Creating

18 DOING BUSINESS IN 2006
to complete all requirements in 5 months rather than
nearly a year, as before the reform.
Overall, though, little such reform occurred in poor
countries, despite their having the highest regulatory
costs (figure 3.2). While it costs less than the average annual
income to comply with building regulation in rich
countries, it costs nearly 10 times the average income
in poor countries. And 50 times in Burkina Faso, 65
times in the Democratic Republic of Congo, 87 times in
Bosnia and Herzegovina and 107 times in Burundi (see
table 3.3). That compares with 12% or less of income in
Australia. When relative income is taken into account,
licenses and permits for building a warehouse are 600
times as expensive in Burundi as in Mauritius.
What to reform?
The rationale for licensing business activity is to protect
public safety and health. There is good reason to require
licenses for businesses that produce food or medicine,
or that use hazardous materials—as in the chemical
industry—or build homes. Even then, reforms can make
it easier for businesses to obtain licenses. This year, suggestions
for reform target licenses and inspections in
the construction sector. Five such reforms have been
successful:
• Give builders a step-by-step procedure chart.
• Consolidate project clearances at the municipality.
• Introduce risk-based inspections.
• Update zoning maps every 10 years.
• Don’t mandate use of specific materials.
Give builders a step-by-step chart
In 2001 it took Latvian businesses 2 years to obtain all
the licenses and inspections required to build a warehouse.
5 “With so many offices to visit, some several
times, it was very confusing and much time was lost. I
often got contradictory directions on what procedure to
do next, driving back and forth around Riga like mad,”
remembers Ugis, a builder. The government took note
and prepared a flowchart showing which offices to visit
when and with what documents, and listing the offices’
addresses, working hours and contact numbers. This
simple reform cut 2 months off the process and saved a
lot of money on taxi fares.
Consolidate project clearances
In the Czech Republic builders must visit the fire department,
health authority, road management agency,
environmental agency and electricity provider twice
each. These visits are required to receive technical
specifications for construction work and to get sign-off
that building plans meet these specifications. Only the
fire department inspects construction sites. Negotiating
the bureaucracy takes so much time that even the
new national stadium in Prague began construction
without a building permit.
Italian builders used to face similar problems, so in
2003 the government adopted a consolidated construction
law. It centralizes all project clearances into a single
office at the municipality. Previously companies had to
make separate visits to the fire department, worker safety
department, water department, sanitation department,
health department, project design department and tax
department. That process took an average of 8 months.
Now it takes 4.5 months.
Introduce risk-based inspections
In Iceland inspectors visit sites after each stage of
construction is completed. The rationale is that once
the next stage begins, faulty work may be masked and
safety jeopardized. Foundations built? Inspector comes.
Steelwork completed? Inspector comes. Drainage system
built? Inspector comes. Plumbing installed? Inspector
comes. This approach is used in all Nordic countries as
well as in Australia, Canada, Ghana, Kenya, South Africa,
Uganda, the United Kingdom and Zambia.