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Doing Business 2012



Doing Business 2012: Doing Business in a More Transparent World assesses regulations affecting domestic firms in 183 economies and ranks the economies in 10 areas of business regulation, such as ...

Doing Business 2012: Doing Business in a More Transparent World assesses regulations affecting domestic firms in 183 economies and ranks the economies in 10 areas of business regulation, such as starting a business, resolving insolvency and trading across borders. This year’s report data cover regulations measured from June 2010 through May 2011. The report rankings on ease of doing business have expanded to include indicators on getting electricity. The report finds that getting an electrical connection is most efficient in Iceland; Germany; Taiwan, China; Hong Kong SAR, China; and Singapore.



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    Doing Business 2012 Doing Business 2012 Document Transcript

    • 2012 Doing business in a more transparent worldC O M PA R I N G R E G U L AT I O N F O R D O M E S T I C F I R M S I N 1 8 3 E C O N O M I E S
    • © 2012 The International Bank for Reconstruction and Development / The World Bank1818 H Street NWWashington, DC 20433Telephone 202-473-1000Internet www.worldbank.orgAll rights reserved.1 2 3 4 08 07 06 05A copublication of The World Bank and the International Finance Corporation.This volume is a product of the staff of the World Bank Group. The findings, interpretations andconclusions expressed in this volume do not necessarily reflect the views of the Executive Directorsof The World Bank or the governments they represent. The World Bank does not guarantee theaccuracy of the data included in this work.Rights and PermissionsThe material in this publication is copyrighted. Copying and/or transmitting portions or all ofthis work without permission may be a violation of applicable law. The World Bank encouragesdissemination of its work and will normally grant permission to reproduce portions of the workpromptly.For permission to photocopy or reprint any part of this work, please send a request with completeinformation to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA;telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com.All other queries on rights and licenses, including subsidiary rights, should be addressed to the Officeof the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org.Additional copies of Doing Business 2012: Doing Business in a More Transparent World, DoingBusiness 2011: Making a Difference for Entrepreneurs, Doing Business 2010: Reforming throughDifficult Times, Doing Business 2009, Doing Business 2008, Doing Business 2007: How to Reform,Doing Business in 2006: Creating Jobs, Doing Business in 2005: Removing Obstacles to Growth andDoing Business in 2004: Understanding Regulations may be purchased at www.doingbusiness.org.ISBN: 978-0-8213-8833-4E-ISBN: 978-0-8213-8834-1DOI: 10.1596/978-0-8213-8833-4ISSN: 1729-2638Printed in the United States
    • 2012 Doing business in a more transparent worldC O M PA R I N G R E G U L AT I O N F O R D O M E S T I C F I R M S I N 1 8 3 E C O N O M I E S A COPUBLICATION OF THE WORLD BANK AND THE INTERNATIONAL FINANCE CORPORATION
    • ii DOING BUSINESS 2012 THE DOING BUSINESS WEBSITE Current features Download reports News on the Doing Business project Access to Doing Business reports as well as http://www.doingbusiness.org subnational and regional reports, reform case studies and customized economy and regional profiles Rankings http://www.doingbusiness.org/Reports How economies rank—from 1 to 183 http://www.doingbusiness.org/Rankings Subnational and regional projects Differences in business regulations at the Doing Business reforms subnational and regional level Short summaries of DB2011 reforms, lists of reforms http://www.doingbusiness.org/Subnational-Reports since DB2008 http://www.doingbusiness.org/Reforms Law library Online collection of laws and regulations relating to Historical data business and gender issues Customized data sets since DB2004 http://www.doingbusiness.org/Law-library http://www.doingbusiness.org/Custom-Query http://wbl.worldbank.org Methodology and research Local partners The methodology and research papers underlying More than 9,000 specialists in 183 economies who Doing Business participate in Doing Business http://www.doingbusiness.org/Methodology http://www.doingbusiness.org/Local-Partners/ http://www.doingbusiness.org/Research Doing-Business Business Planet Interactive map on the ease of doing business http://rru.worldbank.org/businessplanet
    • DoiDoingBBusiness 2012 Contents v Preface 1 Executive summary 16 About Doing Business: measuring for impact 26 Economy case studies 26 Korea: better business regulation and improved competitiveness 29 FYR Macedonia: major changes spurred by regional integration 32 Mexico: unleashing regulatory reform at the local level 35 The United Kingdom: rethinking regulation 38 References 41 Data notes 62 Ease of doing business and distance to frontier 65 Summaries of Doing Business reforms in 2010/11 77 Country tables 140 Employing workers data 148 Acknowledgments Doing Business 2012 is the ninth in a series of an- Data in Doing Business 2012 are current as of June nual reports investigating the regulations that 1, 2011. The indicators are used to analyze eco- enhance business activity and those that con- nomic outcomes and identify what reforms of strain it. Doing Business presents quantitative business regulation have worked, where and why. indicators on business regulation and the pro- Chapters exploring these issues for each of the 11 tection of property rights that can be compared Doing Business topics—as well as showing global across 183 economies—from Afghanistan to trends—are being published online this year. The Zimbabwe—and over time. chapters are available on the Doing Business web- site at http://www.doingbusiness.org. Regulations affecting 11 areas of the life of a business are covered: starting a business, deal- The methodology for the dealing with construc- ing with construction permits, getting electric- tion permits, getting credit and paying taxes ity, registering property, getting credit, pro- indicators changed for Doing Business 2012. See tecting investors, paying taxes, trading across the data notes for details. borders, enforcing contracts, resolving insolven- cy (formerly closing a business) and employing workers. The employing workers data are not included in this year’s ranking on the ease of do- ing business.
    • vPrefaceEnabling private sector growth—and ensuring that poor people can participate in its benefits—requires a regulatory environment where new entrants with drive and good ideas, regardless oftheir gender or ethnic origin, can get started in business and where firms can invest and grow,generating more jobs. Doing Business 2012 is the ninth in a series of annual reports benchmarkingthe regulations that enhance business activity and those that constrain it. The report presentsquantitative indicators on business regulation and the protection of property rights for 183economies—from Afghanistan to Zimbabwe. The data are current as of June 2011.A fundamental premise of Doing Business is that economic activity requires good rules—rulesthat establish and clarify property rights and reduce the cost of resolving disputes; rules thatincrease the predictability of economic interactions and provide contractual partners withcertainty and protection against abuse. The objective is regulations designed to be efficient,accessible to all and simple in their implementation. In some areas Doing Business gives higherscores for regulation providing stronger protection of investor rights, such as stricter disclo-sure requirements in related-party transactions.Doing Business takes the perspective of domestic, primarily smaller companies and measuresthe regulations applying to them through their life cycle. This year’s report ranks economies onthe basis of 10 areas of regulation—for starting a business, dealing with construction permits,getting electricity, registering property, getting credit, protecting investors, paying taxes, trad-ing across borders, enforcing contracts and resolving insolvency (formerly closing a business).In addition, data are presented for regulations on employing workers.Doing Business is limited in scope. It does not attempt to measure all costs and benefits ofa particular law or regulation to society as a whole. Nor does it measure all aspects of thebusiness environment that matter to firms and investors or affect the competitiveness of aneconomy. Its aim is simply to supply business leaders and policy makers with a fact base forinforming policy making and to provide open data for research on how business regulationsand institutions affect such economic outcomes as productivity, investment, informality, cor-ruption, unemployment and poverty.Through its indicators, Doing Business has tracked changes to business regulation around theworld, recording more than 1,750 improvements since 2004. Against the backdrop of theglobal financial and economic crisis, policy makers around the world continue to reform busi-ness regulation at the level of the firm, in some areas at an even faster pace than before.These continued efforts prompt questions: How has business regulation changed around theworld—and how have the changes affected firms and economies? Drawing on a now longertime series, the report introduces a measure to illustrate how the regulatory environmentfor business has changed in absolute terms in each economy over the 6 years since DoingBusiness 2006 was published in 2005. The “distance to frontier” measure, which assesses thelevel of change in each economy’s regulatory environment as measured by Doing Business,complements the aggregate ranking on the ease of doing business, which benchmarks eacheconomy’s current performance on the indicators against that of all other economies in the
    • vi DOING BUSINESS 2012 Doing Business sample (for more detail, see the chapter on the ease of doing business and distance to frontier). There still remains an unfinished agenda for research into what regulations constitute binding constraints, what package of regulatory reforms is most effective and how these issues are shaped by the context in an economy. To stimulate new research in this area, Doing Business plans a conference for the fall of 2012. Its aim will be to deepen our understanding of the connections between business regulation reforms and broader economic outcomes. Doing Business would not be possible without the expertise and generous input of a network of more than 9,000 local experts, including lawyers, business consultants, accountants, freight forwarders, government officials and other professionals routinely administering or advising on the relevant legal and regulatory requirements in the 183 economies covered. In particular, the Doing Business team would like to thank its global contributors: Allen & Overy LLP; Baker & McKenzie; Cleary Gottlieb Steen & Hamilton LLP ; Ernst & Young; Ius Laboris, Alliance of Labor, Employment, Benefits and Pensions Law Firms; KPMG; the Law Society of England and Wales; Lex Mundi, Association of Independent Law Firms; Panalpina; PwC; Raposo Bernardo & Associados; Russell Bedford International; SDV International Logistics; and Toboc Inc. The project also benefited throughout the past year from advice and input from governments and policy makers around the world. In particular, the team would like to thank the govern- ments of the Republic of Korea, the former Yugoslav Republic of Macedonia, Mexico and the United Kingdom for providing input and feedback on the economy case studies. The team would also like to thank the more than 60 governments that contributed detailed information on business regulation reforms in 2010/11. This volume is a product of the staff of the World Bank Group. The team would like to thank all World Bank Group colleagues from the regional departments and networks for their contribu- tions to this effort. Janamitra Devan Vice President and Head of Network Financial & Private Sector Development The World Bank Group
    • 1Executive summaryOver the past year a record number of gov- where 43% of all reforms recorded by Doing discourage the creation and expansion ofernments in Sub-Saharan Africa changed Business in 2010/11 focused on aspects businesses compound the problems.their economy’s regulatory environment to captured by the getting credit, protectingmake it easier for domestic firms to start investors, enforcing contracts and resolving Through indicators benchmarking 183up and operate. In a region where relatively insolvency indicators (figure 1.2). economies, Doing Business measures andlittle attention was paid to the regulatory tracks changes in the regulations applyingenvironment only 8 years ago, regula- Overall in 2010/11, governments in 125 to domestic companies in 11 areas in theirtory reforms making it easier to do business economies implemented 245 institutional life cycle (box 1.2). A fundamental premisewere implemented in 36 of 46 economies and regulatory reforms as measured by of Doing Business is that economic activitybetween June 2010 and May 2011. That Doing Business—13% more than in the previ- requires good rules that are transparent andrepresents 78% of economies in the region, ous year (box 1.1). A faster pace of regulatory accessible to all. Such regulations shouldcompared with an average of 56% over the reform is good news for entrepreneurs in be efficient, striking a balance betweenprevious 6 years (figure 1.1). developing economies. Starting a business is safeguarding some important aspects of a leap of faith under any circumstances. For the business environment and avoidingWorldwide, regulatory reforms aimed at the poor, starting a business or finding a job distortions that impose unreasonable costsstreamlining such processes as starting a is an important way out of poverty.1 In most on businesses. Where business regulationbusiness, registering property or dealing parts of the world small and medium-sizewith construction permits are still the most businesses are often the main job creators.2 is burdensome and competition limited,common. But more and more economies are Yet entrepreneurs in developing economies success depends more on whom you knowfocusing their reform efforts on strengthen- tend to encounter greater obstacles than than on what you can do. But where regula-ing legal institutions such as courts and their counterparts in high-income econo- tions are relatively easy to comply with andinsolvency regimes and enhancing legal mies. Finding qualified staff and dealing accessible to all who need to use them,protections of investors and property rights. with lack of adequate infrastructure are anyone with talent and a good idea shouldThis shift has been particularly pronounced in among the challenges. Overly burdensome be able to start and grow a business in thelow- and lower-middle-income economies, regulations and inefficient institutions that formal sector. FIGURE 1.1 A large number of economies in Sub-Saharan Africa reformed business regulation in 2010/11 Share of economies with at least 1 Doing Business reform making it easier to do business Eastern Europe Share of economies in Sub-Saharan Africa 88% & Central Asia OECD with at least 1 Doing Business reform making Business high income 68% it easier to do business (%) Middle East 61% 63% & North Africa by Doing Business report year South Asia 78 67 63 78% 61 59 53% 52 East Asia 58% Latin America Sub-Saharan & Pacific 33 & Caribbean Africa This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, 6 7 8 9 0 11 12 0 0 0 0 1 denominations and any other information shown 20 20 20 20 20 20 20 on this map do not imply, on the part of The DB DB DB DB DB DB DB World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Source: Doing Business database.
    • 2 DOING BUSINESS 2012 Across regions, entrepreneurs in developing economies face a regulatory environment FIGURE 1.2 In 2010/11 economies worldwide increasingly focused reform efforts on strengthening legal institutions and property rights protections that is on average less business-friendly than Doing Business reforms making it easier to do business by type those in OECD high-income economies. Reforms strengthening Reforms increasing efficiency Number of This means costlier and more bureaucratic legal institutions of regulatory processes reforms procedures to start a business, deal with 35% 65% 51 High income construction permits, register property, 33% 67% 53 trade across borders and pay taxes. Getting an electricity connection, a new dimension 36% 64% 63 Upper middle in this year’s ease of doing business ranking, income 24% 76% 65 costs more on average in Sub-Saharan Africa than in any other part of the world—more 42% 58% 81 Lower middle than 5,400% of income per capita (the income 28% 72% 57 average in OECD high-income economies is 93% of income per capita). Local businesses 46% 54% 50 Low income complete more complex formalities to get 18% 82% 41 an electricity connection in many Eastern European and Central Asian economies than 2010/11 2009/10 anywhere else in the world. But it is not just Note: Reforms strengthening legal institutions are those in the areas of getting credit, protecting investors, enforcing contracts and resolving insolvency. Reforms increasing efficiency of regulatory processes are those in the areas of starting a business, about complex formalities or red tape. A less dealing with construction permits, getting electricity, registering property, paying taxes and trading across borders. business-friendly regulatory environment Source: Doing Business database. also means weaker legal protections of minority shareholders and weaker collateral BOX 1.1 Key findings in this year’s report laws and institutions such as courts, credit • In Sub-Saharan Africa 36 of 46 governments improved their economy’s regulatory environment bureaus and collateral registries. for domestic businesses in 2010/11—a record number since 2005. This is good news for entre- preneurs in the region, where starting and running a business is still costlier and more complex Globally, more efficient regulatory processes than in any other region of the world. often go hand in hand with stronger legal • Worldwide, 125 economies implemented 245 reforms making it easier to do business in 2010/11, institutions and property rights protections. 13% more than in the previous year. In low- and lower-middle-income economies a greater share of these changes were aimed at strengthening courts, insolvency regimes and investor protec- There is an association between the strength tions than in earlier years. The pickup in the pace of regulatory reform is especially welcome for of legal institutions and property rights small and medium-size businesses, the main job creators in many parts of the world. protections in an economy as captured by • Against the backdrop of the global financial and economic crisis, more economies strengthened several sets of Doing Business indicators (get- their insolvency regime in 2010/11 than in any previous year. Twenty-nine economies imple- ting credit, protecting investors, enforcing mented insolvency reforms, up from 16 the previous year and 18 the year before. Most were OECD high-income economies or in Eastern Europe and Central Asia. Research has shown that contracts and resolving insolvency) and the effective insolvency systems can influence the cost of debt, access to credit, and both the ability complexity and cost of regulatory processes of an economy to recover from a recession and the speed of its recovery. as captured by several others (starting a • New data show the importance of access to regulatory information. Fee schedules, documenta- business, dealing with construction permits, tion requirements and information relating to commercial cases and insolvency proceedings are getting electricity, registering property, pay- most easily accessible in OECD high-income economies and least accessible in Sub-Saharan ing taxes and trading across borders). OECD Africa and the Middle East and North Africa. The rise in e-government initiatives around the world provides an opportunity to increase access to information and transparency. high-income economies, by a large margin, • A new measure shows that over the past 6 years, 94% of 174 economies covered by Doing Business have the world’s most business-friendly envi- have made their regulatory environment more business-friendly. These economies moved closer to ronment on both dimensions (figure 1.3). At the “frontier,” a synthetic measure based on the most business-friendly regulatory practices across the other end of the spectrum, economies in 9 areas of business regulation—from starting a business to resolving insolvency. Sub-Saharan Africa and South Asia are most • A broad, sustained approach to managing business regulation is common among the 20 econo- likely to have both weaker legal institutions mies that have the most business-friendly regulatory environment today and among those that made the greatest progress toward the “frontier” over the past 6 years. This year’s report highlights and more complex regulatory processes as the experiences of the Republic of Korea, the former Yugoslav Republic of Macedonia, Mexico measured by Doing Business. and the United Kingdom. Korea just joined the top 10 economies on the ease of doing business after streamlining business entry, tax administration and contract enforcement. FYR Macedonia Some regions break away from the general is among the economies that improved the most in the ease of doing business over the past year. trend. One is the Middle East and North Africa, • The economies that improved the most in the ease of doing business in 2010/11—with improve- a region where reform efforts over the past 6 ments in 3 or more areas of regulation measured by Doing Business—are Morocco, Moldova, years have focused mainly on simplifying regu- FYR Macedonia, São Tomé and Príncipe, Latvia, Cape Verde, Sierra Leone, Burundi, the Solomon lation. Today economies in the region often Islands, Korea, Armenia, and Colombia. combine relatively weaker legal institutions
    • EXECUTIVE SUMMARY 3 in education and training are critical. TheseFIGURE 1.3 Stronger legal institutions and property rights protections are associated with more efficient regulatory processes investments typically take time to bear fruit. Average ranking on sets of Doing Business indicators But economies that have made the transi- tion from developing to high-income status Weaker Weaker legal institutions but Weaker legal institutions and have generally done so by boosting the less expensive regulatory processes more expensive regulatory processes skills and capabilities of their labor force. A critical way for policy makers to encourage Middle East Latin America Strength of legal institutions 137 Sub-Saharan entrepreneurship is by creating a regulatory & North Africa & Caribbean Africa environment conducive to the creation and 93 117 growth of businesses—one that promotes 95 East Asia South Asia rather than inhibits competition.4 & Pacific 87 OECD high income 77 Eastern Europe OPPORTUNITIES FOR GREATER & Central Asia ACCESS TO INFORMATION IN 30 BUSINESS REGULATION Stronger Stronger legal institutions and Stronger legal institutions but Institutions play a major role in private sector less expensive regulatory processes more expensive regulatory processes development. Courts, registries, tax agencies Simple and Complexity and cost Complex and and credit information bureaus are essential inexpensive of regulatory processes expensive to make markets work. How efficient and transparent they are matters greatly to busi-Note: Strength of legal institutions refers to the average ranking in getting credit, protecting investors, enforcing contracts andresolving insolvency. Complexity and cost of regulatory processes refers to the average ranking in starting a business, dealing with ness. To improve the efficiency of processesconstruction permits, getting electricity, registering property, paying taxes and trading across borders. The size of the bubble reflects and institutions, governments around thethe number of economies in each region and the number is the average ranking on the ease of doing business for the region.Correlation results for individual economies are significant at the 1% level after controlling for income per capita. world—regardless of national incomeSource: Doing Business database. level—are making greater use of technol- ogy. More than 100 of the 183 economies covered by Doing Business use electronic BOX 1.2 Measuring regulation through the life cycle of a local business systems for services ranging from business This year’s aggregate ranking on the ease of doing business is based on indicator sets that registration to customs clearance to court measure and benchmark regulations affecting 10 areas in the life cycle of a business: starting a filings.5 This saves time and money for busi- business, dealing with construction permits, getting electricity, registering property, getting cred- ness and government alike. It also provides it, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Doing Business also looks at regulations on employing workers, which are not included new opportunities to increase transparency in this year’s aggregate ranking. as well as to facilitate access to information Doing Business encompasses 2 types of data and indicators. One set of indicators focuses on and compliance with regulation. But not all the strength of property rights and investor protections as measured by the treatment of a case economies take advantage of the oppor- scenario according to the laws and regulations on the books. Doing Business gives higher scores tunities for openness provided by the new for stronger property rights and investor protections, such as stricter disclosure requirements technologies. And at times fiscal constraints in related-party transactions. The second set of indicators focuses on the cost and efficiency of regulatory processes such as starting a business, registering property and dealing with con- and budgetary priorities have prevented struction permits. Based on time-and-motion case studies from the perspective of the business, faster adoption of the latest technologies to these indicators measure the procedures, time and cost required to complete a transaction in improve the quality of public services. accordance with all relevant regulations. Any interaction of the company with external parties such as government agencies counts as 1 procedure. Cost estimates are recorded from official fee This year Doing Business researched how schedules where these apply. For a detailed explanation of the Doing Business methodology, see the data notes and the chapter “About Doing Business: measuring for impact.” businesses can access information es- sential for complying with regulations and formalities, such as documentationwith relatively more efficient regulatory pro- Policy makers worldwide recognize the requirements for trade or fee schedules forcesses. In Eastern Europe and Central Asia, by role that entrepreneurs play in creating business start-up, construction permitting economic opportunities for themselves or electricity connections. Because somecontrast, economies have on average slightly and for others, and often take measures economies lack fully developed informationstronger legal institutions and less efficient to improve the investment climate and technology infrastructure, the research alsoregulatory processes. In this region reform boost productivity growth. Investments in explored whether economies used otherefforts over the past 6 years have put greater means to make such information easily ac- infrastructure—ports, roads, telecommu-emphasis on strengthening legal institutions nications—are seen as a vital ingredient of cessible, such as posting fee schedules atand protection of property rights than those in private sector development. In an increas- the relevant agency or disseminating themthe Middle East and North Africa.3 ingly complex global economy, investments through public notices.
    • 4 DOING BUSINESS 2012 The findings are striking. In the ma- jority of economies in Sub-Saharan WHAT WERE THE TRENDS IN BUSINESS REGULATION REFORMS AROUND THE WORLD IN 2010/11? Africa and the Middle East and North In Sub-Saharan Africa measures to improve the regulatory environment for local businesses in 2010/11 included the first overhaul of a body of harmonized commercial laws in the region. The legal Africa, obtaining such information reform by the Organization for the Harmonization of Business Law in Africa (OHADA) required the requires a meeting with an official. consensus of its 16 member states.1 This first stage simplified business entry and strengthened secured In all OECD high-income economies transaction laws. documentation requirements for trade Overall in Sub-Saharan Africa, regulatory reform agendas have been broadening. Thirteen economies are accessible online, at an agency or implemented reforms making it easier to do business in 3 or more areas measured by Doing Business— through public notices (figure 1.4). from business entry to exit—including postconflict economies such as Burundi, Liberia and Sierra Leone. South Africa introduced a new company act streamlining business incorporation and a new reorganiza- In the Middle East and North Africa tion procedure facilitating the rehabilitation of financially distressed companies. this is the case in only about 30% Against the backdrop of the global economic and financial crisis, changes to insolvency regimes of economies, and in Sub-Saharan continued across Europe and among OECD high-income economies elsewhere.2 Worldwide, 29 econo- Africa in less than 50% of economies. mies improved insolvency regimes in 2010/11, more than in any previous year. These included Austria, Documentation requirements for Denmark, France, Italy, Poland, Slovenia and Switzerland as well as Bulgaria, Latvia, Lithuania, the former building permits are available online Yugoslav Republic of Macedonia, Moldova, Montenegro, Romania, Serbia and Ukraine. Iceland tightened approval requirements for related-party transactions. Greece, Portugal and Spain simplified business or through public notices in only about start-up. 40% of economies in these 2 regions. In other regions the pace of regulatory reform was uneven. In the Middle East and North Africa 61% of economies implemented regulatory changes making it easier to do business. In Latin America and the Easier access to fee schedules and Caribbean the 3 economies with the most business-friendly regulatory environments, Chile, Peru and lower fees tend to go hand in hand. In Colombia, made them more so—each through regulatory reforms in 3 areas measured by Doing Business. economies where fee schedules are But there were no such reforms in Ecuador or the majority of the Caribbean states.3 easily accessible, starting a business Malaysia was one of the economies that took the lead in East Asia and the Pacific, introducing elec- costs 18% of income per capita on tronic filing in its courts, setting up specialized civil and commercial courts in Kuala Lumpur and merg- ing company, tax, social security and employment fund registrations at the one-stop shop for business average; where they are not, it costs start-up. Several small island states—the Solomon Islands, Tonga and Vanuatu—implemented regula- 66% of income per capita on average tory reforms in 3 or more areas, often supported by donor programs. In South Asia the pace of regula- (figure 1.5). tory reform remained steady over the past year. Sri Lanka and Bhutan were the most active. Sri Lanka implemented tax changes and tightened disclosure requirements for transactions involving a conflict of Beyond information that businesses interest. Bhutan launched a public credit registry and streamlined business start-up. need to comply with regulation, institu- 1. OHADA is a system of common business laws and implementing institutions adopted by treaties among 16 West and tions such as courts provide informa- Central African nations. It was created by 14 initial member economies on October 17, 1993, in Port Louis, Mauritius. tion that helps increase transparency 2. According to the International Monetary Fund (IMF 2009), the financial crisis resulted in a sharp increase in corpo- in the marketplace. Efficient and fair rate and household defaults and firm bankruptcies. 3. No reforms making it easier to do business were recorded for Antigua and Barbuda, The Bahamas, Dominica, courts are essential for creating the Grenada, Haiti, Jamaica, St. Lucia, St. Vincent and the Grenadines, Suriname or Trinidad and Tobago in 2010/11. trust needed for businesses to build FIGURE 1.4 Access to documentation requirements for building permits and trading across borders easiest in OECD high-income economies Share of economies where documentation requirements are easily accessible (%) Average time to import goods (days) 100 94 75 78 71 67 41 63 56 58 52 49 42 38 33 21 OECD South Asia East Asia Eastern Europe Latin America Sub-Saharan Middle East Easily accessible Not easily high income & Pacific & Central Asia & Caribbean Africa & North Africa accessible Economies by accessibility of documentation For building permits For trade requirements for trade Note: Documentation requirements are considered easily accessible if they can be obtained through the website of the relevant authority or another government agency or through public notices, without a need for an appointment with an official. The data sample for building permits includes 159 economies, and that for trade 175 economies. Differences in the second panel are statistically significant at the 5% level after controlling for income per capita. Source: Doing Business database.
    • EXECUTIVE SUMMARY 5 FIGURE 1.5 Easier access to fee schedules and lower fees tend to go hand in hand Share of economies where fee schedules are easily accessible (%) Average cost to start a business (% of income per capita) 97 90 88 70 66 63 58 57 55 50 50 47 38 36 35 18 OECD South Asia East Asia Eastern Europe Latin America Sub-Saharan Middle East Easily accessible Not easily high income & Pacific & Central Asia & Caribbean Africa & North Africa accessible Economies by accessibility of fee For company incorporation For electricity connections schedules for company incorporation Note: Fee schedules are considered easily accessible if they can be obtained through the website of the relevant authority or another government agency or through public notices, without a need for an appointment with an official. The data sample for incorporation includes 174 economies, and that for electricity connections 181 economies. Differences in the second panel are statistically significant at the 5% level after controlling for income per capita. Source: Doing Business database.new relationships and expand their mar- permits as well as strong legal protections regulations, the council found that 15% hadkets—and for investors to invest. But it is not of property rights. They also periodically not been revised since 1998. The councilonly their role in efficient enforcement that review and update business regulations as applied sunset clauses to more than 600matters. Doing Business finds that in close to part of a broader competitiveness agenda regulations and 3,500 administrative rules75% of a sample of 151 economies, courts and take advantage of new technologies (see the case study on Korea).are required by law to publicize the initiation through e-government initiatives.of insolvency proceedings. Policy makers in some economies today con- Only 2 decades ago some of these 20 sider regulatory reform a continual processHOW THE TOP 20 ECONOMIES economies faced challenges similar to those and create dedicated committees or agen-MANAGE BUSINESS REGULATION in many lower-income economies today. cies such as Actal in the Netherlands andThe 20 economies with the most business- Consider Norway’s property registry. Today the Better Regulation Executive in the Unitedfriendly regulation as reflected in their it is one of the world’s most efficient. But in Kingdom. These agencies not only routinelyranking on the ease of doing business are 1995 its paper records required 30 kilome- assess existing regulations. They also paySingapore; Hong Kong SAR, China; New ters of shelving and were growing at a rate increasing attention to managing the flow ofZealand; the United States; Denmark; of 1 kilometer a year. Norway took steps to new regulations.Norway; the United Kingdom; the Republic change this. First it merged the land depart- ment and survey information, then digitized In the United Kingdom in 2005–10 aof Korea; Iceland; Ireland; Finland; Saudi title certificates. In 2002 it amended the program reduced the burden of regulatoryArabia; Canada; Sweden; Australia; Georgia; 50-year-old Land Transfer Act to allow compliance on businesses by 25% accord-Thailand; Malaysia; Germany; and Japan(table 1.1). As noted elsewhere in this online titling. Online registration has been ing to the government.6 That amounted toreport, an economy’s ranking on the ease required by law since 2008. savings for firms equivalent to £3.5 billion.of doing business does not tell the whole New initiatives are under way, such as thestory about its business environment. The Sweden undertook a systematic review of “one in, one out” system and the Red Tapeunderlying indicators do not account for all all regulations in the 1980s. Any unjustified Challenge (see the case study on the Unitedfactors important to doing business, such requirements were cut in a “guillotine” initia- Kingdom). The European Union has also tar-as macroeconomic conditions, market size, tive. (Mexico took a similar approach in the geted a 25% reduction in the administrativeworkforce skills and security. But they do 1990s.) In Korea the Presidential Council on burden that regulation imposes on business.capture some key aspects of the regulatory National Competitiveness, created in 2008, The underlying principle is to have “smart”and institutional environment that matter identified regulatory reform as 1 of 4 pillars regulation, dispensing with cumbersomefor firms. These 20 economies have imple- to improve the economy’s competitiveness, and costly regulations that impair the privatemented effective yet streamlined procedures along with public sector innovation, invest- sector’s capacity to innovate and grow whilefor regulatory processes such as starting ment promotion, and legal and institutional maintaining regulations that promote a levela business and dealing with construction advancement. Reviewing Korea’s business playing field.7
    • 6 DOING BUSINESS 2012 TABLE 1.1 Rankings on the ease of doing business DB2012 DB2011 DB2012 DB2012 DB2011 DB2012 DB2012 DB2011 DB2012 rank ranka Economy reforms rank ranka Economy reforms rank ranka Economy reforms 1 1 Singapore 0 62 59 Poland 2 123 119 Uganda 1 2 2 Hong Kong SAR, China 2 63 60 Ghana 0 124 123 Swaziland 1 3 3 New Zealand 1 64 70 Czech Republic 2 125 127 Bosnia and Herzegovina 2 4 4 United States 0 65 64 Dominica 0 126 120 Brazil 1 5 5 Denmark 1 66 69 Azerbaijan 0 127 125 Tanzania 1 6 7 Norway 0 67 71 Kuwait 0 128 130 Honduras 2 7 6 United Kingdom 1 68 76 Trinidad and Tobago 0 129 126 Indonesia 1 8 15 Korea, Rep. 3 69 91 Belarus 3 130 131 Ecuador 0 9 13 Iceland 2 70 67 Kyrgyz Republic 0 131 128 West Bank and Gaza 0 10 8 Ireland 0 71 73 Turkey 2 132 139 India 1 11 14 Finland 1 72 65 Romania 2 133 133 Nigeria 0 12 10 Saudi Arabia 1 73 68 Grenada 0 134 136 Syrian Arab Republic 1 13 12 Canada 1 74 81 Solomon Islands 4 135 135 Sudan 0 14 9 Sweden 0 75 66 St. Vincent and the Grenadines 0 136 134 Philippines 1 15 11 Australia 1 76 75 Vanuatu 3 137 144 Madagascar 2 16 17 Georgia 4 77 72 Fiji 0 138 138 Cambodia 1 17 16 Thailand 1 78 74 Namibia 1 139 132 Mozambique 0 18 23 Malaysia 3 79 78 Maldives 0 140 137 Micronesia, Fed. Sts. 0 19 19 Germany 0 80 79 Croatia 1 141 150 Sierra Leone 4 20 20 Japan 0 81 99 Moldova 4 142 146 Bhutan 2 21 31 Latvia 4 82 77 Albania 1 143 142 Lesotho 1 22 34 Macedonia, FYR 4 83 86 Brunei Darussalam 1 144 140 Iran, Islamic Rep. 0 23 21 Mauritius 0 84 80 Zambia 0 145 141 Malawi 2 24 18 Estonia 0 85 82 Bahamas, The 0 146 148 Mali 2 25 24 Taiwan, China 2 86 89 Mongolia 1 147 152 Tajikistan 1 26 22 Switzerland 2 87 83 Italy 1 148 143 Algeria 1 27 25 Lithuania 2 88 85 Jamaica 0 149 145 Gambia, The 3 28 27 Belgium 2 89 98 Sri Lanka 2 150 151 Burkina Faso 3 29 26 France 1 90 107 Uruguay 2 151 155 Liberia 3 30 30 Portugal 2 91 87 China 0 152 149 Ukraine 4 31 29 Netherlands 0 92 88 Serbia 2 153 147 Bolivia 0 32 28 Austria 1 93 92 Belize 1 154 157 Senegal 4 33 35 United Arab Emirates 2 94 115 Morocco 3 155 161 Equatorial Guinea 1 34 32 Israel 2 95 84 St. Kitts and Nevis 1 156 160 Gabon 1 35 36 South Africa 3 96 95 Jordan 2 157 156 Comoros 1 36 38 Qatar 2 97 93 Guatemala 0 158 153 Suriname 0 37 37 Slovenia 3 98 90 Vietnam 1 159 162 Mauritania 1 38 33 Bahrain 0 99 94 Yemen, Rep. 1 160 154 Afghanistan 1 39 41 Chile 3 100 101 Greece 2 161 165 Cameroon 2 40 49 Cyprus 1 101 97 Papua New Guinea 0 162 158 Togo 2 41 39 Peru 3 102 100 Paraguay 2 163 174 São Tomé and Príncipe 4 42 47 Colombia 3 103 109 Seychelles 2 164 159 Iraq 0 43 42 Puerto Rico (U.S.) 2 104 103 Lebanon 1 165 163 Lao PDR 0 44 45 Spain 1 105 96 Pakistan 0 166 164 Uzbekistan 1 45 50 Rwanda 3 106 102 Marshall Islands 0 167 170 Côte d’Ivoire 3 46 40 Tunisia 0 107 110 Nepal 1 168 169 Timor-Leste 2 47 58 Kazakhstan 1 108 105 Dominican Republic 1 169 177 Burundi 4 48 43 Slovak Republic 1 109 106 Kenya 1 170 167 Djibouti 1 49 53 Oman 3 110 108 Egypt, Arab Rep. 0 171 168 Zimbabwe 0 50 44 Luxembourg 0 111 104 Ethiopia 0 172 171 Angola 2 51 46 Hungary 0 112 112 El Salvador 1 173 172 Niger 1 52 48 St. Lucia 0 113 114 Argentina 0 174 166 Haiti 0 53 54 Mexico 3 114 113 Guyana 1 175 173 Benin 2 54 52 Botswana 0 115 111 Kiribati 0 176 181 Guinea-Bissau 2 55 61 Armenia 5 116 116 Palau 0 177 175 Venezuela, RB 0 56 56 Montenegro 3 117 117 Kosovo 0 178 176 Congo, Dem. Rep. 3 57 51 Antigua and Barbuda 0 118 122 Nicaragua 3 179 179 Guinea 1 58 62 Tonga 3 119 129 Cape Verde 3 180 178 Eritrea 0 59 57 Bulgaria 2 120 124 Russian Federation 4 181 180 Congo, Rep. 1 60 55 Samoa 0 121 121 Costa Rica 2 182 183 Central African Republic 3 61 63 Panama 1 122 118 Bangladesh 0 183 182 Chad 2 Note: The rankings for all economies are benchmarked to June 2011 and reported in the country tables. This year’s rankings on the ease of doing business are the average of the economy’s rankings on the 10 topics included in this year’s aggregate ranking. a Last year’s rankings, shown in italics, are adjusted: they are based on 10 topics and reflect data corrections. The number of reforms excludes those making it more difficult to do business. Source: Doing Business database.
    • EXECUTIVE SUMMARY 7Other initiatives share the objective of Egypt, where starting a business is reason- Differences across areas of businessmaking business regulation effective at the ably straightforward thanks to the imple- regulation provide an opportunity for policylowest possible cost for business. In Sweden mentation of an efficient one-stop shop. makers interested in regulatory reform.the government recently commissioned the But dealing with construction permits takes Not surprisingly, different areas of businessSwedish Agency for Growth Policy Analysis about 7 months, and enforcing a contract regulation interact. Some research sug-to conduct studies on the effect of rules through the courts takes almost 3 years on gests that business regulation reforms haveon the enterprise sector.8 Canada and the average. Egypt’s top 3 rankings (on starting greater impact if combined with effectiveUnited States have introduced impact as- a business, getting credit and trading across regulation in other areas. For example, whensessments to prevent the introduction of borders) average 54, while its lowest 3 (on India dismantled a strict licensing regimeregulations considered too costly to society. controlling business entry and production, dealing with construction permits, paying taxes and enforcing contracts) average 149. the benefits were greater in states that hadAt all levels, much attention is being paid more flexible labor regulations. These statesto transparent policy making. Governments Indeed, reforms simplifying business entry saw real output gains 17.8% larger thanare making business regulation and the have been high on the agenda since early those in other states.13 In Mexico researchersregulatory process accessible, helped in on—particularly in common markets such found that a municipal license reform acrossmany cases by e-government initiatives. as the European Union, where businesses states increased new firm registrations byThe United Kingdom invites comment on are free to start and operate in any of the 5% and employment by 2.2%.14 The effectregulatory proposals on the website of the member states. Over time such business was greater in states with less corruptionBetter Regulation Executive.9 Canada and regulation reforms have increasingly been and better governance.15the United States publish guidelines on theevaluation process underlying the cost- undertaken by low- and lower-middle- Beyond these country-specific studies,benefit analysis of new regulations. income economies. Many have been helped cross-country analysis found that a 10-day by peer learning among policy makers, which reduction in the time to start a businessDIFFERENCES IN PERFORMANCE has picked up around the world. Every year was associated with a 0.3 percentage pointACROSS AREAS OF BUSINESS corporate registrars from 31 economies increase in the investment rate and a 0.36%REGULATION meet to discuss challenges and solutions.11 increase in the GDP growth rate in rela-The economies making such continued Representatives from Canada, which ranks tively poor and well-governed economies.16efforts, often over decades, often compare number 3 on the ease of starting a business, Another study points to synergistic effectswell with others across all 10 areas of busi- are now advising economies as diverse as between institutional reforms that reduceness regulation included in this year’s ease Indonesia and Peru. In 2010/11, 53 econo- the costs of high-quality production andof doing business ranking—and they do so mies made it easier to start a business (figure trade reforms. In many developing econo-over time, reflecting a more consistent and 1.7). Since 2005 the number of economies mies production of high-quality output is acomprehensive approach to business regula- where starting a business takes 20 days or precondition for firms to become exporters.tion. In many of the other economies, by less has increased from 41 to 98. Institutional deficiencies that raise the costscontrast, the degree to which regulations and of high-quality production therefore limitinstitutions are business-friendly varies fairly Improving the regulatory environment for the positive effect that trade facilitation canwidely across different areas of regulation.10 business can be difficult and take time, par- have on income.17 ticularly if the improvements involve sub-This shows up in comparisons of an econ- stantial institutional or legal changes. Some CLOSING THE GAP—A GLOBALomy’s 3 highest rankings on Doing Business require difficult political trade-offs. Outside TREND TOWARD BUSINESS-topics with its 3 lowest rankings (figure 1.6). pressures may be needed to push through FRIENDLY REGULATIONFor example, Malaysia’s top 3 rankings (on legislative changes. So it is no surprise that Policy makers often keep an eye on relativegetting credit, protecting investors and trad- times of crisis have often proved to be a rankings that compare economies at a pointing across borders) average 11, while its low- time of opportunity. Against the backdropest 3 (on dealing with construction permits, in time. But they increasingly recognize of the global economic and financial crisis, the importance of improvements withingetting electricity and registering property) the number of insolvency reforms increased economies over time. And results fromaverage 77. over the past 3 years, particularly in Europe recent years are encouraging. In the past 6For some economies this variance is due and among OECD high-income economies years policy makers in 163 economies madein part to the rapid pace of reform in some elsewhere.12 In 2010/11, 29 economies domestic regulations more business-friendlyareas of business regulation. One such area around the world reformed their insolvency (figure 1.8). They lowered barriers to entry,is business entry: more than 80% of the systems, more than in any previous year. operation and exit and strengthened protec-183 economies covered by Doing Business Most focused on improving reorganization tions of property and investor rights. Only ahave made it easier to start a business since proceedings to allow viable firms to con- few economies moved in the opposite direc-2003. Among them is the Arab Republic of tinue operating. tion. República Bolivariana de Venezuela
    • 8 DOING BUSINESS 2012 FIGURE 1.6 An economy’s regulatory environment may be business-friendly in some areas, less so in others Within-economy variation in rankings across Doing Business topics 180 MALAYSIA Average of bottom 3 rankings: 160 Dealing with construction permits Getting electricity Registering property 140 Average of all rankings Average ranking across topics 120 Average of 100 top 3 rankings: Getting credit Protecting investors Trading across borders 80 60 40 20 0 KOREA, REP. YEMEN, REP. SINGAPORE HONG KONG SAR, CHINA NEW ZEALAND DENMARK UNITED STATES NORWAY UNITED KINGDOM FINLAND ICELAND SWEDEN AUSTRALIA IRELAND SAUDI ARABIA CANADA GEORGIA THAILAND MALAYSIA MAURITIUS ESTONIA GERMANY SWITZERLAND JAPAN LATVIA TAIWAN, CHINA MACEDONIA, FYR LITHUANIA PORTUGAL FRANCE NETHERLANDS BELGIUM AUSTRIA UNITED ARAB EMIRATES SLOVENIA CHILE BAHRAIN QATAR TUNISIA RWANDA SPAIN CYPRUS SOUTH AFRICA ISRAEL OMAN PERU KAZAKHSTAN LUXEMBOURG HUNGARY SAMOA TONGA COLOMBIA PUERTO RICO (U.S.) SLOVAK REPUBLIC ST. LUCIA BOTSWANA ANTIGUA AND BARBUDA MEXICO MONTENEGRO BULGARIA ARMENIA PANAMA ST. VINCENT AND THE GRENADINES DOMINICA GHANA GRENADA TURKEY BELARUS SOLOMON ISLANDS AZERBAIJAN POLAND CROATIA KUWAIT KYRGYZ REPUBLIC CZECH REPUBLIC TRINIDAD AND TOBAGO FIJI BRUNEI DARUSSALAM VANUATU ROMANIA NAMIBIA MALDIVES MONGOLIA BAHAMAS, THE JAMAICA ZAMBIA ST. KITTS AND NEVIS JORDAN MARSHALL ISLANDS FIGURE 1.7 Reforms making it easier to start a business were most common in 2010/11—and have shown results over time Number of Doing Business reforms making it easier to do business in 2010/11, by topic Number of economies by time to start a business Starting a business 53 98 Getting credit 44 Paying taxes 33 2005 2011 Resolving insolvency 29 Registering property 61 20 Trading across borders 18 45 Dealing with 41 15 construction permits 36 Protecting investors 13 22 Enforcing contracts 11 13 14 12 12 Getting electricity 9 6 0 10 20 30 40 50 60 < 20 days _ 21–40 41– 60 61–80 > 80 days days days days Note: The data in the second panel refer to the 174 economies included in Doing Business 2006 (2005). Additional economies were added in subsequent years. Source: Doing Business database.
    • EXECUTIVE SUMMARY 9 y EGYPT, ARAB REP. MICRONESIA, FED. STS. IRAN, ISLAMIC REP. CONGO, DEM. REP. CONGO, REP. ITALY MOLDOVA CHINA MOROCCO SEYCHELLES SERBIA BELIZE ALBANIA SRI LANKA VIETNAM PARAGUAY GREECE GUATEMALA PAPUA NEW GUINEA URUGUAY LEBANON ETHIOPIA DOMINICAN REPUBLIC NEPAL GUYANA CAPE VERDE KIRIBATI PAKISTAN PALAU EL SALVADOR KENYA RUSSIAN FEDERATION ARGENTINA COSTA RICA KOSOVO NICARAGUA TANZANIA WEST BANK AND GAZA SWAZILAND BRAZIL ECUADOR UGANDA BANGLADESH INDONESIA PHILIPPINES HONDURAS BOSNIA AND HERZEGOVINA BHUTAN NIGERIA INDIA CAMBODIA MADAGASCAR SUDAN TAJIKISTAN SYRIAN ARAB REPUBLIC MALAWI BURKINA FASO MOZAMBIQUE MALI GAMBIA, THE SIERRA LEONE EQUATORIAL GUINEA MAURITANIA LESOTHO LIBERIA COMOROS UKRAINE TIMOR-LESTE IRAQ SURINAME BOLIVIA ALGERIA GABON CAMEROON AFGHANISTAN LAO PDR SENEGAL UZBEKISTAN SÃO TOMÉ AND PRÍNCIPE TOGO CÔTE D’IVOIRE HAITI ZIMBABWE ANGOLA DJIBOUTI NIGER BURUNDI BENIN ERITREA VENEZUELA, RB GUINEA-BISSAU GUINEA CHADCENTRAL AFRICAN REPUBLICNote: Figure illustrates the variability in the degree to which an economy’s regulatory environment is business-friendly compared with other economies across different areas of regulation. The vertical barsshow the distance between the average of the highest 3 topic rankings and the average of the lowest 3 for each of 183 economies across the 10 topics included in this year’s aggregate ranking.Source: Doing Business database.and Zimbabwe went the furthest in making required to export (2), Singapore on the time areas. Four years before, only 10 reformed inbusiness regulation less business-friendly. to enforce contracts (150 days). The frontier 3 or more areas. is thus a proxy for global good practiceSome economies have gone particularly across all indicators. Also new are the comprehensive approachfar in closing the gap with the regulatory and high level of coordination and commit-systems of top-performing economies such Economies making the greatest progress ment that some developing and emergingas Singapore, New Zealand and the Northern toward the frontier have been able to do so market economies are bringing to regulatoryEuropean economies (figure 1.9). Many of thanks to broad regulatory reform programs reform. More than 2 dozen economies havethem are developing economies that started covering multiple areas of regulation and put in place regulatory reform committees,off with relatively high levels of bureaucracy embedded in a long-term competitiveness often reporting directly to the president orand weak protections of property rights as strategy (figure 1.10). China, for example, im- prime minister—as in Colombia, Malaysiameasured by Doing Business. In narrowing plemented policy changes across 9 areas of and Rwanda.18 And they have not shied awaythe gap, all these economies are moving business regulation in the years since 2005.closer to the frontier—a synthetic measure from radical legal reforms. Economies mak- The changes included a new company law inbased on the most efficient practice or ing the greatest strides in creating a more 2005, a new credit registry in 2006 and, inhighest score observed for each indicator. business-friendly regulatory environment 2007, the first bankruptcy law regulating theFor starting a business, for example, the bar bankruptcy of private enterprises since 1949 have been revamping their regulatory andis set by New Zealand on the time (1 day), (figure 1.11). administrative systems in multiple areas toCanada and New Zealand on the number of encourage private sector activity (box 1.3).procedures (1), Denmark and Slovenia on the More economies are taking this broadcost (0). Georgia, Norway, Portugal, Sweden approach. In 2010/11, 35 economies That more and more developing economiesand the United Arab Emirates set the bar implemented reforms making it easier to are serious about business regulation reform ison the number of procedures for register- do business in 3 or more areas measured encouraging. Such broad thinking is good newsing property (1), France on the documents by Doing Business—12 of them in 4 or more for entrepreneurs and governments alike.
    • 12 DOING BUSINESS 2012 FIGURE 1.10 Economies with broader and more sustained business regulation reforms moved a greater distance toward the frontier Average number of areas with Doing Business reforms Average number of years with Doing Business reforms making it easier to do business, DB2006-DB2012 making it easier to do business, DB2006-DB2012 9 7.9 8 8 7 7 5.8 6 5.8 6 5 5 4.7 4 3.4 4 3.0 3 3 2 2 1 1 0 0 <5 5–15 > 15 <5 5–15 > 15 Progress in narrowing distance to frontier, 2005-11 Doing Business Progress in narrowing distance to frontier, 2005-11 Doing Business (percentage points) (percentage points) Note: The data refer to the 174 economies included in Doing Business 2006 (2005). Additional economies were added in subsequent years. Source: Doing Business database. BOX 1.3 Broad approach to regulatory reform over time in Rwanda and Georgia Rwanda’s broad and sustained approach to regulatory reform shows up reported spending less than 2% of their time dealing with government in progress toward the frontier in a range of areas (see figure on Rwanda). regulations, down from about 10% in 2002 and the smallest share among The economy has undertaken ambitious land and judicial reforms, often economies in Eastern Europe and Central Asia. Only 4% of firms expected years in the making. Since 2001 it has introduced new corporate, insolven- to make informal payments to public officials to get things done, compared cy, civil procedure and secured transactions laws. And it has streamlined with a regional average of 17%. and remodeled institutions and processes for starting a business, register- Georgian firms participating in survey rounds in both 2005 and 2008 ing property, trading across borders and enforcing a contract through the reported adding an average of 23 permanent workers (increasing the aver- courts. age from 61 to 84) during that period.1 They also reported a big drop in visits from or required meetings with tax officials, from an average of 8 in 2005 Rwanda’s broad approach to making regulation business-friendly to only 0.4 in 2008. This result may be related to a new tax code that took Distance to frontier, 2005 and 2011 effect at the start of 2005, reducing the categories of taxes from 21 to 9. Yet more remains to be done to improve the overall business environ- 0 ment. Enterprise surveys show that security and infrastructure remain 10 among the top concerns of businesses in Georgia. 20 30 How Georgia is closing the distance to the frontier Percentage points 40 Distance to frontier, 2005 and 2011 50 0 60 10 70 20 80 30 90 Percentage points 40 100 50 Starting Dealing Registering Getting Protecting Paying Trading Enforcing Resolving a with property credit investors taxes across contracts insolvency business construction borders 60 permits 2005 2011 70 Source: Doing Business database. 80 Georgia too has pursued broad-ranging business regulation reform (see 90 figure on Georgia). Since 2005 the economy has introduced a new com- 100 Starting Dealing Registering Getting Protecting Paying Trading Enforcing Resolving a with property credit investors taxes across contracts insolvency pany law and customs code. A new property registry replaced a confusing business construction borders permits system requiring duplicate approvals by multiple agencies. The economy’s 2005 2011 first credit information bureau and large-scale judicial reforms followed. Source: Doing Business database. In 2008 Georgian firms recognized the low levels of bureaucracy and flexible business environment in enterprise surveys. Senior managers 1. World Bank 2009c.
    • EXECUTIVE SUMMARY 13 A friendly competition has emerged as FIGURE 1.11 China has been making steady progress toward the frontier economies adopt proven regulatory prac- Distance to frontier, 2005–11 tices from others. Lessons from others have proved invaluable for such economies as 40 China Colombia, Georgia, the former Yugoslav Russian Federation Republic of Macedonia and Rwanda. Within Percentage points 45 Nigeria larger economies good practices can often 50 India be found across state borders (see the case 55 Brazil study on Mexico). 60 Practitioners interested in learning from 65 2005 2006 2007 2008 2009 2010 2011 others have more resources to turn to. This year’s topic chapters provide the basis for web content and a new online database Source: Doing Business database. on practices and experiences in business regulation reform around the world. A seriesAmong the 12 economies improving the most of what has worked and why in 11 areas of of case studies will explore how economiesin the ease of doing business in 2010/11, business regulation, from business entry to have integrated regulatory reform intotwo-thirds are low- or lower-middle-income exit. These chapters also provide insights broader competitiveness strategies oreconomies. All implemented regulatory into the importance of each area and show approached regulatory reform more gener-reforms making it easier to do business in 3 global trends.19 ally. This year’s report presents the casesor more of the 10 areas included in this year’s of Korea, FYR Macedonia, Mexico and theaggregate ranking (table 1.2). WHAT TO EXPECT NEXT? United Kingdom. Doing Business has been measuring andTHE ADVANTAGE OF BEING A These expanding resources, including aLATE STARTER tracking business regulation around the growing time series of data on business reg- world for the past 9 years. During this timeMany economies have the advantage today ulation, are allowing more empirical research most economies have made their regulatory that sheds light on synergies among differentof being able to learn from the experienceof others. And many are already adopting environment for local firms more business- areas of regulation and on the effect of regu-good practices from other economies (table friendly. Firms create jobs, and policy mak- latory reform on such economic outcomes1.3). To help identify such practices, this year ers play a key role in creating a regulatory as informality, corruption, employment andDoing Business is electronically publishing environment that encourages their creation, economic growth. The evidence is encour-topic chapters that provide an overview growth and investment. aging. It suggests that if key bottlenecks TABLE 1.2 Economies that improved the most across 3 or more areas measured by Doing Business in 2010/11 Ease of doing business rank Reforms making it easier to do business Dealing with Trading Starting a construction Getting Registering Getting Protecting Paying across Enforcing Resolving DB2012 DB2011 Improvement business permits electricity property credit investors taxes borders contracts insolvency 1 Morocco 94 115 -21 √ √ √ 2 Moldova 81 99 -18 √ √ √ √ 3 Macedonia, 22 34 -12 √ √ √ √ FYR 4 São Tomé 163 174 -11 √ √ √ √ and Príncipe 5 Latvia 21 31 -10 √ √ √ √ Cape Verde 119 129 -10 √ √ √ 6 Sierra Leone 141 150 -9 √ √ √ √ 7 Burundi 169 177 -8 √ √ √ √ 8 Solomon 74 81 -7 √ √ √ √ Islands Korea, Rep. 8 15 -7 √ √ √ 9 Armenia 55 61 -6 √ √ √ √ √ 10 Colombia 42 47 -5 √ √ √ Note: Economies are ranked on the number of their net reforms and on how much they improved in the ease of doing business ranking. First, Doing Business selects the economies that implemented reforms making it easier to do business in 3 or more of the 10 topics included in this year’s aggregate ranking (see box 1.2). Regulatory reforms making it more difficult to do business are subtracted from the number of those making it easier to do business. Second, Doing Business ranks these economies on the increase in their ranking on the ease of doing business from the previous year using comparable rankings. The larger the improvement, the higher the ranking as the most improved. Source: Doing Business database.
    • 14 DOING BUSINESS 2012 TABLE 1.3 Good practices around the world, by Doing Business topic Topic Practice Economiesa Examples Making it easy to Putting procedures online 110 Hong Kong SAR, China; Kuwait; FYR Macedonia; New Zealand; Peru; Puerto start a business Rico (U.S.); Singapore Having a one-stop shop 83 Bahrain; Burkina Faso; Georgia; Republic of Korea; Uruguay; Vietnam Having no minimum capital requirement 82 Kenya; Madagascar; Portugal; Rwanda; United Arab Emirates; United Kingdom Making it easy Having an organized set of building rules 116 Croatia; Kenya; New Zealand; Republic of Yemen to deal with construction Using risk-based building approvals 86 Armenia; Germany; Mauritius; Singapore permits Having a one-stop shop 26 Bahrain; Chile; Hong Kong SAR, China; Rwanda Making it easy to Using an electronic database for encumbrances 108 Jamaica; Sweden; United Kingdom register property Setting effective time limits for registration 54 Botswana; Guatemala; Indonesia Offering cadastre information online 50 Denmark; Lithuania; Malaysia Offering expedited procedures 16 Azerbaijan; Bulgaria; Georgia Setting fixed transfer fees 15 New Zealand; Russian Federation; Rwanda Making it easy to Allowing out-of-court enforcement 123 Australia; India; Nepal; Peru; Russian Federation; Serbia; Sri Lanka; United get credit States Distributing data on loans below 1% of income per capita 119 Brazil; Bulgaria; Germany; Kenya; Malaysia; Sri Lanka; West Bank and Gaza Distributing both positive and negative credit information 100 China; Croatia; India; Italy; Jordan; Panama; South Africa Allowing a general description of collateral 91 Cambodia; Canada; Chile; Nigeria; Romania; Singapore; Vanuatu; Vietnam Maintaining a unified registry 68 Bosnia and Herzegovina; Guatemala; Honduras; Marshall Islands; Federated States of Micronesia; Montenegro; New Zealand; Romania; Solomon Islands Distributing credit information from retailers, trade 54 Fiji; Lithuania; Nicaragua; Rwanda; Saudi Arabia; Spain creditors or utilities as well as financial institutions Protecting Allowing rescissionb of prejudicial related-party 70 Brazil; Mauritius; Rwanda; United States investors transactions Regulating approval of related-party transactions 60 France; Iceland; Indonesia; Lebanon; United Kingdom Requiring detailed disclosure 52 Hong Kong SAR, China; Israel; New Zealand; Singapore Allowing access to all corporate documents during the trial 45 Chile; Ireland; Morocco; Peru; Poland Defining clear duties for directors in case of related-party 45 Colombia; Malaysia; Mexico; United States; Vietnam transactions Requiring external review of related-party transactions 41 Australia; Burundi; Arab Republic of Egypt; Norway Allowing access to all corporate documents before the trial 31 Greece; Japan; South Africa; Sweden Making it easy to Allowing self-assessment 145 Argentina; Canada; China; Arab Republic of Egypt; Rwanda; Sri Lanka; Turkey pay taxes Allowing electronic filing and payment 66 Australia; Colombia; India; Lithuania; Mauritius; Singapore; Tunisia Having one tax per tax base 49 Hong Kong SAR, China; FYR Macedonia; Morocco; Namibia; Paraguay; United Kingdom Making it easy Using electronic data interchange 130d Belize; Chile; Estonia; Pakistan; Turkey to trade across bordersc Using risk-based inspections 97 Morocco; Nigeria; Palau; Suriname; Vietnam Providing a single window 49e Colombia; Ghana; Republic of Korea; Singapore Making it easy to Making judgments publicly available 122f Australia; Austria; Chile; Dominican Republic; Greece; Mozambique; Nigeria; enforce contracts Uruguay Maintaining specialized commercial court, division or judge 87 Burkina Faso; France; Lesotho; Saudi Arabia; Sierra Leone; Singapore Allowing electronic filing of complaints 16 Australia; Republic of Korea; Malaysia; Russian Federation; United Kingdom Making it easy to Allowing creditors’ committees a say in relevant decisions 103 Bulgaria; Philippines; South Africa resolve insolvency Requiring professional or academic qualifications for 64 Cape Verde; Namibia insolvency administrators by law Providing a legal framework for out-of-court workouts 45 Italy; Philippines Note: Good practices making it easy to get electricity will be included in Doing Business 2013. a. Among 183 economies surveyed, unless otherwise specified. b. The right of parties involved in a contract to return to a state identical to that before they entered into the agreement. c. Among 159 economies surveyed for electronic data interchange, 152 for risk-based inspections and 150 for single window. d. Twenty-six have a full electronic data interchange system, 104 a partial one. e. Twenty have a single-window system that links all relevant government agencies, 29 a system that does not. f. Among 175 economies surveyed. Source: Doing Business database; for starting a business, also World Bank (2009b).
    • EXECUTIVE SUMMARY 15are identified, targeted changes can have a NOTES public institutions, aspects of human capitalsubstantial effect on new firm creation, pro- 1. Narayan and others 2000. and the sophistication of the business community. The United States and Japan,ductivity and employment. Because many 2. Ayyagari, Demirgüç-Kunt and Maksimovic as leaders in technology, score extremelyregulations interact, implementing regula- 2011. well on measures of innovation. But withtory reform in several areas has synergistic 3. Only 27% of all regulatory reforms recorded large budget deficits and high levels ofeffects. It is also important to recognize that by Doing Business for economies in the public debt, they do less well on measures of Middle East and North Africa over the past macroeconomic stability.regulatory reforms can take time to translate 6 years were in the areas of getting credit,into changes in the economy. 20 11. Some members of the Corporate Registrars protecting investors, enforcing contracts and Forum are Australia; Bangladesh; Bermuda; resolving insolvency. In Eastern Europe andOther World Bank Group initiatives provide Botswana; the British Virgin Islands; Central Asia 38% of all regulatory reforms Burkina Faso; Canada; the Cook Islands;data complementing the Doing Business recorded were in these areas. Croatia; Hong Kong SAR, China; India;resources. Two global data sets support the 4. Research shows that business regulations of Jordan; FYR Macedonia; Malawi; Malaysia;exploration of other areas of analysis—one the type measured by Doing Business affect Mauritius; Nepal; the Netherlands; New the creation of new firms in the local market, Zealand; Nigeria; Pakistan; Rwanda;focusing on laws and regulations specific the productivity levels of those firms and Samoa; Singapore; South Africa; Sri Lanka;to women’s participation in the economy the creation of employment. Cross-country Tunisia; the United Arab Emirates; theand the other on those relating to foreign studies show that greater ease of entry is United Kingdom; and Vanuatu. (http://companies’ engagement in the domestic associated with a higher firm entry rate www.corporateregistersforum.org/economy.21 Enterprise surveys covering 125 and greater business density on average. member-jurisdictions). Encouraging evidence from economies aseconomies over 9 years allow researchers 12. See also World Bank (2009a, 2010a). diverse as Colombia, India, Mexico andand policy makers to assess what the private Portugal also supports these findings. For 13. Aghion and others 2008.sector looks like in an economy at a given more on this and other relevant research, 14. Bruhn 2011.time—in terms of firm size, sector of activity see the chapter “About Doing Business: 15. Kaplan, Piedra and Seira 2007.and geographic location.22 Through direct measuring for impact.” 16. Eifert 2009.interviews with more than 130,000 firms 5. Public procurement, while not covered 17. Rauch 2010.around the world, these surveys examine a by any of the Doing Business indicators, is 18. These include economies across regions: In another area in which a growing number ofrange of issues relating to the business envi- governments are using electronic platforms. East and South Asia, India; Malaysia;ronment, including the biggest constraints as Sri Lanka; Taiwan, China; Thailand; and The aim is to increase transparency in the Vietnam. In the Middle East and Northperceived by businesses. relationships between public officials and Africa, Egypt; Morocco; Saudi Arabia; the suppliers. United Arab Emirates; and the RepublicThe agenda for research into what regula- 6. Nineteen U.K. government departments of Yemen. In Eastern Europe and Centraltions constitute binding constraints, what participated in the program, which started Asia, Georgia; Kazakhstan; the Kyrgyzpackage of regulatory reforms is most with an extensive quantification exercise Republic; Moldova; and Tajikistan. In in the summer of 2005. In May 2010 the Sub-Saharan Africa, Botswana; Burundi;effective and how these issues are shaped target was met: a total cost reduction for the Central African Republic; the Comoros;by the context in an economy is still un- businesses of £3.5 billion. Based on this the Democratic Republic of Congo; Kenya;finished. To stimulate new research in this experience, a new target was set: to cut the Liberia; Malawi; Mali; and Zambia. And inarea, Doing Business plans to hold a con- ongoing costs of regulation by another £6.5 Latin America, Guatemala; Mexico; andference in the fall of 2012. Its aim will be billion by 2015 (http://www.bis.gov.uk). Peru.to deepen our understanding of the links 7. European Commission 2011. 19. Topic chapters are available on the Doingbetween business regulation reforms and 8. The assignment was to compile the latest Business website (http://www.doing research findings on regulatory burden, business.org).broader economic outcomes. regulatory simplification and regulatory 20. For more information on relevant research, impact on business and to examine what see the chapter “About Doing Business: effects direct and indirect costs have on measuring for impact.” businesses and the economy (Swedish 21. The databases are Women, Business and Agency for Growth Policy Analysis 2010). the Law (http://wbl.worldbank.org/) and 9. http://www.businesslink.gov.uk. Investing Across Borders 10. This pattern of relatively large variation (http://iab.worldbank.org/). across indicator sets is not specific to Doing 22. World Bank Enterprise Surveys Business. A similar pattern can be discerned (http://www.enterprisesurveys.org). in, for example, the World Economic Forum’s Global Competitiveness Index, a broader measure capturing such factors as macroeconomic stability, the soundness of
    • About Doing Business:measuring for impactA vibrant private sector—with firms making makers intending to change the experience define and underpin the business environ-investments, creating jobs and improving and behavior of businesses will often start ment. Whether the entrepreneur decides toproductivity—promotes growth and expands by changing rules and regulations that affect move forward with the idea, to abandon it oropportunities for poor people. To foster a them. Doing Business goes beyond identifying to take it elsewhere might depend in largevibrant private sector, governments around that a problem exists and points to specific part on how simple it is to comply with thethe world have implemented wide-ranging regulations or regulatory procedures that requirements for opening a new businessreforms, including price liberalization and may lend themselves to reform (table 2.1). or getting a construction permit and howmacroeconomic stabilization programs. But And its quantitative measures of business efficient the mechanisms are for resolvinggovernments committed to the economic regulation enable research on how specific commercial disputes or dealing with insol-health of their country and opportunities regulations affect firm behavior and eco- vency. Doing Business provides quantitativefor its citizens focus on more than macro- nomic outcomes. measures of regulations for starting a busi-economic conditions. They also pay atten- ness, dealing with construction permits,tion to the quality of laws, regulations and The first Doing Business report, published getting electricity, registering property,institutional arrangements that shape daily in 2003, covered 5 indicator sets and 133 getting credit, protecting investors, payingeconomic activity. economies. This year’s report covers 11 in- taxes, trading across borders, enforcing dicator sets and 183 economies. Ten topics contracts and resolving insolvency—as theyUntil 10 years ago, however, there were no are included in the aggregate ranking on the apply to domestic small and medium-sizeglobally available indicator sets for monitor- ease of doing business and other summary enterprises.3 It also looks at regulations oning such microeconomic factors and analyz- measures.1 The project has benefited from employing workers.ing their relevance. The first efforts to address feedback from governments, academics,this gap, in the 1980s, drew on perceptions practitioners and reviewers.2 The initial goal A fundamental premise of Doing Businessdata from expert or business surveys that remains: to provide an objective basis for is that economic activity requires goodcapture often one-time experiences of busi- understanding and improving the regulatory rules. These include rules that establish andnesses. Such surveys can be useful gauges environment for business. clarify property rights and reduce the costof economic and policy conditions. But few of resolving disputes, rules that increase theperception surveys provide indicators with WHAT DOING BUSINESS COVERS predictability of economic interactions anda global coverage that are updated annually. An entrepreneur’s willingness to try a new rules that provide contractual partners withThe Doing Business project takes a different idea may be influenced by many factors, in- core protections against abuse. The objec-approach from perception surveys. It looks cluding perceptions of how easy (or difficult) tive: regulations designed to be simple andat domestic, primarily small and medium- it will be to deal with the array of rules that efficient in implementation and accessiblesize companies and measures the regula-tions applying to them through their life TABLE 2.1 Doing Business methodology allows an objective but limited global comparison Advantages Limitationscycle. Based on standardized case studies, it Transparent, based on factual information about Limited in scope: focuses on 11 areas of regulation affectingpresents quantitative indicators on business laws and regulations (with an element of judgment local businesses; does not measure all aspects of businessregulation that can be compared across 183 on time estimates) environment or all areas of regulationeconomies and over time. This approach Comparison and benchmarking valid thanks to Based on standardized case: transactions described in casecomplements the perception surveys in standard assumptions scenario refer to specific set of issues and type of companyexploring the major constraints for busi- Inexpensive and easily replicable Focuses on formal sectornesses, as experienced by the businesses Actionable: data highlight extent of specific Only reforms related to indicators can be tracked obstacles, identify source, point to what might bethemselves and as set out in the regulations changedthat apply to them. Multiple interactions with local respondents to Assumes that business has full information on what is re- clarify potential misinterpretation quired and does not waste time when completing proceduresRules and regulations are under the direct Nearly complete coverage of world’s economies Part of data obtained refer to an economy’s largest businesscontrol of policy makers—and policy city only
    • ABOUT DOING BUSINESS: MEASURING FOR IMPACT 17to all who need to use them. Accordingly, WHAT DOING BUSINESS DOES covers 11 areas of a company’s life cycle,some Doing Business indicators give a higher NOT COVER through 11 specific sets of indicators.score for more regulation, such as stricter Just as important as knowing what Doing These indicator sets do not cover all as-disclosure requirements in related-party Business does is to know what it does not pects of regulation in the area of focus.transactions. Some give a higher score for do—to understand what limitations must be For example, the indicators on starting aa simplified way of implementing existing kept in mind in interpreting the data. business or protecting investors do notregulation, such as completing business cover all aspects of commercial legisla-start-up formalities in a one-stop shop. Limited in scope tion. The employing workers indicators do not cover all areas of labor regulation. Doing Business focuses on 11 topics, with theThe Doing Business project encompasses 2 The current set of indicators does not, for specific aim of measuring the regulationtypes of data. The first come from readings example, include measures of regulations relevant to the life cycle of a domestic firmof laws and regulations by both the local addressing safety at work or the right of (table 2.2). Accordingly:expert respondents and Doing Business. The collective bargaining.second are time-and-motion indicators that • Doing Business does not measure all as- • Doing Business also does not attemptmeasure the efficiency in achieving a regula- pects of the business environment that to measure all costs and benefits of atory goal (such as granting the legal identity matter to firms or investors—or all factors particular law or regulation to society asof a business). Within the time-and-motion that affect competitiveness. It does not, a whole. The paying taxes indicators, forindicators, cost estimates are recorded from for example, measure security, corruption, example, measure the total tax rate, whichofficial fee schedules where applicable. A market size, macroeconomic stability, the is a cost to business. The indicators do notregulatory process such as starting a busi- state of the financial system, the labor measure, nor are they intended to mea-ness or registering property is broken down skills of the population or all aspects of sure, the social and economic programsinto clearly defined steps and procedures. the quality of infrastructure. Nor does it funded through tax revenues. MeasuringThe time estimates for each procedure are focus on regulations specific to foreign business laws and regulations providesbased on the informed judgment of expert investment. one input into the debate on the regula-respondents who routinely administer or • While Doing Business focuses on the qual- tory burden associated with achievingadvise on the relevant regulations.4 Here, ity of the regulatory framework, it is not regulatory objectives. Those objectivesDoing Business builds on Hernando de Soto’s all-inclusive; it does not cover all regula- can differ across economies.pioneering work in applying the time-and- tions in any economy. As economiesmotion approach first used by Frederick and technology advance, more areas of Based on standardized caseTaylor to revolutionize the production of the economic activity are being regulated. For scenariosModel T Ford. De Soto used the approach in example, the European Union’s body of Doing Business indicators are built on thethe 1980s to show the obstacles to setting up laws (acquis) has now grown to no fewer basis of standardized case scenarios witha garment factory on the outskirts of Lima.5 than 14,500 rule sets. Doing Business specific assumptions, such as the business being located in the largest business city TABLE 2.2 Doing Business—measuring 11 areas of business regulation of the economy. Economic indicators com- Start-up Expansion Operations Insolvency monly make limiting assumptions of this • Starting a business • Registering property • Dealing with • Resolving insolvency kind. Inflation statistics, for example, are Minimum capital Procedures, time and construction permits Time, cost and recovery often based on prices of a set of consumer requirement cost Procedures, time and rate Procedures, time and cost goods in a few urban areas. cost • Getting credit Credit information • Getting electricity Such assumptions allow global coverage systems Procedures, time and and enhance comparability. But they come Movable collateral cost laws at the expense of generality. Doing Business • Paying taxes recognizes the limitations of including data • Protecting investors Payments, time and on only the largest business city. Business Disclosure and liability total tax rate regulation and its enforcement, particularly in related-party trans- actions • Trading across in federal states and large economies, may borders differ across the country. Recognizing gov- • Enforcing contracts Documents, time and cost ernments’ interest in such variation, Doing Procedures, time and cost to resolve a com- Business has complemented its global indica- mercial dispute • Employing workers tors with subnational studies in a range of economies (box 2.1). This year Doing Business also conducted a pilot study on the second PROPERTY RIGHTS largest city in 3 large economies to assess ADMINISTRATIVE BURDEN RECOVERY RATE ENTRY ACCESS TO CREDIT within-country variations. FLEXIBILITY IN HIRING REALLOCATION OF ASSETS INVESTOR PROTECTIONS
    • 18 DOING BUSINESS 2012 In areas where regulation is complex and Where regulation is particularly onerous, our health. But it does measure something highly differentiated, the standardized case levels of informality are higher. Informality important for our health. And it puts us on used to construct the Doing Business indica- comes at a cost: firms in the informal sec- watch to change behaviors in ways that will tor needs to be carefully defined. Where tor typically grow more slowly, have poorer improve not only our cholesterol rating but relevant, the standardized case assumes a access to credit and employ fewer workers— also our overall health. limited liability company or its legal equiva- and their workers remain outside the protec- tions of labor law.6 All this may be even more One way to test whether Doing Business lent. This choice is in part empirical: private, serves as a proxy for the broader business limited liability companies are the most so for female-owned businesses, according environment and for competitiveness is prevalent business form in many economies to country-specific research.7 Firms in the to look at correlations between the Doing around the world. The choice also reflects informal sector are also less likely to pay Business rankings and other major economic one focus of Doing Business: expanding op- taxes. Doing Business measures one set of benchmarks. Closest to Doing Business in portunities for entrepreneurship. Investors factors that help explain the occurrence of what it measures is the set of indicators on are encouraged to venture into business informality and give policy makers insights product market regulation compiled by the when potential losses are limited to their into potential areas of regulatory reform. Organisation for Economic Co-operation and capital participation. Gaining a fuller understanding of the broader Development (OECD). These indicators are business environment, and a broader per- designed to help assess the extent to which Focused on the formal sector spective on policy challenges, requires com- the regulatory environment promotes or in- In constructing the indicators, Doing Business bining insights from Doing Business with data hibits competition. They include measures of assumes that entrepreneurs are knowledge- from other sources, such as the World Bank the extent of price controls, the licensing and able about all regulations in place and comply Enterprise Surveys.8 permit system, the degree of simplification with them. In practice, entrepreneurs may of rules and procedures, the administrative spend considerable time finding out where WHY THIS FOCUS  burdens and legal and regulatory barriers, to go and what documents to submit. Or Doing Business functions as a kind of cho- the prevalence of discriminatory procedures they may avoid legally required procedures lesterol test for the regulatory environment and the degree of government control over altogether—by not registering for social for domestic businesses. A cholesterol test business enterprises.9 The rankings on these security, for example. does not tell us everything about the state of indicators—for the 39 countries that are BOX 2.1 Comparing regulation within economies: subnational Doing Business indicators and a multicity pilot study Subnational Doing Business studies are conducted at the request of a government and capture differences in business regulation across cities within the same economy or region. They build local capacity by involving government partners and local think tanks. Since 2005 subnational Doing Business reports have compared business regulation in states and cities within such economies as Brazil, China, Colombia, Egypt, India, Indonesia, Kenya, Mexico, Morocco, Nigeria, Pakistan and the Philippines.1 Subnational studies increasingly are being periodically updated to measure progress over time or to expand geographic coverage to additional cities. This year that is the case for the subnational studies in the Philippines; the regional report in Southeast Europe; the ongoing studies in Italy, Kenya and the United Arab Emirates; and the projects implemented jointly with local think tanks in Indonesia, Mexico and the Russian Federation. In 2011 Doing Business published subnational indicators for the Philippines and a regional report for 7 economies in Southeast Europe (Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Moldova, Montenegro and Serbia) that covers 22 cities. It also published a city profile for Juba, in the Republic of South Sudan. To further explore variations in business regulation within economies, Doing Business this year collected data on all 10 indicator sets included in the ease of doing business ranking in an additional city in 3 large economies: in Rio de Janeiro in Brazil (in addition to São Paulo), Beijing in China (in addition to Shanghai) and St. Petersburg in the Russian Federation (in addition to Moscow). Subnational studies usually cover only a subset of indicators. The results show no variation between cities within each economy in areas governed by laws or regulations such as the civil procedure code, listing rules for companies and incorporation rules. For rules governing secured transactions, for example, entrepreneurs in Brazil all refer to the Civil Code of 2002, those in China to the Property Rights Law of 2007 and those in Russia to the Civil Code of 1994 and Law on Pledge of 1992. But the efficiency of regulatory processes—such as starting a business or dealing with construction permits—and that of institutions do differ across cities, because of differences either in local regulations or in the capacity of institutions to respond to business demand. In Russia, dealing with construction permits is more complex in Moscow than in St. Petersburg. In Brazil, starting a business, dealing with construction permits and getting electricity take less time in Rio de Janeiro than in the larger São Paulo. But property registration is slightly more efficient in São Paulo than in Rio de Janeiro. This is thanks to São Paulo’s digitized cadastre. In all 3 economies the number of taxes and contributions varies between cities. In China businesses in both cities have to comply with 3 state-administered taxes (value added tax, corporate tax and business tax). But while companies in Beijing need to comply with 6 locally administered taxes, those in Shanghai must comply with 7. Distance to the port plays a role in the time to import and export. The cities housing a main port—Rio de Janeiro, Shanghai and St. Petersburg—have faster and cheaper inland transport than those where entrepreneurs need to hire someone to go to another city to ship or receive their cargo— São Paulo (to Santos), Beijing (to Tianjin) and Moscow (to St. Petersburg). 1. Subnational reports are available on the Doing Business website at http://www.doingbusiness.org/reports/subnational-reports.
    • ABOUT DOING BUSINESS: MEASURING FOR IMPACT 19covered, several of them large emerging FIGURE 2.1 A strong correlation between Doing Business rankings and OECD rankings on productmarkets—are highly correlated with those on market regulationthe ease of doing business (the correlation Ranking on OECD product market regulation indicatorshere is 0.72; figure 2.1). 40 35Similarly, there is a high correlation (0.82) 30between the rankings on the ease of doing 25business and those on the World Economic 20 15Forum’s Global Competitiveness Index, a 10much broader measure capturing such fac- 5tors as macroeconomic stability, aspects of 0 0 20 40 60 80 100 120 140human capital, the soundness of public insti-tutions and the sophistication of the business Note: Correlation is significant at the 5% level when controlling for income per capita. Source: Doing Business database; OECD data.community (figure 2.2).10 Economies that dowell on the Doing Business indicators tendto do well on the OECD market regulation FIGURE 2.2 A similarly strong correlation between Doing Business rankings and World Economic Forumindicators and the Global Competitiveness rankings on global competitivenessIndex and vice versa. Ranking on Global Competitiveness IndexA bigger question is whether the issues on 140 120which Doing Business focuses matter for de- 100velopment and poverty reduction. The World 80Bank study Voices of the Poor asked 60,000 60poor people around the world how they 40thought they might escape poverty.11 The 20 0answers were unequivocal: women and men 0 20 40 60 80 100 120 140 160 180alike pin their hopes above all on income Ranking on the ease of doing businessfrom their own business or wages earned inemployment. Enabling growth—and ensur- Note: Correlation is significant at the 5% level when controlling for income per capita. Source: Doing Business database; WEF 2010.ing that poor people can participate in itsbenefits—requires an environment where operate within the rule of law and to benefit considered judgments on the policy optionsnew entrants with drive and good ideas, re- available, enhancing the ability to assess from the opportunities and protections thatgardless of their gender or ethnic origin, can progress over time and make meaningful in- the law provides. Not surprisingly, higherget started in business and where good firms ternational comparisons, and contributing to rankings on the ease of doing business—can invest and grow, generating more jobs. public debate and the promotion of greater based on 10 areas of business regulation measured by Doing Business—are correlated accountability.Small and medium-size enterprises arekey drivers of competition, growth and job with better governance and lower levels of Since 2006 Doing Business has provided 2creation, particularly in developing econo- perceived corruption.13 takes on the data it collects: it presents “ab-mies. But in these economies up to 80% of solute” indicators for each economy for each In this sense Doing Business values good ruleseconomic activity takes place in the informal of the 11 regulatory topics it addresses, and it as a key to social inclusion. It also provides asector. Firms may be prevented from entering provides rankings of economies for 10 topics, basis for studying effects of regulations andthe formal sector by excessive bureaucracy both by topic and in aggregate.15 In addition, their application. For example, Doing Businessand regulation. Even firms operating in the as noted in the executive summary, this 2004 found that faster contract enforcementformal sector might not have equal access to year’s report introduces a new measure—the was associated with perceptions of greatertransparent rules and regulations affecting distance to frontier measure—that illustrates judicial fairness—suggesting that justicetheir ability to compete, innovate and grow. how an economy’s regulatory environment delayed is justice denied.14 has changed over time.16 Judgment is requiredWhere regulation is burdensome and com- in interpreting all these measures for anypetition limited, success tends to depend DOING BUSINESS AS A economy and in determining a sensible andmore on whom you know than on what you BENCHMARKING EXERCISE politically feasible path for regulatory reform.can do.12 But where regulation is transparent, Doing Business, in capturing some key di-efficient and implemented in a simple way, mensions of regulatory regimes, has been Reviewing the Doing Business rankings in iso-it becomes easier for any aspiring entrepre- found useful for benchmarking—an aspect lation may reveal unexpected results. Someneurs, regardless of their connections, to allowing decision makers to make more economies may rank unexpectedly high on
    • 20 DOING BUSINESS 2012 some topics. And some economies that have has a ranking of 24 on the ease of starting a regulations improve firm productivity and had rapid growth or attracted a great deal of business, 26 on the ease of dealing with con- macroeconomic performance.22 investment may rank lower than others that struction permits, 38 on the ease of paying appear to be less dynamic. taxes and 71 on the ease of registering prop- Simpler business registration translates into erty. Variation in performance across the greater employment opportunities in the formal As economies develop, they strengthen and indicator sets reflects the different priorities sector. Reducing start-up costs for new firms add to regulations to protect investor and that governments give to particular areas of was found to result in higher take-up rates property rights. Meanwhile, they find more business regulation as well as economy-spe- for education, higher rates of job creation for efficient ways to implement existing regula- cific circumstances that may allow a faster high-skilled labor and higher average produc- tions and cut outdated ones. One finding of pace of reform in some areas than in others. tivity because new firms are often set up by Doing Business: dynamic and growing econo- high-skilled workers.23 Lowering entry costs mies continually reform and update their can boost legal certainty: businesses enter- WHAT RESEARCH SHOWS ON ing the formal sector gain access to the legal business regulations and their way of imple- THE EFFECTS OF BUSINESS system, to the benefit of both themselves and menting them, while many poor economies REGULATION still work with regulatory systems dating to their customers and suppliers.24 Nine years of Doing Business data, together the late 1800s. with other data sets, have enabled a grow- Assessing the impact of policy reforms poses For reform-minded governments, how ing body of research on how specific areas challenges. While cross-country correlations of business regulation—and regulatory can appear strong, it is difficult to isolate much the regulatory environment for local reforms in those areas—relate to social and the effect of regulations given all the other entrepreneurs improves in absolute terms economic outcomes. Some 873 articles have potential factors that vary at the country matters more than their economy’s relative been published in peer-reviewed academic level. Generally, cross-country correlations ranking on the overall ease of doing busi- journals, and about 2,332 working papers are do not show whether a specific outcome is ness. The distance to frontier measure aids available through Google Scholar.17 caused by a specific regulation or whether it in assessing such improvements over time by showing the distance of each economy to coincides with other factors, such as a more Much attention has been given to exploring the “frontier,” which represents the highest positive economic situation. So how do we links to microeconomic outcomes, such performance observed on each of the Doing know whether things would have been dif- as firm creation and employment. Recent Business indicators across all economies ferent without a specific regulatory reform? research focuses on how business regula- and years included since 2005. Comparing Some studies have been able to test this by tions affect the behavior of firms by creating the measure for an economy at 2 points investigating variations within an economy incentives (or disincentives) to register and in time allows users to assess how much over time. Other studies have investigated operate formally, to create jobs, to innovate the economy’s regulatory environment as policy changes that affected only certain and to increase productivity.18 Many studies measured by Doing Business has changed firms or groups. Several country-specific have also looked at the role played by courts, impact studies conclude that simpler entry over time—how far it has moved toward (or credit bureaus, and insolvency and collateral regulations encourage the establishment of away from) the most efficient practices and laws in providing incentives for creditors and more new firms: strongest regulations in the areas covered by investors to increase access to credit. The Doing Business. The distance to frontier mea- • In Mexico one study found that a program literature has produced a range of findings. sure complements the yearly ease of doing that simplified municipal licensing led to a business rankings that compare economies Lower costs for business registration encourage 5% increase in the number of registered with one another at a point in time. entrepreneurship and enhance firm productivity. businesses and a 2.2% increase in wage Economies with efficient business registra- employment, while competition from Each indicator set covered by Doing Business tion have a higher entry rate by new firms as new entrants lowered prices by 0.6% measures a different aspect of the business well as greater business density.19 Economies and the income of incumbent businesses regulatory environment. The rankings of where registering a new business takes less by 3.2%.25 Other research found that the each economy vary, sometimes significantly, time have seen more businesses register in same licensing reform directly led to a across the indicator sets. A quick way to as- industries where the potential for growth 4% increase in new start-ups and that the sess the variability of an economy’s regula- is greatest, such as those that have experi- program was more effective in munici- tory performance across the different areas enced expansionary shifts in global demand palities with less corruption and cheaper of business regulation is to look at the topic or technology.20 Reforms making it easier to additional registration procedures.26 rankings (see the country tables). Korea, for start a business tend to have a significant • In India the progressive elimination of the example, stands at 8 in the overall ease of positive effect on investment in product “license raj” led to a 6% increase in new doing business ranking. Its ranking is 2 on market industries such as transport, com- firm registrations, and highly produc- the ease of enforcing contracts, 4 on the munications and utilities, which are often tive firms entering the market saw larger ease of trading across borders and 8 on the sheltered from competition.21 There is also increases in real output than less produc- ease of getting credit. At the same time, it evidence that more efficient business entry tive firms.27 Simpler entry regulation and
    • ABOUT DOING BUSINESS: MEASURING FOR IMPACT 21 labor market flexibility were found to be barriers to trade needs to be accompanied by HOW GOVERNMENTS USE complementary. States with more flexible other reforms, such as making labor markets DOING BUSINESS employment regulations saw a 25% larger more flexible, to achieve higher productivity Quantitative data and benchmarking can be decrease in informal firms and 17.8% and growth.37 useful in stimulating debate about policy, larger gains in real output than states with both by exposing potential challenges and less flexible labor regulations.28 The same Regulations and institutions that form part of by identifying where policy makers might licensing reform led to an aggregate pro- the financial market infrastructure—includ- look for lessons and good practices. For ductivity improvement of around 22% for ing courts, credit information systems, and governments, a common first reaction to the firms affected by the reform.29 collateral, creditor and insolvency laws—play Doing Business data is to ask questions about• In Colombia new firm registrations in- a role in easing access to credit. Enterprise the quality and relevance of the data and creased by 5.2% after the creation of a surveys conducted by the World Bank show about how the results are calculated. Yet the one-stop shop for businesses.30 that access to credit is a major constraint to debate typically proceeds to a deeper dis-• In Portugal the introduction of a one-stop businesses around the world.38 Good credit cussion exploring the relevance of the data shop for businesses led to a 17% increase information systems and strong collateral to the economy and areas where business in new firm registrations and 7 new jobs laws can help alleviate financing constraints. regulation reform might make sense. for every 100,000 inhabitants compared Analysis in 12 transition economies found with economies that did not implement that reforms strengthening collateral laws Most reformers start out by seeking exam- the reform.31 increased the supply of bank loans by ples, and Doing Business helps in this (boxes 13.7% on average.39 Creditor rights and the 2.2 and 2.3). For example, Saudi Arabia usedA sound regulatory environment leads to stron- existence of credit registries, whether public the company law of France as a model forger trade performance. Efforts to streamline or private, are both associated with a higher revising its own. Many countries in Africathe institutional environment for trade (such look to Mauritius—the region’s strongest ratio of private credit to GDP.40 And greateras by increasing the efficiency of customs) performer on Doing Business indicators—as a information sharing through credit bureaushave been shown to have positive effects source of good practices for business regula- is associated with higher bank profitabilityon trade volumes.32 One study found that tion reform. In the words of Luis Guillermo and lower bank risk.41an inefficient trade environment was among Plata, the former minister of commerce,the main factors in poor trade performance Country-specific research assessed the industry and tourism of Colombia,in Sub-Saharan African countries.33 Similarly, effect of efficient debt recovery and exitanother study identified the government’s It’s not like baking a cake where you processes in determining conditions of creditability to formulate and implement sound follow the recipe. No. We are all different. and in ensuring that less productive firms arepolicies and regulations that promote But we can take certain things, certain either restructured or exit the market:private sector development, customs ef- key lessons, and apply those lessons and • The establishment of specialized debt see how they work in our environment.ficiency, quality of infrastructure and accessto finance as important factors in improving recovery tribunals in India sped up the resolution of debt recovery claims and Over the past 9 years there has been muchtrade performance.34 The same study found allowed lenders to seize more collateral activity by governments in reforming thethat economies with more constrained ac- on defaulting loans. It also increased the regulatory environment for domestic busi-cess to foreign markets benefit more from probability of repayment by 28% and nesses. Most reforms relating to Doingimprovements in the investment climate lowered interest rates on loans by 1–2 per- Business topics have been nested in broaderthan those with easier access. centage points.42 programs of reform aimed at enhancingResearch also shows that an economy’s economic competitiveness, as in Colombia, • Following a broad bankruptcy reform inability to enforce contracts is an important Kenya and Liberia, for example. In structur- Brazil in 2005 that, among other things,determinant of its comparative advantage ing their reform programs for the business improved the protection of creditors, thein the global economy: among compa- environment, governments use multiple cost of debt fell by 22% and the aggregaterable economies, those with good contract data sources and indicators.45 And reformers level of credit rose by 39%.43enforcement tend to produce and export respond to many stakeholders and interestmore customized products than those with • The introduction of improved insolvency groups, all of whom bring important issuespoor contract enforcement.35 Another study regimes that streamlined mechanisms for and concerns to the reform debate. Worldshows that in many developing economies reorganization reduced the number of liq- Bank Group dialogue with governmentsproduction of high-quality output is a pre- uidations by 8.4% in Belgium and by 13.6% on the investment climate is designed tocondition for firms to become exporters: in Colombia as more viable firms opted for encourage critical use of the data, sharp-institutional reforms that lower the cost of reorganization instead.44 In Colombia the ening judgment, avoiding a narrow focushigh-quality production increase the posi- new law better distinguished viable from on improving Doing Business rankings andtive effect that trade facilitation can have on nonviable firms, making survival more like- encouraging broad-based reforms thatincome.36 Research shows that removing ly for financially distressed but viable firms. enhance the investment climate. The World
    • 22 DOING BUSINESS 2012 Bank Group uses a vast range of indicators The Doing Business approach to data col- BOX 2.2 How economies have used Doing Business in regulatory reform and analytics in this policy dialogue, includ- lection contrasts with that of firm surveys, programs ing its Global Poverty Monitoring indicators, which capture often one-time perceptions To ensure the coordination of efforts across World Development Indicators, Logistics and experiences of businesses. A corporate agencies, such economies as Colombia and Performance Indicators and many others. lawyer registering 100–150 businesses a year Rwanda have formed regulatory reform com- With the open data initiative, all indicators will be more familiar with the process than mittees, reporting directly to the president, and data are available to the public at http:// an entrepreneur, who will register a business that use the Doing Business indicators as one data.worldbank.org. only once or maybe twice. A bankruptcy at- input to inform their programs for improv- ing the business environment. More than 25 torney or judge dealing with dozens of cases other economies have formed such commit- METHODOLOGY AND DATA a year will have more insight into bankruptcy tees at the interministerial level. These in- Doing Business covers 183 economies—in- than a manager of a company who may have clude economies across regions: In East and never undergone the process. cluding small economies and some of the South Asia, India; Malaysia; Sri Lanka; Taiwan, poorest economies, for which little or no China; Thailand; and Vietnam. In the Middle Doing Business respondents East and North Africa, Egypt; Morocco; data are available in other data sets. The Saudi Arabia; the United Arab Emirates; and Doing Business data are based on domestic Over the past 9 years more than 12,000 pro- the Republic of Yemen. In Eastern Europe laws and regulations as well as administra- fessionals in 183 economies have assisted and Central Asia, Georgia; Kazakhstan; the tive requirements. (For a detailed explana- in providing the data that inform the Doing Kyrgyz Republic; Moldova; and Tajikistan. Business indicators. This year’s report draws tion of the Doing Business methodology, see In Sub-Saharan Africa, Botswana; Burundi; on the inputs of more than 9,000 profes- the data notes.) the Central African Republic; the Comoros; sionals. Table 4.1 in the data notes lists the the Democratic Republic of Congo; Kenya; Liberia; Malawi; Mali; and Zambia. And in Information sources for the data number of respondents for each indicator Latin America, Guatemala; Mexico; and Peru. Most of the Doing Business indicators are set. The Doing Business website indicates the Governments have reported more than 300 based on laws and regulations. In addition, number of respondents for each economy regulatory reforms that have been informed most of the cost indicators are backed by of- and each indicator. Respondents are profes- by Doing Business since 2003. sionals or government officials who routinely ficial fee schedules. Doing Business respon- dents both fill out written questionnaires administer or advise on the legal and regula- and provide references to the relevant laws, tory requirements covered in each Doing BOX 2.3 How a regional economic forum uses Business topic. They are selected on the Doing Business regulations and fee schedules, aiding data checking and quality assurance. Having rep- basis of their expertise in the specific areas The Asia-Pacific Economic Cooperation resentative samples of respondents is not covered by Doing Business. Because of the (APEC) organization uses Doing Business to an issue, as the texts of the relevant laws focus on legal and regulatory arrangements, identify potential areas of regulatory reform, and regulations are collected and answers most of the respondents are legal profes- to champion economies that can help oth- ers improve and to set measurable targets. checked for accuracy. sionals such as lawyers, judges or notaries. In 2009 APEC launched the Ease of Doing The credit information survey is answered Business Action Plan with the goal of making For some indicators—for example, those on by officials of the credit registry or bureau. it 25% cheaper, faster and easier to do busi- dealing with construction permits, enforcing Freight forwarders, accountants, architects ness in the region by 2015.1 The action plan contracts and resolving insolvency—the and other professionals answer the surveys sets specific targets, such as making it 25% time component and part of the cost com- related to trading across borders, taxes and faster to start a business by reducing the av- ponent (where fee schedules are lacking) construction permits. erage time by 1 week. are based on actual practice rather than the Drawing on a firm survey, planners iden- law on the books. This introduces a degree Development of the methodology tified 5 priority areas: starting a business, of judgment. The Doing Business approach The methodology for calculating each in- getting credit, enforcing contracts, trading has therefore been to work with legal prac- dicator is transparent, objective and easily across borders and dealing with construction titioners or professionals who regularly un- replicable. Leading academics collaborated permits. APEC economies then selected 6 “champion economies” for the priority areas: dertake the transactions involved. Following in the development of the indicators, ensur- New Zealand and the United States (starting the standard methodological approach for ing academic rigor. Eight of the background a business), Japan (getting credit), Korea (en- time-and-motion studies, Doing Business papers underlying the indicators have been forcing contracts), Singapore (trading across breaks down each process or transaction, published in leading economic journals.46 borders) and Hong Kong SAR, China (dealing such as starting and legally operating a busi- with construction permits). In 2010 and 2011 ness, into separate steps to ensure a better Doing Business uses a simple averaging ap- several of the champion economies organized estimate of time. The time estimate for each proach for weighting component indicators workshops to develop programs for building step is given by practitioners with significant and calculating rankings. Other approaches capacity in their area of expertise. were explored, including using principal and routine experience in the transaction. 1. APEC 2010. components and unobserved components.47 They turn out to yield results nearly identical
    • ABOUT DOING BUSINESS: MEASURING FOR IMPACT 23to those of simple averaging. Thus Doing includes changes in the ranking methodol- will be calculated and adjusted on a yearlyBusiness uses the simplest method: weight- ogy for paying taxes. basis) will now receive the same ranking oning all topics equally and, within each the total tax rate indicator. Since the total taxtopic, giving equal weight to each of the topic Employing workers methodology. With the rate is 1 of 32 indicators included in the rank-components.48 aim of better capturing the balance between ing on the overall ease of doing business, this worker protection and efficient employment change has minimal effects on the overallInclusion of getting electricity regulation that favors job creation, Doing rankings. The correlation between rankingsindicators Business has made a series of amendments on the ease of paying taxes with and without to the methodology for the employing work- this threshold is 99%.This year’s ease of doing business ranking ers indicators over the past 4 years.includes getting electricity as a new topic. The threshold is not based on any underly-The getting electricity indicators were intro- In addition, the World Bank Group has been ing theory. Instead, it is meant to emphasizeduced as a pilot in Doing Business 2010 and working with a consultative group—includ- the purpose of the indicator: to highlightDoing Business 2011, which presented the ing labor lawyers, employer and employee economies where the tax burden on busi-results in an annex. During the pilot phase representatives, and experts from civil ness is high relative to the tax burden inthe methodology was reviewed by experts, society, the private sector, the International other economies. Giving the same ranking toand data on the time, cost and procedures Labour Organization (ILO) and the OECD— all economies whose total tax rate is belowto obtain an electricity connection were col- to review the methodology and explore the threshold avoids awarding economieslected for the full set of 183 economies. To future areas of research.51 The consultative in the scoring for having an unusually lowavoid double counting, procedures related to group completed its work this year, and its total tax rate, often for reasons unrelated togetting an electricity connection have been guidance has provided the basis for several government policies toward enterprises. Forremoved from the dealing with construction changes in methodology (see also the data example, economies that are very small orpermits indicators.49 notes). A full report with the conclusions that are rich in natural resources do not need of the consultative group is available on the to levy broad-based taxes. For more detailsImprovements to the methodology Doing Business website.52 on the calculation of the threshold, see theThe methodology has undergone continual data notes. Follow-on work is continuing to exploreimprovement over the years.50 Changes have the measurement of worker protection to In addition, this year Doing Business collectedbeen made mainly in response to sugges- complement the measurement of the cost data on labor taxes and social security con-tions providing new insights. For enforcing to employers of labor regulations. The data tributions paid by employees as well as em-contracts, for example, the amount of the on worker protection will serve as a basis for ployers. These data will be made available ondisputed claim in the case study was in- the development of a joint analysis of worker the Doing Business website to enable analysiscreased from 50% to 200% of income per protection by the World Bank Group and the of the distribution of these contributionscapita after the first year of data collection, ILO. between employers and employees.as it became clear that smaller claims wereunlikely to go to court. Pending further progress on research in this Getting credit methodology. The strength area, this year’s report does not present rank- of legal rights index measures certain rightsAnother change relates to starting a busi- ings of economies on the employing workers of borrowers and lenders with respect toness. The minimum capital requirement indicators or include the topic in the aggre- secured transactions. The index describescan be an obstacle for potential entrepre- gate ranking on the ease of doing business. how well collateral and bankruptcy lawsneurs. Initially Doing Business measured It does present the data on the employing facilitate lending by measuring 10 aspects ofthe required minimum capital regardless of workers indicators. Additional data on labor these laws.whether it had to be paid up front or not. In regulations collected in 183 economies aremany economies only part of the minimum available on the Doing Business website.53 One aspect of collateral law that is measuredcapital has to be paid up front. To reflect the relates to whether secured creditors canactual potential barrier to entry, the paid-in Paying taxes methodology. Doing Business continue individual court actions after aminimum capital has been used rather than has benefited from dialogue with external debtor starts a court-supervised reorganiza-the required minimum capital. stakeholders, including participants in the tion procedure or whether they are subject International Tax Dialogue, on the survey to an automatic stay or a moratorium.This year’s report includes improvements instrument and methodology for the pay- Previously only economies where securedin the methodology for the employing ing taxes indicators. As a result of these creditors can continue a court action in theseworkers indicators and the getting credit consultations, this year’s report introduces circumstances were rewarded in the scoring(legal rights) indicators, in addition to the a threshold for the total tax rate for the for the strength of legal rights index. Nowremoval of the procedures related to getting purpose of calculating the ranking on the economies where secured creditors mustan electricity connection from the dealing ease of paying taxes. All economies with a stop individual court actions but their rightswith construction permits indicators. It also total tax rate below the threshold (which remain protected through other means are
    • 24 DOING BUSINESS 2012 also rewarded (see the data notes for more 8. http://www.enterprisesurveys.org. of doing business ranking and the ranking details). The change aligns the methodol- 9. OECD, “Indicators of Product Market on the Control of Corruption Index is 0.62, Regulation,” http://www.oecd.org/. The and that between the ease of doing business ogy for this indicator with guidelines of the measures are aggregated into 3 broad ranking and the ranking on the Transparency United Nations Commission on International International Corruption Perceptions Index families that capture state control, bar- Trade Law (UNCITRAL) and the World Bank riers to entrepreneurship and barriers to 0.77. The positive correlation is statistically Group. international trade and investment. The significant at the 5% level. 39 countries included in the OECD market 14. World Bank 2003. Data adjustments regulation indicators are Australia, Austria, 15. This year’s report does not present rankings Belgium, Brazil, Canada, Chile, China, the of economies on the employing workers All changes in methodology are explained Czech Republic, Denmark, Estonia, Finland, indicators. Nor does it include this topic in in the data notes as well as on the Doing France, Germany, Greece, Hungary, Iceland, the aggregate ranking on the ease of doing Business website. In addition, data time series India, Ireland, Israel, Italy, Japan, Korea, business. for each indicator and economy are available Luxembourg, Mexico, the Netherlands, New 16. For further details on the construction of the on the website, beginning with the first year Zealand, Norway, Poland, Portugal, Russia, indicators, the aggregate rankings and the the Slovak Republic, Slovenia, South Africa, the indicator or economy was included in the distance to frontier measure, see the data Spain, Sweden, Switzerland, Turkey, the report. To provide a comparable time series notes and the chapter on the ease of doing United Kingdom and the United States. for research, the data set is back-calculated business and distance to frontier. 10. The World Economic Forum’s Global to adjust for changes in methodology and 17. According to searches on Google Scholar Competitiveness Report uses Doing Business (http://scholar.google.com) and the Social any revisions in data due to corrections. data sets on starting a business, employing Science Citation Index. The data set is not back-calculated for year- workers, protecting investors and getting credit (legal rights), representing 7 of a total 18. Djankov and others 2002; Alesina and oth- to-year changes in income per capita. The ers 2005; Perotti and Volpin 2005; Klapper, of 113 different indicators (or 6.2%). website also makes available all original data Laeven and Rajan 2006; Fisman and Sarria- 11. Narayan and others 2000. sets used for background papers. Allende 2010; Antunes and Cavalcanti 12. Hallward-Driemeier, Khun-Jush and 2007; Barseghyan 2008; Eifert 2009; Pritchett (2010) analyze data from World Klapper, Lewin and Quesada Delgado 2009; Information on data corrections is pro- Bank Enterprise Surveys for Sub-Saharan Djankov, Freund and Pham 2010; Klapper vided in the data notes and on the website. Africa and show that broadly de jure and Love 2011; Chari 2011; Bruhn 2011. A transparent complaint procedure allows measures such as Doing Business indicators 19. Klapper, Lewin and Quesada Delgado anyone to challenge the data. If errors are are not correlated with ex post firm-level 2009. Entry rate refers to newly registered confirmed after a data verification process, responses. While countries that do better firms as a percentage of total registered according to Doing Business generally they are expeditiously corrected. firms. Business density is defined as the total perform better on enterprise surveys, for number of businesses as a percentage of the the majority of economies in the sample working-age population (ages 18–65). there is no correlation. Further, the authors NOTES find that the gap between de jure and de 20. Ciccone and Papaioannou 2007. 1. For more details on how the aggregate rank- facto conditions grows with the formal 21. Alesina and others 2005. ings are created, see the chapter on the ease regulatory burden. This suggests that 22. Loayza, Oviedo and Sérven 2005; of doing business and distance to frontier. more burdensome processes in Africa Barseghyan 2008. 2. This has included a review by the World open up more space for making deals 23. Dulleck, Frijters and Winter-Ebmer 2006; Bank Independent Evaluation Group and that firms may not incur the official Calderon, Chong and Leon 2007; Micco and (2008) as well as ongoing input from the costs of compliance, but they still pay Pagés 2006. International Tax Dialogue. to avoid them. A few differences in the 24. Masatlioglu and Rigolini 2008; Djankov 3. The resolving insolvency indicators measure underlying methodologies should be kept 2009. the time, cost and outcome of insolvency in mind. The Doing Business methodology focuses on the main business city, while 25. Bruhn 2011. proceedings involving domestic entities. In previous reports this indicator set was referred enterprise surveys typically cover the 26. Kaplan, Piedra and Seira 2007. to as closing a business. Resolving insolvency entire country. Doing Business gathers the 27. Aghion and others 2008. more accurately reflects the outcomes that considered views of experts who examine 28. Sharma 2009. are measured: a judicial procedure aimed the laws and rules underlying the business regulatory framework in a narrow set of 29. Chari 2011. at reorganization or rehabilitation, a judicial areas; enterprise surveys collect the views 30. Cardenas and Rozo 2009. procedure aimed at liquidation or winding up, and debt enforcement or foreclosure (in or of enterprise managers and the question 31. Branstetter and others 2010. outside the courts). posed to the manager is seldom identi- 32. Djankov, Freund and Pham 2010. cal to the one being addressed by Doing 4. Local experts in 183 economies are surveyed 33. Iwanow and Kirkpatrick 2009. Business contributors, which is in reference annually to collect and update the data. The to a particular standardized case. World 34. Seker 2011. local experts for each economy are listed on Bank Enterprise Surveys, available at 35. Nunn 2007. the Doing Business website (http://www http://www.enterprisesurveys.org, collect .doingbusiness.org). 36. Rauch 2010. business data on more than 100,000 firms 5. De Soto 2000. in 125 economies, covering a broad range 37. Chang, Kaltani and Loayza 2009; Cuñat and 6. Schneider 2005; La Porta and Shleifer 2008. of business environment topics. Melitz 2007. 7. Amin 2011. 13. The correlation coefficient between the ease 38. http://www.enterprisesurveys.org.
    • ABOUT DOING BUSINESS: MEASURING FOR IMPACT 2539. Haselmann, Pistor and Vig 2010. The and weighting methods is available on the countries studied were Bulgaria, Croatia, the Doing Business website (http://www Czech Republic, Estonia, Hungary, Latvia, .doingbusiness.org). Lithuania, Poland, Romania, the Slovak 49. Previous years’ data on dealing with Republic, Slovenia and Ukraine. construction permits are adjusted to reflect40.Djankov, McLiesh and Shleifer 2007; this change. They are made available on Houston and others 2010. the Doing Business website under “historical41. Djankov, McLiesh and Shleifer 2007; data” (http://www.doingbusiness.org). Houston and others 2010. 50. All changes in methodology are explained42. Visaria 2009. in the data notes in this year’s report and in previous years’ reports back to Doing43. Funchal 2008. Business 2007 (data notes and previous44.Dewaelheyns and Van Hulle (2008) years’ reports are available at http://www on Belgium; Giné and Love (2010) on .doingbusiness.org). Colombia. 51. For the terms of reference and composi-45. One recent study using Doing Business tion of the consultative group, see World indicators illustrates the difficulties in using Bank, “Doing Business Employing Workers highly disaggregated indicators to identify Indicator Consultative Group,” http://www reform priorities (Kraay and Tawara 2011). .doingbusiness.org.46. All background papers are available on the 52. http://www.doingbusiness.org/ Doing Business website (http://www methodology/employing-workers. .doingbusiness.org). 53. http://www.doingbusiness.org.47. For more details, see the chapter on the ease of doing business and distance to frontier.48. A technical note on the different aggregation
    • Economy case studiesKOREA: BETTER BUSINESS implementing several of the recent reforms the Korean Chamber of Commerce, estab-REGULATION AND IMPROVED in business regulation. lished the public-private Regulatory ReformCOMPETITIVENESS Task Force to monitor and resolve difficulties The institutional framework faced by businesses. Every year the councilRapid growth over the past 3 decades trans-formed Korea into the world’s 13th largest In 2008 newly elected President Lee reports statistics on the issues the task forceeconomy.1 Exports were a big driver of that Myung-bak established the Presidential investigates and resolves through coopera-growth, which averaged 6.4% a year between Council on National Competitiveness with a tion with relevant authorities.101981 and 2009.2 Exports and imports together broad mandate to revive the economy by im- proving Korea’s competitiveness. Regulatory Multipronged regulatory reformamounted to 83% of GDP in 2007, and by2008 Korea had become the world’s 7th larg- reform was identified as 1 of 4 pillars for the In recent years Korea has been implementing initiative, along with public sector innova- reforms that affect several areas of businessest trader.3 But the economy’s heavy reliance tion, investment promotion, and legal and regulation, including taxation, trade, inves-on foreign trade made it especially vulnerable institutional advancement. tor protections, bankruptcy and businessto the global economic crisis of 2008–09.During the height of the crisis, in the fall of registration. The council’s ambition in 2008 was “to2008, the economy contracted by 15% as achieve a potential economic growth rate ofexports, hit by poor credit conditions and de- Lower and simpler taxes 6–7% and a national competitiveness rank ofclining investor confidence, plunged by 34%.4 As part of a stimulus package following the 15 globally by 2012.”7 The council noted early global crisis, Korea accelerated its 5-year on that of the economy’s 5,189 business reg-The government’s policy response to the corporate income tax reduction program to ulations, 800 (15%) had not been revised inglobal economic crisis recognized the a 3-year program. It reduced the highest cor- the 10 years since 1998. In an effort to bringlarger role played by small and medium-size porate tax rate from 25% to 22% in 2009, regulations up to date, the council appliedenterprises, especially in employment—in and the lowest rate from 11% to 10% in 2010. sunset clauses to more than 600 regulationscontrast to before the 1997–98 East Asian fi- The plan is to further reduce the highest rate and 3,500 administrative rules.8nancial crisis, when the large conglomerates in 2012, from 22% to 20%.known as chaebol dominated. At the end of For the past 3 years the council has been2008 Korea’s 3 million small and medium- Korea also undertook efforts to lighten the holding meetings twice a month to discusssize enterprises accounted for 99.9% of all administrative burden of taxes. In 1997 it had Korea’s competitiveness strategy, bringingcompanies in the economy, almost 90% of already implemented a system allowing tax- together representatives from the Employersemployment and about 50% of production.5 payers to file taxes electronically.11 In 2002 it Federation, trade unions, the Chamber ofIn the wake of the crisis the government took launched a new one, the Hometax system.12 Commerce, the Federation of SMEs, thesteps to reduce the tax and regulatory bur- In 2010, thanks to increased use of the new Ministry of Strategy and Finance, academiaden on these businesses, building on reforms system, the time to comply with tax obliga- and the private sector. The Ministry ofbegun earlier in the decade. Strategy and Finance is responsible for tions was reduced by 14% as measured by improving the business environment by Doing Business. In parallel with introducingMany of the reforms of business regulation, planning and implementing economic regu- online taxation, Korea reorganized its tax ad-such as the launch of an online system for lation, simplifying administrative procedures ministration, shifting from an organization bybusiness registration and the introduction and reducing related costs. The Small & type of tax (such as personal income tax andof an electronic single window to facilitate Medium Business Administration, created corporate income tax) to one by tax functiontrade, reflect Korea’s broader push toward e- in 1996, focuses on promoting small and (collection, audit and so on). The introduc-government. A road map adopted in 2003 to medium-size enterprises as the backbone of tion of online taxation and the functionalcreate the “world’s best open e-government” the economy.9 reorganization of tax administration haveincluded targets such as putting 85% of substantially reduced the need for informalpublic services online.6 Korea’s advanced To further support the reform initiative, in contact between government officials ande-government provided the foundation for 2008 the government, in collaboration with taxpayers.
    • ECONOMY CASE STUDIES: KOREA 27In 2010 and 2011 Korea took further steps January 2005. Minority investors can now By 2010 more companies were able to con-to ease the administrative burden of taxes. file class actions for negligent external audits tinue operating. The number of reorganiza-It amended the Local Tax Law twice in 2010 of a listed company, for insider trading and tion filings in Korea rose from 366 in 2008 toto merge 4 local taxes into 2. And effective market manipulation and for false disclosure 630 in 2010 (table 3.1). More important, theJanuary 1, 2011, it made the National Health in the prospectuses or quarterly, semiannual number of companies that kept operatingInsurance Corporation the consolidated col- after filing for reorganization increased from and annual reports of listed companies.lector for pension, health, unemployment 73 in 2008 to 223 in 2010, while the numberand industrial accident insurance payments. In October 2009 Korea amended its 2006 filing for liquidation grew by much less (fromThis allows joint filing and payment for 4 dif- bankruptcy law in an effort to keep more 191 in 2008 to 253 in 2010).ferent labor taxes and contributions. companies operating during the global Easier and cheaper business start-upAs Korea started to recover from the crisis, economic crisis. By the second half of 2008 In 2009 Korea made starting a businessthe revenue collected from corporate income both export and domestic companies had easier, particularly for joint stock companies,tax rose, exceeding the 2008 level in both begun to feel the effect of the decline in or jusik hoesa, which account for more than2009 and 2010. The number of companies international demand due to the global crisis 90% of Korean companies.19 For these com-registered for corporate income tax also and rising oil prices.16 Much as it had done panies the minimum capital requirement wasrose, increasing by 7% from 2008 to 2009 after the East Asian financial crisis, Korea abolished, and the cost to start a businessand by 10% from 2009 to 2010. modified its bankruptcy law to favor restruc- reduced from 17% of income per capita to turing over liquidation, launched workout 14.57%. Since 2009 notaries have no longerEasier trade plans to save ailing financial institutions and been required, strict time limits have appliedIn 2008 the Korea Customs Service launched enhanced transparency among foreign and for value added tax registration, and entre-a comprehensive reform plan aimed at domestic creditors—a strategy that accord- preneurs have been able to pay registrationestablishing the world’s best customs clear- taxes online. Online payment is very acces- ing to research helped to gradually reviveance system.13 By 2009 the agency had sible in Korea, which has the world’s highest investor confidence.17moved from an “E-customs system”—an wireless broadband penetration rate.20electronic data interchange system with ac- Under Korea’s new bankruptcy law, creditorscess for subscribers only—to a “U-customs lending money to distressed companies re- In February 2010 Korea made start-up evensystem”—a global internet-based customs easier and less costly through an online sys- ceive “superpriority” over other secured cred-portal linking financial institutions, customs tem, Start-Biz Online, which is managed by the itors. This makes it easier for such companiesagencies, logistics companies and 23 gov- Small & Medium Business Administration.21 to obtain new loans and continue operating.ernment agencies.14 In the past, entrepreneurs starting a company The law also encourages reorganization by had to manually fill out more than 30 formsThis international single window, known as simplifying rules and allowing management and visit 6 different agencies—which ledUNI-PASS, allows importers and exporters to stay onboard to administer the company’s 96% of company founders to hire a lawyer asto handle customs declarations and other turnaround—while balancing creditors’ inter- their agent. Now they enter information once,trade-related requirements from anywhere ests by allowing them to establish creditors’ and the online system automatically distrib-at any time. UNI-PASS is one of the world’s committees during bankruptcy.18 utes it. Entrepreneurs can use the system tofew 100% electronic clearance portals. Itsintroduction reduced the average time to ex- TABLE 3.1 Reorganization and liquidation filings in the Republic of Korea, 2008–10port from 11 days to 8, and the average time Companies that kept operatingto import from 10 days to 8, as measured Companies filing for reorganization after filing for reorganization Companies filing for liquidationby Doing Business 2009. The Korea Customs Year Seoul All of Korea Seoul All of Korea Seoul All of KoreaService estimates that it spent about $7.7 2008 111 366 11 73 74 191million in total on the single window in 2009 192 669 54 257 122 2262006–10, generating cost savings of about 2010 155 630 35 223 122 253$70.5 million in 2010 alone.15 Source: Ministry of Justice of Korea. TABLE 3.2 New companies registering and exiting in the Republic of Korea, 2008–10Greater protections for investors Jusik hoesa registering Jusik hoesa exiting Yuhan hoesa registering Yuhan hoesa exitingand creditors All of All of All of All ofAlready in 2005 Korea had begun to adopt Year Seoul Korea Seoul Korea Seoul Korea Seoul Koreaa range of measures to improve corporate 2008 17,567 47,739 10,801 26,175 538 2,766 284 359governance, including supporting the 2009 19,313 52,976 12,344 29,783 998 3,361 224 295nascent shareholder rights movement by 2010 20,789 57,828 15,062 35,795 838 2,765 276 383giving minority shareholders more rights. Note: Jusik hoesa are joint stock companies. Yuhan hoesa are limited liability companies. Source: Supreme Court of Korea.Korea’s class action law came into effect in
    • 28 DOING BUSINESS 2012 conduct name searches, register a company, NOTES 11. In 2009, 95% of corporate income tax pay local taxes and the corporate registration 1. Based on 2010 GDP measured by purchas- returns, 80% of individual income tax tax—and more. ing power parity (PPP) exchange rates. Data returns and 78% of value added tax returns are from the International Monetary Fund, were filed electronically. As Korea started recovering from the crisis, World Economic Outlook Database, http:// 12. The Hometax system is available at http:// the number of newly registered joint stock www.imf.org/. www.hometax.go.kr. companies began steadily increasing. It 2. World Bank, World Development Indicators 13. Korea Customs Service 2009b. grew by about 9% between 2009 and 2010 database, http://data.worldbank.org/. 14. The U-customs system is being used as 3. World Bank, World Development Indicators a model by several economies seeking (table 3.2). More than a third of the new database, http://data.worldbank.org/. The to improve their trade systems, including companies are located in Seoul. OECD average for exports and imports is Dominica and Ecuador. about 50% of GDP. 15. The cost of the single window fell after Besides making start-up easier for all com- the initial investment in 2006. The share 4. See Bernanke (2009, p. 15); and Asian panies, Korea plans to relax or abolish many Development Bank (2009, pp. 172–76). of Korean export and import transactions industry-specific barriers to entry, in an ef- 5. Small & Medium Business Administration, processed through the single window fort to promote new business and revitalize “Statistics,” http://eng.smba.go.kr/ increased from about 67% in 2009 to (accessed July 2011). about 92% in 2010 (Korea Customs Service the economy. For example, it will no longer 2009a, 2010). restrict businesses selling petroleum to op- 6. Between 2003 and 2007, 31 new e- government initiatives were implemented. In 16. Kim 2009, p. 279. erate only in a specific region.22 2010 Korea ranked number 1 globally on the 17. See Cirmizi, Klapper and Uttamchandani United Nations E-government Development (2010); and Oh and Haliday (2009). Smoother permitting Index (United Nations Department of 18. See Eunjai Lee and Wan Shik Lee, Korea also strengthened construction Economic and Social Affairs 2010). “Restructuring and Insolvency: South Korea,” permitting, updating its building code in 7. PCNC (2009) cites Korea’s “national http://www.practicallaw.com/. 2005/06. In May 2006 small construction competitiveness ranking on IMD’s World 19. About 10% of companies are small or Competitiveness Yearbook (31 out of 55 medium-size limited liability companies, projects were exempted from the require- in 2008), WEF’s Global Competitiveness or yuhan hoesa. In 2006–09 an average of ment to apply for an advance building per- report (13 out of 134) and WBG’s Doing 2,500 new yuhan hoesa a year were created mit.23 This allows regulators to focus their Business report (23 out of 178)” (p. 11). in Korea. energy on the more complex projects. 8. PCNC 2011. 20. OECD 2010. 9. Small & Medium Business Administration, 21. http://www.startbiz.go.kr. In 2010 Korea started a general licensing re- http://eng.smba.go.kr/. 22. PCNC 2011, p. 14. form (this does not yet apply to matters such 10. The statistics are included in annual reports 23. World Bank 2006b. as construction permitting). Until recently of the Presidential Council on National 24. PCNC 2011. Korean licensing laws had “prohibition of a Competitiveness. In 2009 the task force undertook on-site inspections of companies 25. See PCNC (2011), which cites International license” as the principle and “permission for in 30 areas and held 67 sectoral meetings, Monetary Fund data on 2010 growth rates in license” as the exception. Permission became revealing 785 issues. It resolved 559 issues major economies. the principle in 2010.24 The goal for the com- through cooperation with relevant authorities. ing years is to establish a licensing council, a one-stop shop that will bring together all administrative agencies and process applica- tions within 20 days as a general rule. Conclusion In 2010, as the world economy slowly re- covered from the crisis, Korea’s growth rate reached 6.1%, the highest among OECD members and up sharply from the 0.2% rate in 2009.25 The government aims to continue the regulatory reform process. At the October 2010 meeting of the Presidential Council on National Competitiveness, President Lee Myung-bak said, “In the process of recovery of the world economy, the competition will be fiercer. Therefore, we need to make an effort to be more competitive. We have to endeavor to make a country good for enter- prise and investment.”
    • ECONOMY CASE STUDIES: FYR MACEDONIA 29FYR MACEDONIA: MAJOR deputy prime minister for economic affairs income tax rate to 10%. The following yearCHANGES SPURRED BY REGIONAL has provided coordination to streamline it reduced rates for social security contribu-INTEGRATION the reform efforts, and the Ministries of tions and integrated their payment with thatRegional integration efforts such as the ac- Finance, Justice, Economy, and Transport of other taxes.cession process of the European Union can and Communications have joined initia- tives for reforming the legal and regulatory Judicial reformshelp drive reforms in business regulation.This has been the case in FYR Macedonia, framework. A comprehensive information technologywhich launched a comprehensive reform system was introduced in 2007 as part of Along with political will and capacity, there the government’s 2007–10 information tech-agenda after applying for EU membership. has been strong collaboration among min- nology strategy. This provided a foundationFYR Macedonia signed the Stabilization and istries, particularly at the operational level. for reforms in judicial processes, especiallyAssociation Agreement with the European As the government pushed for change, its through the introduction of electronic caseUnion in April 2001 and received candidate efforts triggered initiatives in ministries management. Before reforms, the judicialcountry status in November 2005.1 Its and agencies. Since November 2006 the system was plagued by inefficiencies.reform agenda has been driven largely by government has implemented 3 phases of Procedures were slow, delaying access torequirements to ensure that the country’s a “regulatory guillotine” project aimed at justice. Getting final decisions enforced waslaws are in line with the EU legal framework reducing the regulatory burden and cutting a long and difficult process. Courts were(acquis) and to fulfill certain macroeconomic red tape and bureaucracy. As part of this, the overburdened with minor cases, and casecriteria. Equally important has been the Ministry of Transport and Communications management was unorganized. There wasdesire to attract investment and develop initiated several legal reforms to simplify and too little use of information technology—andbusiness activity to create jobs and achieve speed up the process of obtaining a building qualified human resources were scarce.8economic growth. Since 2004 the parlia- permit.5 And the Customs Administration FYR Macedonia tackled these inefficienciesment has made important changes to legis- introduced several measures to increase the through several reform initiatives for whichlation, including business regulations. speed and efficiency of trade. EU legislation provided a framework.The efforts are showing results. FYR In another initiative, the National BankMacedonia is among the 10 economies that Modernizing the courts helped strengthen the financial system bymade the biggest strides in creating a regula- Judicial reforms began in 2003, with establishing a public credit registry in 2008.tory environment more favorable to business the donor-funded Macedonia Court Thanks to a more recent effort initiated byin the past 6 years.2 It moved up in the global Modernization Project. The project intro- the Ministry of Finance, a private credit bu-ranking on the ease of doing business from duced new practices in pilot courts with the reau was formed by the association of com-81 in Doing Business 2006 to 22 in this year’s aim of demonstrating modern case manage- mercial banks and started operating in 2011.report.3 Besides improving in the relative ment methods, increasing proactive courtranking, FYR Macedonia is also among the E-government provided the platform for management by judges and administrativeeconomies that closed the gap to the frontier many of the reforms in the business regula- staff and showing how courts could improvethe most in the past 6 years (see figure 1.9 in tory environment. The government set out to access for the public by reducing case back-the executive summary).4 transform public administration processes logs and eliminating unnecessary delays.9 by establishing the Ministry of InformationIn addition to the EU acquis, FYR Macedonia In a separate initiative starting in 2004, Society and Administration and implement-has used the Doing Business reports to the Ministry of Justice developed a judicial ing a number of e-government projects.benchmark good practices and promote reform strategy focused on building capac- The aim was to create more modern,improvements to its regulatory framework ity, strengthening court infrastructure and integrated, efficient, transparent and secureto make it easier to do business. External improving information technology systems. processes. The first step was to establishassistance has contributed to the sustained The ministry set up an advisory body made the infrastructure; the second was to roll outsuccess. The World Bank, the European up of representatives of judicial institutions the e-services.6 Support was provided byCommission and the U.S. Agency for to review and provide input on the strategy. It USAID, which has funded the developmentInternational Development (USAID) have also organized several public debates, as well of e-government through 11 projects so far.7provided funds and technical assistance for as roundtables giving representatives of the Achievements have included an electronicdrafting new laws and implementing admin- legal and judicial professions an opportunity tax system created in 2008 to streamlineistrative reforms. to provide feedback and suggestions. the filing and payment of taxes, an electronicThe institutional framework cadastre for property registration introduced Changing laws to speed up court in 2010 and an online system for businessThe government of FYR Macedonia has been proceedings registration that began operating in 2011.the driving force behind the reforms, with Enacting and amending laws on civil proce-the reform agenda receiving support at the The government also implemented tax dure and enforcement of judgments has alsohighest political levels. The cabinet of the changes. In 2008 it reduced the corporate played an important part in improving the
    • 30 DOING BUSINESS 2012 judicial environment. A new law on enforce- trustees to sell all the assets of the bankrupt of property cases awaiting registration in ment, coming into force on June 1, 2006, and company and conclude the bankruptcy case Skopje shrank from 15,035 in 2005 to 2,082 amended in 2011, enabled creditors to initi- to a maximum of 18 months. in May 2011. The average time to process ate the process through private enforcement applications fell from 60 days in 2004 to 5 agents. This enforcement model has served Administrative reforms in 2011. All fees were cut by 50% in 2007 as inspiration for other economies in the Through the regulatory guillotine project, as part of the regulatory guillotine project region, including Croatia. the government of FYR Macedonia has and by another 10–72% in January 2010. undertaken several reforms to streamline These accomplishments won the cadastre Overall, the changes have produced results. administrative processes, reduce costs an award of excellence from the World Bank The time to enforce a contract fell from and introduce the “silence is consent” rule. in June 2010.13 509 days in 2004 to 370 days in 2009, as The most important achievements include measured by Doing Business. A 2011 amend- reducing the complexity, time and cost of The cadastre has introduced performance ment to the law on civil procedure, the result starting a business and registering prop- standards to motivate staff to work more of an analysis of court cases by the Ministry erty and speeding up the export and import efficiently. Staff exceeding the average can of Justice, is aimed at further reducing the process. receive a salary increase of up to 25%. The cost and duration of court proceedings. The cadastre has also worked to improve its pub- law sets deadlines for the different steps in a Making business registration one stop lic image, by holding “open days,” opening court case. One tool helping to meet those As a first step to streamline business regis- “hotlines” to answer questions and meeting deadlines is software supporting electronic tration, FYR Macedonia launched a central with citizens in the municipalities of Skopje. case management.10 registry on January 1, 2006. A 2005 law A customer asked about his recent experi- had transferred business registration out of While courts are more efficient and the case ence reported having to wait in line outside the courts—where the process was slow, backlog smaller, the backlog still remains a the cadastre for 4 hours in the summer expensive and overly complex—and made major problem. But the Ministry of Justice heat—but considered that a huge improve- the registry the only body in the country estimates that the latest amendments to ment over a few years ago, when transferring responsible for registering companies.12 the law on enforcement—with the expected property took several months. transfer of 402,000 cases from the courts to The government created a one-stop shop at notaries or enforcement agents—will soon the central registry, unifying and simplifying The most recent efforts to increase efficiency reduce the number of cases in the courts by the procedures to register a company and and effectiveness include launching an more than 80% compared with 2006. That its employees. This cut the number of pro- electronic cadastre and front desk in 2010. will allow faster enforcement of contracts cedures to start a business from 13 in 2004 The “e-cadastre” is aimed at improving and speedier reduction of the large case to 3 in 2010, and the time from 48 days to management of the workload and providing backlog. 3, as measured by Doing Business. The new real-time dissemination and exchange of registry, along with legal changes such as data. The “e–front desk,” supported by the Reforming bankruptcy abolishing the minimum capital requirement, Netherlands, includes electronic conveyance, FYR Macedonia’s 2006 Bankruptcy Law enabled FYR Macedonia to join the top 6 recording and processing of applications. greatly reduced the average duration of economies worldwide on the ease of starting Among other things, it allows notaries to bankruptcy cases. According to the Ministry a business. check information on encumbrances and the of Economy, concluding cases took an status of applications. average of 1.4 years under the 2006 law— In April 2011 the government further stream- compared with 6.6 years under the 1997 lined and reduced the cost of business regis- Increasing the speed and efficiency Bankruptcy Law and 13.8 years under the tration by introducing an online system. Now of trade 1989 Law on Forced Settlement, Bankruptcy there is no need to get corporate documents The Customs Administration has undertaken and Liquidation.11 and signatures notarized. By July 2011 only a few applications for business registration had a range of measures to make importing and Recent amendments to the 2006 law are been received through the online system. But exporting faster and more efficient. In 2002 aimed at making the bankruptcy process use of the system is expected to grow as its it introduced a risk-based inspection system even faster. The amended law, which came existence becomes more widely known. to minimize the time to process customs into force in 2011, requires bankruptcy trust- declarations and prevent unnecessary ees to use an electronic system to record all Making property registration faster delays in customs terminals. The Customs phases and actions during bankruptcy pro- and easier Administration uses various information ceedings, increasing transparency. Trustees A series of changes at the real estate cadas- technology systems for risk management can log on to the system to upload docu- tre in Skopje have made registering property and has continued to introduce guidelines for ments and track cases. The amendments faster and easier. A 2008 law streamlined risk management in customs controls since to the law reduced the legal time frame for procedures and set time limits. The number 2005.14
    • ECONOMY CASE STUDIES: FYR MACEDONIA 31By using risk profiling, risk-based inspec- ongoing projects with international donors to process and introduce a “silence is consent”tion systems can focus only on the riskier digitize all property records and to establish rule for cases where the deadlines are missed.containers, reducing the need for physical a national geoportal allowing citizens to see 6. Armenski, Gusev and Spasov 2007.inspections of cargo and allowing most trad- the location of land plots and their surround- 7. E-gov Project, http://www.egov.org.mk.ers to get their goods cleared more quickly. ings online, a useful tool for builders and 8. FYR Macedonia, Ministry of Justice 2005.After analyzing potential risk factors, these developers. 9. Between November 2003 and March 2006systems typically direct containers through But the process of EU accession will demand the number of cases pending for more thana “red channel” (for physical inspection), 1 year in the pilot courts fell by 19%, and the“yellow channel” (inspection of documents broader changes. The European Commission number pending for more than 3 years byonly) or “green channel” (no additional in- reported in 2010 that “limited progress” had 48%. The Macedonia Court Modernizationspections). Since 2009 FYR Macedonia has been made in reforming the judiciary, a key Project (2006) attributes these results to priority of the accession partnership and a judges and lawyers working harder andalso used a “blue channel” allowing goods to focusing on older cases as well as newbe released from customs without inspec- key remaining challenge to EU accession. It ones; measures to discourage multiple courttion and instead to undergo postclearance identified other areas of “limited progress” appearances; the project’s employment ofcontrol. Imports going through the yellow as social policy, employment and corruption. court coordinators to work with the judgeschannel are cleared in 1 hour on average, and It also reported that implementation of the and staff; the establishment of case flow anticorruption legal framework remained committees in each pilot court; a yearlyexports in 23 minutes on average. backlog reduction plan tailored to the needs deficient.15 But there is good reason to be of each local court; the circulation of resultsIn 2008 the Customs Administration intro- hopeful. FYR Macedonia has already shown from all pilot courts; and monthly tracking ofduced an electronic single window that al- itself capable of overcoming obstacles that pending and closed cases.lows traders to submit customs documents are part of every reform process—through 10. Following the introduction of electroniconline. Early in the same year it introduced political will, a desire to change and coordi- case management, the Automated Court4 mobile scanners and rationalized the cus- nation with stakeholders. Case Management Information Systemtoms fee schedule and permit structure. As (ACCMIS) software was introduced in 2009 and became fully operational in Januarya result of these changes, the time required 2010.to export fell from 19 days to 17 in 2008, NOTES 11. FYR Macedonia, Ministry of Economy 2011.and the time to import from 17 days to 15, as 1. European Commission 2005. 12. Under judicial authority the registrationmeasured by Doing Business. 2. FYR Macedonia was among the 10 process required filing documents and forms economies that improved the most in the at several different institutions, leading toConclusion ease of doing business as measured in Doing higher fees and longer wait times (USAID Business 2008 and in Doing Business 2010. 2009).It takes time for reforms to translate into 3. The ease of doing business ranking cited 13. Agency for Real Estate Cadastre Skopjechanges in the economy. But FYR Macedonia from Doing Business 2006 is the ranking pub- 2011.has shown that it is on the right path—and lished in the report, not a back-calculated 14. An automated risk-based inspection system,more changes are soon to come. To make ranking that has been adjusted for changes CDPS Risk-Based Selection for Red, Yellow,resolving insolvency faster and easier, FYR in methodology and data revisions. Green and Blue Channel Inspection, hasMacedonia plans to implement an electronic 4. For details on the distance to frontier been in place since 2002. Other informationsystem for the sale of assets of bankrupt measure, see the data notes. technology systems in place include thecompanies. The Ministry of Transport and 5. The Law on Spatial and Urban Planning South-East European Messaging System, (amended February 14, 2011) and Law created by the European Commission’sCommunications aims to launch an elec- EuropeAid Co-operation (AIDCO) and on Construction (amended February 14,tronic process for building permit applica- 2011) have streamlined the construction the European Union’s Customs and Fiscaltions by July 2012. The cadastre continues permitting process. Among other things, the Assistance Office (CAFAO).to improve its operations and has several amendments set deadlines for the approval 15. European Commission 2010.
    • 32 DOING BUSINESS 2012 MEXICO: UNLEASHING no longer viable. Compounding the problem Sharing experience REGULATORY REFORM AT THE was the lack of outreach to other stakehold- The subnational Doing Business project has LOCAL LEVEL ers: Congress, the judiciary and the public provided a vehicle for peer-to-peer learn- Governments around the world face chal- administration.3 ing and sharing of good practices among lenges when pursuing broad regulatory re- Mexican states. Cofemer organizes a confer- In 2000 the Office of the President set up form: identifying bottlenecks, obtaining po- ence twice a year at which plenary sessions the Federal Commission for Regulatory litical support, getting the resources needed, allow every state to share its experiences Improvement (known by its Spanish acro- gaining buy-in from stakeholders, bringing with regulatory reform, as well as lessons nym Cofemer) with the aim of establishing agencies together in one coordinated effort. learned. Peer learning also takes place even a long-lasting reform effort and a systematic Mexico illustrates the challenges of regula- more informally, on visits by policy makers to approach to regulation. But while this agency tory policy making when it involves different good performers such as Aguascalientes and became the main driver of change, continu- levels of government and regulation. Guanajuato. A visit to Sinaloa, where policy ing political obstacles at the local and na- makers learned more about how this state Mexico’s 31 states and 2,441 municipali- tional levels limited its effectiveness. In late 2003 the first Doing Business report ranked issues land use authorizations electronically, ties, along with Mexico City, have extensive Mexico above the global average on the ease led Colima to set up a similar system on its regulatory powers, allowing them to design, of doing business. Yet Mexico trailed behind own website. implement and enforce regulations.1 So regulatory reform has required not only such competitors as Chile, Malaysia and Sharing experience makes sense, because horizontal coordination among ministries, Thailand—and even further behind OECD differences across states in what entre- agencies, and legislative and judicial bodies high-income economies such as the United preneurs encounter in doing business can at the federal level, but vertical coordination Kingdom, Australia and Germany. point to opportunities for improvement. with entities at the state and municipal The Office of the President saw an opportu- For example, Doing Business in Mexico 2007 levels. The regulatory reform initiative in nity to use the Doing Business report to drive showed that business registration fees var- Mexico has used an exercise of benchmark- improvements. But because the president’s ied greatly from state to state. In Michoacán ing business regulation in all 31 states and support in Congress eroded even further in the registration cost for companies was Mexico City to support this coordination and the 2003 midterm elections, reforms failed the equivalent of $16; in Chihuahua it was stimulate change. to pass. With a national presidential elec- $1,035, more than 60 times as much. And Gathering momentum tion looming in mid-2006, the Office of the while some states set fixed fees, others President simply did not have the political charged percentage-based fees, calculated Regulatory reform efforts started as early as clout to carry out broad reforms, which usu- on the basis of the company’s capital.4 The the 1980s as Mexico, seeking rapid integra- ally take several years to plan and implement. 5 states with the most expensive business tion with the global economy, joined large start-up processes used percentage-based international trade agreements and the Thanks to Mexico’s federal structure, fees.5 The story was similar for property OECD. Greater openness to international however, states could start reform efforts transfer fees. Yet a company registration or markets and increased competition required immediately. In 2005 the Office of the property transfer takes the same amount of measures to lower the cost of doing business President requested a subnational Doing work regardless of the size of the company’s for its 75 million people.2 In the early 1990s Business report that would go beyond Mexico capital or the value of the property. the reform initiative was led by the Office of City. The first such report, launched in 2005, the President and a small group of technical benchmarked 12 states in addition to Mexico The many similarities across states—such advisers. The consequences of the 1994–95 City. A second one extended coverage to all as bottlenecks faced by entrepreneurs trying economic crisis helped intensify the focus 31 states in 2006. A third report repeated to start or expand a business—provided just on small and medium-size enterprises as an the benchmarking in 2008. A fourth is under as much reason for sharing experience. In engine of employment growth. way. registering a business or transferring prop- But the success of the reform efforts was erty, the biggest hurdle was filing documents undermined by lack of effective monitoring, What has worked? with the company or property registry. Doing transparency and public support. Changes The subnational Doing Business reports, Business in Mexico 2007 reported that the in the political landscape after the 1997 by providing a fact-based set of indicators property registration procedures with the midterm elections weakened the govern- that capture differences in local regulation public registry took between 73% and 87% ment’s support in Congress, where the and local implementation of national laws, of the total time for registering property. But president’s party lost its 68-year majority in prompted first dialogue and then action on Doing Business in Mexico 2009 could report the lower chamber. Now none of the 3 major regulatory reform. Along the way they have that 13 states had focused on updating their political parties had an absolute majority. In also led to the sharing of experience, to property and commercial registries. Many this fragmented political environment the competition and to collaboration, all of which states have also been working to consolidate unilateral top-down approach was seen as have helped to promote and sustain change. procedures in one place. Most now have a
    • ECONOMY CASE STUDIES: MEXICO 33one-stop shop that centralizes procedures collaboration through Cofemer helped total. Mexico has also improved constructionand provides advice to entrepreneurs. expand the system to more municipalities permitting, by merging and streamlining pro- across more states. cedures related to zoning and utilities.Creating competition Today the system has been implemented More areas are being worked on. ReformsCompetition between states was the biggest in 186 municipalities across 30 states.6 continue in trade, construction permit-catalyst for reform. Faced by almost identical According to a recent study, the SARE initia- ting, and business, property and collateralfederal regulations, mayors and governors tive has had a significant impact.7 After the registration.had difficulty explaining why it took longer introduction of SARE’s one-stop shops, theor cost more to start a business or register number of registered businesses increased Seeing resultsproperty in their city or state. States that did by 5% and wage employment by 2.2%. There are encouraging signs that strengthen-poorly could not justify their poor perfor-mance, and they were inspired by the reform ing different areas of the business environ- After a few years of steady improvement atefforts of other states. ment at the same time produces better the state and municipal levels, the Office of overall results for business creation. A study the President saw a need for broad regula-This showed up in an accelerating pace performed after the introduction of SARE in tory reforms at the federal level. One impetusof change. Doing Business in Mexico 2007 several states found that the program had a was a perception that the subnational reformreported that 9 of 12 states (75%) had significantly greater effect on the number of efforts needed another boost. Mexico City’simplemented reforms in at least one area new businesses created in areas with a bet- poor performance in the subnational rank-measured by the report. Two years later, ter overall investment climate.9 ings on the ease of doing business pushedDoing Business in Mexico 2009 reported that the federal government to collaborate more Changes are also apparent for firms. The28 of 31 states (90%) as well as Mexico closely with Mexico City’s 16 boroughs to share of senior management’s time spentCity had implemented Doing Business re- coordinate reform efforts. A second impetus dealing with requirements imposed by gov-forms. Mexican states were improving their was Mexico’s performance in the global ernment regulations fell from 20% in 2005regulatory environments, and the impulse rankings. While several regulatory reform to 14% in 2009. During the same periodfor regulatory reform persisted even through programs had been introduced at the fed- the share of businesses that had applied forchanges in government. eral level in 2005–09, these had not been an operating license increased from 4% to enough to propel Mexico into the ranks of 23%.10The pace of reform was maintained thanks the best performers—such as New Zealand,in part to the regulatory reform units that Korea and Denmark, which were then among Conclusionstates were beginning to create. Puebla the top 35 on the ease of doing business. Regulatory reform in Mexico has become anset up the first, in 2003. By 2005, 5 states ongoing process. The government has takenhad regulatory reform units. Today about In September 2009 the Office of the steps to continue the subnational Doing20 states do. Nuevo León created the most President announced its intention to trans- Business project. In a first for such projects,recent one, in 2010. All the units have been form Mexico’s regulatory environment. The the methodology is being transferred to acreated at the state’s initiative, with techni- aims were to build a regulatory framework reputable, independent think tank in Mexico,cal assistance from the federal government centered on and involving the citizen, to which expects to continue to do the studythrough Cofemer. increase competitiveness and to promote every 2–3 years. The federal and state gov- development. The Mexican government ernments have taken the lead on the fundingPromoting collaboration secured technical assistance from the side as well. The first Doing Business in MexicoDelegating the reform agenda to local World Bank Group to identify opportunities reports were financed in part by donorsauthorities proved to be an essential part for regulatory reform and to provide expert (such as USAID) and the World Bank Groupof the national reform effort. This fostered advice. and in part by the Mexican government. Thecommitment, a sense of collaboration and fourth is being fully funded by the federal andbetter communication among federal, state The initiative has already produced results state finance ministries.and municipal authorities. in business registration. Previously there had been little coordination between federal The hope is that by tracking progress overEarly on in the reform process the federal agencies and the state and municipal orga- time, continued periodic benchmarking bygovernment collaborated with the states to nizations involved in the process. Now an an independent third party will create incen-improve business registration through the online one-stop shop, Tuempresa, launched tives to maintain the reform effort throughRapid Business Opening System (SARE). in August 2009, coordinates the federal changes in government. The Doing BusinessA system of one-stop shops for local pro- procedures and is adding state and munici- in Mexico reports, capturing the progress ofcedures, SARE was created to coordinate pal procedures.8 Public notaries have been regulatory reform over time, show that it wasmunicipal procedures so that low-risk granted access. Today the online system not a one-time initiative—but instead ancompanies could get their license and start processes about 100 new business registra- effort that has strengthened with continuedoperating in a few days. The improved tions a month in Mexico City, or 7% of the benchmarking.
    • 34 DOING BUSINESS 2012 NOTES 1. García Villarreal 2010. Information on the number of municipalities is from National Institute for Federalism and Municipal Development (INAFED), “Los últimos municipios creados,” http://www.e-local .gob.mx/. 2. Population in 1985 from World Bank 2010b. 3. Cordova and Haddou-Ruiz 2008. 4. World Bank 2006a. 5. World Bank 2008a. 6. Information provided by Cofemer. 7. Bruhn 2011. 8. http://tuempresa.gob.mx. 9. Kaplan, Piedra and Seira 2007. 10. World Bank Enterprise Surveys (http://www .enterprisesurveys.org).
    • ECONOMY CASE STUDIES: THE UNITED KINGDOM 35THE UNITED KINGDOM: One in, one out The Red Tape ChallengeRETHINKING REGULATION The government’s strategy for easing the The government has also launched a first-The United Kingdom has consistently burden of regulation is aimed at the flow time initiative to scrutinize the entire stockperformed well on the Doing Business of new regulations as well as the existing of inherited regulations. The country hasindicators—and this year again stands high stock. The “one in, one out” system requires more than 21,000 regulations and statutoryin the ranking on the overall ease of doing government departments to assess the net instruments on the books, spanning virtually cost to business of complying with any new the entire spectrum of economic activity andbusiness, at 7. But the new government regulation that is proposed (an “in”). These imposing a huge cost on business.7 Some ofbelieves that more can be done to relieve calculations are validated by the indepen- these have been on the books since Worldbusiness from burdensome regulation. dent Regulatory Policy Committee.3 If a new War II (those related to “trading with theBecause of the effects of the global financial regulation means a cost to business, a de- enemy,” for example). Many have becomecrisis, the public sector has limited scope to regulatory measure (an “out”) must be found obsolete or are otherwise not binding anduse spending to enable economic growth. serve no useful public policy purpose. In that reduces the net cost by at least theWhile the government has made the difficult areas such as consumer protection the law same amount.4 One such “out” is a measuredecisions necessary to reduce the deficit and has become complicated and confusing. permitting credit unions to communicatestabilize debt levels to create the conditions with their members electronically. This is es- The government estimates that in recentfor sustainable growth,1 it has also adopted a timated to reduce the net cost to business by years an average of 6 regulations have beencomplementary strategy based on the idea about £10.4 million, a calculation validated introduced every working day, with a par-that by simplifying the regulatory system, it by the Regulatory Policy Committee.5 ticularly heavy burden in employment law,can free up the private sector’s capacity to tax administration, and health and safety.innovate, diversify and expand.2 Other initiatives support the one-in, one- According to a recent government review, out system. For example, the governmentRegulation has a role in the modern “evidence also suggests that Government has introduced review and sunset clauseseconomy. A framework of rules is necessary does not do all it can to support business for new regulations. This means that policy when introducing new regulations. Oftento promote competition and stability and to makers must review the relevance of new guidance is poorly designed, not provided,ensure transparency in market interactions. regulations after a maximum of 7 years and or provided late (i.e., after the regulation hasWell-targeted and sensibly designed regula- justify their continuation rather than simply come into force).”8 The same governmenttions can deal with market failures, promote leaving them on the statute books.6 review reports that a typical small enterprisea level playing field for businesses and sup- spends 34 hours a month dealing with redport government objectives. The challenge is The one-in, one-out system focuses on tape and complying with regulations. Whento do so in a way that does not impair the domestic regulation. European Union regula- businesses need to hire consultants forability of businesses to operate, to create tions and directives as well as international expert advice on regulatory compliance, thisjobs and to grow. agreements to which the United Kingdom adds to an already heavy cost burden. is a party are managed through a differentStriking the right balance between these strand of work. The one-in, one-out system The government has begun to tackle theobjectives can also create a better balance also excludes fiscal measures aimed at stock of regulation through the Red Tapeof responsibility between the state, the busi- reducing the budget deficit, regulatory mea- Challenge. This comprehensive review isness community and civil society. Where sures aimed at addressing systemic financial aimed at identifying regulations that couldregulation is needed, the U.K. government risk, civil emergency regulations or fees, and be removed, simplified or approached in aintends to more closely scrutinize how regu- charges imposed by state bodies for cost different way. Using a public website, thelations are designed and enforced. recovery purposes only. government is gathering the views of the business community and the public and in- In another measure, on April 1, 2011, theReducing the stock and flow of viting practical suggestions for alternatives. government introduced a 3-year moratorium The feedback from those affected by regula-regulations on new domestic regulation affecting micro- tion will inform government decision making.The new government has taken a number of enterprises (businesses with fewer than 10 This exercise presumes that burdensomesteps aimed at reducing the burden of regu- employees, which account for half of total regulations will be removed if there are nolation since taking office in early 2010. These employment in the economy) and start-ups. good reasons for retaining them.have included abolishing regulations that are Any breaches of the moratorium—allowedseen as impeding growth, introducing new only in exceptional circumstances and if A watchful eye on EU legislationregulations only where there are no sensible supported by a compelling argument—will The government is also taking steps toalternatives and as a last resort, reducing require cabinet-level approval and sign-off reduce the cost to U.K. business from EU leg-the volume of new regulations and reducing by the Economic Affairs Committee, which islation and continues to work with Europeanregulatory costs for business. is chaired by the chancellor of the exchequer. partners to ensure that there is appropriate
    • 36 DOING BUSINESS 2012 downward pressure on the volume and The United Kingdom’s Primary Authority align incentives in ways that support public impact of EU regulations. For example, scheme plays a key part in changing how policy objectives. This approach relies on a although the Red Tape Challenge focuses businesses experience regulatory inspec- consideration of costs and benefits—rather on domestic regulation, the public is also tions and enforcement. Businesses operating than the coercive power of rigid, sometimes being encouraged to comment on how EU multiple sites in different local authority difficult-to-enforce regulation—to shape regulations and directives are implemented jurisdictions can find themselves subject to decisions by individuals and businesses. in the United Kingdom. The government varying—and at times contradictory— will review any previous instances of “gold regulatory advice or judgments. To help As the U.K. authorities implement their plating”—where U.K. regulation has gone resolve problems with inconsistent enforce- strategy, one challenge they will face is to al- beyond the minimum required by the EU ment, the Primary Authority scheme allows lay public concerns about whether adequate legislation, imposing an unnecessary burden businesses to partner with a single local regulations remain in place to ensure stability on U.K. businesses. authority that will operate as their sole point in the financial system, whose shortcomings of advice and assured guidance. The aim is are seen by many as a precipitating factor in This complements a wider government effort to support both business compliance and the 2008–09 financial crisis. Another need to end the gold plating of EU legislation, under economic growth. is to meet the challenges of climate change. the “Guiding Principles for EU Legislation.”9 Government departments responsible for In the first 2 years of the scheme’s op- Conclusion implementing an EU law must satisfy the eration, businesses initiated more than The government sees this new approach cabinet that they have identified the aims of 1,000 Primary Authority partnerships, far to business regulation as part of a broader the law and the relevant government policies exceeding original projections. Building on effort to boost the competitiveness of the and will harmonize them in a way that does this success and the initial experience, the United Kingdom. This has been prompted not cause unintended consequences in the government proposes to extend the scheme by concerns about the rapidly rising levels United Kingdom and that minimizes the cost to allow more businesses access to assured of public debt brought about by the finan- to business. The government is also working regulatory advice. The emphasis will be on cial crisis,10 the declining performance of with businesses to identify good practices extending the benefits to micro, small and British students in international rankings of for implementing EU rules and ways to make medium-size enterprises. excellence in science and mathematics, the EU laws friendlier to economic growth. erosion of manufacturing output and em- Thinking more creatively about ployment and the economy’s declining share Transforming regulatory regulation of world exports.11 enforcement Underpinning all these government mea- The U.K. government believes that reform- sures is the idea that policy makers need Public policies in the medium term are ing the implementation and enforcement of to think more creatively about whether the geared to reversing some of these trends. A regulations is as important as reducing their traditional “command and control” approach comprehensive rethinking of the role of busi- stock and flow—and has promised to end the to regulation—with its many unintended ness regulation in empowering the private culture of unthinking “tick box” regulation, consequences—is the most effective way sector to boost productivity, innovation and adopted purely to satisfy convention rather to achieve desired policy outcomes. Against growth is a key part of this effort. than to ensure the right outcomes. Its aim the backdrop of a rapidly changing global is to find new ways of achieving compliance economy, the policy papers supporting these that contribute to economic growth and initiatives ask whether a combination of non- remove unnecessary burdens on businesses regulatory policy instruments can achieve and individuals. policy objectives more effectively, at lower cost and with less coercion. The government has already started to reform some of the most disproportionate There are a range of alternatives. One is enforcement systems and has commis- to use industry codes of conduct or other sioned independent external reviews to negotiated codes as mechanisms of self- examine specific areas in detail. For example, regulation or (if some level of government it is adopting Lord Young’s proposals to involvement is seen to be necessary) coreg- reform the implementation of health and ulation. Another is to make more active use safety law and is reviewing the enforcement of information and education—supported by of employment law. And the government rating systems, better labeling and greater recently received the recommendations of disclosure—to enable consumers to make the Farming Regulation Task Force on ways informed decisions. And governments have to ease heavy-handed enforcement of regu- sometimes used taxes, subsidies, quotas, lation in agriculture and food processing. auctions and other such instruments to
    • ECONOMY CASE STUDIES: THE UNITED KINGDOM 37NOTES1. See IMF (2011a).2. U.K. Department for Business, Innovation and Skills 2110b.3. Regulatory Policy Committee website, http://regulatorypolicycommittee .independent.gov.uk/.4. U.K. Department for Business, Innovation and Skills 2011a.5. U.K. Department for Business, Innovation and Skills 2011a, annex D, p. 18.6. U.K. Department for Business, Innovation and Skills 2010a.7. U.K. Department for Business, Innovation and Skills 2011b, p. 20.8. U.K. Department for Business, Innovation and Skills 2011b, p. 51.9. U.K. Department for Business, Innovation and Skills, “Guiding Principles for EU Legislation,” http://www.bis.gov.uk/.10. According to the IMF (2011b), public debt levels rose from 42.1% of GDP in 2005 to an estimated 77.2% in 2010 and are projected to rise to 83% in 2011.11. U.K. Department for Business, Innovation and Skills 2011b, p. 3.
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    • 41Data notesThe indicators presented and analyzed in conference calls, written correspondenceDoing Business measure business regulation and visits by the team. For Doing Business ECONOMY CHARACTERISTICSand the protection of property rights—and 2012 team members visited 40 economies Gross national income (GNI) per capita Doing Business 2012 reports 2010their effect on businesses, especially small to verify data and recruit respondents. The income per capita as published inand medium-size domestic firms. First, the data from questionnaires are subjected to the World Bank’s World Developmentindicators document the complexity of regu- numerous rounds of verification, leading to Indicators 2011. Income is calculated us-lation, such as the number of procedures to revisions or expansions of the information ing the Atlas method (current US$). Forstart a business or to register and transfer cost indicators expressed as a percent- collected. age of income per capita, 2010 GNI incommercial property. Second, they gauge U.S. dollars is used as the denominator.the time and cost of achieving a regulatory The Doing Business methodology offers Data were not available from the Worldgoal or complying with regulation, such as several advantages. It is transparent, us- Bank for Afghanistan; Australia; Thethe time and cost to enforce a contract, go ing factual information about what laws Bahamas; Bahrain; Brunei Darussalam;through bankruptcy or trade across borders. and regulations say and allowing multiple Canada; Cyprus; Djibouti; the Islamic Republic of Iran; Kuwait; New Zealand;Third, they measure the extent of legal interactions with local respondents to clarify Oman; Puerto Rico (territory of theprotections of property, for example, the potential misinterpretations of questions. United States); Qatar; Saudi Arabia;protections of investors against looting by Having representative samples of respon- Suriname; Taiwan, China; the Unitedcompany directors or the range of assets dents is not an issue; Doing Business is not Arab Emirates; West Bank and Gaza; andthat can be used as collateral according to the Republic of Yemen. In these cases a statistical survey, and the texts of the rel- GDP or GNP per capita data and growthsecured transactions laws. Fourth, a set of evant laws and regulations are collected and rates from the International Monetaryindicators documents the tax burden on answers checked for accuracy. The method- Fund’s World Economic Outlook data-businesses. Finally, a set of data covers dif- ology is inexpensive and easily replicable, so base and the Economist Intelligence Unitferent aspects of employment regulation. data can be collected in a large sample of were used. economies. Because standard assumptions Region and income groupThe data for all sets of indicators in Doing Doing Business uses the World Bank are used in the data collection, comparisonsBusiness 2012 are for June 2011.1 regional and income group classifica- and benchmarks are valid across economies. tions, available at http://www.world Finally, the data not only highlight the extent bank.org/data/countryclass. The WorldMETHODOLOGY of specific regulatory obstacles to business Bank does not assign regional classifi-The Doing Business data are collected in but also identify their source and point to cations to high-income economies. Fora standardized way. To start, the Doing the purpose of the Doing Business report, what might be reformed. high-income OECD economies are as-Business team, with academic advisers, signed the “regional” classification OECDdesigns a questionnaire. The questionnaire TABLE 4.1 How many experts does Doing high income. Figures and tables present- Business consult?uses a simple business case to ensure ing regional averages include economies Indicator set Contributors from all income groups (low, lower mid-comparability across economies and over Starting a business 1,755 dle, upper middle and high income).time—with assumptions about the legal Dealing with construction permits 837 Populationform of the business, its size, its location and Getting electricity 782 Doing Business 2012 reports midyearthe nature of its operations. Questionnaires Registering property 1,257 2010 population statistics as publishedare administered through more than 9,028 Getting credit 1,277 in World Development Indicators 2011.local experts, including lawyers, business Protecting investors 1,139consultants, accountants, freight forwarders,government officials and other profession- Paying taxes 1,276als routinely administering or advising on Trading across borders 868legal and regulatory requirements (table 4.1). Enforcing contracts 1,088These experts have several rounds of interac- Resolving insolvency 1,044tion with the Doing Business team, involving Employing workers 1,092
    • 42 DOING BUSINESS 2012 LIMITS TO WHAT IS MEASURED the expert respondents. When sources indi- same ranking on the total tax rate indicator. The Doing Business methodology has 5 cate different estimates, the time indicators The threshold is not based on any underly- limitations that should be considered when reported in Doing Business represent the me- ing theory. Instead, it is meant to emphasize interpreting the data. First, the collected data dian values of several responses given under the purpose of the indicator: to highlight refer to businesses in the economy’s largest the assumptions of the standardized case. economies where the tax burden on busi- business city and may not be representative ness is high relative to the tax burden in Finally, the methodology assumes that a other economies. Giving the same ranking to of regulation in other parts of the economy. business has full information on what is all economies whose total tax rate is below To address this limitation, subnational Doing required and does not waste time when the threshold avoids awarding economies Business indicators were created (box 4.1). completing procedures. In practice, complet- in the scoring for having an unusually low Second, the data often focus on a specific ing a procedure may take longer if the busi- total tax rate, often for reasons unrelated to business form—generally a limited liability ness lacks information or is unable to follow government policies toward enterprises. For company (or its legal equivalent) of a speci- up promptly. Alternatively, the business example, economies that are very small or fied size—and may not be representative may choose to disregard some burdensome that are rich in natural resources do not need of the regulation on other businesses, for procedures. For both reasons the time delays to levy broad-based taxes. example, sole proprietorships. Third, trans- reported in Doing Business 2012 would differ actions described in a standardized case from the recollection of entrepreneurs re- scenario refer to a specific set of issues and DATA CHALLENGES AND ported in the World Bank Enterprise Surveys may not represent the full set of issues a REVISIONS business encounters. Fourth, the measures or other perception surveys. Most laws and regulations underlying the of time involve an element of judgment by Doing Business data are available on the CHANGES IN WHAT IS MEASURED Doing Business website at http:/ /www.doing The methodology for 3 of the Doing Business business.org. All the sample questionnaires BOX 4.1 Subnational Doing Business topics was updated this year—getting credit, indicators and the details underlying the indicators are dealing with construction permits and pay- also published on the website. Questions This year Doing Business published ing taxes. on the methodology and challenges to data a subnational study for the Philippines and a regional report for Southeast can be submitted through the website’s Europe covering 7 economies (Albania, First, for getting credit, the scoring of one of “Ask a Question” function at http:/ /www Bosnia and Herzegovina, Kosovo, FYR the 10 components of the strength of legal .doingbusiness.org. Macedonia, Moldova, Montenegro and rights index was amended to recognize ad- Serbia) and 22 cities. It also published ditional protections of secured creditors and a city profile for Juba, in the Republic of Doing Business publishes 8,967 indicators borrowers. Previously the highest score of 1 each year. To create these indicators, the South Sudan. was assigned if secured creditors were not team measures more than 52,000 data The subnational studies point to dif- ferences in business regulation and its subject to an automatic stay or moratorium points, each of which is made available on implementation—as well as in the pace on enforcement procedures when a debtor the Doing Business website. Historical data of regulatory reform—across cities in the entered a court-supervised reorganization for each indicator and economy are available same economy. For several economies procedure. Now the highest score of 1 is on the website, beginning with the first year subnational studies are now periodi- cally updated to measure change over also assigned if the law provides secured the indicator or economy was included in the time or to expand geographic cover- creditors with grounds for relief from an report. To provide a comparable time series age to additional cities. This year that automatic stay or moratorium (for example, for research, the data set is back-calculated is the case for the subnational studies if the movable property is in danger) or sets in the Philippines; the regional report to adjust for changes in methodology and a time limit for the automatic stay. any revisions in data due to corrections. The in Southeast Europe; the ongoing stud- ies in Italy, Kenya and the United Arab website also makes available all original data Emirates; and the projects implemented Second, because the ease of doing business sets used for background papers. The cor- jointly with local think tanks in Indonesia, index now includes the getting electricity rection rate between Doing Business 2011 and Mexico and the Russian Federation. indicators, procedures, time and cost related Doing Business 2012 is 7%. Besides the subnational Doing to obtaining an electricity connection were Business indicators, Doing Business con- removed from the dealing with construction ducted a pilot study this year on the permits indicators. second largest city in 3 large economies STARTING A BUSINESS to assess within-country variations. The study collected data for Rio de Janeiro in Third, a threshold has been introduced for Doing Business records all procedures that addition to São Paulo in Brazil, for Beijing the total tax rate for the purpose of calculat- are officially required for an entrepreneur to in addition to Shanghai in China and for ing the ranking on the ease of paying taxes. start up and formally operate an industrial St. Petersburg in addition to Moscow in All economies with a total tax rate below the or commercial business. These include ob- Russia. threshold (which will be calculated and ad- taining all necessary licenses and permits justed on a yearly basis) will now receive the and completing any required notifications,
    • DATA NOTES 43 economy, the limited liability form most TABLE 4.2 What do the starting a businessFIGURE 4.1 Starting a business: getting a local popular among domestic firms is chosen. indicators measure? limited liability company up and running Information on the most popular form is Procedures to legally start and operate a company (number) Rankings are based on 4 indicators obtained from incorporation lawyers or Preregistration (for example, name verification or the statistical office. reservation, notarization) Preregistration, As % of income • Operates in the economy’s largest busi- Registration in the economy’s largest business city registration and per capita, no postregistration bribes included ness city. Postregistration (for example, social security registra- (in calendar days) • Is 100% domestically owned and has 5 tion, company seal) Time required to complete each procedure owners, none of whom is a legal entity. (calendar days) 25% 25% • Has start-up capital of 10 times income Does not include time spent gathering information Time Cost per capita at the end of 2010, paid in cash. Each procedure starts on a separate day 25% 25% • Performs general industrial or commercial Procedure completed once final document is received Procedures Paid-in minimum activities, such as the production or sale No prior contact with officials capital to the public of products or services. The Cost required to complete each procedure business does not perform foreign trade (% of income per capita) Procedure is Funds deposited in a Official costs only, no bribes completed when bank or with a notary activities and does not handle products final document before registration (or subject to a special tax regime, for ex- No professional fees unless services required by law is received within 3 months), as % of income per capita ample, liquor or tobacco. It is not using Paid-in minimum capital (% of income per capita) heavily polluting production processes. Funds deposited in a bank or with a notary before registration (or within 3 months)verifications or inscriptions for the company • Leases the commercial plant and officesand employees with relevant authorities. The and is not a proprietor of real estate. require separate filings, they are counted asranking on the ease of starting a business is • Does not qualify for investment incentives 2 procedures.the simple average of the percentile rankings or any special benefits.on its component indicators (figure 4.1). • Has at least 10 and up to 50 employees 1 Both pre- and postincorporation procedures month after the commencement of opera- that are officially required for an entrepreneurAfter a study of laws, regulations and pub- to formally operate a business are recorded tions, all of them nationals.licly available information on business entry, (table 4.2). • Has a turnover of at least 100 times in-a detailed list of procedures is developed, come per capita.along with the time and cost of complying Procedures required for official correspon-with each procedure under normal circum- • Has a company deed 10 pages long. dence or transactions with public agenciesstances and the paid-in minimum capital are also included. For example, if a company Proceduresrequirements. Subsequently, local incorpo- seal or stamp is required on official docu-ration lawyers, notaries and government A procedure is defined as any interaction of ments, such as tax declarations, obtainingofficials complete and verify the data. the company founders with external parties the seal or stamp is counted. Similarly, if a (for example, government agencies, lawyers, company must open a bank account beforeInformation is also collected on the sequence auditors or notaries). Interactions between registering for sales tax or value added tax,in which procedures are to be completed company founders or company officers andand whether procedures may be carried employees are not counted as procedures. this transaction is included as a procedure.out simultaneously. It is assumed that any Procedures that must be completed in the Shortcuts are counted only if they fulfill 4required information is readily available and same building but in different offices are criteria: they are legal, they are availablethat all agencies involved in the start-up pro- counted as separate procedures. If found- to the general public, they are used by thecess function without corruption. If answers ers have to visit the same office several majority of companies, and avoiding themby local experts differ, inquiries continue times for different sequential procedures, causes substantial delays.until the data are reconciled. each is counted separately. The founders Only procedures required of all businesses are assumed to complete all proceduresTo make the data comparable across econo- themselves, without middlemen, facilita- are covered. Industry-specific proceduresmies, several assumptions about the busi- tors, accountants or lawyers, unless the use are excluded. For example, procedures toness and the procedures are used. of such a third party is mandated by law. If comply with environmental regulations are the services of professionals are required, included only when they apply to all busi-Assumptions about the business procedures conducted by such profession- nesses conducting general commercial orThe business: als on behalf of the company are counted industrial activities. Procedures that the• Is a limited liability company (or its legal separately. Each electronic procedure is company undergoes to connect to electric- equivalent). If there is more than one counted separately. If 2 procedures can be ity, water, gas and waste disposal services type of limited liability company in the completed through the same website but are not included.
    • 44 DOING BUSINESS 2012 Time the commercial code or the company law. FIGURE 4.2 Dealing with construction permits: Time is recorded in calendar days. The Many economies require minimum capital building a warehouse measure captures the median duration that but allow businesses to pay only a part of it Rankings are based on 3 indicators incorporation lawyers indicate is necessary before registration, with the rest to be paid in practice to complete a procedure with after the first year of operation. In Italy in Days to build a As % of income minimum follow-up with government agen- June 2011 the minimum capital requirement warehouse in per capita, no main city bribes included cies and no extra payments. It is assumed for limited liability companies was €10,000, that the minimum time required for each of which at least €2,500 was payable before 33.3% 33.3% procedure is 1 day. Although procedures may registration. The paid-in minimum capital Time Cost take place simultaneously, they cannot start recorded for Italy is therefore €2,500, or on the same day (that is, simultaneous pro- 9.9% of income per capita. In Mexico the 33.3% cedures start on consecutive days). A proce- minimum capital requirement was 50,000 Procedures pesos, of which one-fifth needed to be paid dure is considered completed once the com- before registration. The paid-in minimum pany has received the final document, such Procedure is completed when final document is capital recorded for Mexico is therefore received; construction permits, inspections and as the company registration certificate or tax 10,000 pesos, or 8.4% of income per capita. utility connections included number. If a procedure can be accelerated for an additional cost, the fastest procedure is The data details on starting a business can chosen. It is assumed that the entrepreneur who deal with building regulations, includ- be found for each economy at http://www does not waste time and commits to com- ing approvals and inspections. To make the .doingbusiness.org by selecting the economy pleting each remaining procedure without data comparable across economies, several in the drop-down list. This methodology was delay. The time that the entrepreneur spends assumptions about the business, the ware- developed in Djankov and others (2002) and is on gathering information is ignored. It is as- house project and the utility connections are adopted here with minor changes. sumed that the entrepreneur is aware of all used. entry requirements and their sequence from Assumptions about the the beginning but has had no prior contact DEALING WITH CONSTRUCTION construction company with any of the officials. PERMITS The business (BuildCo): Cost Doing Business records all procedures • Is a limited liability company. required for a business in the construction Cost is recorded as a percentage of the • Operates in the economy’s largest busi- industry to build a standardized warehouse. economy’s income per capita. It includes all ness city. These procedures include submitting all official fees and fees for legal or professional • Is 100% domestically and privately owned. relevant project-specific documents (for services if such services are required by law. example, building plans and site maps) • Has 5 owners, none of whom is a legal Fees for purchasing and legalizing company to the authorities; obtaining all necessary entity. books are included if these transactions are clearances, licenses, permits and certifi- • Is fully licensed and insured to carry out required by law. The company law, the com- cates; completing all required notifications; construction projects, such as building mercial code and specific regulations and fee and receiving all necessary inspections. warehouses. schedules are used as sources for calculating Doing Business also records procedures for • Has 60 builders and other employees, costs. In the absence of fee schedules, a gov- obtaining connections for water, sewerage all of them nationals with the technical ernment officer’s estimate is taken as an of- and a fixed telephone landline.2 Procedures expertise and professional experience ficial source. In the absence of a government necessary to register the property so that it necessary to obtain construction permits officer’s estimate, estimates of incorporation can be used as collateral or transferred to and approvals. lawyers are used. If several incorporation another entity are also counted. The survey lawyers provide different estimates, the • Has at least 1 employee who is a licensed divides the process of building a warehouse median reported value is applied. In all cases architect and registered with the local as- into distinct procedures and calculates the the cost excludes bribes. sociation of architects. time and cost of completing each procedure. The ranking on the ease of dealing with • Has paid all taxes and taken out all neces- Paid-in minimum capital sary insurance applicable to its general construction permits is the simple average The paid-in minimum capital requirement of the percentile rankings on its component business activity (for example, accidental reflects the amount that the entrepreneur indicators (figure 4.2). insurance for construction workers and needs to deposit in a bank or with a notary third-person liability). before registration and up to 3 months fol- Information is collected from experts in • Owns the land on which the warehouse is lowing incorporation and is recorded as a construction licensing, including architects, built. percentage of the economy’s income per construction lawyers, construction firms, capita. The amount is typically specified in utility service providers and public officials
    • DATA NOTES 45Assumptions about the warehouse • Will have a constant level of water de- minimum time required for each procedureThe warehouse: mand and wastewater flow throughout is 1 day. Although procedures may take place the year. simultaneously, they cannot start on the• Will be used for general storage activities, same day (that is, simultaneous procedures such as storage of books or stationery. The The telephone connection: start on consecutive days). If a procedure warehouse will not be used for any goods • Is 10 meters (32 feet, 10 inches) from the can be accelerated legally for an additional requiring special conditions, such as food, main telephone network. cost, the fastest procedure is chosen. It is as- chemicals or pharmaceuticals. • Is a fixed telephone landline. sumed that BuildCo does not waste time and• Has 2 stories, both above ground, with commits to completing each remaining pro- a total surface of approximately 1,300.6 Procedures cedure without delay. The time that BuildCo square meters (14,000 square feet). Each spends on gathering information is ignored. A procedure is any interaction of the com- floor is 3 meters (9 feet, 10 inches) high. It is assumed that BuildCo is aware of all pany’s employees or managers with external• Has road access and is located in the parties, including government agencies, building requirements and their sequence periurban area of the economy’s largest notaries, the land registry, the cadastre, util- from the beginning. business city (that is, on the fringes of the ity companies, public and private inspectors city but still within its official limits). and technical experts apart from in-house Cost• Is not located in a special economic or in- architects and engineers. Interactions Cost is recorded as a percentage of the dustrial zone. The zoning requirements for between company employees, such as economy’s income per capita. Only official warehouses are met by building in an area development of the warehouse plans and costs are recorded. All the fees associated where similar warehouses can be found. inspections conducted by employees, are with completing the procedures to legally• Is located on a land plot of 929 square not counted as procedures. Procedures build a warehouse are recorded, includ- meters (10,000 square feet) that is 100% that the company undergoes to connect to ing those associated with obtaining land owned by BuildCo and is accurately regis- water, sewerage and telephone services are use approvals and preconstruction design tered in the cadastre and land registry. included. All procedures that are legally or clearances; receiving inspections before, in practice required for building a warehouse during and after construction; getting utility• Is a new construction (there was no previ- are counted, even if they may be avoided in connections; and registering the warehouse ous construction on the land). exceptional cases (table 4.3). property. Nonrecurring taxes required for the• Has complete architectural and technical completion of the warehouse project are also plans prepared by a licensed architect. Time recorded. The building code, information• Will include all technical equipment from local experts and specific regulations Time is recorded in calendar days. The mea- required to make the warehouse fully and fee schedules are used as sources for sure captures the median duration that local operational. costs. If several local partners provide differ- experts indicate is necessary to complete a• Will take 30 weeks to construct (exclud- procedure in practice. It is assumed that the ent estimates, the median reported value is ing all delays due to administrative and used. regulatory requirements). TABLE 4.3 What do the dealing with construction permits indicators The data details on dealing with construction measure?Assumptions about the utility permits can be found for each economy atconnections Procedures to legally build a warehouse (number) http://www.doingbusiness.org by selecting the Submitting all relevant documents and obtain- economy in the drop-down list.The water and sewerage connection: ing all necessary clearances, licenses, permits and• Is 10 meters (32 feet, 10 inches) from the certificates Completing all required notifications and receiving existing water source and sewer tap. all necessary inspections GETTING ELECTRICITY• Does not require water for fire protection Obtaining utility connections for water, sewerage Doing Business records all procedures re- reasons; a fire extinguishing system (dry and a fixed telephone landline quired for a business to obtain a permanent system) will be used instead. If a wet fire Registering the warehouse after its completion (if required for use as collateral or for transfer of the electricity connection and supply for a protection system is required by law, it is warehouse) standardized warehouse. These procedures assumed that the water demand specified Time required to complete each procedure include applications and contracts with below also covers the water needed for (calendar days) electricity utilities, all necessary inspections fire protection. Does not include time spent gathering information and clearances from the utility and other• Has an average water use of 662 liters (175 Each procedure starts on a separate day agencies and the external and final connec- gallons) a day and an average wastewater Procedure completed once final document is received tion works. The survey divides the process of flow of 568 liters (150 gallons) a day. No prior contact with officials getting an electricity connection into distinct• Has a peak water use of 1,325 liters (350 Cost required to complete each procedure procedures and calculates the time and cost (% of income per capita) gallons) a day and a peak wastewater flow of completing each procedure. The rank- Official costs only, no bribes of 1,136 liters (300 gallons) a day. ing on the ease of getting electricity is the
    • 46 DOING BUSINESS 2012 simple average of the percentile rankings on feet). The plot of land on which it is built is FIGURE 4.3 Getting electricity: obtaining an its component indicators (figure 4.3). 929 square meters (10,000 square feet). electricity connection Rankings are based on 3 indicators Data are collected from the electricity dis- Assumptions about the electricity tribution utility, then completed and verified connection Days to obtain As % of income by electricity regulatory agencies and inde- an electricity per capita, no The electricity connection: connection in bribes included pendent professionals such as electrical en- main city • Is a permanent one. gineers, electrical contractors and construc- • Is a 3-phase, 4-wire Y, 140-kilovolt- 33.3% 33.3% tion companies. The electricity distribution Time Cost utility surveyed is the one serving the area ampere (kVA) (subscribed capacity) (or areas) where warehouses are located. If connection. 33.3% there is a choice of distribution utilities, the • Is 150 meters long. The connection is to Procedures one serving the largest number of customers either the low-voltage or the medium- is selected. voltage distribution network and either Steps to file an application, prepare a design, overhead or underground, whichever is complete works, obtain approvals, go To make the data comparable across more common in the economy and in the through inspections, install a meter and sign a supply contract economies, several assumptions about the area where the warehouse is located. The warehouse and the electricity connection are length of any connection in the customer’s Interactions between company employees used. private domain is negligible. and steps related to the internal electrical • Involves the installation of only one wiring, such as the design and execution of Assumptions about the warehouse electricity meter. The monthly electricity the internal electrical installation plans, are The warehouse: consumption will be 0.07 gigawatt-hour not counted as procedures. Procedures that • Is owned by a local entrepreneur. (GWh). The internal electrical wiring has must be completed with the same utility • Is located in the economy’s largest busi- already been completed. but with different departments are counted ness city. as separate procedures (table 4.4). • Is located within the city’s official limits Procedures A procedure is defined as any interaction The company’s employees are assumed to and in an area where other warehouses of the company’s employees or its main complete all procedures themselves unless are located (a nonresidential area). electrician or electrical engineer (that is, the use of a third party is mandated (for • Is not located in a special economic or example, if only an electrician registered with the one who may have done the internal investment zone; that is, the electricity the utility is allowed to submit an applica- wiring) with external parties such as the connection is not eligible for subsidization tion). If the company can, but is not required electricity distribution utility, electric- or faster service under a special invest- to, request the services of professionals ity supply utilities, government agencies, ment promotion regime. If several options (such as a private firm rather than the utility electrical contractors and electrical firms. for location are available, the warehouse for the external works), these procedures are is located where electricity is most easily TABLE 4.4 What do the getting electricity recorded if they are commonly done. For all available. indicators measure? procedures, only the most likely cases (for • Has road access. The connection works Procedures to obtain an electricity connection (number) example, more than 50% of the time the involve the crossing of a road (for excava- Submitting all relevant documents and obtaining all utility has the material) and those followed necessary clearances and permits tion, overhead lines and the like), but they in practice for connecting a warehouse to Completing all required notifications and receiving are all carried out on public land; that is, all necessary inspections electricity are counted. there is no crossing onto another owner’s Obtaining external installation works and possibly private property. purchasing material for these works Time Concluding any necessary supply contract and Time is recorded in calendar days. The • Is located in an area with no physical con- obtaining final supply straints. For example, the property is not measure captures the median duration that Time required to complete each procedure near a railway. (calendar days) the electricity utility and experts indicate is Is at least 1 calendar day necessary in practice, rather than required by • Is used for storage of refrigerated goods. Each procedure starts on a separate day law, to complete a procedure with minimum • Is a new construction (that is, there was follow-up and no extra payments. It is also Does not include time spent gathering information no previous construction on the land assumed that the minimum time required for Reflects the time spent in practice, with little follow- where it is located). It is being connected up and no prior contact with officials each procedure is 1 day. Although procedures to electricity for the first time. Cost required to complete each procedure may take place simultaneously, they cannot • Has 2 stories, both above ground, with (% of income per capita) start on the same day (that is, simultane- Official costs only, no bribes a total surface area of approximately ous procedures start on consecutive days). 1,300.6 square meters (14,000 square Value added tax excluded It is assumed that the company does not
    • DATA NOTES 47waste time and commits to completing each and the interest paid by the utility is used to the necessary documents, such as a copy ofremaining procedure without delay. The calculate the present value. the seller’s title if necessary, and conductingtime that the company spends on gathering due diligence if required. The transaction isinformation is ignored. It is assumed that the In some economies the security deposit can considered complete when it is opposablecompany is aware of all electricity connec- be put up in the form of a bond: the com- to third parties and when the buyer can usetion requirements and their sequence from pany can obtain from a bank or an insurance the property, use it as collateral for a bankthe beginning. company a guarantee issued on the assets loan or resell it. The ranking on the ease of it holds with that financial institution. In registering property is the simple averageCost contrast to the scenario in which the cus- of the percentile rankings on its componentCost is recorded as a percentage of the tomer pays the deposit in cash to the utility, indicators (figure 4.4).economy’s income per capita. Costs are in this scenario the company does not loserecorded exclusive of value added tax. All ownership control over the full amount and Every procedure required by law or neces-the fees and costs associated with complet- can continue using it. In return the company sary in practice is included, whether it is theing the procedures to connect a warehouse will pay the bank a commission for obtain- responsibility of the seller or the buyer orto electricity are recorded, including those ing the bond. The commission charged may must be completed by a third party on theirrelated to obtaining clearances from govern- vary depending on the credit standing of the behalf. Local property lawyers, notaries andment agencies, applying for the connection, company. The best possible credit standing property registries provide information onreceiving inspections of both the site and the and thus the lowest possible commission are procedures as well as the time and cost tointernal wiring, purchasing material, getting assumed. Where a bond can be put up, the complete each of them.the actual connection works and paying value recorded for the deposit is the annual commission times the 5 years assumed to To make the data comparable across econo-a security deposit. Information from local be the length of the contract. If both options mies, several assumptions about the partiesexperts and specific regulations and fee exist, the cheaper alternative is recorded. to the transaction, the property and theschedules are used as sources for costs. If procedures are used.several local partners provide different esti- In Honduras in June 2011 a customer re-mates, the median reported value is used. In questing a 140-kVA electricity connection Assumptions about the partiesall cases the cost excludes bribes. would have had to put up a security deposit The parties (buyer and seller):Security deposit of 126,894 Honduran lempiras (L) in cash • Are limited liability companies. or check, and the deposit would have been • Are located in the periurban area of theUtilities require security deposits as a guar- returned only at the end of the contract. economy’s largest business city.antee against the possible failure of custom-ers to pay their consumption bills. For this The customer could instead have invested • Are 100% domestically and privatelyreason the security deposit for a new cus- this money at the prevailing lending rate of owned.tomer is most often calculated as a function 18.87%. Over the 5 years of the contract this would imply a present value of lost inter- • Have 50 employees each, all of whom areof the customer’s estimated consumption. est earnings of L 73,423. In contrast, if the nationals.Doing Business does not record the full customer chose to settle the deposit with a • Perform general commercial activities.amount of the security deposit. If the deposit bank guarantee at an annual rate of 2.5%,is based on the customer’s actual consump- the amount lost over the 5 years would be Assumptions about the propertytion, this basis is the one assumed in the just L 15,862. The property:case study. Rather than the full amount of • Has a value of 50 times income per capita.the security deposit, Doing Business records The data details on getting electricity can be The sale price equals the value.the present value of the losses in interest found for each economy at http://www.doing • Is fully owned by the seller.earnings experienced by the customer be- business.org. • Has no mortgages attached and has beencause the utility holds the security deposit under the same ownership for the past 10over a prolonged period, in most cases until REGISTERING PROPERTY years.the end of the contract (assumed to be after Doing Business records the full sequence of • Is registered in the land registry or cadas-5 years). In cases where the security deposit procedures necessary for a business (buyer) tre, or both, and is free of title disputes.is used to cover the first monthly consump-tion bills, it is not recorded. To calculate to purchase a property from another busi- • Is located in a periurban commercial zone,the present value of the lost interest earn- ness (seller) and to transfer the property title and no rezoning is required.ings, the end-2010 lending rates from the to the buyer’s name so that the buyer can use • Consists of land and a building. The landInternational Monetary Fund’s International the property for expanding its business, use area is 557.4 square meters (6,000 squareFinancial Statistics are used. In cases where the property as collateral in taking new loans feet). A 2-story warehouse of 929 squarethe security deposit is returned with inter- or, if necessary, sell the property to another meters (10,000 square feet) is located onest, the difference between the lending rate business. The process starts with obtaining the land. The warehouse is 10 years old,
    • 48 DOING BUSINESS 2012 that the buyer does not employ an outside excluded from the cost measure. Both costs FIGURE 4.4 Registering property: transfer of facilitator in the registration process unless borne by the buyer and those borne by the property between 2 local companies legally or in practice required to do so. seller are included. If cost estimates differ Rankings are based on 3 indicators among sources, the median reported value Time is used. Days to transfer As % of property property in value, no bribes Time is recorded in calendar days. The main city included measure captures the median duration The data details on registering property can that property lawyers, notaries or registry be found for each economy at http://www 33.3% 33.3% officials indicate is necessary to complete a .doingbusiness.org by selecting the economy in Time Cost procedure. It is assumed that the minimum the drop-down list. time required for each procedure is 1 day. 33.3% Although procedures may take place simul- Procedures taneously, they cannot start on the same GETTING CREDIT day. It is assumed that the buyer does not Doing Business measures the legal rights Steps to check encumbrances, obtain clearance waste time and commits to completing each of borrowers and lenders with respect to certificates, prepare deed and transfer title so that the property can be occupied, remaining procedure without delay. If a pro- secured transactions through one set of indi- sold or used as collateral cedure can be accelerated for an additional cators and the sharing of credit information cost, the fastest legal procedure available through another. The first set of indicators and used by the majority of property owners describes how well collateral and bankruptcy is in good condition and complies with is chosen. If procedures can be undertaken laws facilitate lending. The second set mea- all safety standards, building codes and simultaneously, it is assumed that they are. sures the coverage, scope and accessibility other legal requirements. The property of It is assumed that the parties involved are of credit information available through public land and building will be transferred in its aware of all requirements and their sequence credit registries and private credit bureaus. entirety. from the beginning. Time spent on gathering The ranking on the ease of getting credit • Will not be subject to renovations or ad- information is not considered. is based on the percentile rankings on its ditional building following the purchase. component indicators: the depth of credit Cost • Has no trees, natural water sources, natu- information index (weighted at 37.5%) and ral reserves or historical monuments of Cost is recorded as a percentage of the prop- the strength of legal rights index (weighted erty value, assumed to be equivalent to 50 any kind. at 62.5%) (figure 4.5).3 times income per capita. Only official costs • Will not be used for special purposes, and required by law are recorded, including fees, no special permits, such as for residential LEGAL RIGHTS transfer taxes, stamp duties and any other use, industrial plants, waste storage or The data on the legal rights of borrowers payment to the property registry, notaries, certain types of agricultural activities, are and lenders are gathered through a survey public agencies or lawyers. Other taxes, such required. of financial lawyers and verified through as capital gains tax or value added tax, are • Has no occupants (legal or illegal), and no analysis of laws and regulations as well as other party holds a legal interest in it. TABLE 4.5 What do the registering property public sources of information on collateral indicators measure? and bankruptcy laws. Survey responses are Procedures Procedures to legally transfer title on immovable verified through several rounds of follow-up property (number) A procedure is defined as any interaction Preregistration procedures (for example, checking for communication with respondents as well of the buyer or the seller, their agents (if liens, notarizing sales agreement, paying property as by contacting third parties and consult- transfer taxes) an agent is legally or in practice required) ing public sources. The survey data are Registration procedures in the economy’s largest or the property with external parties, in- business city confirmed through teleconference calls or cluding government agencies, inspectors, Postregistration procedures (for example, filing title on-site visits in all economies. notaries and lawyers. Interactions between with municipality) company officers and employees are not Time required to complete each procedure Strength of legal rights index (calendar days) considered. All procedures that are legally or The strength of legal rights index measures Does not include time spent gathering information in practice required for registering property the degree to which collateral and bankruptcy Each procedure starts on a separate day are recorded, even if they may be avoided in laws protect the rights of borrowers and Procedure completed once final document is received exceptional cases (table 4.5). It is assumed lenders and thus facilitate lending (table 4.6). that the buyer follows the fastest legal option No prior contact with officials Two case scenarios, case A and case B, are available and used by the majority of prop- Cost required to complete each procedure used to determine the scope of the secured (% of property value) erty owners. Although the buyer may use transactions system. The case scenarios in- Official costs only, no bribes lawyers or other professionals where neces- volve a secured borrower, the company ABC, No value added or capital gains taxes included sary in the registration process, it is assumed and a secured lender, BizBank. In certain
    • DATA NOTES 49 The case scenarios also involve assump- maximum amount for which the assetsFIGURE 4.5 Getting credit: collateral rules and tions. In case A, as collateral for the loan, are encumbered. credit information Rankings are based on 2 indicators ABC grants BizBank a nonpossessory • A collateral registry or registration institu- security interest in one category of movable tion for security interests over movable assets, for example, its accounts receivable property is in operation, unified geograph- Scope, quality and accessibility of credit or its inventory. ABC wants to keep both ically and by asset type, with an electronic information through public and private credit registries possession and ownership of the collateral. database indexed by debtors’ names. In economies where the law does not allow • Secured creditors are paid first (for ex- 37.5% 62.5% nonpossessory security interests in movable Depth Strength ample, before general tax claims and of credit of legal property, ABC and BizBank use a fiduciary employee claims) when a debtor defaults information rights index (0–6) index (0–10) transfer-of-title arrangement (or a similar outside an insolvency procedure. substitute for nonpossessory security inter- • Secured creditors are paid first (for ex- ests). The strength of legal rights index does ample, before general tax claims and not cover functional equivalents to security employee claims) when a business is over movable assets (for example, leasing or liquidated. reservation of title). Regulations on nonpossessory security • Secured creditors either are not subject interests in movable property In case B, ABC grants BizBank a business to an automatic stay or moratorium on Note: Private bureau coverage and public registry coverage are measured but do not count for the rankings. charge, enterprise charge, floating charge or enforcement procedures when a debtor any charge that gives BizBank a security in- enters a court-supervised reorganization terest over ABC’s combined movable assets procedure, or the law provides securedeconomies the legal framework for secured (or as much of ABC’s movable assets as pos- creditors with grounds for relief from antransactions means that only case A or case sible). ABC keeps ownership and possession automatic stay or moratorium (for exam-B can apply (not both). Both cases examine ple, if the movable property is in danger) of the assets.the same set of legal provisions relating to or sets a time limit for the automatic stay.4the use of movable collateral. The strength of legal rights index includes • The law allows parties to agree in a col- 8 aspects related to legal rights in collateral lateral agreement that the lender maySeveral assumptions about the secured bor- law and 2 aspects in bankruptcy law. A score enforce its security right out of court.rower and lender are used: of 1 is assigned for each of the following features of the laws: The index ranges from 0 to 10, with higher• ABC is a domestic, limited liability • Any business may use movable assets as scores indicating that collateral and bank- company. ruptcy laws are better designed to expand collateral while keeping possession of the• The company has 100 employees. assets, and any financial institution may access to credit.• ABC has its headquarters and only base of accept such assets as collateral. CREDIT INFORMATION operations in the economy’s largest busi- • The law allows a business to grant a nonpossessory security right in a single The data on credit information sharing are ness city. category of movable assets (such as ac- built in 2 stages. First, banking supervision• Both ABC and BizBank are 100% domesti- authorities and public information sources counts receivable or inventory), without cally owned. requiring a specific description of the are surveyed to confirm the presence of a collateral. public credit registry or private credit bureau. TABLE 4.6 What do the getting credit indicators measure? Second, when applicable, a detailed survey • The law allows a business to grant a non- on the public credit registry’s or private credit Strength of legal rights index (0–10) possessory security right in substantially bureau’s structure, laws and associated rules Protection of rights of borrowers and lenders all its movable assets, without requiring a through collateral laws is administered to the entity itself. Survey re- specific description of the collateral. Protection of secured creditors’ rights through sponses are verified through several rounds bankruptcy laws • A security right may extend to future or of follow-up communication with respon- Depth of credit information index (0–6) after-acquired assets and may extend dents as well as by contacting third parties Scope and accessibility of credit information dis- automatically to the products, proceeds or and consulting public sources. The survey tributed by public credit registries and private credit replacements of the original assets. bureaus data are confirmed through teleconference • A general description of debts and ob- calls or on-site visits in all economies. Public credit registry coverage (% of adults) Number of individuals and firms listed in a public ligations is permitted in the collateral credit registry as percentage of adult population agreement and in registration documents; Depth of credit information index Private credit bureau coverage (% of adults) all types of debts and obligations can The depth of credit information index Number of individuals and firms listed in largest pri- be secured between the parties, and measures rules and practices affecting the vate credit bureau as percentage of adult population the collateral agreement can include a coverage, scope and accessibility of credit
    • 50 DOING BUSINESS 2012 information available through either a public loans of any value (a score of 1). Borrowers PROTECTING INVESTORS credit registry or a private credit bureau. A have the right to access their data in both the Doing Business measures the strength of score of 1 is assigned for each of the follow- public credit registry and the private credit minority shareholder protections against ing 6 features of the public credit registry or bureau (a score of 1). Summing across the directors’ misuse of corporate assets for private credit bureau (or both): indicators gives Lithuania a total score of 6. personal gain. The indicators distinguish 3 • Both positive credit information (for ex- dimensions of investor protections: trans- ample, outstanding loan amounts and Public credit registry coverage parency of related-party transactions (extent pattern of on-time repayments) and The public credit registry coverage indica- of disclosure index), liability for self-dealing negative information (for example, late tor reports the number of individuals and (extent of director liability index) and share- payments, and number and amount of firms listed in a public credit registry with holders’ ability to sue officers and directors defaults and bankruptcies) are distributed. information on their borrowing history from for misconduct (ease of shareholder suits • Data on both firms and individuals are the past 5 years. The number is expressed index). The data come from a survey of cor- distributed. as a percentage of the adult population (the porate and securities lawyers and are based • Data from retailers and utility compa- population age 15 and above in 2010 accord- on securities regulations, company laws, civil nies as well as financial institutions are ing to the World Bank’s World Development procedure codes and court rules of evidence. distributed. Indicators). A public credit registry is defined The ranking on the strength of investor as a database managed by the public sector, protection index is the simple average of the • More than 2 years of historical data are usually by the central bank or the superin- percentile rankings on its component indica- distributed. Credit registries and bureaus tendent of banks, that collects information tors (figure 4.6). that erase data on defaults as soon as on the creditworthiness of borrowers (indi- they are repaid obtain a score of 0 for this viduals or firms) in the financial system and To make the data comparable across econo- indicator. facilitates the exchange of credit information mies, several assumptions about the busi- • Data on loan amounts below 1% of in- among banks and other regulated financial ness and the transaction are used. come per capita are distributed. Note institutions. If no public registry operates, that a credit registry or bureau must have the coverage value is 0. Assumptions about the business a minimum coverage of 1% of the adult The business (Buyer): population to score a 1 on this indicator. Private credit bureau coverage • Is a publicly traded corporation listed on • By law, borrowers have the right to access The private credit bureau coverage indica- the economy’s most important stock ex- their data in the largest credit registry or tor reports the number of individuals and change. If the number of publicly traded bureau in the economy. firms listed by a private credit bureau with companies listed on that exchange is less The index ranges from 0 to 6, with higher information on their borrowing history from than 10, or if there is no stock exchange values indicating the availability of more the past 5 years. The number is expressed in the economy, it is assumed that Buyer credit information, from either a public credit as a percentage of the adult population (the is a large private company with multiple registry or a private credit bureau, to facili- population age 15 and above in 2010 accord- shareholders. tate lending decisions. If the credit registry or ing to the World Bank’s World Development • Has a board of directors and a chief execu- bureau is not operational or has a coverage Indicators). A private credit bureau is defined tive officer (CEO) who may legally act on of less than 0.1% of the adult population, as a private firm or nonprofit organization behalf of Buyer where permitted, even if the score on the depth of credit information that maintains a database on the creditwor- this is not specifically required by law. index is 0. thiness of borrowers (individuals or firms) • Is a manufacturing company. in the financial system and facilitates the • Has its own distribution network. In Lithuania, for example, both a public credit exchange of credit information among credi- registry and a private credit bureau oper- tors. Credit investigative bureaus and credit Assumptions about the transaction ate. Both distribute positive and negative reporting firms that do not directly facilitate • Mr. James is Buyer’s controlling share- information (a score of 1). Both distribute information exchange among banks and oth- holder and a member of Buyer’s board data on firms and individuals (a score of 1). er financial institutions are not considered. of directors. He owns 60% of Buyer and Although the public credit registry does not If no private bureau operates, the coverage elected 2 directors to Buyer’s 5-member distribute data from retailers or utilities, the value is 0. board. private credit bureau does do so (a score of 1). Although the private credit bureau does The data details on getting credit can be found • Mr. James also owns 90% of Seller, a not distribute more than 2 years of historical for each economy at http://www.doingbusiness company that operates a chain of retail data, the public credit registry does do so .org by selecting the economy in the drop- hardware stores. Seller recently closed a (a score of 1). Although the public credit down list. This methodology was developed in large number of its stores. registry has a threshold of 50,000 litai, the Djankov, McLiesh and Shleifer (2007) and is • Mr. James proposes that Buyer purchase private credit bureau distributes data on adopted here with minor changes. Seller’s unused fleet of trucks to expand
    • DATA NOTES 51 terms and Mr. James’s conflict of interest 2). Before the transaction Mr. James mustFIGURE 4.6 Protecting investors: minority is required. disclose his conflict of interest to the other shareholder rights in related-party • Whether disclosure in the annual report is directors, but he is not required to provide transactions Rankings are based on 3 indicators required. A score of 0 is assigned if no dis- specific information about it (a score of 1). closure on the transaction is required; 1 if Poland does not require an external body to disclosure on the terms of the transaction review the transaction (a score of 0). Adding Requirements on Liability of CEO and approval and disclosure board of directors in a is required but not on Mr. James’s conflict these numbers gives Poland a score of 7 on of related-party related-party transactions transaction of interest; 2 if disclosure on both the the extent of disclosure index. terms and Mr. James’s conflict of interest 33.3% 33.3% Extent of Extent of is required. Extent of director liability index disclosure director index liability index • Whether disclosure by Mr. James to the The extent of director liability index has 7 board of directors is required. A score of 0 components:6 33.3% Ease of shareholder is assigned if no disclosure is required; 1 if • Whether a shareholder plaintiff is able to suits index a general disclosure of the existence of a hold Mr. James liable for the damage the conflict of interest is required without any Buyer-Seller transaction causes to the Type of evidence that can be collected specifics; 2 if full disclosure of all material company. A score of 0 is assigned if Mr. before and during the trial facts relating to Mr. James’s interest in the James cannot be held liable or can be held Buyer-Seller transaction is required. Buyer’s distribution of its products, a pro- liable only for fraud or bad faith; 1 if Mr. • Whether it is required that an external James can be held liable only if he influ- posal to which Buyer agrees. The price body, for example, an external auditor, re- enced the approval of the transaction or is equal to 10% of Buyer’s assets and is view the transaction before it takes place. was negligent; 2 if Mr. James can be held higher than the market value. A score of 0 is assigned if no; 1 if yes. liable when the transaction is unfair or• The proposed transaction is part of the company’s ordinary course of business prejudicial to the other shareholders. The index ranges from 0 to 10, with higher and is not outside the authority of the values indicating greater disclosure. In • Whether a shareholder plaintiff is able to company. Poland, for example, the board of directors hold the approving body (the CEO or the• Buyer enters into the transaction. All must approve the transaction and Mr. James members of the board of directors) liable required approvals are obtained, and all is not allowed to vote (a score of 2). Buyer for the damage the transaction causes to required disclosures made (that is, the is required to disclose immediately all infor- the company. A score of 0 is assigned if the transaction is not fraudulent). mation affecting the stock price, including approving body cannot be held liable or can• The transaction causes damages to Buyer. the conflict of interest (a score of 2). In its be held liable only for fraud or bad faith; 1 if Shareholders sue Mr. James and the other annual report Buyer must also disclose the the approving body can be held liable for parties that approved the transaction. terms of the transaction and Mr. James’s negligence; 2 if the approving body can be ownership in Buyer and Seller (a score of held liable when the transaction is unfair orExtent of disclosure index prejudicial to the other shareholders. TABLE 4.7 What do the protecting investorsThe extent of disclosure index has 5 compo- indicators measure? • Whether a court can void the transactionnents (table 4.7): upon a successful claim by a shareholder Extent of disclosure index (0–10)• Which corporate body can provide legally Who can approve related-party transactions plaintiff. A score of 0 is assigned if rescis- sufficient approval for the transaction. sion is unavailable or is available only Disclosure requirements in case of related-party A score of 0 is assigned if it is the CEO transactions in case of fraud or bad faith; 1 if rescis- or the managing director alone; 1 if the Extent of director liability index (0–10) sion is available when the transaction board of directors or shareholders must Ability of shareholders to hold interested parties and is oppressive or prejudicial to the other vote and Mr. James is permitted to vote; members of the approving body liable in case of related-party transactions shareholders; 2 if rescission is available 2 if the board of directors must vote and Available legal remedies (damages, repayment of when the transaction is unfair or entails a Mr. James is not permitted to vote; 3 if profits, fines and imprisonment) conflict of interest. shareholders must vote and Mr. James is Ability of shareholders to sue directly or derivatively not permitted to vote. • Whether Mr. James pays damages for the Ease of shareholder suits index (0–10) harm caused to the company upon a suc-• Whether immediate disclosure of the Direct access to internal documents of the company cessful claim by the shareholder plaintiff. transaction to the public, the regulator or and use of a government inspector without filing the shareholders is required.5 A score of 0 suit in court A score of 0 is assigned if no; 1 if yes. is assigned if no disclosure is required; 1 if Documents and information available during trial • Whether Mr. James repays profits made disclosure on the terms of the transaction Strength of investor protection index (0–10) from the transaction upon a successful is required but not on Mr. James’s conflict Simple average of the extent of disclosure, extent of claim by the shareholder plaintiff. A score director liability and ease of shareholder suits indices of interest; 2 if disclosure on both the of 0 is assigned if no; 1 if yes.
    • 52 DOING BUSINESS 2012 • Whether both fines and imprisonment • Whether the plaintiff can obtain cat- ranges from 0 to 10, with higher values indi- can be applied against Mr. James. A score egories of relevant documents from the cating more investor protection. of 0 is assigned if no; 1 if yes. defendant without identifying each docu- ment specifically. A score of 0 is assigned The data details on protecting investors can • Whether shareholder plaintiffs are able to if no; 1 if yes. be found for each economy at http://www sue directly or derivatively for the damage .doingbusiness.org by selecting the economy in the transaction causes to the company. A • Whether shareholders owning 10% or less the drop-down list. This methodology was de- score of 0 is assigned if suits are unavail- of the company’s share capital can request veloped in Djankov, La Porta and others (2008). able or are available only for shareholders that a government inspector investigate holding more than 10% of the company’s the Buyer-Seller transaction without filing share capital; 1 if direct or derivative suits suit in court. A score of 0 is assigned if no; PAYING TAXES are available for shareholders holding 10% 1 if yes. or less of share capital. Doing Business records the taxes and man- • Whether shareholders owning 10% or datory contributions that a medium-size less of the company’s share capital have The index ranges from 0 to 10, with higher company must pay in a given year as well the right to inspect the transaction docu- values indicating greater liability of directors. as measures of the administrative burden of ments before filing suit. A score of 0 is Assuming that the prejudicial transaction paying taxes and contributions. The project assigned if no; 1 if yes. was duly approved and disclosed, in order was developed and implemented in coop- • Whether the standard of proof for civil to hold Mr. James liable in Panama, for eration with PwC.7 Taxes and contributions suits is lower than that for a criminal case. example, a plaintiff must prove that Mr. measured include the profit or corporate A score of 0 is assigned if no; 1 if yes. James influenced the approving body or income tax, social contributions and labor acted negligently (a score of 1). To hold the The index ranges from 0 to 10, with higher taxes paid by the employer, property taxes, other directors liable, a plaintiff must prove values indicating greater powers of share- property transfer taxes, dividend tax, capital that they acted negligently (a score of 1). The holders to challenge the transaction. In gains tax, financial transactions tax, waste prejudicial transaction cannot be voided (a Greece, for example, the plaintiff can access collection taxes, vehicle and road taxes, and score of 0). If Mr. James is found liable, he documents that the defendant intends to any other small taxes or fees. must pay damages (a score of 1) but he is not rely on for his defense and that directly required to disgorge his profits (a score of 0). The ranking on the ease of paying taxes is prove facts in the plaintiff’s claim (a score of Mr. James cannot be fined and imprisoned the simple average of the percentile rankings 2). The plaintiff can examine the defendant (a score of 0). Direct or derivative suits are on its component indicators, with a thresh- and witnesses during trial, though only with available for shareholders holding 10% or old being applied to one of the component prior approval of the questions by the court less of share capital (a score of 1). Adding indicators, the total tax rate (figure 4.7). The (a score of 1). The plaintiff must specifically these numbers gives Panama a score of 4 on threshold is defined as the highest total tax identify the documents being sought (for ex- the extent of director liability index. rate among the top 30% of economies in the ample, the Buyer-Seller purchase agreement ranking on the total tax rate. It will be cal- of July 15, 2006) and cannot just request Ease of shareholder suits index culated and adjusted on a yearly basis. This categories (for example, all documents The ease of shareholder suits index has 6 year’s threshold is 32.5%. For all economies related to the transaction) (a score of 0). A components: with a total tax rate below this threshold, the shareholder holding 5% of Buyer’s shares total tax rate is set at 32.5% this year. The • What range of documents is available to can request that a government inspector threshold is not based on any underlying the shareholder plaintiff from the defen- review suspected mismanagement by Mr. theory. Instead, it is intended to mitigate the dant and witnesses during trial. A score James and the CEO without filing suit in effect of very low tax rates on the ranking on of 1 is assigned for each of the following court (a score of 1). Any shareholder can the ease of paying taxes. types of documents available: informa- inspect the transaction documents before tion that the defendant has indicated he deciding whether to sue (a score of 1). The Doing Business measures all taxes and con- intends to rely on for his defense; infor- standard of proof for civil suits is the same as tributions that are government mandated mation that directly proves specific facts that for a criminal case (a score of 0). Adding (at any level—federal, state or local) and in the plaintiff ’s claim; any information these numbers gives Greece a score of 5 on that apply to the standardized business and relevant to the subject matter of the claim; the ease of shareholder suits index. have an impact in its financial statements. In and any information that may lead to the doing so, Doing Business goes beyond the tra- discovery of relevant information. Strength of investor protection ditional definition of a tax. As defined for the • Whether the plaintiff can directly examine index purposes of government national accounts, the defendant and witnesses during trial. The strength of investor protection index is taxes include only compulsory, unrequited A score of 0 is assigned if no; 1 if yes, with the average of the extent of disclosure index, payments to general government. Doing prior approval of the questions by the the extent of director liability index and the Business departs from this definition because judge; 2 if yes, without prior approval. ease of shareholder suits index. The index it measures imposed charges that affect
    • DATA NOTES 53 about the business and the taxes and contri- as an additional benefit. In addition, inFIGURE 4.7 Paying taxes: tax compliance for a butions are used. some economies reimbursable business local manufacturing company travel and client entertainment expenses Rankings are based on 3 indicators The methodology for the paying taxes indi- are considered fringe benefits. When ap- cators has benefited from discussion with plicable, it is assumed that the company members of the International Tax Dialogue Number of hours per year Firm tax liability as % pays the fringe benefit tax on this expense to prepare, file returns of profits before all and other stakeholders, which led to a refine- and pay taxes taxes borne or that the benefit becomes taxable in- ment of the survey questions on the time to come for the employee. The case study pay taxes, the collection of additional data on 33.3% 33.3% assumes no additional salary additions for Time Total the labor tax wedge for further research and tax rate meals, transportation, education or oth- the introduction of a threshold applied to the ers. Therefore, even when such benefits total tax rate for the purpose of calculating 33.3% are frequent, they are not added to or the ranking on the ease of paying taxes (see Payments removed from the taxable gross salaries discussion at the beginning of this section). to arrive at the labor tax or contribution Number of tax payments per year Assumptions about the business calculation. • Has a turnover of 1,050 times income per The business: business accounts, not government ac- capita. counts. One main difference relates to labor • Is a limited liability, taxable company. • Makes a loss in the first year of operation. contributions. The Doing Business measure If there is more than one type of limited • Has a gross margin (pretax) of 20% (that includes government-mandated contribu- liability company in the economy, the lim- ited liability form most common among is, sales are 120% of the cost of goods tions paid by the employer to a requited domestic firms is chosen. The most com- sold). private pension fund or workers’ insurance mon form is reported by incorporation • Distributes 50% of its net profits as fund. The indicator includes, for example, lawyers or the statistical office. dividends to the owners at the end of the Australia’s compulsory superannuation • Started operations on January 1, 2009. second year. guarantee and workers’ compensation insur- ance. For the purpose of calculating the total At that time the company purchased all • Sells one of its plots of land at a profit at tax rate (defined below), only taxes borne the assets shown in its balance sheet and the beginning of the second year. are included. For example, value added taxes hired all its workers. • Has annual fuel costs for its trucks equal are generally excluded (provided they are not • Operates in the economy’s largest busi- to twice income per capita. irrecoverable) because they do not affect the ness city. • Is subject to a series of detailed assump- accounting profits of the business—that is, • Is 100% domestically owned and has 5 tions on expenses and transactions to they are not reflected in the income state- owners, all of whom are natural persons. further standardize the case. All financial ment. They are, however, included for the • At the end of 2009, has a start-up capital statement variables are proportional to purpose of the compliance measures (time of 102 times income per capita. 2005 income per capita. For example, and payments), as they add to the burden of the owner who is also a manager spends • Performs general industrial or commercial complying with the tax system. activities. Specifically, it produces ceramic 10% of income per capita on traveling Doing Business uses a case scenario to flowerpots and sells them at retail. It does for the company (20% of this owner’s measure the taxes and contributions paid by not participate in foreign trade (no import expenses are purely private, 20% are for a standardized business and the complex- or export) and does not handle products entertaining customers and 60% for busi- subject to a special tax regime, for ex- ness travel). ity of an economy’s tax compliance system. ample, liquor or tobacco. This case scenario uses a set of financial • At the beginning of 2010, owns 2 plots of Assumptions about the taxes and statements and assumptions about transac- tions made over the course of the year. In land, 1 building, machinery, office equip- contributions each economy tax experts from a number ment, computers and 1 truck and leases 1 • All the taxes and contributions recorded of different firms (in many economies truck. are those paid in the second year of op- these include PwC) compute the taxes • Does not qualify for investment incentives eration (calendar year 2010). A tax or and mandatory contributions due in their or any benefits apart from those related to contribution is considered distinct if it has jurisdiction based on the standardized case the age or size of the company. a different name or is collected by a differ- study facts. Information is also compiled • Has 60 employees—4 managers, 8 as- ent agency. Taxes and contributions with on the frequency of filing and payments as sistants and 48 workers. All are nationals, the same name and agency, but charged well as time taken to comply with tax laws in and 1 manager is also an owner. The com- at different rates depending on the busi- an economy. To make the data comparable pany pays for additional medical insurance ness, are counted as the same tax or across economies, several assumptions for employees (not mandated by any law) contribution.
    • 54 DOING BUSINESS 2012 • The number of times the company pays collect all information necessary to compute TABLE 4.8 What do the paying taxes taxes and contributions in a year is the the tax payable and to calculate the amount indicators measure? number of different taxes or contributions payable. If separate accounting books must Tax payments for a manufacturing company in 2010 (number per year adjusted for electronic and joint filing multiplied by the frequency of payment (or be kept for tax purposes—or separate cal- and payment) withholding) for each tax. The frequency culations made—the time associated with Total number of taxes and contributions paid, includ- of payment includes advance payments these processes is included. This extra time ing consumption taxes (value added tax, sales tax or goods and service tax) (or withholding) as well as regular pay- is included only if the regular accounting Method and frequency of filing and payment ments (or withholding). work is not enough to fulfill the tax account- Time required to comply with 3 major taxes ing requirements. Filing time includes the (hours per year) Tax payments Collecting information and computing the tax payable time to complete all necessary tax return The tax payments indicator reflects the total forms and file the relevant returns at the tax Completing tax return forms, filing with proper number of taxes and contributions paid, the agencies authority. Payment time considers the hours method of payment, the frequency of pay- Arranging payment or withholding needed to make the payment online or at the ment, the frequency of filing and the number Preparing separate mandatory tax accounting books, tax authorities. Where taxes and contribu- if required of agencies involved for this standardized tions are paid in person, the time includes Total tax rate (% of profit before all taxes) case study company during the second year delays while waiting. Profit or corporate income tax of operation (table 4.8). It includes con- Social contributions and labor taxes paid by the sumption taxes paid by the company, such Total tax rate employer as sales tax or value added tax. These taxes Property and property transfer taxes The total tax rate measures the amount of are traditionally collected from the consumer Dividend, capital gains and financial transactions taxes and mandatory contributions borne taxes on behalf of the tax agencies. Although they by the business in the second year of op- Waste collection, vehicle, road and other taxes do not affect the income statements of the eration, expressed as a share of commercial company, they add to the administrative profit. Doing Business 2012 reports the total The total tax rate is designed to provide a burden of complying with the tax system and so are included in the tax payments measure. tax rate for calendar year 2010. The total comprehensive measure of the cost of all amount of taxes borne is the sum of all the the taxes a business bears. It differs from The number of payments takes into account different taxes and contributions payable the statutory tax rate, which merely provides electronic filing. Where full electronic filing after accounting for allowable deductions the factor to be applied to the tax base. In and payment is allowed and it is used by the and exemptions. The taxes withheld (such computing the total tax rate, the actual tax majority of medium-size businesses, the tax as personal income tax) or collected by the payable is divided by commercial profit. Data is counted as paid once a year even if filings company and remitted to the tax authori- for Norway illustrate (table 4.9). and payments are more frequent. For pay- ties (such as value added tax, sales tax or ments made through third parties, such as goods and service tax) but not borne by the Commercial profit is essentially net profit tax on interest paid by a financial institution company are excluded. The taxes included before all taxes borne. It differs from the or fuel tax paid by a fuel distributor, only one can be divided into 5 categories: profit or conventional profit before tax, reported in payment is included even if payments are corporate income tax, social contributions financial statements. In computing profit be- more frequent. and labor taxes paid by the employer (in fore tax, many of the taxes borne by a firm are respect of which all mandatory contributions deductible. In computing commercial profit, Where 2 or more taxes or contributions are are included, even if paid to a private entity these taxes are not deductible. Commercial filed for and paid jointly using the same form, such as a requited pension fund), property profit therefore presents a clear picture of the each of these joint payments is counted taxes, turnover taxes and other taxes (such actual profit of a business before any of the once. For example, if mandatory health insur- ance contributions and mandatory pension as municipal fees and vehicle and fuel taxes). taxes it bears in the course of the fiscal year. contributions are filed for and paid together, TABLE 4.9 Computing the total tax rate for Norway only one of these contributions would be Statutory rate Statutory tax Actual tax Commercial Total tax rate included in the number of payments. base payable profit* r b a=rxb c t = a/c Type of tax (tax base) NKr NKr NKr Time Corporate income tax (taxable 28.1% 20,612,719 5,771,561 23,651,183 24.4% Time is recorded in hours per year. The in- income) dicator measures the time taken to prepare, Social security contributions 14.1% 26,684,645 3,762,535 23,651,183 15.9% (taxable wages) file and pay 3 major types of taxes and Fuel tax (fuel price) NKr 4 per liter 74,247 liters 297,707 23,651,183 1.3% contributions: the corporate income tax, Total 9,831,803 41.6% value added or sales tax, and labor taxes, * Profit before all taxes borne. including payroll taxes and social contribu- Note: NKr is Norwegian kroner. Commercial profit is assumed to be 59.4 times income per capita. Source: Doing Business database. tions. Preparation time includes the time to
    • DATA NOTES 55Commercial profit is computed as sales mi- credit are taken into account. The ranking FIGURE 4.8 Trading across borders: exportingnus cost of goods sold, minus gross salaries, on the ease of trading across borders is the and importing by ocean transportminus administrative expenses, minus other simple average of the percentile rankings on Rankings are based on 3 indicatorsexpenses, minus provisions, plus capital its component indicators (figure 4.8).gains (from the property sale) minus inter- Document preparation,est expense, plus interest income and minus Local freight forwarders, shipping lines, cus- customs clearance and technical control, portcommercial depreciation. To compute the toms brokers, port officials and banks provide All documents required by and terminal handling, information on required documents and cost customs and other inland transport andcommercial depreciation, a straight-line agencies handlingdepreciation method is applied, with the as well as the time to complete each proce- 33.3% 33.3%following rates: 0% for the land, 5% for the dure. To make the data comparable across Documents Time to to export export andbuilding, 10% for the machinery, 33% for the economies, several assumptions about the and import importcomputers, 20% for the office equipment, business and the traded goods are used. 33.3%20% for the truck and 10% for business Cost to exportdevelopment expenses. Commercial profit Assumptions about the business and importamounts to 59.4 times income per capita. The business: • Has at least 60 employees. US$ per 20-foot container,The methodology for calculating the total tax no bribes or tariffs included • Is located in the economy’s largest busi-rate is broadly consistent with the Total Tax ness city.Contribution framework developed by PwC • Does not require refrigeration or any otherand the calculation within this framework for • Is a private, limited liability company. It special environment.taxes borne. But while the work undertaken does not operate in an export processing • Does not require any special phytosanitaryby PwC is usually based on data received zone or an industrial estate with special or environmental safety standards otherfrom the largest companies in the economy, export or import privileges. than accepted international standards.Doing Business focuses on a case study for a • Is domestically owned with no foreign ownership. • Is one of the economy’s leading export orstandardized medium-size company. import products. • Exports more than 10% of its sales.The data details on paying taxes can be found Documentsfor each economy at http://www.doingbusiness Assumptions about the traded.org by selecting the economy in the drop- All documents required per shipment to goodsdown list. This methodology was developed in export and import the goods are recorded The traded product travels in a dry-cargo,Djankov, Ganser and others (2010). (table 4.10). It is assumed that the contract 20-foot, full container load. It weighs 10 tons has already been agreed upon and signed by and is valued at $20,000. The product: both parties. Documents required for clear-TRADING ACROSS BORDERS • Is not hazardous nor does it include mili- ance by government ministries, customs tary items. authorities, port and container terminalDoing Business measures the time and cost(excluding tariffs) associated with exporting TABLE 4.10 What do the trading across authorities, health and technical controland importing a standardized cargo of goods borders indicators measure? agencies, and banks are taken into account.by ocean transport. The time and cost neces- Documents required to export and import (number) Since payment is by letter of credit, all docu-sary to complete every official procedure for Bank documents ments required by banks for the issuance orexporting and importing the goods—from Customs clearance documents securing of a letter of credit are also takenthe contractual agreement between the Port and terminal handling documents into account. Documents that are renewed2 parties to the delivery of goods—are Transport documents annually and that do not require renewal perrecorded. All documents needed by the shipment (for example, an annual tax clear- Time required to export and import (days)trader to export or import the goods across ance certificate) are not included. Obtaining all the documentsthe border are also recorded. For exporting Inland transport and handlinggoods, procedures range from packing the Time Customs clearance and inspectionsgoods into the container at the warehouse The time for exporting and importing is Port and terminal handlingto their departure from the port of exit. For recorded in calendar days. The time calcula- Does not include ocean transport timeimporting goods, procedures range from tion for a procedure starts from the moment Cost required to export and import (US$ per container)the vessel’s arrival at the port of entry to it is initiated and runs until it is completed. All documentationthe cargo’s delivery at the warehouse. The If a procedure can be accelerated for an Inland transport and handlingtime and cost for ocean transport are not additional cost and is available to all trading Customs clearance and inspectionsincluded. Payment is made by letter of credit, companies, the fastest legal procedure isand the time, cost and documents required Port and terminal handling chosen. Fast-track procedures applying tofor the issuance or advising of a letter of Official costs only, no bribes firms located in an export processing zone
    • 56 DOING BUSINESS 2012 are not taken into account because they are Assumptions about the case FIGURE 4.9 Enforcing contracts: resolving a not available to all trading companies. Ocean • The value of the claim equals 200% of the commercial dispute through the transport time is not included. It is assumed economy’s income per capita. courts that neither the exporter nor the importer Rankings are based on 3 indicators • The dispute concerns a lawful transaction wastes time and that each commits to com- between 2 businesses (Seller and Buyer), Days to resolve Attorney, court and pleting each remaining procedure without located in the economy’s largest business commercial sale dispute enforcement costs as through the courts % of claim value delay. Procedures that can be completed city. Seller sells goods worth 200% of the in parallel are measured as simultaneous. economy’s income per capita to Buyer. 33.3% 33.3% The waiting time between procedures—for After Seller delivers the goods to Buyer, Time Cost example, during unloading of the cargo—is Buyer refuses to pay for the goods on the included in the measure. grounds that the delivered goods were not 33.3% of adequate quality. Procedures Cost • Seller (the plaintiff) sues Buyer (the de- Cost measures the fees levied on a 20-foot fendant) to recover the amount under Steps to file claim, obtain judgment container in U.S. dollars. All the fees associ- the sales agreement (that is, 200% of and enforce it ated with completing the procedures to ex- the economy’s income per capita). Buyer port or import the goods are included. These opposes Seller’s claim, saying that the Procedures include costs for documents, administrative quality of the goods is not adequate. The fees for customs clearance and technical The list of procedural steps compiled for each claim is disputed on the merits. The court control, customs broker fees, terminal han- economy traces the chronology of a com- cannot decide the case on the basis of dling charges and inland transport. The cost mercial dispute before the relevant court. A documentary evidence or legal title alone. does not include customs tariffs and duties procedure is defined as any interaction, re- • A court in the economy’s largest business quired by law or commonly used in practice, or costs related to ocean transport. Only of- city with jurisdiction over commercial ficial costs are recorded. between the parties or between them and cases worth 200% of income per capita the judge or court officer. This includes steps decides the dispute. The data details on trading across borders can to file and serve the case, steps for trial and be found for each economy at http://www • Seller attaches Buyer’s movable as- judgment and steps necessary to enforce the .doingbusiness.org by selecting the economy sets (for example, office equipment and judgment (table 4.11). in the drop-down list. This methodology was vehicles) before obtaining a judgment be- developed in Djankov, Freund and Pham (2010) cause Seller fears that Buyer may become The survey allows respondents to record insolvent. procedures that exist in civil law but not and is adopted here with minor changes. • An expert opinion is given on the quality common law jurisdictions and vice versa. For of the delivered goods. If it is standard example, in civil law jurisdictions the judge ENFORCING CONTRACTS practice in the economy for each party can appoint an independent expert, while in to call its own expert witness, the parties Indicators on enforcing contracts measure TABLE 4.11 What do the enforcing contracts each call one expert witness. If it is stan- indicators measure? the efficiency of the judicial system in resolv- dard practice for the judge to appoint an Procedures to enforce a contract through the courts ing a commercial dispute. The data are built independent expert, the judge does so. In (number) by following the step-by-step evolution of a Any interaction between the parties in a commercial this case the judge does not allow oppos- commercial sale dispute before local courts. dispute, or between them and the judge or court ing expert testimony. officer The data are collected through study of the • The judgment is 100% in favor of Seller: Steps to file and serve the case codes of civil procedure and other court the judge decides that the goods are of Steps for trial and judgment regulations as well as surveys completed by adequate quality and that Buyer must pay Steps to enforce the judgment local litigation lawyers and by judges. The the agreed price. ranking on the ease of enforcing contracts is Time required to complete procedures (calendar days) the simple average of the percentile rankings • Buyer does not appeal the judgment. Time to file and serve the case on its component indicators (figure 4.9). Seller decides to start enforcing the judg- Time for trial and obtaining judgment ment as soon as the time allocated by law Time to enforce the judgment The name of the relevant court in each for appeal expires. Cost required to complete procedures (% of claim) economy—the court in the largest busi- • Seller takes all required steps for prompt No bribes ness city with jurisdiction over commercial enforcement of the judgment. The money Average attorney fees cases worth 200% of income per capita—is is successfully collected through a public Court costs, including expert fees published at http://www.doingbusiness.org/ sale of Buyer’s movable assets (for ex- Enforcement costs ExploreTopics/EnforcingContracts/. ample, office equipment and vehicles).
    • DATA NOTES 57common law jurisdictions each party sub- RESOLVING INSOLVENCY FIGURE 4.10 Resolving insolvency: time, costmits a list of expert witnesses to the court. To (FORMERLY CLOSING A BUSINESS) and outcome of bankruptcy of aindicate overall efficiency, 1 procedure is sub- Doing Business studies the time, cost and local companytracted from the total number for economies outcome of insolvency proceedings involving Rankings are based on 1 indicatorthat have specialized commercial courts, domestic entities. The name of this indicator set Recovery rate is a function of time, cost and otherand 1 procedure for economies that allow was changed from closing a business to resolving factors such as lending rate and the likelihood of theelectronic filing of the initial complaint in insolvency to more accurately reflect the content company continuing to operatecourt cases. Some procedural steps that take of the indicators. The indicators did not changeplace simultaneously with or are included in in content or scope. The data are derived fromother procedural steps are not counted in the questionnaire responses by local insolvency 100%total number of procedures. practitioners and verified through a study of Recovery laws and regulations as well as public infor- rateTime mation on bankruptcy systems. The rankingTime is recorded in calendar days, counted on the ease of resolving insolvency is basedfrom the moment the plaintiff decides to on the recovery rate (figure 4.10).file the lawsuit in court until payment. This Note: Time and cost do not count separately for the rankings. To make the data comparable across econo-includes both the days when actions take mies, several assumptions about the busi- Assumptions about the caseplace and the waiting periods between. The ness and the case are used. The business is experiencing liquidity prob-average duration of different stages of dis- lems. The company’s loss in 2010 reducedpute resolution is recorded: the completion Assumptions about the business its net worth to a negative figure. It is Januaryof service of process (time to file and serve The business: 1, 2011. There is no cash to pay the bankthe case), the issuance of judgment (time for • Is a limited liability company. interest or principal in full, due the next day,the trial and obtaining the judgment) and the • Operates in the economy’s largest busi- January 2. The business will therefore defaultmoment of payment (time for enforcement on its loan. Management believes that losses ness city.of the judgment). will be incurred in 2011 and 2012 as well. • Is 100% domestically owned, with theCost founder, who is also the chairman of The amount outstanding under the loan the supervisory board, owning 51% (noCost is recorded as a percentage of the claim, agreement is exactly equal to the market other shareholder holds more than 5% ofassumed to be equivalent to 200% of income value of the hotel business and represents shares).per capita. No bribes are recorded. Three 74% of the company’s total debt. The other • Has downtown real estate, where it runs 26% of its debt is held by unsecured credi-types of costs are recorded: court costs, a hotel, as its major asset. The hotel is tors (suppliers, employees, tax authorities).enforcement costs and average attorney fees. valued at 100 times income per capita orCourt costs include all court costs and expert $200,000, whichever is larger. The company has too many creditors to • Has a professional general manager. negotiate an informal out-of-court workout.fees that Seller (plaintiff) must advance to The following options are available: a judicialthe court, regardless of the final cost to Seller. • Has 201 employees and 50 suppliers, each procedure aimed at the rehabilitation orExpert fees, if required by law or commonly of which is owed money for the last delivery. reorganization of the company to permit itsused in practice, are included in court costs. • Has a 10-year loan agreement with a continued operation; a judicial procedureEnforcement costs are all costs that Seller domestic bank secured by a universal aimed at the liquidation or winding-up of(plaintiff) must advance to enforce the judg- business charge (for example, a floating the company; or a debt enforcement orment through a public sale of Buyer’s movable charge) in economies where such collat- foreclosure procedure against the company,assets, regardless of the final cost to Seller. eral is recognized or by the hotel property. enforced either in court (or through anotherAverage attorney fees are the fees that Seller If the laws of the economy do not spe- government authority) or out of court (for(plaintiff) must advance to a local attorney to cifically provide for a universal business example, by appointing a receiver).represent Seller in the standardized case. charge but contracts commonly use some other provision to that effect, this provi- Assumptions about the partiesThe data details on enforcing contracts can sion is specified in the loan agreement. The bank wants to recover as much as pos-be found for each economy at http://www • Has observed the payment schedule and sible of its loan, as quickly and cheaply as.doingbusiness.org by selecting the economy all other conditions of the loan up to now. possible. The unsecured creditors will doin the drop-down list. This methodology was • Has a mortgage, with the value of the everything permitted under the applicabledeveloped in Djankov and others (2003) and is mortgage principal being exactly equal to laws to avoid a piecemeal sale of the assets.adopted here with minor changes. the market value of the hotel. The majority shareholder wants to keep the
    • 58 DOING BUSINESS 2012 company operating and under its control. are sold piecemeal, the maximum amount workers indicators with the letter and spirit Management wants to keep the company that can be recovered will not exceed 70% of the ILO conventions. Only 4 of the 188 ILO operating and preserve its employees’ jobs. of the bank’s claim, which translates into 70 conventions cover areas measured by Doing All the parties are local entities or citizens; cents on the dollar. Business: employee termination, weekend no foreign parties are involved. work, holiday with pay and night work. The Recovery rate Doing Business methodology is fully con- Time The recovery rate is recorded as cents on the sistent with these 4 conventions. The ILO Time for creditors to recover their credit is dollar recouped by creditors through reor- conventions covering areas related to the recorded in calendar years (table 4.12). The ganization, liquidation or debt enforcement employing workers indicators do not include period of time measured by Doing Business is (foreclosure) proceedings. The calculation the ILO core labor standards—8 conventions from the company’s default until the payment takes into account the outcome: whether the covering the right to collective bargaining, of some or all of the money owed to the bank. business emerges from the proceedings as a the elimination of forced labor, the abolition Potential delay tactics by the parties, such as going concern or the assets are sold piece- of child labor and equitable treatment in the filing of dilatory appeals or requests for meal. Then the costs of the proceedings employment practices. extension, are taken into consideration. are deducted (1 cent for each percentage point of the value of the debtor’s estate). Since 2009 the World Bank Group has been Cost Finally, the value lost as a result of the time working with a consultative group—includ- the money remains tied up in insolvency ing labor lawyers, employer and employee The cost of the proceedings is recorded as proceedings is taken into account, including representatives, and experts from the ILO, a percentage of the value of the debtor’s the loss of value due to depreciation of the the OECD, civil society and the private estate. The cost is calculated on the basis of hotel furniture. Consistent with international sector—to review the employing workers questionnaire responses and includes court accounting practice, the annual depreciation methodology and explore future areas of fees and government levies; fees of insol- rate for furniture is taken to be 20%. The fur- research.8 vency administrators, auctioneers, assessors and lawyers; and all other fees and costs. niture is assumed to account for a quarter of The guidance of the consultative group has the total value of assets. The recovery rate is provided the basis for several changes in the Outcome the present value of the remaining proceeds, methodology. The calculation of the mini- based on end-2010 lending rates from the Recovery by creditors depends on whether mum wage ratio was changed to ensure that International Monetary Fund’s International the hotel business emerges from the no economy can receive the highest score if Financial Statistics, supplemented with proceedings as a going concern or the it has no minimum wage at all, if the law pro- data from central banks and the Economist company’s assets are sold piecemeal. If the vides a regulatory mechanism for the mini- Intelligence Unit. business keeps operating, no value is lost mum wage that is not enforced in practice, and the bank can satisfy its claim in full, or No practice if there is only a customary minimum wage recover 100 cents on the dollar. If the assets or if the minimum wage applies only to the If an economy had zero cases a year over the public sector. A threshold was set for paid TABLE 4.12 What do the resolving insolvency past 5 years involving a judicial reorganiza- annual leave and a ceiling for working days indicators measure? tion, judicial liquidation or debt enforcement allowed per week to ensure that no economy Time required to recover debt (years) procedure (foreclosure), the economy benefits in the scoring from excessive flex- Measured in calendar years receives a “no practice” ranking. This means ibility in these areas. Finally, the calculation Appeals and requests for extension are included that creditors are unlikely to recover their of the redundancy cost and of the annual Cost required to recover debt (% of debtor’s estate) money through a formal legal process (in leave period for the rigidity of hours index Measured as percentage of estate value or out of court). The recovery rate for “no was changed to refer to the average value for Court fees practice” economies is zero. a worker with 1 year of tenure, a worker with Fees of insolvency administrators 5 years and a worker with 10 years rather This methodology was developed in Djankov, Lawyers’ fees than the value for a worker with 20 years of Hart and others (2008) and is adopted here Assessors’ and auctioneers’ fees tenure. with minor changes. Other related fees A full report with the conclusions of the Recovery rate for creditors (cents on the dollar) consultative group is available at http:// Measures the cents on the dollar recovered by EMPLOYING WORKERS creditors www.doingbusiness.org /methodology/ Present value of debt recovered Doing Business measures flexibility in the employing-workers. Official costs of the insolvency proceedings are regulation of employment, specifically as it deducted affects the hiring and redundancy of work- This year Doing Business collected additional Depreciation of furniture is taken into account ers and the rigidity of working hours. Since data on regulations covering worker protec- Outcome for the business (survival or not) affects the 2007 improvements have been made to tion. The data will serve as a basis for devel- maximum value that can be recovered align the methodology for the employing oping a joint analysis of worker protection by
    • DATA NOTES 59the World Bank Group and the ILO and for • Abides by every law and regulation but of 1 is assigned if the maximum cumulativedeveloping measures of worker protection. does not grant workers more benefits than duration of fixed-term contracts is less than mandated by law, regulation or (if appli- 3 years; 0.5 if it is 3 years or more but lessDoing Business 2012 does not present rank- cable) collective bargaining agreement. than 5 years; and 0 if fixed-term contractsings of economies on the employing workers can last 5 years or more. Finally, a score of 1 isindicators or include the topic in the aggre- Rigidity of employment index assigned if the ratio of the minimum wage togate ranking on the ease of doing business. The rigidity of employment index is the aver- the average value added per worker is 0.75 orThe report does present the data on the age of 3 subindices: the difficulty of hiring more; 0.67 for a ratio of 0.50 or more but lessemploying workers indicators. Detailed data index, rigidity of hours index and difficulty of than 0.75; 0.33 for a ratio of 0.25 or more butcollected on labor regulations are available redundancy index. Data and scores for Benin less than 0.50; and 0 for a ratio of less thanon the Doing Business website (http://www are provided as an example (table 4.13). 0.25. A score of 0 is also assigned if the mini-.doingbusiness.org). mum wage is set by a collective bargaining All the subindices have several components. agreement that applies to less than half theThe data on employing workers are based on And all take values between 0 and 100, manufacturing sector or does not apply toa detailed survey of employment regulations with higher values indicating more rigid firms not party to it, or if the minimum wagethat is completed by local lawyers and public regulation. is set by law but does not apply to workersofficials. Employment laws and regulations who are in their apprentice period. A ratioas well as secondary sources are reviewed to The difficulty of hiring index measures (i) of 0.251 (and therefore a score of 0.33) isensure accuracy. To make the data compara- whether fixed-term contracts are prohibited automatically assigned in 4 cases: if thereble across economies, several assumptions for permanent tasks; (ii) the maximum cu- is no minimum wage; if the law providesabout the worker and the business are used. mulative duration of fixed-term contracts; a regulatory mechanism for the minimum and (iii) the ratio of the minimum wage for a wage that is not enforced in practice; if thereAssumptions about the worker trainee or first-time employee to the average is no minimum wage set by law but there isThe worker: value added per worker.9 An economy is as- a wage amount that is customarily used as a• Is a full-time, male, nonexecutive signed a score of 1 if fixed-term contracts are minimum; or if there is no minimum wage set employee prohibited for permanent tasks and a score of by law in the private sector but there is one in 0 if they can be used for any task. A score the public sector.• Earns a salary plus benefits equal to the economy’s average wage during the entire TABLE 4.13 What do the employing workers indicators measure? period of his employment. Data for Benin Score for Benin• Has a pay period that is the most common Rigidity of employment index (0–100) 29.66 for workers in the economy. Simple average of the difficulty of hiring, rigidity of hours and difficulty of 39 + 10 + 40 redundancy indices• Is a lawful citizen who belongs to the Difficulty of hiring index (0–100) 39 same race and religion as the majority of Fixed-term contracts prohibited for permanent tasks? No 0 the economy’s population. Maximum duration of fixed-term contracts 4 years 0.5• Resides in the economy’s largest business Ratio of minimum wage for trainee or first-time employee to value added 0.58 0.67 city. per worker• Is not a member of a labor union, unless Rigidity of hours index (0–100) 10 membership is mandatory. Restrictions on night work and weekend work? No 0 Allowed maximum length of the workweek in days and hours, including 6 days 0 overtimeAssumptions about the business Fifty-hour workweeks permitted for 2 months due to an increase in Yes 0The business: production?• Is a limited liability company. Paid annual vacation days 24 days 0.5• Operates in the economy’s largest busi- Difficulty of redundancy index (0–100) 40 ness city. Redundancy allowed as grounds for termination? Yes 0 Notification required for termination of a redundant worker or group of Yes 2• Is 100% domestically owned. workers?• Operates in the manufacturing sector. Approval required for termination of a redundant worker or group of No 0 workers?• Has 60 employees. Employer obligated to reassign or retrain and to follow priority rules for Yes 2• Is subject to collective bargaining redundancy and reemployment? agreements in economies where such Redundancy cost (weeks of salary) 11.66 agreements cover more than half the Notice requirements, severance payments and penalties due when Yes 11.66 terminating a redundant worker, expressed in weeks of salary manufacturing sector and apply even to Source: Doing Business database. firms not party to them.
    • 60 DOING BUSINESS 2012 In Benin, for example, fixed-term contracts (ii) whether the employer needs to notify a to 8 or fewer weeks of salary and the workers are not prohibited for permanent tasks (a third party (such as a government agency) to cannot benefit from any type of unemploy- score of 0), and they can be used for a maxi- terminate 1 redundant worker; (iii) whether ment protection, a score of 8.1 is assigned, mum of 4 years (a score of 0.5). The ratio of the employer needs to notify a third party to although the actual number of weeks is the mandated minimum wage to the value terminate a group of 9 redundant workers; published. If the cost adds up to more than added per worker is 0.58 (a score of 0.67). (iv) whether the employer needs approval Averaging the 3 values and scaling the index from a third party to terminate 1 redundant 8 weeks of salary, the score is the number to 100 gives Benin a score of 39. worker; (v) whether the employer needs ap- of weeks. One month is recorded as 4 and proval from a third party to terminate a group 1/3 weeks. The rigidity of hours index has 5 compo- of 9 redundant workers; (vi) whether the law nents: (i) whether there are restrictions on requires the employer to reassign or retrain a In Benin, for example, an employer is re- night work; (ii) whether there are restrictions worker before making the worker redundant; quired to give an average of 1 month’s notice on weekly holiday work; (iii) whether the (vii) whether priority rules apply for redun- before a redundancy termination, and the workweek can consist of 5.5 days or is more dancies; and (viii) whether priority rules average severance pay for a worker with 1 than 6 days; (iv) whether the workweek apply for reemployment. For question (i) year of service, a worker with 5 years and a can extend to 50 hours or more (including an answer of yes for workers of any income overtime) for 2 months a year to respond to worker with 10 years equals 1.68 months of level gives a score of 10 and means that the a seasonal increase in production; and (v) rest of the questions do not apply. An answer wages. No penalty is levied and the workers whether the average paid annual leave for a of yes to question (iv) gives a score of 2. For cannot benefit from any type of unemploy- worker with 1 year of tenure, a worker with every other question, if the answer is yes, a ment protection. Altogether, the employer 5 years and a worker with 10 years is more score of 1 is assigned; otherwise a score of 0 pays the equivalent of 11.66 weeks of salary than 26 working days or fewer than 15 work- is given. Questions (i) and (iv), as the most to dismiss a worker. ing days. For questions (i) and (ii), if restric- restrictive regulations, have greater weight in tions other than premiums apply, a score of the construction of the index. The data details on employing workers can 1 is given. If the only restriction is a premium be found for each economy at http://www for night work or weekly holiday work, a In Benin, for example, redundancy is allowed as grounds for termination (a score of 0). .doingbusiness.org by selecting the economy in score of 0, 0.33, 0.66 or 1 is given, depend- An employer has to notify a third party to the drop-down list. The Doing Business web- ing on the quartile in which the economy’s premium falls. If there are no restrictions, the terminate a single redundant worker (a score site provides historical data sets adjusted for economy receives a score of 0. For question of 1) as well as to terminate a group of 9 changes in methodology to allow comparison (iii) a score of 1 is assigned if the legally redundant workers (a score of 1), although of data across years. This methodology was permitted workweek is less than 5.5 days or the approval of a third party is not required in developed in Botero and others (2004) and is more than 6 days; otherwise a score of 0 is either of these cases (a score of 0). The law adopted here with changes. assigned. For question (iv), if the answer is does not mandate any retraining or alterna- no, a score of 1 is assigned; otherwise a score tive placement before termination (a score of 0 is assigned. For question (v) a score of of 0). There are priority rules for termination NOTES 0 is assigned if the average paid annual leave (a score of 1) and reemployment (a score 1. The data for paying taxes refer to January– of 1). Adding the scores and scaling to 100 is between 15 and 21 working days, a score of December 2010. gives a final index of 40. 0.5 if it is between 22 and 26 working days 2. Because the ease of doing business index and a score of 1 if it is less than 15 or more Redundancy cost now includes the getting electricity indicators, than 26 working days. The redundancy cost indicator measures procedures, time and cost related to obtain- the cost of advance notice requirements, ing an electricity connection were removed For example, Benin does not impose any severance payments and penalties due when from the dealing with construction permits restrictions either on night work (a score terminating a redundant worker, expressed indicators. of 0) or on weekly holiday work (a score of in weeks of salary. The average value of 3. The ranking is based on a straight average of 0), allows 6-day workweeks (a score of 0), notice requirements and severance pay- points from the strength of legal rights index permits 50-hour workweeks for 2 months (a ments applicable to a worker with 1 year of and depth of credit information index. score of 0) and requires average paid annual leave of 24 working days (a score of 0.5). tenure, a worker with 5 years and a worker 4. The scoring on this aspect was revised this Averaging the scores and scaling the result with 10 years is used to assign the score. If year to bring it into line with UNCITRAL to 100 gives a final index of 10 for Benin. the redundancy cost adds up to 8 or fewer (2004, 2007) and World Bank (2011a). weeks of salary and the workers can benefit 5. This question is usually regulated by stock ex- The difficulty of redundancy index has 8 from unemployment protection, a score of 0 change or securities laws. Points are awarded components: (i) whether redundancy is dis- is assigned, but the actual number of weeks only to economies with more than 10 listed allowed as a basis for terminating workers; is published. If the redundancy cost adds up firms in their most important stock exchange.
    • DATA NOTES 616. When evaluating the regime of liability for company directors for a prejudicial related- party transaction, Doing Business assumes that the transaction was duly disclosed and approved. Doing Business does not measure director liability in the event of fraud.7. PwC refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s profes- sional judgment or bind another member firm or PwCIL in any way.8. For the terms of reference and composi- tion of the consultative group, see World Bank, “Doing Business Employing Workers Indicator Consultative Group,” http://www .doingbusiness.org.9. The average value added per worker is the ratio of an economy’s GNI per capita to the working-age population as a percentage of the total population.
    • Ease of doing businessand distance to frontierThis year’s report presents results for 2 ag- changes in methodology as well as additions components—yield a ranking nearly identi-gregate measures: the aggregate ranking of economies or topics.1 cal to the simple average used by Doingon the ease of doing business and a new Business.2 Thus Doing Business uses the sim-measure, the “distance to frontier.” While Construction of the ease of doing plest method: weighting all topics equallythe ease of doing business ranking compares business index and, within each topic, giving equal weight toeconomies with one another at a point in Here is one example of how the ease of do- each of the topic components.3time, the distance to frontier measure shows ing business index is constructed. In Koreahow much the regulatory environment for it takes 5 procedures, 7 days and 14.6% of If an economy has no laws or regulationslocal entrepreneurs in each economy has annual income per capita in fees to open covering a specific area—for example,changed over time. a business. There is no minimum capital insolvency—it receives a “no practice” required. On these 4 indicators Korea ranks mark. Similarly, an economy receives a “noEASE OF DOING BUSINESS in the 18th, 14th, 53rd and 0 percentiles. So practice” or “not possible” mark if regulationThe ease of doing business index ranks on average Korea ranks in the 21st percentile exists but is never used in practice or if aeconomies from 1 to 183. For each economy on the ease of starting a business. It ranks competing regulation prohibits such prac-the ranking is calculated as the simple aver- in the 12th percentile on getting credit, 25th tice. Either way, a “no practice” mark puts theage of the percentile rankings on each of percentile on paying taxes, 8th percentile economy at the bottom of the ranking on thethe 10 topics included in the index in Doing on enforcing contracts, 7th percentile on relevant indicator.Business 2012: starting a business, deal- resolving insolvency and so on. Higher rank-ing with construction permits, registering ings indicate simpler regulation and stronger The ease of doing business index is limited inproperty, getting credit, protecting investors, protection of property rights. The simple scope. It does not account for an economy’spaying taxes, trading across borders, enforc- average of Korea’s percentile rankings on proximity to large markets, the quality of itsing contracts, resolving insolvency and, new all topics is 21st. When all economies are infrastructure services (other than servicesthis year, getting electricity. The employing ordered by their average percentile rankings,workers indicators are not included in this related to trading across borders and get- Korea stands at 8 in the aggregate ranking onyear’s aggregate ease of doing business ting electricity), the strength of its financial the ease of doing business.ranking. In addition to this year’s ranking, system, the security of property from theftDoing Business presents a comparable rank- More complex aggregation methods—such and looting, macroeconomic conditions oring for the previous year, adjusted for any as principal components and unobserved the strength of underlying institutions. TABLE 5.1 Correlations between economy rankings on Doing Business topics Dealing with construction Registering Protecting Trading across Enforcing Resolving Getting permits property Getting credit investors Paying taxes borders contracts insolvency electricity Starting a business 0.39 0.32 0.45 0.59 0.37 0.45 0.42 0.45 0.28 Dealing with 0.22 0.19 0.25 0.36 0.45 0.20 0.33 0.40 construction permits Registering property 0.39 0.29 0.31 0.27 0.49 0.33 0.24 Getting credit 0.47 0.20 0.41 0.42 0.52 0.24 Protecting investors 0.37 0.39 0.29 0.37 0.20 Paying taxes 0.40 0.27 0.33 0.40 Trading across 0.35 0.50 0.56 borders Enforcing contracts 0.42 0.21 Resolving insolvency 0.32 Source: Doing Business database.
    • EASE OF DOING BUSINESS AND DISTANCE TO FRONTIER 63Variability of economies’ rankings Economies that improved the most Calculating the distance to frontier foracross topics across 3 or more Doing Business each economy involves 2 main steps. First, topics in 2010/11 individual indicator scores are normalizedEach indicator set measures a different as- to a common unit. To do so, each of thepect of the business regulatory environment. Doing Business 2012 uses a simple method 32 component indicators y is rescaled toThe rankings of an economy can vary, some- to calculate which economies improved the (y − min)/(max − min), with the minimum most in the ease of doing business. First, ittimes significantly, across indicator sets. The value (min) representing the frontier—the selects the economies that in 2010/11 imple-average correlation coefficient between the highest performance on that indicator across mented regulatory reforms making it easier10 indicator sets included in the aggregate all economies since 2005. Second, for each to do business in 3 or more of the 10 topicsranking is 0.36, and the coefficients between economy the scores obtained for individual included in this year’s ease of doing busi- indicators are aggregated through simpleany 2 sets of indicators range from 0.19 ness ranking.4 Thirty economies meet this averaging into one distance to frontier score.(between dealing with construction permits criterion: Armenia, Burkina Faso, Burundi, An economy’s distance to the frontier isand getting credit) to 0.59 (between starting Cape Verde, the Central African Republic, indicated on a scale from 0 to 100, where 0a business and protecting investors). These Chile, Colombia, the Democratic Republic of represents the frontier and 100 the lowestcorrelations suggest that economies rarely Congo, Côte d’Ivoire, The Gambia, Georgia, performance. Korea, Latvia, Liberia, FYR Macedonia,score universally well or universally badly on Mexico, Moldova, Montenegro, Morocco, The difference between an economy’s dis-the indicators (table 5.1). Nicaragua, Oman, Peru, Russia, São Tomé tance to frontier score in 2005 and its scoreConsider the example of Canada. It stands and Príncipe, Senegal, Sierra Leone, Slovenia, in 2011 illustrates the extent to which the the Solomon Islands, South Africa and economy has closed the gap to the frontierat 12 in the aggregate ranking on the ease of Ukraine. Second, Doing Business ranks these over time.doing business. Its ranking is 3 on both start- economies on the increase in their rankinging a business and resolving insolvency, and on the ease of doing business from the previ- The maximum (max) and minimum (min)5 on protecting investors. But its ranking is ous year using comparable rankings. observed values are computed for the 174only 59 on enforcing contracts, 42 on trading economies included in the Doing Businessacross borders and 156 on getting electricity. Selecting the economies that implemented sample since 2005 and for all years (from regulatory reforms in at least 3 topics and 2005 to 2011). The year 2005 was chosenFigure 1.6 in the executive summary illustrates improved the most in the aggregate rank- as the baseline for the economy samplethe degree of variability in each economy’s ing is intended to highlight economies with because it was the first year in which data ongoing, broad-based reform programs. were available for the majority of economiesperformance across the different areas of (a total of 174) and for all 9 indicator setsbusiness regulation covered by Doing Business. DISTANCE TO FRONTIER included in the measure. To mitigate the ef-The figure draws attention to economies with MEASURE fects of extreme outliers in the distributionsa particularly uneven performance by show- of the rescaled data (very few economies This year’s report introduces a new measureing the distance between the average of the need 694 days to complete the procedures to illustrate how the regulatory environmenthighest 3 topic rankings and the average of to start a business, but many need 9 days), for local businesses in each economy hasthe lowest 3 for each of 183 economies across the maximum (max) is defined as the 95th changed over time. The distance to frontierthe 10 topics included in this year’s aggregate percentile of the pooled data for all econo- measure illustrates the distance of an econo-ranking. While a relatively small distance mies and all years for each indicator. my to the “frontier” and shows the extent tobetween these 2 averages suggests a broadly which the economy has closed this gap over Take Colombia, which has a score of 0.30consistent approach across the areas of busi- time. The frontier is a score derived from on the distance to frontier measure for 2011.ness regulation measured by Doing Business, a the most efficient practice or highest score This score indicates that the economy is 30relatively large distance suggests a more nar- achieved on each of the component indica- percentage points away from the frontier tors in 9 Doing Business indicator sets (ex- constructed from the best performancesrowly focused approach, with greater room cluding the employing workers and getting across all economies and all years. Colombiafor improvement in some areas than in others. electricity indicators) by any economy since was further from the frontier in 2005, with 2005. In starting a business, for example, a score of 0.46. The difference between theVariation in performance across the indi- New Zealand has achieved the highest per- scores shows an improvement over time.cator sets is not at all unusual. It reflects formance on the time (1 day), Canada anddifferences in the degree of priority that gov- New Zealand on the number of proceduresernment authorities give to particular areas required (1), Denmark and Slovenia on theof business regulation reform and the ability cost (0% of income per capita) and Australiaof different government agencies to deliver on the paid-in minimum capital requirementtangible results in their area of responsibility. (0% of income per capita).
    • 64 DOING BUSINESS 2012 NOTES to that from the simple average method 1. In case of revisions to the methodology or cor- because both these methods assign roughly rections to the underlying data, the data are equal weights to the topics, since the back-calculated to provide a comparable time pairwise correlations among indicators do series since the year the relevant economy or not differ much. An alternative to the simple topic was first included in the data set. The average method is to give different weights time series is available on the Doing Business to the topics, depending on which are website (http://www.doingbusiness.org). considered of more or less importance in the The Doing Business report publishes yearly context of a specific economy. rankings for the year of publication as well as 3. A technical note on the different aggregation the previous year to shed light on year-to-year and weighting methods is available on the developments. Six topics and more than Doing Business website (http://www 50 economies have been added since the .doingbusiness.org). inception of the project. Earlier rankings on 4. Doing Business reforms making it more the ease of doing business are therefore not difficult to do business are subtracted from comparable. the total number of those making it easier to 2. See Djankov and others (2005). Principal do business. components and unobserved components methods yield a ranking nearly identical
    • 65Summaries of Doing Businessreforms in 2010/11 245 reforms in 2010/11 made it easier to do business Starting a business Dealing with Getting credit Kazakhstan Poland construction permits Lithuania Russian Federation 53 44 15 Morocco São Tomé and PríncipeArmenia Algeria Peru SenegalBenin Armenia Angola Solomon Islands SeychellesBhutan Bosnia and Herzegovina Armenia Sri Lanka Sierra LeoneBosnia and Herzegovina Burkina Faso Benin Vietnam SloveniaBurkina Faso Burundi Bhutan TanzaniaCameroon Congo, Dem. Rep. Brazil Paying taxes VanuatuCentral African Republic Macedonia, FYR Burkina Faso 33Chad Mauritania Cambodia Enforcing contractsChile Mexico Cameroon Armenia Belarus 11Colombia Morocco Cape VerdeCongo, Dem. Rep. Paraguay Central African Republic Belize KenyaCôte d’Ivoire Portugal Chad Burundi Korea, Rep.Dominican Republic Puerto Rico (U.S.) Chile Canada LesothoGeorgia São Tomé and Príncipe Comoros Colombia MalaysiaGreece Taiwan, China Congo, Rep. Congo, Dem. Rep. MoldovaGuinea-Bissau United Kingdom Côte d’Ivoire Costa Rica NepalGuyana Croatia Côte d’Ivoire Nicaragua Getting electricity Czech Republic Russian FederationHong Kong SAR, China Equatorial GuineaIndonesia 9 Gabon Finland SenegalJordan Georgia Gambia, The Sierra Leone AfghanistanKorea, Rep. Guinea Georgia Ukraine Brunei DarussalamLatvia Guinea-Bissau Greece Gambia, The Resolving insolvencyLiberia Honduras Iceland Hong Kong SAR, China 29 IndiaMadagascar Latvia LiberiaMalaysia Macedonia, FYR Korea, Rep. Armenia Lebanon Mexico AustraliaMali Russian Federation MadagascarMoldova Malawi Montenegro Austria Switzerland Morocco BulgariaMontenegro Tonga MaliOman Mexico New Zealand Burundi Registering property Nicaragua Cape VerdePanama MoldovaPeru Mongolia Oman Colombia 20 Peru DenmarkPortugal Niger Albania RomaniaPuerto Rico (U.S.) Oman France Angola RwandaQatar Paraguay Israel Belarus SeychellesRwanda Qatar Italy Belgium Sri LankaSão Tomé and Príncipe Rwanda Latvia Cape Verde St. Kitts and NevisSaudi Arabia Senegal Lithuania Central African Republic TogoSenegal Sierra Leone Macedonia, FYR Costa Rica TurkeySolomon Islands Slovak Republic Malawi Czech Republic UkraineSouth Africa Timor-Leste Malaysia Latvia Yemen, Rep.Spain Togo Moldova Macedonia, FYRSyrian Arab Republic Tonga Trading across borders Montenegro NicaraguaTaiwan, China United Arab Emirates Namibia Russian Federation 18Tajikistan Uruguay Philippines São Tomé and PríncipeThailand Belgium Poland Serbia Protecting investorsTimor-Leste Bulgaria Romania SloveniaTonga 13 Chile Serbia Solomon IslandsTurkey Djibouti Sierra Leone South Africa BelarusUkraine Gambia, The Slovenia Swaziland BurundiUnited Arab Emirates Honduras Solomon Islands Uganda CyprusUruguay El Salvador Israel South Africa VanuatuUzbekistan Jordan Switzerland GeorgiaVanuatu Iceland Liberia Ukraine Source: Doing Business database.
    • 66 DOING BUSINESS 2012 Doing Business reforms affecting all sets of registration and obtaining a tax identification BELARUS indicators included in this year’s ranking on number and by allowing for online company ✔ Registering property registration. the ease of doing business, implemented Belarus simplified property transfer by do- between June 2010 and May 2011. ✔ Dealing with construction permits ing away with the requirement to obtain the Armenia made dealing with construction per- municipality’s approval for transfers of most ✔ Doing Business reform making it easier to do mits easier by eliminating the requirement to commercial buildings in Minsk. business obtain an environmental impact assessment ✔ Protecting investors ✘ Doing Business reform making it more difficult for small projects. Belarus strengthened investor protections by to do business ✔ Getting credit introducing requirements for greater corpo- Armenia improved its credit information rate disclosure to the board of directors and AFGHANISTAN system by introducing a requirement to col- to the public. lect and distribute information from utility ✔ Getting electricity ✔ Paying taxes companies. Afghanistan made getting electricity easier Belarus abolished several taxes, including by improving the efficiency of the electricity ✔ Paying taxes turnover and sales taxes, and simplified com- department in Kabul and introducing a new Armenia made tax compliance easier for firms pliance with corporate income, value added fee schedule for connections. by reducing the number of payments for social and other taxes by reducing the frequency of security contributions and corporate income, filings and payments and facilitating electronic property and land taxes and by introducing filing and payment. ALBANIA mandatory electronic filing and payment for ✘ Dealing with construction permits ✘ Enforcing contracts major taxes. In Albania dealing with construction permits Belarus modified its code of economic proce- ✔ Resolving insolvency dure, altering the time frames for commercial became more difficult because the main Armenia amended its bankruptcy law to dispute resolution. authority in charge of issuing building permits clarify procedures for appointing insolvency has not met since April 2009. administrators, reduce the processing time ✔ Registering property for bankruptcy proceedings and regulate asset BELGIUM Albania made property registration easier sales by auction. ✔ Registering property by setting time limits for the land registry to Belgium made property registration quicker register a title. for entrepreneurs by setting time limits and AUSTRALIA implementing its “e-notariat” system. ✔ Resolving insolvency ALGERIA ✔ Trading across borders Australia clarified the priority of claims of ✔ Getting credit unsecured creditors over all shareholders’ Belgium made trading across borders faster Algeria improved its credit information system claims and introduced further regulation of by improving its risk-based profiling system by guaranteeing by law the right of borrowers the profession of insolvency practitioners. for imports. to inspect their personal data. AUSTRIA BELIZE ANGOLA ✔ Resolving insolvency ✔ Paying taxes ✔ Registering property Belize made paying taxes easier for firms by Austria passed a new law that simplifies re- Angola made transferring property less costly structuring proceedings and gives preferential improving electronic filing and payment for by reducing transfer taxes. consideration to the interests of the debtors. social security contributions, an option now ✔ Getting credit used by the majority of taxpayers. Angola strengthened its credit information BAHAMAS, THE system by adopting new rules for credit bu- BENIN reaus and guaranteeing the right of borrowers ✘ Registering property to inspect their data. The Bahamas made transferring prop- ✔ Starting a business erty more costly by increasing the applicable Benin made starting a business easier by stamp duty fees. replacing the requirement for a copy of the ARGENTINA founders’ criminal records with one for a ✘ Registering property sworn declaration at the time of the com- Argentina made transferring property more BANGLADESH pany’s registration. difficult by adding a requirement that the ✘ Getting electricity ✔ Getting credit notary obtain the tax agency’s reference value Bangladesh made getting electricity more Access to credit in Benin was improved through for property before notarizing the sale deed. difficult by imposing a moratorium on new amendments to the OHADA (Organization electricity connections from April 2010 to for the Harmonization of Business Law in March 2011 because of an electricity supply Africa) Uniform Act on Secured Transactions ARMENIA shortage. This moratorium has led to long that broaden the range of assets that can be ✔ Starting a business delays for customers and has increased the used as collateral (including future assets), Armenia made starting a business easier by time to obtain an electricity connection. extend the security interest to the proceeds of establishing a one-stop shop that merged the the original asset and introduce the possibility procedures for name reservation, business of out-of-court enforcement.
    • SUMMARIES OF DOING BUSINESS REFORMS IN 2010/11 67 BHUTAN BURKINA FASO ✔ Getting credit Access to credit in Cameroon was improved✔ Starting a business ✔ Starting a business through amendments to the OHADA Uniform Bhutan eased the process of starting a busi- Burkina Faso made starting a business easier Act on Secured Transactions that broaden the ness by making its criminal records search by replacing the requirement for a copy of range of assets that can be used as collateral electronic and making the rubber company the founders’ criminal records with one for (including future assets), extend the security stamps available on the local market. a sworn declaration at the time of the com- interest to the proceeds of the original asset pany’s registration. and introduce the possibility of out-of-court✔ Getting credit Bhutan improved its credit information system ✔ Dealing with construction permits enforcement. by launching the operation of a public credit Burkina Faso made dealing with construction registry. permits less costly by reducing the fees to CANADA obtain a fire safety study. ✔ Paying taxes BOLIVIA ✔ Getting credit Canada made paying taxes easier and less Access to credit in Burkina Faso was improved costly for companies by reducing profit tax✘ Paying taxes through amendments to the OHADA Uniform rates, eliminating the Ontario capital tax and Bolivia raised social security contribution rates Act on Secured Transactions that broaden the for employers. harmonizing sales taxes. range of assets that can be used as collateral (including future assets), extend the security BOSNIA AND HERZEGOVINA interest to the proceeds of the original asset CAPE VERDE and introduce the possibility of out-of-court ✔ Registering property✔ Starting a business enforcement. Bosnia and Herzegovina made starting a busi- Cape Verde made registering property faster ness easier by replacing the required utiliza- by implementing time limits for the notaries tion permit with a simple notification of com- BURUNDI and the land registry. mencement of activities and by streamlining ✔ Dealing with construction permits ✔ Getting credit the process for obtaining a tax identification Burundi made dealing with construction Cape Verde improved its credit information number. permits easier by reducing the cost to obtain a system by introducing a new online platform✔ Dealing with construction permits geotechnical study. and by starting to provide 5 years of historical Bosnia and Herzegovina made dealing with data. ✔ Protecting investors construction permits easier by fully digitizing Burundi strengthened investor protections by ✔ Resolving insolvency and revamping its land registry and cadastre. introducing new requirements for the approval Cape Verde introduced qualification require- of transactions between interested parties, by ments for insolvency administrators and a requiring greater corporate disclosure to the shorter time frame for liquidation proceedings. BRAZIL board of directors and in the annual report and✔ Getting credit by making it easier to sue directors in cases Brazil improved its credit information system of prejudicial transactions between interested CENTRAL AFRICAN REPUBLIC by allowing private credit bureaus to collect parties. ✔ Starting a business and share positive information. The Central African Republic made starting a ✔ Paying taxes Burundi made paying taxes easier for compa- business easier by reducing business registra- BRUNEI DARUSSALAM nies by reducing the payment frequency for tion fees and by replacing the requirement for social security contributions from monthly to a copy of the founders’ criminal records with✔ Getting electricity one for a sworn declaration at the time of the quarterly. Brunei Darussalam made getting electricity company’s registration. easier by establishing a one-stop shop and ✔ Resolving insolvency reducing the time required to obtain an exca- ✔ Registering property Burundi amended its commercial code to vation permit. establish foreclosure procedures. The Central African Republic halved the cost of registering property. BULGARIA ✔ Getting credit CAMBODIA Access to credit in the Central African✔ Trading across borders ✔ Getting credit Republic was improved through amendments Bulgaria made trading across borders faster Cambodia strengthened its credit information to the OHADA Uniform Act on Secured by introducing online submission of customs system through a new regulation allowing Transactions that broaden the range of assets declaration forms. credit bureaus to collect and distribute posi- that can be used as collateral (including future tive as well as negative credit information. assets), extend the security interest to the✔ Resolving insolvency proceeds of the original asset and introduce Bulgaria amended its commerce act to extend the possibility of out-of-court enforcement. further rights to secured creditors and increase CAMEROON the transparency of insolvency proceedings. ✔ Starting a business Cameroon made starting a business easier by replacing the requirement for a copy of the founders’ criminal records with one for a sworn declaration at the time of the company’s registration, and by reducing publication fees.
    • 68 DOING BUSINESS 2012 CHAD Act on Secured Transactions that broaden the (including future assets), extend the security range of assets that can be used as collateral interest to the proceeds of the original asset ✔ Starting a business (including future assets), extend the security and introduce the possibility of out-of-court Chad made starting a business easier by interest to the proceeds of the original asset enforcement. eliminating the requirement for a medical cer- and introduce the possibility of out-of-court tificate and by replacing the requirement for ✔ Paying taxes enforcement. a copy of the founders’ criminal records with Côte d’Ivoire eliminated a tax on firms, the one for a sworn declaration at the time of the contribution for national reconstruction (con- company’s registration. CONGO, DEM. REP. tribution pour la reconstruction nationale). ✔ Getting credit ✔ Starting a business Access to credit in Chad was improved The Democratic Republic of Congo made CROATIA through amendments to the OHADA Uniform business start-up faster by reducing the time ✔ Getting credit Act on Secured Transactions that broaden the required to complete company registration and obtain a national identification number. In Croatia the private credit bureau started to range of assets that can be used as collateral collect and distribute information on firms, (including future assets), extend the security ✔ Dealing with construction permits improving the credit information system. interest to the proceeds of the original asset The Democratic Republic of Congo reduced and introduce the possibility of out-of-court the administrative costs of obtaining a con- enforcement. CYPRUS struction permit. ✔ Protecting investors ✔ Paying taxes CHILE Cyprus strengthened investor protections by The Democratic Republic of Congo made pay- ✔ Starting a business requiring greater corporate disclosure to the ing taxes easier for firms by replacing the sales board of directors, to the public and in the Chile made business start-up easier by start- tax with a value added tax. annual report. ing to provide an immediate temporary oper- ating license to new companies, eliminating the requirement for an inspection of premises CONGO, REP. CZECH REPUBLIC by the tax authority before new companies ✘ Registering property can begin operations and allowing free online ✔ Registering property The Republic of Congo made registering prop- publication of the notice of a company’s The Czech Republic speeded up property erty more expensive by reversing a previous creation. registration by computerizing its cadastral law that reduced the registration fee. office, digitizing all its data and introducing ✔ Getting credit electronic communications with notaries. ✔ Getting credit Chile strengthened its secured transactions Access to credit in the Republic of Congo system by implementing a unified collateral ✔ Paying taxes was improved through amendments to the registry and a new legal framework for non- The Czech Republic revised its tax legislation OHADA Uniform Act on Secured Transactions possessory security interests. to simplify provisions relating to administra- that broaden the range of assets that can be tive procedures and relationships between tax ✔ Trading across borders used as collateral (including future assets), authorities and taxpayers. extend the security interest to the proceeds of Chile made trading across borders faster by the original asset and introduce the possibility implementing an online electronic data inter- of out-of-court enforcement. DENMARK change system for customs operations. ✔ Resolving insolvency COLOMBIA COSTA RICA Denmark introduced new rules on company ✔ Registering property reorganization, which led to the elimination of ✔ Starting a business the suspension-of-payments regime. Costa Rica made transferring property easier Colombia reduced the costs associated with and quicker by making property certificates starting a business, by no longer requiring up- available online through a single website. DJIBOUTI front payment of the commercial license fee. ✔ Paying taxes ✘ Dealing with construction permits ✔ Paying taxes In Costa Rica online payment of social security Djibouti made dealing with construction per- Colombia eased the administrative burden of contributions is now widespread and used by mits costlier by increasing the fees for inspec- paying taxes for firms by establishing manda- the majority of taxpayers. tions and the building permit and adding a tory electronic filing and payment for some of the major taxes. new inspection in the preconstruction phase. ✔ Resolving insolvency CÔTE D’IVOIRE ✔ Trading across borders Colombia amended regulations governing ✔ Starting a business Djibouti made trading across borders faster by insolvency proceedings to simplify the pro- developing a new container terminal. Côte d’Ivoire made starting a business easier ceedings and reduce their time and cost. by reorganizing the court clerk’s office where entrepreneurs file their company documents. DOMINICAN REPUBLIC COMOROS ✔ Getting credit ✔ Starting a business ✔ Getting credit Access to credit in Côte d’Ivoire was improved The Dominican Republic made starting a busi- through amendments to the OHADA Uniform ness easier by eliminating the requirement for Access to credit in the Comoros was improved Act on Secured Transactions that broaden the a proof of deposit of capital when establishing through amendments to the OHADA Uniform range of assets that can be used as collateral a new company.
    • SUMMARIES OF DOING BUSINESS REFORMS IN 2010/11 69 EL SALVADOR interest to the proceeds of the original asset Act on Secured Transactions that broaden the and introduce the possibility of out-of-court range of assets that can be used as collateral✔ Protecting investors enforcement. (including future assets), extend the security El Salvador strengthened investor protections interest to the proceeds of the original asset by allowing greater access to corporate infor- and introduce the possibility of out-of-court mation during the trial. GAMBIA, THE enforcement. ✔ Getting electricity EQUATORIAL GUINEA The Gambia made getting electricity faster GUINEA-BISSAU by allowing customers to choose private con-✔ Getting credit ✔ Starting a business tractors to carry out the external connection Access to credit in Equatorial Guinea was im- works. Guinea-Bissau made starting a business easier proved through amendments to the OHADA by establishing a one-stop shop, eliminating Uniform Act on Secured Transactions that ✔ Paying taxes the requirement for an operating license and broaden the range of assets that can be used The Gambia reduced the minimum turnover simplifying the method for providing criminal as collateral (including future assets), extend tax and corporate income tax rates. records and publishing the registration notice. the security interest to the proceeds of the ✔ Trading across borders ✔ Getting credit original asset and introduce the possibility of out-of-court enforcement. The Gambia made trading across borders Access to credit in Guinea-Bissau was im- faster by implementing the Automated proved through amendments to the OHADA System for Customs Data (ASYCUDA). Uniform Act on Secured Transactions that ESTONIA broaden the range of assets that can be used✘ Paying taxes as collateral (including future assets), extend GEORGIA In Estonia a municipal sales tax introduced the security interest to the proceeds of the ✔ Starting a business original asset and introduce the possibility of in Tallinn made paying taxes costlier for firms, though a later parliamentary measure Georgia simplified business start-up by elimi- out-of-court enforcement. abolished local sales taxes effective January nating the requirement to visit a bank to pay 1, 2012. the registration fees. GUYANA ✔ Getting credit ✔ Starting a business ETHIOPIA Georgia expanded access to credit by amend- Guyana made starting a business easier by ing its civil code to broaden the range of assets✘ Getting electricity reducing the time needed for registering a new that can be used as collateral. In Ethiopia delays in providing new connec- company and for obtaining a tax identification tions made getting electricity more difficult. ✔ Protecting investors number. Georgia strengthened investor protections ✘ Getting electricity by introducing requirements relating to the FIJI Guyana made getting electricity more expen- approval of transactions between interested sive by tripling the security deposit required✘ Starting a business parties. for a new connection. Fiji made starting a business more difficult ✔ Paying taxes by adding a requirement to obtain a tax ✘ Registering property Georgia made paying taxes easier for firms by identification number when registering a new In Guyana transferring property became simplifying the reporting for value added tax company. slower because of a lack of personnel at the and introducing electronic filing and payment deed registry. of taxes. FINLAND GHANA HAITI✔ Paying taxes Finland simplified reporting and payment for ✘ Dealing with construction permits ✘ Starting a business the value added tax and labor tax. Haiti made dealing with construction permits Ghana increased the cost to start a business costlier by increasing the fees to obtain a by 70%. building permit. FRANCE✔ Resolving insolvency GREECE France passed a law that enables debtors to ✔ Starting a business implement a restructuring plan with finan- Greece made starting a business easier by cial creditors only, without affecting trade implementing an electronic platform that creditors. interconnects several government agencies. ✔ Paying taxes GABON Greece reduced its corporate income tax rate.✔ Getting credit Access to credit in Gabon was improved through amendments to the OHADA Uniform GUINEA Act on Secured Transactions that broaden the ✔ Getting credit range of assets that can be used as collateral Access to credit in Guinea was improved (including future assets), extend the security through amendments to the OHADA Uniform
    • 70 DOING BUSINESS 2012 HONDURAS INDIA ✔ Trading across borders Jordan made trading across borders faster by ✔ Getting credit ✔ Paying taxes introducing X-ray scanners for risk manage- Honduras strengthened its secured transac- India eased the administrative burden of pay- ment systems. tions system through a new decree estab- ing taxes for firms by introducing mandatory lishing a centralized and computerized col- electronic filing and payment for value added lateral registry and providing for out-of-court tax. KAZAKHSTAN enforcement of collateral upon default. ✔ Protecting investors ✘ Paying taxes INDONESIA Kazakhstan strengthened investor protections Honduras made paying taxes costlier for firms by regulating the approval of transactions ✔ Starting a business by raising the solidarity tax rate. between interested parties and making it Indonesia made starting a business easier by easier to sue directors in cases of prejudicial ✔ Trading across borders introducing a simplified application process transactions between interested parties. Honduras made trading across borders faster allowing an applicant to simultaneously obtain by implementing a web-based electronic data both a general trading license and a business interchange system and X-ray machines at the registration certificate. KENYA port of Puerto Cortes. ✔ Enforcing contracts ✘ Getting electricity ✘ Enforcing contracts Indonesia made getting electricity more dif- Kenya introduced a case management system Honduras adopted a new civil procedure code ficult by increasing connection fees. that will help increase the efficiency and that modified litigation procedures for enforc- cost-effectiveness of commercial dispute ing a contract. resolution. IRAQ ✘ Starting a business HONG KONG SAR, CHINA KOREA, REP. In Iraq starting a business became more ✔ Starting a business expensive because of an increase in the cost ✔ Starting a business Hong Kong SAR, China, made starting a to obtain a name reservation certificate and Korea made starting a business easier by business easier by introducing online elec- in the cost for lawyers to draft articles of introducing a new online one-stop shop, tronic services for company and business association. Start-Biz. registration. ✔ Paying taxes ✔ Getting electricity ISRAEL Korea eased the administrative burden of pay- Hong Kong SAR, China, made getting elec- ing taxes for firms by merging several taxes, ✔ Trading across borders tricity easier by increasing the efficiency of allowing 4 labor taxes and contributions to be Israel made trading across borders easier by paid jointly and continuing to increase the use public agencies and streamlining the utility’s changing the method used to calculate port procedures with other government agencies. of the online tax payment system. fees. ✔ Enforcing contracts ✔ Resolving insolvency HUNGARY Korea made filing a commercial case easier by Israel amended its courts law to establish introducing an electronic case filing system. ✘ Getting credit specialized courts for dealing with economic Hungary reduced the amount of credit infor- matters. mation available from private credit bureaus KYRGYZ REPUBLIC by shortening the period for retaining data on ✘ Paying taxes defaults and late payments (if repaid) from 5 ITALY The Kyrgyz Republic made paying taxes cost- years to 1 year. ✔ Resolving insolvency lier for firms by introducing a real estate tax, Italy has introduced debt restructuring and though it also reduced the sales tax rate. ✘ Paying taxes reorganization procedures as alternatives to Hungary made paying taxes costlier for firms bankruptcy proceedings. by introducing a sector-specific surtax. LATVIA JAPAN ✔ Starting a business ICELAND Latvia made starting a business easier by re- ✘ Dealing with construction permits ✔ Protecting investors ducing the minimum capital requirement and Japan made dealing with construction permits introducing a common application for value Iceland strengthened investor protections by costlier by increasing inspection fees. introducing new requirements relating to the added tax and company registration. approval of transactions between interested ✔ Getting electricity parties. JORDAN Latvia made getting electricity faster by in- ✔ Paying taxes ✔ Starting a business troducing a simplified process for approval of Iceland made paying taxes easier and less Jordan made starting a business easier by re- external connection designs. costly for firms by abolishing a tax. ducing the minimum capital requirement from 1,000 Jordanian dinars to 1 dinar, of which only half must be deposited before company registration.
    • SUMMARIES OF DOING BUSINESS REFORMS IN 2010/11 71✔ Registering property MACEDONIA, FYR ✘ Paying taxes Latvia made transferring property easier by Malaysia made paying taxes costlier for firms ✔ Dealing with construction permits allowing electronic access to municipal tax by reintroducing the real estate capital gains databases that show the tax status of prop- FYR Macedonia made dealing with construc- tax—but also made tax compliance easier by erty, eliminating the requirement to obtain this tion permits easier by transferring oversight improving electronic systems and the avail- information in paper format. processes to the private sector and streamlin- ability of software. ing procedures.✔ Resolving insolvency ✔ Enforcing contracts ✔ Registering property Latvia adopted a new insolvency law that Malaysia continued to improve the com- streamlines and expedites the insolvency pro- FYR Macedonia made registering property puterization of its courts by introducing a cess and introduces a reorganization option easier by reducing notary fees and enforcing system making it possible to file complaints for companies. time limits. electronically. ✔ Getting credit ✔ Resolving insolvency LEBANON FYR Macedonia improved its credit informa- Malaysia established dedicated commercial tion system by establishing a private credit courts to handle foreclosure proceedings.✔ Getting electricity bureau. Lebanon made getting electricity less costly by reducing the application fees and security ✔ Resolving insolvency MALI deposit for a new connection. FYR Macedonia increased the transparency of bankruptcy proceedings through amend- ✔ Starting a business ments to its company and bankruptcy laws. Mali made starting a business easier by add- LESOTHO ing to the services provided by the one-stop shop.✔ Enforcing contracts MADAGASCAR Lesotho made enforcing contracts easier by ✔ Getting credit launching a specialized commercial court. ✔ Starting a business Access to credit in Mali was improved through Madagascar made starting a business amendments to the OHADA Uniform Act easier by eliminating the minimum capital on Secured Transactions that broaden the LIBERIA requirement, but also made it more difficult range of assets that can be used as collateral✔ Starting a business by introducing a requirement to obtain a tax (including future assets), extend the security identification number. Liberia made starting a business easier by interest to the proceeds of the original asset introducing a one-stop shop. ✔ Getting credit and introduce the possibility of out-of-court Madagascar improved its credit information enforcement.✔ Getting credit system by eliminating the minimum threshold Liberia strengthened its legal framework for for loans included in the database and making MAURITANIA secured transactions by adopting a new com- it mandatory for banks to share credit infor- mercial code that broadens the range of assets ✔ Dealing with construction permits mation with the credit bureau. that can be used as collateral (including future Mauritania made dealing with construction assets) and extends the security interest to permits easier by opening a one-stop shop. the proceeds of the original asset. MALAWI✔ Trading across borders ✘ Registering property MEXICO Liberia made trading across borders faster by Malawi did not sustain the previous year’s implementing online submission of customs improvement in processing times for the com- ✔ Dealing with construction permits forms and enhancing risk-based inspections. pliance certificate at the Ministry of Lands, Mexico made dealing with construction per- leading to slower property registration. mits faster by consolidating internal adminis- trative procedures. LITHUANIA ✔ Getting credit Malawi improved its credit information ✔ Getting credit✘ Getting electricity system by passing a new law allowing the Mexico strengthened its secured transactions Lithuania made getting electricity more dif- creation of a private credit bureau. system by implementing a centralized collat- ficult by abolishing the one-stop shop for ob- eral registry with an electronic database that taining technical conditions for utility services. ✔ Resolving insolvency is accessible online.✔ Protecting investors Malawi adopted new rules providing clear procedural requirements and time frames for ✔ Paying taxes Lithuania strengthened investor protections winding up a company. Mexico continued to ease the administrative by introducing greater requirements for burden of paying taxes for firms by ending the corporate disclosure to the public and in the requirement to file a yearly value added tax annual report. MALAYSIA return and reducing filing requirements for✔ Resolving insolvency ✔ Starting a business other taxes. Lithuania amended its reorganization law to Malaysia made starting a business easier by simplify and shorten reorganization proceed- merging company, tax, social security and em- ings, grant priority to secured creditors and ployment fund registrations at the one-stop introduce professional requirements for insol- shop and providing same-day registration. vency administrators.
    • 72 DOING BUSINESS 2012 MOLDOVA MOZAMBIQUE OMAN ✔ Starting a business ✘ Getting electricity ✔ Starting a business Moldova made starting a business easier by Mozambique made getting electricity more Oman introduced online company registra- implementing a one-stop shop. difficult by requiring authorization of a con- tion, reducing the time it takes to register a nection project by the Ministry of Energy and business. ✔ Getting credit by adding an inspection of the completed Moldova improved its credit information ✔ Getting credit external works. system by establishing its first private credit Oman improved its credit information system bureau. by launching the Bank Credit and Statistical NAMIBIA Bureau System, which collects historical ✔ Enforcing contracts information on performing and nonperforming Moldova made enforcement of judgments ✘ Registering property loans for both firms and individuals. more efficient by introducing private bailiffs. Namibia made transferring property more expensive for companies. ✔ Paying taxes ✔ Resolving insolvency Oman enacted a new income tax law that Moldova amended its insolvency law to grant ✔ Resolving insolvency redefined the scope of taxation. priority to secured creditors. Namibia adopted a new company law that established clear procedures for liquidation. PAKISTAN MONGOLIA NEPAL ✘ Paying taxes ✔ Getting credit Pakistan increased the profit tax rate for small Mongolia improved its credit information ✔ Enforcing contracts firms. system by eliminating the minimum threshold Nepal improved oversight and monitoring in for loans included in the database. the court, speeding up the process for filing claims. PANAMA MONTENEGRO ✔ Starting a business NEW ZEALAND Panama extended the operating hours of the ✔ Starting a business public registry, reducing the time required to Montenegro made starting a business easier ✔ Paying taxes register a new company. by implementing a one-stop shop. New Zealand reduced its corporate income tax rate and fringe benefit tax rate. ✔ Paying taxes PARAGUAY Montenegro made paying taxes easier and less costly for firms by abolishing a tax, reduc- NICARAGUA ✔ Dealing with construction permits ing the social security contribution rate and Paraguay made dealing with construction ✔ Registering property merging several returns into a single unified permits easier by implementing a risk-based Nicaragua made transferring property more one. approval system and a single window for efficient by introducing a fast-track procedure obtaining construction permits. ✔ Resolving insolvency for registration. Montenegro passed a new bankruptcy law ✔ Getting credit ✔ Paying taxes that introduces reorganization and liquidation Paraguay improved its credit information Nicaragua made paying taxes easier for proceedings, introduces time limits for these system by establishing an online platform for companies by promoting electronic filing and proceedings and provides for the possibility financial institutions to exchange information payment of the major taxes, an option now of recovery of secured creditors’ claims and with the public credit registry. used by the majority of taxpayers. settlement before completion of the entire ✘ Paying taxes bankruptcy procedure. ✔ Enforcing contracts Paraguay made paying taxes more burden- Nicaragua raised the monetary threshold for some for companies by introducing new tax commercial claims that can be brought to the MOROCCO Managua local civil court, leaving lower-value declarations that must be filed monthly. ✔ Dealing with construction permits claims in the local courts, where proceedings Morocco made dealing with construction are simpler and faster. PERU permits easier by opening a one-stop shop. ✔ Starting a business ✔ Protecting investors NIGER Peru made starting a business easier by elimi- Morocco strengthened investor protections nating the requirement for micro and small ✔ Getting credit by allowing minority shareholders to obtain enterprises to deposit start-up capital in a Access to credit in Niger was improved any nonconfidential corporate document dur- bank before registration. through amendments to the OHADA Uniform ing trial. Act on Secured Transactions that broaden the ✔ Protecting investors ✔ Paying taxes range of assets that can be used as collateral Peru strengthened investor protections Morocco eased the administrative burden of (including future assets), extend the security through a new law allowing minority share- paying taxes for firms by enhancing electronic interest to the proceeds of the original asset holders to request access to nonconfidential filing and payment of the corporate income and introduce the possibility of out-of-court corporate documents. tax and value added tax. enforcement.
    • SUMMARIES OF DOING BUSINESS REFORMS IN 2010/11 73✔ Paying taxes ✘ Dealing with construction permits ✔ Getting credit Peru made paying taxes easier for companies Qatar made dealing with construction permits In Rwanda the private credit bureau started to by improving electronic filing and payment more difficult by increasing the time and cost collect and distribute information from utility of the major taxes and promoting the use of to process building permits. companies and also started to distribute more the electronic option among the majority of than 2 years of historical information, improv- ✔ Getting credit taxpayers. ing the credit information system. Qatar improved its credit information system by starting to distribute historical data and ✔ Paying taxesPHILIPPINES eliminating the minimum threshold for loans Rwanda reduced the frequency of value added included in the database. tax filings by companies from monthly to✔ Resolving insolvency quarterly. The Philippines adopted a new insolvency law that provides a legal framework for liquidation ROMANIA and reorganization of financially distressed ✘ Starting a business SÃO TOMÉ AND PRÍNCIPE companies. Romania made starting a business more dif- ✔ Starting a business ficult by requiring a tax clearance certificate São Tomé and Príncipe made starting a busi-POLAND for a new company’s headquarters before ness easier by establishing a one-stop shop, company registration. eliminating the requirement for an operating✔ Trading across borders license for general commercial companies and Poland made trading across borders faster ✔ Paying taxes simplifying publication requirements. by implementing electronic preparation and Romania made paying taxes easier for com- submission of customs documents. panies by introducing an electronic payment ✔ Dealing with construction permits system and a unified return for social secu- São Tomé and Príncipe made dealing with✔ Resolving insolvency rity contributions. It also abolished the annual construction permits easier by reducing the Poland amended its bankruptcy and reorga- minimum tax. time required to process building permit nization law to simplify court procedures and applications. extend more rights to secured creditors. ✔ Resolving insolvency Romania amended its insolvency law to short- ✔ Registering property en the duration of insolvency proceedings. São Tomé and Príncipe made registering prop-PORTUGAL erty less costly by lowering property transfer✔ Starting a business taxes. Portugal made starting a business easier by RUSSIAN FEDERATION ✔ Trading across borders allowing company founders to choose the ✔ Getting electricity amount of minimum capital and make their São Tomé and Príncipe made trading across Russia made getting electricity less costly by paid-in capital contribution up to 1 year after borders faster by adopting legislative, admin- revising the tariffs for connection. the company’s creation, and by eliminating istrative and technological improvements. ✔ Registering property the stamp tax on company’s share capital subscriptions. Russia made registering property transfers easier by eliminating the requirement to ob- SAUDI ARABIA✔ Dealing with construction permits tain cadastral passports on land plots. ✔ Starting a business Portugal made dealing with construction Saudi Arabia made starting a business easier permits easier by streamlining its inspection ✘ Paying taxes by bringing together representatives from the system. Russia increased the social security contribu- Department of Zakat and Income Tax and the tion rate for employers. General Organization of Social Insurance at ✔ Trading across borders the Unified Center to register new companiesPUERTO RICO (U.S.) with their agencies. Russia made trading across borders easier by✔ Starting a business reducing the number of documents needed Puerto Rico (territory of the United States) for each export or import transaction and made starting a business easier by merging SENEGAL lowering the associated cost. the name search and company registration ✔ Starting a business procedures. ✔ Enforcing contracts Senegal made starting a business easier Russia made filing a commercial case easier by replacing the requirement for a copy of✔ Dealing with construction permits by introducing an electronic case filing system. the founders’ criminal records with one for Puerto Rico (territory of the United States) a sworn declaration at the time of the com- made dealing with construction permits easier pany’s registration. by creating the Office of Permits Management RWANDA to streamline procedures. ✔ Getting credit ✔ Starting a business Rwanda made starting a business easier by Access to credit in Senegal was improved reducing the business registration fees. through amendments to the OHADA UniformQATAR Act on Secured Transactions that broaden the✔ Starting a business ✘ Registering property range of assets that can be used as collateral Qatar made starting a business easier by Rwanda made transferring property more (including future assets), extend the security combining commercial registration and reg- expensive by enforcing the checking of the interest to the proceeds of the original asset istration with the Chamber of Commerce and capital gains tax. and introduce the possibility of out-of-court Industry at the one-stop shop. enforcement.
    • 74 DOING BUSINESS 2012 ✔ Trading across borders SLOVENIA SRI LANKA Senegal made trading across borders less ✔ Registering property ✔ Protecting investors costly by opening the market for transport, which increased competition. Slovenia made transferring property easier Sri Lanka strengthened investor protections and less costly by introducing online proce- by requiring greater corporate disclosure on ✔ Enforcing contracts dures and reducing fees. transactions between interested parties. Senegal made enforcing contracts easier by ✔ Trading across borders ✔ Paying taxes launching specialized commercial chambers in the court. Slovenia made trading across borders faster Sri Lanka made paying taxes less costly for by introducing online submission of customs businesses by abolishing the turnover tax and declaration forms. social security contribution and by reducing SERBIA corporate income tax, value added tax and ✔ Resolving insolvency national building tax rates. ✔ Registering property Slovenia simplified and streamlined the insol- Serbia made transferring property quicker by vency process and strengthened professional offering an expedited option. requirements for insolvency administrators. ST. KITTS AND NEVIS ✔ Resolving insolvency ✔ Paying taxes Serbia adopted legislation introducing profes- SOLOMON ISLANDS St. Kitts and Nevis made paying taxes easier sional requirements for insolvency adminis- by introducing a value added tax. ✔ Starting a business trators and regulating their compensation. The Solomon Islands made starting a business easier by implementing an online registration SWAZILAND SEYCHELLES process. ✔ Registering property ✔ Paying taxes ✔ Registering property Swaziland made transferring property The Seychelles made paying taxes less costly The Solomon Islands made registering prop- quicker by streamlining the process at the for firms by eliminating the social security tax. erty faster by separating the land registry from land registry. the business and movable property registries. ✔ Trading across borders The Seychelles made trading across borders ✔ Protecting investors SWEDEN faster by introducing electronic submission of The Solomon Islands strengthened investor ✘ Registering property customs documents. protections by increasing shareholder access Sweden increased the cost of transferring to corporate information. property between companies. ✘ Enforcing contracts The Seychelles expanded the jurisdiction of ✔ Resolving insolvency the lower court, increasing the time required The Solomon Islands adopted a new law that SWITZERLAND to enforce contracts. simplified insolvency proceedings. ✔ Getting electricity Switzerland made getting electricity less cost- SIERRA LEONE SOUTH AFRICA ly by revising the conditions for connections. ✔ Getting credit ✔ Starting a business ✔ Resolving insolvency Sierra Leone improved its credit information South Africa made starting a business easier Switzerland introduced a unified civil proce- system by enacting a new law providing for by implementing its new company law, which dure code and made a number of changes to the creation of a public credit registry. eliminated the requirement to reserve a com- its federal bankruptcy law. pany name and simplified the incorporation ✔ Trading across borders documents. Sierra Leone made trading across borders SYRIAN ARAB REPUBLIC faster by implementing the Automated ✔ Registering property System for Customs Data (ASYCUDA). South Africa made transferring property less ✔ Starting a business costly and more efficient by reducing the Syria made starting a business less costly by ✔ Enforcing contracts transfer duty and introducing electronic filing. reducing both the minimum capital require- Sierra Leone made enforcing contracts easier ment and the cost of publication for the by launching a fast-track commercial court. ✔ Resolving insolvency registration notice. South Africa introduced a new reorganization ✔ Resolving insolvency process to facilitate the rehabilitation of finan- Sierra Leone established a fast-track commer- cially distressed companies. TAIWAN, CHINA cial court in an effort to expedite commercial cases, including insolvency proceedings. ✔ Starting a business SPAIN Taiwan, China, made starting a business easier by implementing an online one-stop shop for SLOVAK REPUBLIC ✔ Starting a business business registration. Spain made starting a business easier by re- ✔ Getting credit ✔ Dealing with construction permits ducing the cost and by reducing the minimum The Slovak Republic improved its credit in- capital requirement. Taiwan, China, made dealing with construc- formation system by guaranteeing by law the tion permits easier by creating a one-stop right of borrowers to inspect their own data. center.
    • SUMMARIES OF DOING BUSINESS REFORMS IN 2010/11 75 TAJIKISTAN TONGA UKRAINE✔ Starting a business ✔ Starting a business ✔ Starting a business Tajikistan made starting a business easier by Tonga made starting a business easier by Ukraine made starting a business easier by allowing entrepreneurs to pay in their capital implementing an electronic system at the eliminating the requirement to obtain ap- up to 1 year after the start of operations, registry, which reduced the time required for proval for a new corporate seal. thereby eliminating the requirements related verification of the uniqueness of the company ✔ Paying taxes to opening a bank account. name and for registration of the company. The costs for the name search, company registra- Ukraine made paying taxes easier and less✘ Getting credit costly for firms by revising and unifying tax leg- tion and business license increased, however. Access to credit using movable property in islation, reducing corporate income tax rates Tajikistan became more complicated because ✔ Getting electricity and unifying social security contributions. the movable collateral registry stopped its Tonga made getting electricity faster by imple- ✘ Trading across borders operations in January 2011. menting a time limit for the safety inspection. Ukraine made trading across borders more ✘ Registering property difficult by introducing additional inspections TANZANIA Tonga made transferring property more costly. for customs clearance of imports.✔ Trading across borders ✔ Getting credit ✔ Enforcing contracts Tanzania made trading across borders faster Tonga strengthened its secured transactions Ukraine amended legislation to streamline by implementing the Pre-Arrival Declaration system by passing a new law that allows a commercial dispute resolution and increase (PAD) system and electronic submission of general description of the obligation in the se- the efficiency of enforcement procedures. customs declarations. curity agreement and gives secured creditors ✔ Resolving insolvency priority outside bankruptcy. Ukraine amended its legislation on enforce- THAILAND ment, introducing more guarantees for✔ Starting a business TRINIDAD AND TOBAGO secured creditors. Thailand made starting a business easier by ✘ Dealing with construction permits introducing a one-stop shop. Trinidad and Tobago made dealing with con- UNITED ARAB EMIRATES✘ Registering property struction permits costlier by increasing the ✔ Starting a business fees for building permit approvals. Thailand made registering property more The United Arab Emirates made starting expensive by increasing the registration fee. a business easier by merging the require- TURKEY ments to file company documents with the TIMOR-LESTE Department for Economic Development, to ✔ Starting a business obtain a trade license and to register with the✔ Starting a business Turkey made starting a business less costly by Dubai Chamber of Commerce and Industry. Timor-Leste made starting a business faster eliminating notarization fees for the articles of by improving the registration process. association and other documents. ✔ Getting credit The United Arab Emirates improved its credit ✔ Paying taxes✔ Getting credit information system through a new law allow- Timor-Leste improved its credit information Turkey lowered the social security contribu- ing the establishment of a federal credit bu- system by establishing a public credit registry. tion rate for companies by offering them a 5% reau under the supervision of the central bank. rebate. TOGO UNITED KINGDOM UGANDA✔ Getting credit ✔ Dealing with construction permits ✘ Starting a business Access to credit in Togo was improved The United Kingdom made dealing with through amendments to the OHADA Uniform Uganda introduced changes that added time construction permits easier by increasing Act on Secured Transactions that broaden the to the process of obtaining a business license, efficiency in the issuance of planning permits. range of assets that can be used as collateral slowing business start-up. But it simplified (including future assets), extend the security registration for a tax identification number and interest to the proceeds of the original asset for value added tax by introducing an online URUGUAY and introduce the possibility of out-of-court system. ✔ Starting a business enforcement. ✔ Registering property Uruguay made starting a business easier by✔ Paying taxes Uganda increased the efficiency of property establishing a one-stop shop for general com- Togo reduced its corporate income tax rate. transfers by establishing performance stan- mercial companies. dards and recruiting more officials at the land ✔ Getting credit office. Uruguay improved its credit information system by introducing a new online platform allowing access to credit reports for financial institutions, public utilities and borrowers.
    • 76 DOING BUSINESS 2012 UZBEKISTAN ✔ Registering property YEMEN, REP. Vanuatu made registering property easier by ✔ Starting a business ✔ Paying taxes computerizing the land registry. Uzbekistan made starting a business easier by The Republic of Yemen enacted a new tax reducing the minimum capital requirement, ✔ Trading across borders law that reduced the general corporate tax eliminating 1 procedure and reducing the cost Vanuatu made trading across borders faster rate from 35% to 20% and abolished all tax of registration. by upgrading Port-Vila’s wharf infrastructure, exemptions except those granted under the which increased the efficiency of port and investment law for investment projects. terminal handling activities. VANUATU ✔ Starting a business ZAMBIA Vanuatu made starting a business easier VENEZUELA, RB ✘ Registering property by reducing the time required for company ✘ Paying taxes Zambia made registering property more costly registration at the Vanuatu Financial Services República Bolivariana de Venezuela made by increasing the property transfer tax rate. Commission and issuing provisional licenses paying taxes costlier for firms by doubling the at the Department of Customs. municipal economic activities tax (sales tax). ✘ Dealing with construction permits Vanuatu made dealing with construction per- VIETNAM mits more difficult by increasing the number ✔ Protecting investors of procedures and the cost to obtain a building permit. Vietnam strengthened investor protections by requiring higher standards of accountability for company directors.
    • 77Country tables ✔ Reform making it easier to do business ✘ Reform making it more difficult to do business AFGHANISTAN South Asia GNI per capita (US$) 517 Ease of doing business (rank) 160 Low income Population (m) 30.6 Starting a business (rank) 30 Registering property (rank) 172 Trading across borders (rank) 179 Procedures (number) 4 Procedures (number) 9 Documents to export (number) 10 Time (days) 7 Time (days) 250 Time to export (days) 74 Cost (% of income per capita) 25.8 Cost (% of property value) 5.0 Cost to export (US$ per container) 3,545 Minimum capital (% of income per capita) 0.0 Documents to import (number) 10 Getting credit (rank) 150 Time to import (days) 77 Dealing with construction permits (rank) 162 Strength of legal rights index (0-10) 6 Cost to import (US$ per container) 3,830 Procedures (number) 12 Depth of credit information index (0-6) 0 Time (days) 334 Public registry coverage (% of adults) 0.0 Enforcing contracts (rank) 161 Cost (% of income per capita) 4,876.4 Private bureau coverage (% of adults) 0.0 Procedures (number) 47 Time (days) 1,642✔ Getting electricity (rank) 104 Protecting investors (rank) 183 Cost (% of claim) 25.0 Procedures (number) 4 Extent of disclosure index (0-10) 1 Time (days) 109 Extent of director liability index (0-10) 1 Resolving insolvency (rank) 105 Cost (% of income per capita) 3,956.8 Ease of shareholder suits index (0-10) 1 Time (years) 2.0 Strength of investor protection index (0-10) 1.0 Cost (% of estate) 25 Recovery rate (cents on the dollar) 26.5 Paying taxes (rank) 63 Payments (number per year) 8 Time (hours per year) 275 Total tax rate (% of profit) 36.4 ALBANIA Eastern Europe & Central Asia GNI per capita (US$) 4,000 Ease of doing business (rank) 82 Upper middle income Population (m) 3.2 Starting a business (rank) 61 ✔ Registering property (rank) 118 Trading across borders (rank) 76 Procedures (number) 5 Procedures (number) 6 Documents to export (number) 7 Time (days) 5 Time (days) 33 Time to export (days) 19 Cost (% of income per capita) 29.0 Cost (% of property value) 11.9 Cost to export (US$ per container) 745 Minimum capital (% of income per capita) 0.0 Documents to import (number) 8 Getting credit (rank) 24 Time to import (days) 18✘ Dealing with construction permits (rank) 183 Strength of legal rights index (0-10) 9 Cost to import (US$ per container) 730 Procedures (number) NO PRACTICE Depth of credit information index (0-6) 4 Time (days) NO PRACTICE Public registry coverage (% of adults) 12.0 Enforcing contracts (rank) 85 Cost (% of income per capita) NO PRACTICE Private bureau coverage (% of adults) 0.0 Procedures (number) 39 Time (days) 390 Getting electricity (rank) 154 Protecting investors (rank) 16 Cost (% of claim) 35.7 Procedures (number) 6 Extent of disclosure index (0-10) 8 Time (days) 177 Extent of director liability index (0-10) 9 Resolving insolvency (rank) 64 Cost (% of income per capita) 585.6 Ease of shareholder suits index (0-10) 5 Time (years) 2.0 Strength of investor protection index (0-10) 7.3 Cost (% of estate) 10 Recovery rate (cents on the dollar) 40.2 Paying taxes (rank) 152 Payments (number per year) 44 Time (hours per year) 371 Total tax rate (% of profit) 38.5 Note: Most indicator sets refer to a case scenario in the largest business city of each economy. For more details, see the data notes.
    • 78 DOING BUSINESS 2012 ✔ Reform making it easier to do business ✘ Reform making it more difficult to do business ALGERIA Middle East & North Africa GNI per capita (US$) 4,460 Ease of doing business (rank) 148 Upper middle income Population (m) 35.4 Starting a business (rank) 153 Registering property (rank) 167 Trading across borders (rank) 127 Procedures (number) 14 Procedures (number) 10 Documents to export (number) 8 Time (days) 25 Time (days) 48 Time to export (days) 17 Cost (% of income per capita) 12.1 Cost (% of property value) 7.1 Cost to export (US$ per container) 1,248 Minimum capital (% of income per capita) 30.6 Documents to import (number) 9 ✔ Getting credit (rank) 150 Time to import (days) 27 Dealing with construction permits (rank) 118 Strength of legal rights index (0-10) 3 Cost to import (US$ per container) 1,318 Procedures (number) 19 Depth of credit information index (0-6) 3 Time (days) 281 Public registry coverage (% of adults) 0.3 Enforcing contracts (rank) 122 Cost (% of income per capita) 23.1 Private bureau coverage (% of adults) 0.0 Procedures (number) 45 Time (days) 630 Getting electricity (rank) 164 Protecting investors (rank) 79 Cost (% of claim) 21.9 Procedures (number) 6 Extent of disclosure index (0-10) 6 Time (days) 159 Extent of director liability index (0-10) 6 Resolving insolvency (rank) 59 Cost (% of income per capita) 1,579.0 Ease of shareholder suits index (0-10) 4 Time (years) 2.5 Strength of investor protection index (0-10) 5.3 Cost (% of estate) 7 Recovery rate (cents on the dollar) 41.7 Paying taxes (rank) 164 Payments (number per year) 29 Time (hours per year) 451 Total tax rate (% of profit) 72.0 ANGOLA Sub-Saharan Africa GNI per capita (US$) 3,960 Ease of doing business (rank) 172 Lower middle income Population (m) 19.0 Starting a business (rank) 167 ✔ Registering property (rank) 129 Trading across borders (rank) 163 Procedures (number) 8 Procedures (number) 7 Documents to export (number) 11 Time (days) 68 Time (days) 184 Time to export (days) 48 Cost (% of income per capita) 118.9 Cost (% of property value) 3.2 Cost to export (US$ per container) 1,850 Minimum capital (% of income per capita) 25.3 Documents to import (number) 8 ✔ Getting credit (rank) 126 Time to import (days) 45 Dealing with construction permits (rank) 115 Strength of legal rights index (0-10) 3 Cost to import (US$ per container) 2,690 Procedures (number) 11 Depth of credit information index (0-6) 4 Time (days) 321 Public registry coverage (% of adults) 2.4 Enforcing contracts (rank) 181 Cost (% of income per capita) 180.3 Private bureau coverage (% of adults) 0.0 Procedures (number) 46 Time (days) 1,011 Getting electricity (rank) 120 Protecting investors (rank) 65 Cost (% of claim) 44.4 Procedures (number) 8 Extent of disclosure index (0-10) 5 Time (days) 48 Extent of director liability index (0-10) 6 Resolving insolvency (rank) 160 Cost (% of income per capita) 890.5 Ease of shareholder suits index (0-10) 6 Time (years) 6.2 Strength of investor protection index (0-10) 5.7 Cost (% of estate) 22 Recovery rate (cents on the dollar) 6.9 Paying taxes (rank) 149 Payments (number per year) 31 Time (hours per year) 282 Total tax rate (% of profit) 53.2 ANTIGUA AND BARBUDA Latin America & Caribbean GNI per capita (US$) 10,610 Ease of doing business (rank) 57 Upper middle income Population (m) 0.1 Starting a business (rank) 80 Registering property (rank) 124 Trading across borders (rank) 71 Procedures (number) 8 Procedures (number) 7 Documents to export (number) 5 Time (days) 21 Time (days) 26 Time to export (days) 16 Cost (% of income per capita) 12.5 Cost (% of property value) 10.9 Cost to export (US$ per container) 1,202 Minimum capital (% of income per capita) 0.0 Documents to import (number) 5 Getting credit (rank) 98 Time to import (days) 15 Dealing with construction permits (rank) 21 Strength of legal rights index (0-10) 8 Cost to import (US$ per container) 1,633 Procedures (number) 10 Depth of credit information index (0-6) 0 Time (days) 134 Public registry coverage (% of adults) 0.0 Enforcing contracts (rank) 70 Cost (% of income per capita) 26.8 Private bureau coverage (% of adults) 0.0 Procedures (number) 45 Time (days) 351 Getting electricity (rank) 16 Protecting investors (rank) 29 Cost (% of claim) 22.7 Procedures (number) 4 Extent of disclosure index (0-10) 4 Time (days) 42 Extent of director liability index (0-10) 8 Resolving insolvency (rank) 81 Cost (% of income per capita) 150.1 Ease of shareholder suits index (0-10) 7 Time (years) 3.0 Strength of investor protection index (0-10) 6.3 Cost (% of estate) 7 Recovery rate (cents on the dollar) 35.0 Paying taxes (rank) 135 Payments (number per year) 57 Time (hours per year) 207 Total tax rate (% of profit) 41.5 Note: Most indicator sets refer to a case scenario in the largest business city of each economy. For more details, see the data notes.
    • COUNTRY TABLES 79 ✔ Reform making it easier to do business ✘ Reform making it more difficult to do business ARGENTINA Latin America & Caribbean GNI per capita (US$) 8,450 Ease of doing business (rank) 113 Upper middle income Population (m) 40.7 Starting a business (rank) 146 ✘ Registering property (rank) 139 Trading across borders (rank) 102 Procedures (number) 14 Procedures (number) 7 Documents to export (number) 7 Time (days) 26 Time (days) 53 Time to export (days) 13 Cost (% of income per capita) 11.9 Cost (% of property value) 7.0 Cost to export (US$ per container) 1,480 Minimum capital (% of income per capita) 2.2 Documents to import (number) 7 Getting credit (rank) 67 Time to import (days) 16 Dealing with construction permits (rank) 169 Strength of legal rights index (0-10) 4 Cost to import (US$ per container) 1,810 Procedures (number) 25 Depth of credit information index (0-6) 6 Time (days) 365 Public registry coverage (% of adults) 35.9 Enforcing contracts (rank) 45 Cost (% of income per capita) 107.7 Private bureau coverage (% of adults) 100.0 Procedures (number) 36 Time (days) 590 Getting electricity (rank) 58 Protecting investors (rank) 111 Cost (% of claim) 16.5 Procedures (number) 6 Extent of disclosure index (0-10) 6 Time (days) 67 Extent of director liability index (0-10) 2 Resolving insolvency (rank) 85 Cost (% of income per capita) 20.4 Ease of shareholder suits index (0-10) 6 Time (years) 2.8 Strength of investor protection index (0-10) 4.7 Cost (% of estate) 12 Recovery rate (cents on the dollar) 32.9 Paying taxes (rank) 144 Payments (number per year) 9 Time (hours per year) 415 Total tax rate (% of profit) 108.2 ARMENIA Eastern Europe & Central Asia GNI per capita (US$) 3,090 Ease of doing business (rank) 55 Lower middle income Population (m) 3.1✔ Starting a business (rank) 10 Registering property (rank) 5 Trading across borders (rank) 104 Procedures (number) 3 Procedures (number) 3 Documents to export (number) 5 Time (days) 8 Time (days) 7 Time to export (days) 13 Cost (% of income per capita) 2.9 Cost (% of property value) 0.3 Cost to export (US$ per container) 1,815 Minimum capital (% of income per capita) 0.0 Documents to import (number) 8 ✔ Getting credit (rank) 40 Time to import (days) 18✔ Dealing with construction permits (rank) 57 Strength of legal rights index (0-10) 6 Cost to import (US$ per container) 2,195 Procedures (number) 18 Depth of credit information index (0-6) 6 Time (days) 79 Public registry coverage (% of adults) 23.7 Enforcing contracts (rank) 91 Cost (% of income per capita) 57.1 Private bureau coverage (% of adults) 46.6 Procedures (number) 49 Time (days) 440 Getting electricity (rank) 150 Protecting investors (rank) 97 Cost (% of claim) 19.0 Procedures (number) 6 Extent of disclosure index (0-10) 5 Time (days) 242 Extent of director liability index (0-10) 2 ✔ Resolving insolvency (rank) 62 Cost (% of income per capita) 257.8 Ease of shareholder suits index (0-10) 8 Time (years) 1.9 Strength of investor protection index (0-10) 5.0 Cost (% of estate) 4 Recovery rate (cents on the dollar) 40.3 ✔ Paying taxes (rank) 153 Payments (number per year) 34 Time (hours per year) 500 Total tax rate (% of profit) 40.9 AUSTRALIA OECD high income GNI per capita (US$) 43,740 Ease of doing business (rank) 15 High income Population (m) 22.3 Starting a business (rank) 2 Registering property (rank) 38 Trading across borders (rank) 30 Procedures (number) 2 Procedures (number) 5 Documents to export (number) 6 Time (days) 2 Time (days) 5 Time to export (days) 9 Cost (% of income per capita) 0.7 Cost (% of property value) 5.0 Cost to export (US$ per container) 1,060 Minimum capital (% of income per capita) 0.0 Documents to import (number) 5 Getting credit (rank) 8 Time to import (days) 8 Dealing with construction permits (rank) 42 Strength of legal rights index (0-10) 9 Cost to import (US$ per container) 1,119 Procedures (number) 15 Depth of credit information index (0-6) 5 Time (days) 147 Public registry coverage (% of adults) 0.0 Enforcing contracts (rank) 17 Cost (% of income per capita) 9.9 Private bureau coverage (% of adults) 100.0 Procedures (number