Doing Business 2014 Report
The 11th edition of the Doing Business Report compares business regulations for small and medium – size domestic enterprises in 189 economies. This is a copublication of The World Bank and the International Finance Corporation. A dedicated open website is available to access the report – www.doingbusiness.org.
The report focuses on 11 key areas of a business:
- Starting a business
- Dealing with construction permits
- Getting Electricity
- Registering Property
- Getting Credit
- Protecting Investors
- Paying Taxes
- Trading across borders
- Getting Contracts
- Resolving Insolvency
- Employing Workers
On average around the world, starting a business takes 7 procedures, 25 days and costs 32% of income per capita in fees. But while it takes as little as 1 procedure, half a day and almost nothing in fees in New Zealand, an entrepreneur must wait 208 days in Suriname and 144 in República Bolivariana de Venezuela.
Creditors need guarantees that their loans will be repaid. Information about potential borrowers and solid le-gal rights for creditors play an important part in providing those guarantees. Yet institutions providing these are not universal among the 189 economies: 35 have no credit bureau or registry that distributes information about borrowers, and 124 lack a modern collateral registry where a creditor can check whether a movable asset being pledged as collateral has any other liens on it.
What is the Bigger Picture?
Doing Business recognizes that the state plays a fundamental role in private sector development. Governments support economic activity by establishing and enforcing rules that clarify property rights and reduce the cost of resolving disputes, that increase the predictability of economic interactions and that provide contractual partners with core protections against abuse. So it is no surprise to find that there is no evidence suggesting that economies that do well on Doing Business indicators tend to have governments driven by a “smaller government” philosophy. Indeed, the data suggest otherwise. It is generally the bigger governments (as measured by government consumption expenditure as a percentage of GDP), not the small ones, that tend to provide more of the protections and efficient rules promoted by Doing Business
Who improved the most in 2012/13?
In 2012/13, 29 economies implemented in net 3 or more reforms improving their business regulatory systems or related institutions as measured by DoingBusiness. These 29 include economies from all income groups: high income (5), upper middle income (9), lower middle income (12) and low income (3). And they include economies from all regions.
Starting a Business
Starting a business is easiest in New Zealand, where it takes 1 procedure, half a day, less than 1% of income per capita and no paid-in minimum capital.
Globally since 2009 the average time to start a business has fallen by about 13 days. By region, Sub- Saharan Africa has shown the most improvement; with the average time to start a business falling from 55 days to 30 in 2013 Chile introduced a law allowing entrepreneurs to register certain types of legal entities online and free of charge. As a result of these improvements, the time to register a business in Santiago fell from 27 days in 2009 to 5.5 in 2013. India is lagging at the end of the distance to frontier scores graph with even countries like Guinea and Benin ahead of us. The graph shows how far a country is from the best performance.
Dealing with Construction Permits
Dealing with construction permits is easiest in Hong Kong SAR, China, where it takes 6 procedures and 71 days and costs 15.4% of income per capita to comply with requirements for building a storage warehouse and connecting it to water, sewerage and a fixed telephone line.
India is at the bottom of the chart with only Zimbabwe and Eritrea after us.
Getting an electricity connection is easiest in Iceland, where it takes 4 procedures and 22 days and costs 14.4% of income per capita ($5,554). Shortening connection times and streamlining processes were not the only reforms. Since 2010, 27 economies have reduced electricity connection costs using different strategies. Trinidad and Tobago thoroughly revised its capital contribution policy, drastically lowering costs for customers to connect to the grid. Between 2009 and 2013 the Russian Federation cut the cost of an electricity connection by more than 90%. In 2012 the Republic of Korea introduced a policy under which customers pay only 30% of connection costs up front and the remaining 70% over the next 2 years, enabling entrepreneurs to invest the outstanding amount in developing their businesses.
India’s position is relatively better on this count.
As measured by Doing Business, registering property is easiest in Georgia. Economies that rank well on the ease of registering property tend to have simple procedures, effective administrative time limits, fixed registration fees, low transfer taxes and online registries. The most common improvements were combining procedures, increasing administrative efficiency, computerizing registries and lowering property transfer taxes.
Over the past 5 years the average time to transfer property worldwide fell by 15 days, from 65 to 50, and the average cost by 0.2 percentage point, from 6% of the property value to 5.8%. Computerizing property transfer processes helps reduce processing times and enhance efficiency. In the 45 economies that computerized procedures—as diverse as Malaysia, the Netherlands and Sierra Leone—the average time to transfer a property was cut in half, from 64 days to 32, over the past 5 years. Going electronic also makes it easier to identify errors and overlapping titles, improving title security. India’s score is better than Mexico, Israel and Belgium, Ukraine and Egypt to name a few.
Malaysia and the United Kingdom remain tied at the top of the ranking on the ease of getting credit. For legal rights, the World Bank and other international institutions have recognized that secured credit is more widely avail-able to businesses in economies with efficient, effective laws that provide for consistent, predictable outcomes for se-cured lenders in the event of nonpayment by borrowers. The legal rights of borrowers and lenders and the strength of credit reporting systems are assessed by 2 sets of measures. The first analyzes the legal framework for secured transactions by looking at how well collateral and bankruptcy laws facilitate lending. The second examines the coverage, scope and quality of credit information available through public credit registries and private credit bureaus. But these institutions are not enough to guarantee access to finance for small and medium-size firms or firms in general, because the availability of credit depends on many other factors as well.
India does not feature in the graph of select nations which are moving towards the frontier in getting credit over the past 5 years.
New Zealand provides the strongest minority investor protections in related-party transactions as measured by Doing Business —for the ninth year in a row. Increasing disclosure requirements was the most common feature of investor protection reforms in the past 5 years. Doing Business assesses the strength of minority shareholder protections against Directors’ misuse of corporate assets for personal gain. The indicators measure 3 aspects of investor protections: approval and transparency of related-party transactions (extent of disclosure index), liability of company directors for self-dealing (extent of director liability index) and shareholders’ ability to obtain corporate documents before and during derivative or direct shareholder litigation.
During that period the most common change has been increasing disclosure ob-ligations and amending the approval process for related-party transactions—with 70% of reformers doing so—as opposed to, for example, increasing director liability or access to evidence. Among OECD high-income economies that share was even higher, at 85%.
Between June 2012 and June 2013 Doing Business recorded 32 reforms making it easier or less costly for companies to pay taxes—and since 2009 has recorded 189 Revenue authorities around the world are continuously making great efforts to streamline administrative processes and modernize payment systems. Today firms can file tax returns electronically in 76 of the 189 economies covered by Doing Business—from the taxpayer’s home, library, workplace
Doing Business records the taxes and mandatory contributions that a standard medium-size firm must pay in a given year and measures the administrative burden of paying taxes and contributions. It does so using 3 indicators: number of payments, time and total tax rate. Striking the right balance is therefore a great challenge for governments when designing tax policies. Whom to tax, by how much and how? One way to encourage compliance and have an effective tax system is to keep rules as clear and simple as possible. Thus it is important to measure both the level of tax rates and the administrative burden of compliance. Since 2009 Doing Business has recorded 189 tax reforms in 114 economies. Of these reforms, 57 introduced or enhanced online filing systems. These and other improvements to simplify tax compliance reduced the time to comply with the 3 main taxes measured (profit, labor and consumption) by 20 hours on average, and the number of payments by 4. Electronic systems for filing and paying taxes, if implemented well and used by most taxpayers, benefit both tax authorities and firms. For tax authorities, e-filing lightens workloads and reduces operational costs such as for processing, handling and storing tax returns. At the same time, e-filing increases compliance with tax obligations and saves time. By 2012, 76 economies had fully implemented electronic filing and payment of taxes.
Trading Across Borders
Trading across borders is easiest in Singapore for the seventh year in a row. The most common feature of trade facilitation reforms recorded by Doing Business in the past 5 years was the introduction or improvement of electronic submission and processing. But in 2012/13 the most common feature was the improvement of customs administration. Red tape and costs to ship goods over-seas are significant impediments to trade. Complicated border processes and bureaucratic bottlenecks hinder economic growth considerably by reducing access to global markets. This is a particular problem in developing economies: in some African economies revenue losses from inefficient border procedures are estimated to exceed 5% of GDP. Automation continued to play an important role in reforms as well.
India does not feature in the main graph on this count.
Enforcing contracts is easiest in Luxembourg, where resolving the standardized commercial dispute measured by Doing Business takes 321 days and 26 procedures and costs 9.7% of the value of the claim. Introducing e-filing was a common feature of reforms making it easier to enforce contracts in the past 5 years, considerably streamlining court procedures. Doing Business measures the time, cost and procedures involved in resolving a standardized commercial lawsuit between 2 domestic businesses through the local first-instance court. The dispute involves the breach of a sales contract worth twice the income per capita of the economy.
The introduction of specialized courts tends to lead to greater specialization of judges—resulting in faster resolution times, cheaper contract enforcement, shorter court backlogs and increased efficiency. Other economies have made courts more efficient by introducing comprehensive case management systems that control the movement of cases through courts or the total workload of courts. Case management is often performed by judges but can also be done by court administrators, especially if fully automated. India is again lagging in this aspect of progress towards the frontier in regulatory practice in enforcing contracts in the past 5 years,
Creditors of firms facing insolvency in Japan have higher recovery rates than in other economies. Common features of insolvency reforms in the past 5 years include passing new bankruptcy laws, eliminating formalities and tightening time limits of insolvency proceedings, and regulating the profession of insolvency administrators.
Weaknesses of insolvency regimes become apparent during crises. When a weak insolvency framework does not pro-vide for effective formal and out-of-court mechanisms to address financial distress, more debts remain unresolved and more companies languish, unprofitable but with their assets unavailable to their creditors and little chance of turnaround. An insolvency framework that allows debtors and creditors to find solutions through fast, inexpensive, transparent procedures can facilitate debt repayment, encourage lending and lead to a higher survival rate for viable enterprises.
To analyze the efficiency of insolvency frameworks across economies, Doing Business measures the time, cost and out-come of insolvency proceedings involving domestic entities. The time for creditors to recover loans is recorded in calendar years. The cost of proceedings is recorded as a percentage of the value of the debtor’s estate. Doing Business analyzes 1 of the 4 types of procedures that may apply to an insolvent firm: reorganization, liquidation, receiver-ship and foreclosure.
These procedures differ in 3 main ways: the extent to which they allow secured creditors to recover their debt, the likelihood that a viable business will continue operating as a going concern after insolvency proceedings and the extent to which the concerns of unsecured creditors are addressed. The highest recovery rates are recorded in economies where reorganization is the most common insolvency proceeding.
India has a reasonable position on this count though still lagging behind Sri Lanka, Uzbekistan, Peru, Panama, The Gambia, Ethiopia, Ghana etc.
The report highlights 3 of the 29 areas of labor regulation measured: probationary period,
paid annual leave and length of the workweek. Most economies set 3–6 months as the maximum duration for probationary periods. Seventy-nine economies provide 15–21 days paid annual leave, consistent with International Labor Organization (ILO) Convention 132 on holidays with pay. One hundred and seventy-eight economies limit employees’ workweek in manufacturing to 6 or fewer days, complying with ILO Convention 14 on the length of the workweek. Doing Business; through its employing workers indicators, measures flexibility in regulation of employment relating to hiring, work scheduling, redundancy rules and redundancy costs.
To make data comparable across 189 economies, Doing Business uses a standardized case study that assumes, among other things, a limited liability manufacturing company with 60 employees.
Among the 189 economies covered by Doing Business , 7% do not allow any probation, 59% allow a probationary period of 3 months or less, 2% allow between 3 and 6 months and 32% al-low 6 months or more.
The formal sectors of low-income economies provide the most days of mandatory paid annual leave. But in these economies the formal sector does not include most workers, so this benefit is available to only a small group of workers. Most of the economies covered by Doing Business have balanced provisions. This is true across all income groups. But when focusing on economies with excessively rigid or flexible workweek regulations, some interesting trends emerge. More than 10% of low-income economies limit the workweek to 5 days. Conversely, when workweek regulations are of balance in high-income and lower-middle-income economies, it is often because of excessive flexibility
Significance of the Report
By providing useful insights into good practices worldwide in business regulations, Doing Business helps mobilize policy makers to reduce the cost and complexity of government procedures and to improve the quality of institutions. Such change serves the underprivileged
the most—where more firms enter the formal sector, entrepreneurs have a greater chance to grow their businesses and produce jobs, and workers are more likely to enjoy the benefit of regulations such as social protections and safety regulations. If economies around the world followed the best practice in regulatory processes for starting a business, entrepreneurs would spend 45.4 million fewer days each year satisfying bureaucratic requirements Economies that improve in areas measured by Doing Business are on average more likely than others to also implement reforms in other areas—such as governance, health, education and gender equality.
Attribution: This work is available under the Creative Commons Attribution 3.0 Unported license (CC BY 3.0) http://creativecommons.org/licenses/by/3.0. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: World Bank. 2013. Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises. Washington, DC: World Bank Group. DOI: 10.1596/978-0-8213-9984-2. License: Creative Commons Attribution CC BY 3.0