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6 DOING BUSINESS 2014 BOX 1.1 The right time to improve business regulations For the first time, this year’s report measures business regulations in Libya, Myanmar and South Sudan, economies that emerged from conflict or are starting to open up to the global economy after years of isolation. This is the right time to improve business regulations. Old laws and regulations still apply in Myanmar, including the Companies Act of 1914, the Code of Civil Procedure of 1908 and the Evidence Act, 1872. In Libya the civil code and the civil and commercial procedure codes all date back to 1953. In South Sudan the challenge is not updating old laws and regulations but creating new ones from scratch. This process takes time. Yet since independence in 2011, South Sudan has passed a company law, tax law and insolvency law. Doing Business provides baseline data that can help inform policy makers designing laws and their implementation. Data in this year’s report show that these 3 economies rank among the bottom 10 on the ease of doing business. Although their performance varies somewhat across Doing Business topics, the data consistently show that these economies have complex and costly regulatory procedures and weak institutions relevant to business regulation (see figure). But in all 3 economies new laws are under discussion that may affect future editions of the Doing Business data. Doing Business will continue to measure and monitor potential improvements. There are many areas for regulatory improvement in fragile and conflict-affected states Global ranking, by Doing Business topic Starting a 189 171 business 189 Resolving Dealing with insolvency construction 112 105 108 permits 150 Enforcing Getting 68 contracts 118 77 electricity Libya Trading 143 89 across 93 Registering borders 64 property 189 116 133 113 Paying taxes Getting credit 186 Protecting investors 187 South Sudan 189 Starting a Resolving business Dealing with insolvency 140 construction 171 permits 124 87 Enforcing 134 117135 Getting 184 contracts 123 electricity Trading 141 121 187 across Registering borders property 183 126 113 114 Paying taxes Getting credit 92 Protecting investors 180 182 Libya Middle East & North Africa South Sudan Sub-Saharan Africa 189 Starting a business 155 Resolving insolvency 150 Dealing with construction 100 permits 108 188 Enforcing 76 126 Getting electricity contracts 91 79 75 113 Trading across 92 154 Registering borders 73 81 property 86 107 Paying taxes Protecting investors 182 170 Getting credit 120 Starting a business Resolving 135 Dealing with 189 insolvency 112 construction 105 permits Enforcing contracts 108 Getting electricity 179 118 77 82 147 Trading across 89 64 93 Registering borders 133 property 82 113 Getting credit Paying taxes 180 120 Protecting investors 115 Myanmar Myanmar East Asia & Pacific Syrian Arab Republic Syrian Arab Republic Middle East & North Africa Note: Numbers are economy and regional average rankings, with 1 denoting the highest ranking on a topic and 189 the lowest. Source: Doing Business database. In economies affected by conflict, reforming business regulations is almost always a difficult task—even as firms often face increasing challenges in the business regulatory environment. Civil strife, a substantial weakening in the state’s ability to enforce the law and other characteristics of conflict-affected states often bring about a substantial worsening of the conditions in which the private sector operates. The Syrian Arab Republic was the economy that showed the greatest deterioration in 2012/13 in the areas measured by Doing Business. The time and cost associated with trading across borders increased substantially, for example, and no building permits are being issued in Damascus, making it impossible to legally build new construction. Yet there is encouraging news from other fragile and conflict-affected states. A recently published report, Doing Business in the g7+ 2013, shows that all economies in the g7+ group have improved their business regulatory environment since 2005, narrowing the gap with the best performance observed globally by Doing Business. a Sierra Leone, Burundi, Guinea-Bissau, Timor-Leste, Côte d’Ivoire, Togo and the Solomon Islands are all among the 50 economies making the biggest improvements between 2005 and 2012. a. A special report, Doing Business in the g7+ 2013 compares business regulations in economies of the g7+ group: Afghanistan, Burundi, the Central African Republic, Chad, the Comoros, the Democratic Republic of Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. The g7+ group is a country-owned and country-led global mechanism established in April 2010 to monitor, report and draw attention to the unique challenges faced by fragile states.
OVERVIEW 7 FIGURE 1.5 Good performers on Doing Business indicators are likely to be more inclusive—with a smaller informal sector and greater gender equality under the law 100 100 Distance to frontier (percentage points), 2007 80 60 40 Distance to frontier (percentage points), 2013 80 60 40 20 10 20 30 40 50 60 Informal sector as % of GDP, 2007 20 0 10 20 30 Number of restrictions for women in the law, 2013 Note: The correlation between the distance to frontier and the size of the informal sector is −0.65. The correlation between the distance to frontier and the number of restrictions for women in the law is −0.34. Both relationships are significant at the 1% level after controlling for income per capita. The number of restrictions for women in the law refers to those measured by Women, Business and the Law, a data set capturing 47 legal restrictions on women’s employment and entrepreneurship. Source: Doing Business database; Schneider, Buehn and Montenegro 2010; World Bank Group, Women, Business and the Law database. rampant and state capture or corruption is the norm. To understand the challenges faced by businesses, the Doing Business rankings and underlying data therefore need to be used in conjunction with other information. Of course, sound business regulations are not the only thing on which a thriving business environment depends. Other areas beyond the focus of Doing Business are also important—including stable macroeconomic policy, a well-educated workforce and well-developed infrastructure, just to name a few. WHAT GAINS WERE ACHIEVED IN 2012/13? Reforming in any area of government policy is a challenge. Business regulation is no exception. Implementing regulatory changes often requires agreement among multiple agencies in a government. Consider a onestop shop for business registration. Creating one involves coordination across the business registry, the statistical office, the municipal tax office and the state tax office, to name just a few. But 96 economies have nevertheless done so. Governments undertake such reforms because reducing the complexity and cost of regulatory processes or strengthening legal institutions relevant to business regulation brings many benefits. Governments benefit from cost savings because the new systems often are easier to maintain (though setting up a new system involves an initial fixed cost). Firms benefit from more streamlined and less costly processes or more reliable institutions. And economies as a whole benefit from new firm start-ups, more jobs, growth in trade and greater overall economic dynamism (see the chapter on research on the effects of business regulations). In 2012/13 such efforts continued around the world: 114 economies implemented 238 regulatory reforms making it easier to do business, about 18% more reforms than in the previous year. This is the second highest number of reforms implemented in a year since the financial crisis of 2009. Inroads in reducing formalities The results of these reforms are tangible. They can be quantified by adding up all the regulatory procedures, payments and documents required for a small to mediumsize firm to complete a set of transactions—such as to start a business, register property and so on—in every economy covered by Doing Business. In 2012 such formalities would have come to a total of 21,272 and taken 248,745 days to complete (table 1.2). Thanks to the regulatory reforms undertaken in 2012/13, this regulatory maze now contains about 300 (1.3%) fewer formalities than in 2012. 2 Compared with 2005, the first year in which data for 9 of the 10 Doing Business indicator sets were first collected, the number of formalities has fallen by about 2,400 (11%) and the time by about 40,000 days. These calculations are for a hypothetical case taking 1 firm through all procedures measured by Doing Business in every economy covered. But some economies are much larger than others, and in these economies the burden of poor regulation affects a larger number of firms. In the 107 economies covered by both Doing Business and the World Bank’s Entrepreneurship Database, an estimated 3.1 million limited liability companies were newly registered in 2012 alone. 3 Assuming that they followed the rules and regulations for company incorporation in their home economy as measured by Doing Business, these 3.1 million firms together dealt with 18.7 million different procedures and spent 46.9 million days to get incorporated. But if all 107 economies followed best practice in regulatory processes for starting a business, these new firms would have had to spend only 1.5 million days dealing with the local bureaucracy, leaving them a greater share of their time and entrepreneurial energy to devote to their new business. In other words, because not all economies followed best practice, entrepreneurs spent an extra 45.4 million days satisfying bureaucratic requirements. Patterns across regions Patterns of regulatory reform vary across regions. In 2012/13 South Asia had the largest share of economies (75%) with
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