WASHINGTON, September 8, 2004
–
India
made the most progress among South Asian nations in improving its investment climate last year and was rated among the top 10 reformers in the world, according to a new report from the World Bank Group. However,
South Asia lagged behind other regions
in enacting investment climate reforms.
Doing Business in 2005: Removing Obstacles to Growth
, a report cosponsored by the World Bank and International Finance Corporation, the private sector lending arm of the World Bank Group, finds that such reforms, while often simple, can help create job opportunities for women and young people, encourage businesses to move into the formal economy, and promote economic growth.
The report, however, which benchmarks regulatory performance and reforms in 145 nations, finds that poor nations, through administrative procedures, still make it
two times harder than rich nations
for entrepreneurs to start, operate, or close a business, and businesses in poor nations have less than half the property rights protections available to businesses in rich countries.
On average, it takes a business in a rich nation six procedures, 8 percent of income per capita, and 27 days to get started; in
South Asian countries, the same process takes nine procedures, 45 percent of income per capita, and 47 days.
In the Netherlands and New Zealand, it takes two months to enforce a contract through the courts; in South Asia, more than a year. In countries such as Singapore or Ireland, a business can complete insolvency proceedings in less than a year; in India, it takes 10 years.
Potential investors in Canada and the United Kingdom enjoy all seven main types of access to the ownership and financial information of publicly listed companies, while
investors in Bangladesh and Nepal have less than half as much access.
Overall,
rich countries undertook three times as many investment climate
reforms
as poor countries last year. European nations were especially active in enacting reforms. The top 10 reformers for the most recent survey year were Slovakia, Colombia, Belgium, Finland, India, Lithuania, Norway, Poland, Portugal, and Spain.
India established a private credit registry and made improvements in enforcing debt contracts and bankruptcy laws. But India still maintains heavy regulatory burdens on business, along with other nations in South Asia.
Other findings related to South Asian economies:
·
Of the 58 countries that reformed business regulation or strengthened the protection of property rights in the last year,
only three were in South Asia
–
India, Pakistan, and Bangladesh
.
·
Despite positive reforms,
India still ranks in the bottom quartile on the ease of doing business.
·
No economies
in the region ranked in the top quartile of 145 countries on the ease of doing business.
Bangladesh
and
Pakistan
ranked in the second best quartile.
Bhutan, Sri Lanka, and Nepal
ranked in the third best quartile.
·
Pakistan
improved its public credit registry by allowing online access. And
Bangladesh
increased the legal penalties for poor-quality data in its registry.
·
South Asian countries impose the highest costs on firing workers
of any region in the world – on average it takes 86 weeks of wages in severance, penalties, and notifications to dismiss a worker.
·
They also have among the
lowest recovery rates for claimants in insolvency
(after Africa) and among the
highest costs of enforcing a contract through the courts
.
“Poor countries that desperately need new enterprises and jobs risk falling even further behind rich ones who are simplifying regulation and making their investment climates more business friendly,” said Michael Klein, World Bank/IFC Vice President for Private Sector Development and IFC Chief Economist.
Doing Business in 2005
updates the work of last year’s report on five sets of business environment indicators:
starting a business
,
hiring and firing workers
,
enforcing contracts
,
getting credit
, and
closing a business
; it expands the research to 145 countries and adds two new indicators,
registering property
and
protecting investors
.
Since last year, 13 governments have asked for their countries to be included in the
Doing Business
analysis.
“
This year,
Doing Business
gives policymakers an even more powerful tool for measuring regulatory performance in comparison to other countries, learning from best practices globally, and prioritizing reforms,” said Simeon Djankov, an author of the report.
For example, this year’s report catalogs wide variances in hiring and severance costs across countries and shows that high severance costs can discourage job creation. The report also shows that poor regulation of bankruptcy can cause business loans to dry up: in 50 countries, creditors can expect to recover less than 20 cents on the dollar when a business goes bankrupt.
The main research findings
of
Doing Business in 2005:
·
Businesses in poor countries face larger regulatory burdens than those in rich countries
. Poor countries impose higher costs on businesses to fire a worker, enforce contracts, or file for registration; they impose more delays in going through insolvency procedures, registering property, and starting a business; and they afford fewer protections of legal rights for borrowers and lenders, contract enforcement, and disclosure requirements. In administrative costs alone, there is a threefold difference between poor and rich nations. The number of administrative procedures and the delays associated with them are twice as high in poor countries.
·
The payoffs from reform appear to be large
.
The report estimates that an improvement from the bottom to the top quartile of countries in the ease of doing business is associated with an additional 2.2 percentage points in annual economic growth. An indication of the payoff comes from Turkey and France, each of which saw new business registration increase by 18 percent after the governments reduced the time and cost of starting a business last year. Slovakia’s reform of collateral regulation helped increase the flow of bank loans to the private sector by 10 percent. The payoff comes because businesses waste less time and money on unnecessary regulation and devote more resources to producing and marketing their goods and because governments spend less on ineffective regulation and more on social services.
·
Heavy regulation and weak property rights exclude the poor – especially women and younger people – from doing business
.
The report finds that weak property rights and heavy business regulation conspire to exclude the poor from joining the formal economy. “Heavy regulation not only fails to protect women, young people, and the poor – those it was intended to serve – but often harms them,” said Caralee McLiesh, an author of the report.
Doing Business
shows that countries with simpler regulations can provide better social protections and a better economic climate for business people, investors, and the general public. The report builds on noted economist Hernando de Soto’s work, showing that while it is critical to encourage registration of assets, it is as important – and
harder – to stop them from slipping back into the informal sector.
Doing Business in 2005
finds that reform took place last year mainly in countries that faced competition and had incentives to measure regulatory burdens. In the enlarged European Union, accession countries reformed in anticipation of the new competitive pressures on their businesses; existing members reformed to maintain their advantage against the lower-wage producers from accession countries.
In developing countries, performance targets set by the International Development Association and donor country aid programs spurred poor countries to examine regulatory obstacles and propose reforms. Most reforms focused on simplifying business entry and improving credit information systems. African countries reformed the least of all regions and had the most regulatory obstacles to doing business, followed by Latin American countries.
The top 20 economies
in terms of ease of doing business are New Zealand, United States, Singapore, Hong Kong/China, Australia, Norway, United Kingdom, Canada, Sweden, Japan, Switzerland, Denmark, Netherlands, Finland, Ireland, Belgium, Lithuania, Slovakia, Botswana, and Thailand.
The
Doing Business
project is the product of more than 3,000 local experts – business consultants, lawyers, accountants, and government officials – and leading academics, who provided methodological support and review. The data, methodology, and names of contributors are publicly available online.
