute improvement that countries have made over time, and …also provides information on how far countries have been away from the “frontier” – a measure based on the most efficient business regulatory practices observed by the Doing Business Project across countries and over time.

New metric on ‘distance to the frontier’: tracking Russia’s progress over time Narrowing the Distance to the Frontier from 2006 to 2011

Subnational Doing Business (SNDB) – How does Russia benefit from it? Creates baseline and captures local difference in regulations Pinpoints bottlenecks and provides information on good practices within the same country that can easily be replicated Captures reforms Diagnostic Tool 1 Monitoring Device 3 Reform Instrument 2 Allows locations to compete locally and globally Promotes peer to peer learning Initiates a reform process by engaging local governments and reforms stakeholders Measures progress over time through repeated benchmarking Creates an incentive to maintain reform effort even when governments change

What is new in Doing Business in Russia in 2012? Covers 30 cities Updates data and tracks reforms for the 10 cities measured in the Doing Business in Russia 2009 in 3 topics Data is current as of November 2011 Surveys administered through over 600 contributors The report covers 4 indicators Starting a business Dealing with construction permits Getting electricity Registering property

Doing Business in Russia 2012 benchmarks 30 locations Round 1 locations Round 2 locations St.Peterburg Petrozavodsk Murmansk Vyborg Kaliningrad MOSCOW Tver Yakutsk Yaroslavl Kaluga Saransk Surgut Voronezh Rostov-on-Don Khabarovsk Tomsk Samara Irkutsk Stavropol Ulyanovsk Vladivostok Ekaterinburg Kazan Perm Omsk Kirov Vladikavkaz Volgograd Kemerovo Novosibirsk

What are the key findings? No city outperforms the others in all areas Average start up costs are among the least expensive in the world Registering property is inexpensive and easy across Russian cities All 10 cities measured for the second time have improved in at least two of the 3 areas measured twice Numerous procedures take a long time and carry a high cost in the areas of dealing with construction permits and getting electricity Overall, it is easier to start a business, deal with construction permits, get electricity and register property in Ulyanovsk and Saransk

No city outperforms the others in more than one area Aggregate Rank Starting a business Construction permits Getting electricity Registering property Ulyanovsk 1 3 4 5 8 Saransk 2 20 Vladikavkaz 27 11 Rostov-on-Don 26 15 Kazan 14 17 Kaluga 6 9 Stavropol 7 19 Yaroslavl 16 Surgut 30 Irkutsk 10 18 Petrozavodsk 21 Kirov 12 13 Omsk Vyborg 23 Vladivostok 22 City Aggregate Rank Starting a business Construction permits Getting electricity Registering property Volgograd 16 2 27 26 4 Voronezh 17 15 28 8 Tver 18 21 25 14 Kaliningrad 19 11 3 22 Tomsk 20 6 10 Samara 24 St. Petersburg 1 9 Khabarovsk 23 29 Yekaterinburg 13 Perm 12 Murmansk Kemerovo 7 Yakutsk 30 Novosibirsk Moscow

It is easier now to do business in all 10 cities measured twice City Starting a business Dealing with construction permits Registering property Irkutsk √ Kazan Moscow Perm Petrozavodsk Rostov-on-Don St. Petersburg Tomsk Tver Voronzeh Doing Business reforms making it easier do to business  

Compared globally, starting a business is inexpensive in all cities

More efficient one-stop shops and better coordination speeds up start up in some cities One-stop shop in Saint Petersburg (ranks 1st in Starting a business) One-stop shop in Saransk (ranks 20th in Starting a business)

Construction permit requirements vary significantly across cities—especially before construction

Cities are improving the construction permitting process, but challenges remain City Reduced time for processing permit applications Streamlined procedures Adopted new building regulations Introduced risk-based approvals Irkutsk Moscow Kazan Perm Petrozavodsk Rostov-on-Don St. Petersburg Tomsk Tver Voronezh

Getting electricity: Fewer procedures do not necessarily shorten delays

Property registration is easy and inexpensive in Russia Procedures, time and cost to register property 13 60 Yakutsk 7.3 India Brazil 45 5.7 Kemerovo Japan 44 St. Petersburg 5.2 Germany Eastern Europe & Central Asia, Japan, Turkey 40 Germany, Kazakhstan 4.4 6 OECD high income 39 Brazil 4.0 Finland 3.6 India, Germany, OECD high income, Kemerovo, St. Petersburg 35 China Russia average 3.3 5 Turkey 33 Eastern Europe & Central Asia 2.8 31 Eastern Europe & Central Asia OECD high income 2.3 Russia Average, Yakutsk China, Kazakhstan 4 29 Brazil China 26 Vladivostok, Vladikavkaz Finland, Vladivostok, Vladikavkaz, Kaluga 3 19 0.59 Kaluga Yakutsk 14 0.23 Russia average Finland, Japan Saudi Arabia 1 6 Turkey 0.1 Kazakhstan 1 Saudi Arabia Saudi Arabia Procedures (number) Time (days) Cost (% of income per capita)

Property registration is faster in the 10 cities studied in 2008

Russian cities can learn from each other Doing Business indicator Sub-Indicator Global Rank DB 2012*  Best practice in Russia Value Rank (1-183) City Starting a business Cost (% income per capita) 2 28 1.7 21 Kazan Procedures (number) 9 124 7 86 Kirov, Murmansk, Perm, Petrozavodsk, St. Petersburg, Stavropol, Yakutsk and Yaroslavl Time (days) 30 126 16 87 Kaliningrad Dealing with construction permits 183.8 113 40.0 46 51 181 103 Murmansk 423 173 150 78 Surgut Getting electricity 1852.4 140 112.2 47 Omsk 10 182 6 121 Kemerovo, Perm, Rostov-on-Don, Samara and Yakutsk 281 178 120 Vladikavkaz Registering property Cost (% of property value) 0.2 16 cities including Kaluga, Kazan and Surgut 5 49 3 12 18 cities including Irkutsk, Rostov-on-Don and Tver 43 104 13 Khabarovsk Source: Doing Business database

Why does it matter? Starting a business Countries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality of public and private goods. A recent study in the United States shows that accelerating permit approvals by 3 months in a 22-month project cycle could increase construction spending by 5.7% and property tax revenue by 16%. Dealing with construction permits Managers in 109 economies consider electricity to be among the biggest constraints to their business; they estimated losses due to power outages at an average 5.1% of annual sales. Getting electricity Following a land titling project in Thailand, property increased in value by 75–197% after being registered. Registering property

Good business regulations and governance In countries where business regulation is efficient and information on documentation requirements and fee schedules is easily accessible, the costs to start a business are much lower.

Average Ease of Doing Business rank Economies that score higher on the ease of doing business, tend to receive higher FDI inflows Average Ease of Doing Business rank FDI inflows per capita, 2010 (US$) 6 45 96 Denmark, Finland, Iceland, Ireland, Korea, Rep., New Zealand, Norway, Singapore, United Kingdom, United States Chile, Colombia, Kazakhstan, Oman, Peru, Rwanda, Slovak Republic, Spain, Tunisia Belize, China, Greece, Guatemala, Jordan, Morocco, Serbia, Vietnam, Yemen

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