Business Removing

MEASURING WITH IMPACT 13
to start a business to double that in most other cities.
Some of the same patterns that hold across countries are
visible at the subnational level—for example in Brazil
the cities with higher official fees for registering property
are also the cities with the longest time.
Such within-country work is necessary to identify
constraints and design reforms. Here, the methodology
developed by Doing Business again offers advantages
over the alternative methods. It is significantly cheaper
than running enterprise surveys. And it is much more
accurate than asking a New York-based expert about
business constraints in Porto Velho (the 60th largest city
in Brazil).
Still, there is room for improvement. Changes have
been made to every set of indicators. For example, last
year the statutory requirement for minimum capital was
taken as part of the initial cost of starting a business. But
in a number of countries, only a part of the mandated
minimum capital needs to be paid up-front, with the
rest paid over time. For example, only 25% is paid upfront
in Germany, 30% in Italy and 50% in Armenia. The
revised indicator reflects the up-front cost only.
Indicators of credit markets were also improved.
Doing Business in 2004 reported a measure of the legal
rights of creditors in insolvency. This year, the measure
is expanded to cover collateral laws as well—which define
legal rights that help both borrowers and lenders.
And indicators on credit information were simplified
to an index of 6 variables, covering information sharing
from both public and privately owned registries.
As another example, last year’s methodology for enforcing
a contract did not allow for a creditor to seek recovery
outside the courts. This assumption was made in
the belief that such actions may always be reversed by a
FIGURE 2.5
High costs to fire in some countries
Cost to fire (weeks)
0 50 100 150
New Zealand
Algeria
South Africa
Honduras
Congo, Dem. Rep.
India
Romania
Angola
Greece
Guatemala
Notice
Source: Doing Business database.
Severance
Penalty for dismissal
later court judgment and are not preferred by creditors.
But several countries—for example, Belgium, France
and Greece—have administrative debt collection procedures
that are binding for both debtors and creditors.
This year, administrative procedures are used for countries
where the respondents indicate they are the most
common method.
A different problem arises when the respondents describe
how entrepreneurs would register a business, go
to court or enter bankruptcy—but in reality have dealt
little with such transactions. To gauge their experience,
this year’s surveys collected information on how many
such transactions the respondent completed. The new
evidence shows that the average incorporation lawyer
dealt with more than 100 cases of business entry in 2003.
And because Doing Business has about 500 respondents
on starting a business, the data reported here reflect experience
with more than 50,000 transactions for the
whole sample—for only one of the topics in Doing Business.
Beyond the arithmetic, a professional dealing with
these issues every day can differentiate between usual
costs and delays and those under extraordinary circumstances.
To inspire reform, indicators need to be simple.
Changes to the methodology have been made where
users of the indicators said they had trouble understanding
them. For example, last year’s indices on the rigidity
of employment regulation were based on a reading of
the laws and varied from 0 (less rigid regulation) to 100
(more rigid regulation). Many business people asked
whether the indices could be presented in terms of costs.
So this year, a new indicator on the cost of firing a redundant
worker has been constructed (figure 2.5), measured
in terms of weeks of wages.
For another example, last year’s indicators on the
difficulty of closing a business looked at the cost, time,
priority of claims and extent of court involvement. Policymakers
have said that they are most concerned about
how much value is being lost in inefficient bankruptcy
procedures. The result is a new indicator, which calculates
how many cents on the dollar can be recovered in
bankruptcy (figure 2.6).
Once the simple indicator triggers interest in reform,
by comparing it with those for other countries and
by showing the economic and social benefits of improvement,
more detailed information collected by the
Doing Business team can be used to assist the reformers.
One example is the indicators on registering property.
Once the government of Malawi acknowledges the need
to make registration more efficient, the depth of the