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WALLOON PIONEERS OF INTERNATIONALIZATION BUSINESS REGULATION REFORMS "DOING BUSINESS 2010”: NEW RECORDS A r ecord number equal t o 131 c ountries ar ound the world r eformed their business regulations in 2008-2009, ac cording to the lat est Doing Business 2010 report issued by the World Bank and the IFC. These 131 countries account for over 70% of the total number of countries that the report reviews (183). 70% is the highes t annual per centage since the first report appeared in 2004. This mos t encouraging and une xpected change for the better has been achieved against the background of the world economic crisis. A total of 287 r eforms have been singl ed out, up 20% on the pr evious year. According to "Doing Busines s 2010 : Ref orming through Diffi cult Times", the r eforming c ountries hav e f ocused on mak e it easier f or companies t o set up and oper ate, tight ening up int ellectual pr operty rights, and improving the effectiveness of business conflict settlements and bankruptcy proceedings. Doing Busines s anal yses l ocal r egulations appl ying t o c ompanies throughout their life cycles, particularly start-up activities, cross-border trade, tax payments, and business closure. "Business regulation can affect how well small and midsize fi rms cope with the crisis and seize opportunities when recovery begins", says Penelope Brook, Acting Vice President for Financial and Priv ate Sector Development for the World Bank Group. "The quality of business regulation helps determine how easy it is to reorganise troubled firms to help them survive difficult times, to rebuild when demand rebounds, and to get new businesses started". Singapore, a c onstant reformer of its busines s legislation, is the t opranked economy on the ease of doing busines s for the f ourth year in a row. New Zealand is runner-up. But mos t of the action oc curred in developing economies. Two-thirds of the reforms recorded in the report were in low- and lower-middle-income economies. For the fi rst time a Sub-Saharan African economy, Rwanda, is the world’s top reformer for business regulation, making it easier t o start businesses, register property, protect investors, trade across borders, and access credit. A benchmarking stimulant Two regions pulled out all the s tops in r ecent months. Those pushing through the most reforms are Eastern Europe and Central Asia as well as the Middle East and North Africa. In Eastern Europe and Central Asia, 26 of the region’s 27 economies reformed business regulation in at least one area covered by Doing Business. The Middl e Eas t and North Afric an governments adopt ed r eforms at a similar pace: 17 of the 19 economies in the region in 2008-2009. In both c ases, the c ompetition between neighbouring c ountries helped t o push thr ough lar ge-scale reforms. " In r ecent y ears Ar ab ec o- nomies hav e c onsistently f ocused on enhancing c ompetitiveness and making busines s r egulation f or domestic fi rms mor e effi cient", says Dahlia Khalif a, main author of the report and Senior Priv ate Sector Development Specialis t, W orld Bank Group, " Economies such as Egypt, Jordan, Mor occo, Saudi Ar abia, the Syrian Arab Republic, and the Republic of Yemen set broad-based reform targets, oft en spurred by the r eform successes of neighbours". One f ocus of r eform was the minimum c apital r equirement f or s tarting a limited liability company. Eight Arab economies have reduced or eliminated this requirement since 2005, including, in the pas t y ear, Egypt, Syria, and the United Arab Emirates. 0 20 40 60 80 Starting a business Getting credit Registering property Paying taxes Trading across borders Enforcing contracts Obtaining a construction permit Closing a business Protecting investors Employing workers Five of these had r equirements that wer e among the highes t in the world. Other b arriers t o new busines ses wer e also l owered. O ne-stop shops for business registration are now operational in Egypt, Jordan, Morocco, Saudi Arabia, Tunisia, the United Arab Emirates, and the Republic of Yemen. The results show that in Egypt, s tarting a limited liability company now takes a week and six procedures, compared to almost two weeks and seven procedures two years ago. Ever-more Reforms also intensified in other areas in 2008/09. Six economies made construction permits easier, more than in the previous five years combined. Six improved trade processes. Morocco launched a state-of-the-art private credit bureau. Tunisia strengthened investor protection. The world’s 10 leading reformers have four newcomers this year: Liberia, the United Arab Emirates, Tajikistan and Moldavia. The other s are: Rwanda, Egypt, Belarus, the F ormer Yugoslav Republic of Mac edonia, Kyrgyzstan, and Col ombia. Colombia and Egypt ar e ranked as l eading reformers during four of the last seven years. Nonetheless, this r eport is simpl y one f actor among other s t o be taken int o consideration: Doing Busines s does not as sess all dimensions of the busines s environment that are relevant to companies and investors. F or e xample, it does not as sess saf ety, macr oeconomic stability, c orruption, labour skills and the soundnes s of the fi nancial system in the countries under review. This is an incentive for interested companies to consult the rating established by the ONDD. Once again the mos t popular r eform theme was busines s sets-ups, as this attracted the attention of three-quarters of all the economies. Taxation was the sec ond most popular ar ea for reform. The fi nancial crisis also pr ompted go vernments t o t ake action in fi elds wher e r egulatory reforms may be mor e long-winded and daunting. Las t year, 18 ec onomies reformed their bankruptcy arrangements, including several economies severely hit by the crisis in Eas tern Europe and Centr al Asia. It is quite important in the midst of a r ecession to retain viable operational companies as the basis f or c ontinued activities and maintaining jobs. 3/4 OF ECONOMIES HAVE MADE IT EASIER TO START A BUSINESS Share of economies implementing reforms in each Doing Business topic (%) Reform by "Doing Business" report year DB2004–DB2010 DB2010 only Note: Not all indicators are covered for the full period. Registering property was introduced in "Doing Business 2005", and paying taxes, trading across borders, dealing with construction permits and protecting investors in "Doing Business 2006". 18. Dynamisme Special Issue
The reasons It is quite easy to develop a frame of reference to show the for’s and against’s for setting up abroad: access (to markets, customers, raw materials, suppliers…), variable costs (wages, taxes, land, logistics…), labour (skilled staff, management, expats…), local infrastructure (public transport and services), and the regulatory environment. The factors and their weightings vary from one company to another, from one line of business to another, forming part of a broader context related to assessment of the risks: hazards of a natural, political, social and regulatory nature that may sometimes be difficult for outsiders to assess. Risk management is of key importance: a company planning to set up abroad is faced with several challenges not only in terms of the country where the business is to be established but also in terms of the choice of structure, contract procedures, investment red tape, and resource allocation. This also depends on whether the choice falls on a wholly-owned subsidiary or a joint subsidiary, a joint venture. The first will be regarded as a legally independent entity run jointly by one or more companies – at least one of which has its main registered office outside the country where the business activity is established. Conversely, the second structure will be favoured if the company is keen to protect its technological know-how, for example. However, as reality regularly reminds us, some countries often impose a local partner and the transfer of technology as requirements! Each company has to tailor its strategy to the risk. Most research shows that when the risk is low a company will generally opt for a wholly-owned subsidiary. When faced with a higher risk, the idea will be to spread it around, lower the cost of highrisk investments and so seek a local investor. Nonetheless, a multinational may change direction midstream in the light of experience or the leeway it has acquired on this market. The more local market experience, the more freedom to break free of a local partner. The World Bank conducts a study every year on the regulatory conditions in 100 or so countries. This "Doing Business" report carefully scrutinises the conditions relevant for doing business, such as protection for investors, staff recruitment conditions, and property registration. Improvements are noted with each passing year. The number of reforms has reached a record level this year. 287 reforms were reported in 131 economies between June 2008 and May 2009. Low-income and middle-income economies set the pace. These economies accounted for twothird of all reforms in 2008-2009. The world as horizon The time when Walloon businesses were confined to neighbouring countries has long gone. Poland is enjoying a more than enviable economic situation in the east (see Dynamisme 221, October 2009), as is the Czech Republic, unlike their Hungarian and Romanian neighbours, which have been harder hit by the crisis. Other countries in the region are staggering under the blow: Russia and Ukraine, which are nonetheless said to have promising medium and long-term prospects. And then, often overlooked, there are the Nordic countries – a fairly stable makeshift solution for gloomy times. That is the situation in Europe. Over on the American continent, one country stands out: Brazil. Some economists believe the countries that first entered the crisis will be the first ones to extricate themselves. This is why the United States and Canada always figure prominently but South America’s potential as a consumption locomotive in countries such as Brazil and Mexico makes this the "place to be". Agribusinesses, huge infrastructure requirements to boost the quality of the processing chains: there are challenges galore in Brazil. But these pale into insignificance in comparison with those facing India and China in Asia. The main thing is not to be hoodwinked by the idea that a land of opportunity is just waiting for you without having to make the slightest effort! The 10 leading reforming countries in 2008-2009 Starting a business Obtaining a construction permit Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Rwanda Kyrgyzstan FYROM Belarus United Arab Emirates Moldova Colombia Tajikistan Egypt, Arab Rep. Liberia Closing a business Dynamisme Special Issue .19
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