Doing Business Report 2018

Why does it matter?

Gahena Gambani, Class of 2020

Back in 2003, if an entrepreneur, or anyone with an idea, wanted to start something on their own, they had to make the difficult decision of choosing the location for their venture, with so many available options. Every country had its own pros and cons. In a bid to collate and analyse information about the feasibility of starting and running businesses in countries, Bulgarian Economist Simeon Djankov, along with Harvard Professors Oliver Hart (Nobel Laureate 2016) and Andrei Shleifer started the Doing Business report at the World Bank. The report was also intended to serve as impetus for countries to make reforms in their economy that would encourage the advent of businesses and increase investment from foreign sources.

What is the Doing Business report and why does it matter?

The Doing Business report, first published in 2003 by the World Bank Group, ranks all the economies in the world based on enforcement of business regulations to domestic medium and small-sized companies. It was started to enable the consideration of variables such as the duration of court procedures and degrees of social protection, to shed light on matters that were generally overlooked when judging how business-friendly an economy truly was.

What does the Doing Business report include?

Back in 2003, the report covered only 5 indicators and 133 countries. This year’s report, published on 31st October, 2017, includes a list of 11 factors important to consider when starting an entrepreneurial venture:

· Ease of doing business, which measures the informal nature of an economy. It tells us the extent to which unregulated markets, such as the one for vocational labour, were able to enter the regulated economy, and thus actively contribute to the Gross Domestic Product (GDP) of the country.

· Labour market regulations, which measures the general working conditions in an economy, including ease of hiring, working hours, redundancy of labour (the extent to which new hires are surplus) and job satisfaction.

· Dealing with construction permits, which deals with the number of construction permits required and the ease with which they can be acquired, the strength of quality control for the materials used, and the general level of bureaucracy.

· Getting electricity, which evaluates the procedures, time and cost of securing a permanent electricity connection, along with the transparency of supply and tariffs.

· Registering property, which looks at the procedure, time and cost involved in registering property free of title dispute, and the quality of land administration in the country, which involves looking at the transparency and reliability of information.

· Getting credit, which measures the strength of credit reporting systems (to facilitate access to information about efficient credit lending) and effectiveness of bankruptcy laws.

· Protecting minority investors, which measures strength of protection put in place for smaller shareholders against the misuse of corporate assets by directors for personal gain.

· Paying taxes, which measures the rigidity and level of taxation in the economy, as well as the administrative burden in paying taxes.

· Trading across borders, which evaluates the logistical process of exporting and importing goods, including documentary and border compliance and domestic transport.

· Enforcing contracts, which measures the time and cost of resolving commercial dispute through a local, first-instance court and the quality of judicial processes.

· Resolving insolvency, which measures the time, cost and outcome of insolvency proceedings.

In this year’s report, there were some countries, regarded as developing economies, which made big jumps in their rankings. Below, we look at the changes made in the past year that could have led to the improvement.

· India (130 to 100): Changes were made in all spheres except getting electricity and registering property. With the Union Budget introduced this month and the long-awaited cut in corporate taxation not following through, the paying taxes indicator might have lower scores next year. Nevertheless, a jump from 130 to 100 is a strong indicator of international approval of the way the Indian economy is functioning.

· Kosovo (60 to 40): Kosovo made changes that affected only three rankings but was able to jump 20 points up in the rankings, from 60 to 40. While the GDP growth has only been 4.4% in the last quarter, it made the process of registering employees simpler, strengthened access to credit through new laws and made dealing with insolvency easier through liquidation procedures.

· Uzbekistan (87 to 74): The Uzbekistan Government made improvements in five factors, including the ease of starting a business, getting approvals for land plots and securing an electrical connection, helping it jump 13 ranks. This, along with the electronic systems introduced to file all taxes in one place reduced bureaucracy paints a favourable picture of the Uzbek economy. However, an recent upset for the country has been the drop in the position in Index of Economic Freedom and speculators will want to look into it before making any predictions about the economy.

Helpful and insightful as they are, these rankings have their limitations: the kind of factors they choose to include and omit. Different entrepreneurial minds might be looking for varied factors when deciding the country that will suit their venture best. Given the credibility of the World Bank and the weight its opinion holds, however, this report still influences the rapidly growing entrepreneurial culture in developing countries like India.

While India has performed well this year, with General Elections due next year and the Union Budget being released recently, it will be interesting to see whether India will continue this upward curve. Kosovo, on similar lines, seems to be bracing itself for an economic slump; a recent press release by the executive board of the IMF outlined the dangers of low labour force participation, saying that high unemployment and high informality could severely affect the country’s position in next year’s report, given that these are measures specifically explored by the report. Finally, for Uzbekistan, even upsetting drop in the Index of Economic freedom, all hope is not lost. The country’s recent reforms towards liberalizing the economy, such as removal of trade barriers and permitting the export of agricultural products have garnered praise from various sources including Kristalina Georgieva, CEO of the World Bank, which could work in favour of the country’s rank next year.

Thus, with reforms being made everyday, keeping in mind the several variables that affect economic decision-making, a definitive stance about the benefit of a jump in rankings and possibility of maintaining positive progress remains to be seen.

Access the report here.