WASHINGTON, D.C., September 13, 2005
– The economies of the Commonwealth of Independent States (CIS) are increasing the pace of reform to help small and medium businesses generate more jobs. Russia has second fastest pace of reforms among CIS countries after Georgia, which is among the top global reformers. But reformers in the region lag behind their Eastern European neighbors, and heavy legal burdens on business remain in most countries, according to a new report from the World Bank Group.
Doing Business in 2006: Creating Jobs
, cosponsored by the World Bank and the International Finance Corporation, the private sector arm of the World Bank Group, finds that such reforms, while often simple, can create many new jobs. The report tracks a set of regulatory indicators related to business startup, operation, trade, payment of taxes, and closure by measuring the time and cost associated with various government requirements. It does not track variables such as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates.
“Jobs are a priority for every country, and especially the poorest countries. Doing more to improve regulation and help entrepreneurs is key to creating more jobs--and more growth. It is also a key to fighting poverty. Women, who make up three quarters of the work force in some developing economies, will be big beneficiaries. So will young people looking for their first job. The past year's diverse range of successful reformers—from Serbia to Rwanda—are showing the way forward. We can all learn from their experience,” said Paul Wolfowitz, President of the World Bank Group.
The annual report finds that every country in the CIS improved at least one aspect of the business environment—among the highest rate of reform of any region. According to the report, Russia reformed three areas of business regulation.
Reforms in Russia
Last year Russia was the second fastest reformer among CIS countries after Georgia. Important reforms that took place simplified procedures and reduced time needed to register a new business; laid the groundwork for the creation of private credit registries to improve access to credit; and simplified taxation.
Russia simplified business entry procedures for the second year in a row. If three years ago it took three months and 19 procedures to start a new business, now it takes one month and eight procedures. However, there is still room for improvement. For example, in Australia, a global leader in terms of the ease of starting a business, it takes only two days and two procedures.
Last year Russia made a major step in increasing access to finance by passing a law on credit registry. This law allows for the creation of private credit bureaus and makes it mandatory for banks to submit information to credit bureaus.
Tax reform in Russia continues for the third year. Lately corporate tax base has been changed, which lowered tax burden and made the system more transparent. VAT tax was lowered as well.
Needed Reforms in Russia
Though Russia is among top reformers in the CIS, more reforms are needed. Some of the more immediate reforms needed include simplification and centralization of procedures of issuing licenses and registering property and land. Currently regional governments have the authority to establish these procedures that makes unification of standards difficult. Recently Poland, Bulgaria and Georgia implemented reforms to unify these procedures under the central government. The reforms in the area of licenses and property registration can be easily implemented as they do not require a law; they can be passed by a government decree.
Another important reform is in the area of social security. Russia and other former Soviet countries have some of the highest social security payments in the world, higher than even in Western Europe. An employer in Russia has to pay 360 rubles in social security payments on each 1,000 rubles of salary. This leads to informal employment, which means no social protection for employees at all.
Though recently reforms in Russia have slowed down, the country is well positioned compared to its main competitors among other major emerging markets. Russia continues to reform faster than such major emerging markets as India, Brazil and China. In the global ranking of countries on the ease of doing business, Russia ranks 79th out of 155 countries participating in the Doing Business survey, while India ranks 116th , Brazil – 119th, and China – 91st.
Reforms in CIS Countries
Other notable reforms in CIS countries in the past year:
· Ukraine and Azerbaijan made it easier for entrepreneurs to start a business.
· Armenia introduced case management into courts, streamlining contract enforcement. Kazakhstan cut 20 days from the time to enforce a contract by allowing approved private firms to execute court judgments. Belarus streamlined the court appeals process.
· Armenia increased the flexibility of employment law.
· Ukraine improved the regulations of credit markets with a new collateral law, allowing entrepreneurs to use a broader range of assets as collateral, and allowing creditors to enforce collateral privately, without a lengthy court trial. Creditors now have first priority to the collateral if the debtor defaults.
· A new credit bureau was established in the Kyrgyz Republic, making it easier for lenders to evaluate creditworthiness. Public credit registries were established in Armenia and Azerbaijan.
· Kazakhstan introduced new laws to encourage sharing of credit information.
· Moldova and Uzbekistan cut the corporate tax rate by 3 and 2 percentage points respectively.
Overall, European nations were the most active in enacting reforms. The top 12 reformers in the past year, in order, were Serbia and Montenegro, Georgia, Vietnam, Slovakia, Germany, Egypt, Finland, Romania, Latvia, Pakistan, Rwanda, and the Netherlands.
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For more information on
Doing Business in 2006
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