g ss 2007                             oin eCOMP                                             s                     D sin io...
© 2006 The International Bank for Reconstruction and Development / The World Bank1818 H Street NWWashington, D.C. 20433Tel...
ContentsDoing Business 2007: Organization of Eastern Caribbean States       Overview                     1is a regional re...
OverviewIf you were opening a new business in Grenada, the start-     sample rank in the top half on the ease of doing bus...
DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES TABLE 1.1 How do the OECS countries rank globally across the...
oVER VIE W        	3 TABLE 1.3                                                                                 forms aroun...
4	      DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES                                                     ...
STARTINg A BuSINESS         5FIGURE 2.2                                                                               FIGU...
6	    DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATESWhat to reform                                         ...
7                                                                             Dealing with                                ...
8	         DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATESwarehouse there. St. Kitts and Nevis and St. Lucia...
DEALINg WITH LICENSES   9                                                               Do not mandate use of specific sou...
0	      DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES                                                     ...
EMPLoYINg WoRKERS         Restrictions in working hours, however, lower OECS                        rounding severance pay...
DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES                                                          Reg...
REgISTERINg PRoPERT Y          3differences between St. Lucia and the rest. In Antigua and                              is...
4	     DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATESregistry records. Dominica has an electronic database ...
5                                                            Getting creditAccess to credit is consistently cited by the p...
6	      DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATESments between banks. Lenders must contact multiple   ...
gE T TINg CREDIT   7                                                              Introduce electronic collateral registry...
8	      DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES                                                     ...
PRoTEC TINg INVESToRS   9FigurE 7.1                                                                             have exten...
0	     DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES                                                      ...
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Doing Business in the OECS

  1. 1. g ss 2007 oin eCOMP s D sin ion of an St AR ate ING BuganizatCaribbe REG UL AT I ON Or tern IN TH Eas E6 IND EPE ND EN TM EM BER S TA TES OF TH EO E CS
  2. 2. © 2006 The International Bank for Reconstruction and Development / The World Bank1818 H Street NWWashington, D.C. 20433Telephone 202-473-1000Internet www.worldbank.orgE-mail feedback@worldbank.orgAll rights reserved.1 2 3 4 5 09 08 07 06.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 Group does not guaranteethe accuracy of the data included in this work.Publication was made possible by the United States Agency for International Development (USAID)/Caribbean Regional Program, under the terms of contract of the Caribbean Open Trade SupportProgram. The opinions expressed herein are those of the author(s) and do not necessarily reflect theviews of USAID or the United States Government.Rights and PermissionsThe material in this publication is copyrighted. Copying and/or transmitting portions or all of thiswork without permission may be a violation of applicable law. The World Bank Group 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 theOffice of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax:202-522-2422; e-mail: pubrights@worldbank.org.Copies of Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Busi-ness in 2005: Removing Obstacles to Growth, and Doing Business in 2004: Understanding Regulationmay be purchased at www.doingbusiness.org.
  3. 3. ContentsDoing Business 2007: Organization of Eastern Caribbean States Overview 1is a regional report drawing on the data of the global DoingBusiness project and database, as well as the findings of Doing Starting a business 4Business 2007: How to Reform, an annual report published bythe World Bank and the International Finance Corporation. Dealing with licenses 7 Doing Business analyzes government regulations that Employing workers 10enhance business activity and those that constrain it in 175countries, including the six independent member states of the Registering property 12Organization of Eastern Caribbean States (OECS): Antigua Getting credit 15and Barbuda, the Commonwealth of Dominica, Grenada, the Protecting investors 18Federation of St. Christopher (St. Kitts) and Nevis, St. Lucia,and St. Vincent and the Grenadines. Quantitative indicators Paying taxes 20on business regulations and their enforcement can now be Trading across borders 22compared with 169 economies around the world, including 9other Caribbean economies and 34 small states. Enforcing contracts 25 Regulations affecting 10 areas of everyday business are Closing a business 27measured: starting a business, dealing with licenses, employ-ing workers, registering property, getting credit, protecting Data notes 29investors, paying taxes, trading across borders, enforcingcontracts and closing a business. The indicators are used to Doing business indicatorsanalyze economic outcomes and identify what reforms have Indicator table 43worked, where and why. Comparisons with other countries in Country tables 44this report are based on the indicators in Doing Business 2007: Case studiesHow to reform. Other areas important to business—such as a Starting a business 47country’s proximity to large markets, quality of infrastructure Dealing with licenses 50services (other than services related to trading across borders), Registering property 54the security of property from theft and looting, the transpar-ency of government procurement, macroeconomic conditions Acknowledgments 58or the underlying strength of institutions—are not studieddirectly by Doing Business. This regional report is the result of requests by thegovernments of the 6 countries to the Foreign InvestmentAdvisory Service (FIAS), which is a multidonor service of theWorld Bank and the International Finance Corporation. Itwas produced with support from the United States Agency forInternational Development (USAID).
  4. 4. OverviewIf you were opening a new business in Grenada, the start- sample rank in the top half on the ease of doing business.up procedures would take 52 days. In Micronesia, it takes Small states perform well on the ease of dealing withonly 16 days. If your company were to comply with all tax licenses, employing workers and paying taxes. But fewrequirements in Antigua and Barbuda, it would take 44 small states make it easy to register property, get creditseparate payments and 528 administrative hours per year. or enforce contracts.The same firm would make only 7 payments in Mauri- Last year, 13 small states introduced 18 reforms totius, requiring 158 hours of preparation time. And if you make it easier to do business, while 5 had negative re-needed to take a customer to court in Dominica, resolving forms. Only 2 of the positive reforms were in OECS coun-the dispute would take an average of 681 days. In Singa- tries, both in Antigua and Barbuda: improved regulationspore the same case could be resolved in just 120 days. for registering a new business and reduced tax rates (table Starting a business is a leap of faith even in the 1.2). More reform in OECS countries is needed.best of circumstances. Governments should encourage Reform can ease the bureaucratic burden on allthe daring. And many do. Globally, 213 reforms in 112 businesses: small and large, domestic and foreign, ruraleconomies were introduced between January 2005 and and urban. By providing easy start-up requirements andApril 2006. The reforms led to simpler business regula- strong property rights, any business will have the op-tions, stronger property rights, lighter tax burdens and portunity to thrive. Better performance on the indicatorseasier tax administration, improved access to credit FIGURE 1.1and lower costs of cross-border trade for entrepreneurs Where is it easy to do business in the OECS, and where not?worldwide. OECS ranking 1 SINGAPORE Global ranking Doing Business measures the ways in which govern- 1 St. Luciament regulations enhance business activity or restrain it. 2 Antigua and 27 33The results for the OECS1 countries are presented here Barbuda 44 3 St. Vincent and(figure 1.1). The OECS countries perform well on the the Grenadines 72, 73ease of starting a business, dealing with licenses and the 4 Dominica 85strength of investor protections. OECS countries fall be- 5 Grenadahind on the ease of getting credit, enforcing contracts and 6 St. Kitts and Nevisclosing a business. Results are mixed for trading acrossborders, registering property and paying taxes (table 1.1). Globally, small states2 perform slightly better than 175 CONGO, DEM. REP.larger economies on the Doing Business rankings. Two- Note: Rankings on the ease of doing business are the average of the country rankings on the 10 topics covered in Doing Business 2007. The rankings for all 175 economies arethirds of the 40 small states included in the global benchmarked to April 2006. Source: Doing Business database (www.doingbusiness.org).
  5. 5. DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES TABLE 1.1 How do the OECS countries rank globally across the Doing Business topics? Starting a Dealing with Employing Registering Getting Protecting Paying Trading across Enforcing Closing a business licenses workers property credit investors taxes borders contracts business Antigua and Barbuda 5 40 7 0 9 45 47 47 54 Dominica 4 34 50 78 0 9 0 97 59 5 Grenada 50 34 45 83 9 45 84 43 5 St. Kitts and Nevis 05 7 35 36 7 9 6 37 35 5 St. Lucia 43 0 9 5 0 9 9 45 60 39 St. Vincent and the Grenadines 9 48 0 83 9 3 48 5 5 OECS average 46 13 39 97 98 19 61 60 128 116 Note: Rankings for each indicator set are the average of the country rankings across the 175 economies measured by Doing Business on each group of sub-indicators. See the Data notes for details. Source: Doing Business database (www.doingbusiness.org).measured by Doing Business is associated with greater adopting the best regulations in the world rather thaneconomic growth,3 lower unemployment and less infor- through competing against each other. With harmo-mality.4 Yet good regulatory performance is not a func- nized regulations, investors have less opportunity to playtion of wealth: poorer economies can—and frequently individual countries against each other. Third, coordi-do—perform better than richer economies on the Doing nating the reform effort can reduce the costs of adoptingBusiness indicators. technologies to improve the efficiency of government. Some laws affecting businesses have already beenReforming business regulations in OECS countries harmonized. The OECS countries share similar compa- nies acts that guide business start-up and the legal rightsThe OECS member states are on a path to greater of borrowers and lenders, as well as bankruptcy proce-economic integration—among themselves and in the dures. Contract enforcement is subject to common civilcontext of the Caribbean Single Market Economy. As procedure rules. And a common trade policy is being de-they integrate economically, reform is needed to further veloped in the context of the larger Caribbean Commu-harmonize regulations across member countries. nity (CARICOM). Yet in the remaining areas of business This has several advantages. First, economic har- regulation covered by this report—construction licens-monization will make it easier for businesses to expand ing, labor, taxes and property registration—the OECSacross the sub-region. Currently, companies willing to member countries continue to use different legislation.operate in several OECS countries must deal with differ- Differences also arise in how harmonized legislationent procedures and requirements in each of them, ham- is implemented in each jurisdiction. Despite the similarpering their entry and growth in the different markets. companies acts, starting a business in St. Vincent and theSecond, countries can focus on attracting investors by Grenadines takes 12 days while in St. Kitts and Nevis an entrepreneur needs 47 days to complete all the require- TABLE 1.2 ments. Similarly, a business seeking to resolve a dispute Thirteen small states reformed in 2005/06 with its customer has to follow the same set of procedures Indicator Positive reformers (negative reformers) in all jurisdictions, but doing so takes an average of 297 Starting a business Antigua and Barbuda, Lesotho, Micronesia days in Antigua and Barbuda and 635 in St. Lucia. (Palau, Swaziland) Dealing with licenses (Timor-Leste) The variation in performance is even more striking Employing workers (Djibouti, Maldives) when the regulation has not been harmonized across countries. St. Vincent and the Grenadines emerges as the Registering property Botswana, Mauritius, Seychelles, Swaziland global leader in licensing for the construction industry. Getting credit Mauritius It takes 74 days and 10.6% of average income per capita Paying taxes Antigua and Barbuda, Estonia, Guinea-Bissau, Lesotho, Montenegro to meet all legal requirements to build a warehouse on Trading across borders Jamaica the outskirts of Kingstown. Compare this to 195 days in Enforcing contracts Estonia, Gambia, Guyana Dominica or to 34.9% of average annual income in St. Closing a business Micronesia Lucia. Similar differences can be found when transfer- ring property: St. Kitts and Nevis requires 81 days com- Source: Doing Business database (www.doingbusiness.org).
  6. 6. oVER VIE W 3 TABLE 1.3 forms around the world. The indicators presented in this Caribbean countries can learn from each other report pinpoint the bottlenecks entrepreneurs face when Global Economy Indicator set ranking complying with business regulations. They also provide Dominica Starting a business 4 examples of effective reforms that can eliminate these St. Vincent and the Grenadines Dealing with licenses bottlenecks, borrowing from the best practices within the region. And as the news about reform spreads, there Grenada Employing workers 34 is more interest in replicating success stories. St. Lucia Registering property 5 Trinidad and Tobago Getting credit 48 All OECS Protecting investors 9 Notes St. Lucia Paying taxes 9 1. The term “OECS” in this report refers to the 6 indepen- St. Kitts and Nevis Trading across borders 37 dent member states of the Organization of Eastern Carib- Antigua and Barbuda Enforcing contracts 47 bean States: Antigua and Barbuda, the Commonwealth of Jamaica Closing a business 3 Dominica, Grenada, the Federation of St. Christopher (St. Kitts) and Nevis, St. Lucia and St. Vincent and the Grena- Hypothetical ranking after adopting all best practices 14 dines. The OECS member territories Anguilla, the British Virgin Islands and Montserrat are not included. Source: Doing Business database (www.doingbusiness.org). 2. In this report “small state” refers to any country with a population of 1.5 million people or less, plus Botswana,pared to only 26 in Antigua and Barbuda. Guinea-Bissau, Jamaica, Lesotho and Namibia. The OECS countries can learn from each other. If 3. World Bank. 2004. Doing Business in 2005: Removingeach OECS country were to adopt the region’s best prac- Obstacles to Growth. Washington, D.C.tice in each of the Doing Business indicators, they would 4. World Bank. 2005. Doing Business in 2006: Creatingrank 14th in the world on the ease of doing business. Jobs. Washington, D.C.This means adopting St. Vincent and the Grenadines’slicensing regulations, Grenada’s labor regulations andSt. Lucia’s tax code, for example (table 1.3). And whereOECS countries do not match the global best perform-ers, lessons can be learned from good practices in otherisland economies such as Mauritius.Who is reforming among the OECS countries?Reforms are underway. Antigua and Barbuda separatedits commercial registry from the country’s high court in2005, reducing the time to start a business by 10 days.It also cut the corporate income tax from 35% to 30%.Other reforms are ongoing. Grenada is digitizing itsregistry records. St. Lucia is debating a new labor codeand upgrading electronic processing systems at customs.Dominica has introduced a new value-added tax andAntigua and Barbuda plans to follow suit next year.Electronic customs systems are also under constructionin other OECS countries. Yet more needs to be done. Reforms are needed tokeep up with the rest of the world’s economies, two-thirds of which made at least one reform to improve thebusiness environment last year. Studies like Doing Busi-ness can help. Since its inception in October 2003, theDoing Business project has inspired or informed 48 re-
  7. 7. 4 DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES Starting a businessWhen an entrepreneur draws up a business plan and Starting a business in the OECS is relatively hassle-tries to get underway, she must first face the bureaucracy free compared to other regions of the world. On aver-of registering the new firm. Countries differ in the way age, it takes 6 procedures, 32 days and costs about 28%they regulate the entry of new businesses. In some, the of income per capita. But there are wide differencesprocess is straightforward and affordable. In others, the within the OECS. Antigua and Barbuda makes it easiestprocedures are so burdensome that entrepreneurs either for entrepreneurs, and St. Kitts and Nevis the most dif-bribe officials to speed up the process or run their busi- ficult (table 2.1). Reforms can bring the region closer tonesses informally. the top international performers Australia and Canada, Doing Business documents all the procedures re- where it takes only 2 procedures, less than 3 days andquired for a domestically-owned small company to start between 1% and 2% of income per capita to start a busi-operations in general industrial or commercial activities. ness. The OECS can start by looking at Jamaica, whichThese include obtaining all necessary permits and licenses ranks number 10 globally on the ease of starting a busi-and completing all the required inscriptions, verifications ness. Entrepreneurs there can open a business in 8 daysand notifications with the relevant authorities. The sur- with a cost of 9% of income per capita.vey calculates the cost and time necessary for completing The time to start a business varies within theeach procedure under normal circumstances. OECS—from 12 days in St. Vincent and the Grenadines FIGURE 2.1 St. Vincent and the Grenadines—fastest start-up in the OECS TABLE 2.1 Time (days) Where is it easy to start a business, and where not? Iceland 5 OECS Global Economy ranking ranking St. Vincent and 12 the Grenadines Antigua and Barbuda Dominica 19 Dominica 4 Antigua and Barbuda 21 St. Vincent and the Grenadines 3 9 St. Lucia 4 43 St. Lucia 40 Grenada 5 50 St. Kitts and Nevis 47 St. Kitts and Nevis 6 05 Grenada 52 Note: Rankings are the average of the country rankings on the procedures, time, cost and minimum capital for starting a business. See the Data notes for details. Source: Doing Business database (www.doingbusiness.org). Source: Doing Business database (www.doingbusiness.org).
  8. 8. STARTINg A BuSINESS 5FIGURE 2.2 FIGURE 2.3Start-up costs—low in Puerto Rico, high in the OECS Starting a business in Grenada Cost (% of income per capita) Time (days) Cost (% income per capita) Puerto Rico 0.8 60 40 Antigua and File with registry and receive Barbuda 12.5 company certi cate St. Lucia 25.9 40 27 St. Kitts and Nevis 26.7 Cost Time Dominica 30.0 20 13 St. Vincent and 33.8 the Grenadines Grenada 37.2 0 0 1 4 Procedures Source: Doing Business database (www.doingbusiness.org). Source: Doing Business database (www.doingbusiness.org).to 52 days in Grenada (figure 2.1). The variation in The largest determinants of total cost for companycost is also significant. An entrepreneur in Antigua start-up in the OECS are lawyers’ and notary fees, fol-and Barbuda spends 12.5% of the country’s income per lowed by registration fees. Legal fees range from 50%capita to start up a business. Compare that with 33.8% to 90% of start-up costs and average EC$2,500. As ain St. Vincent and the Grenadines and 37.2% in Grenada percentage of income per capita, legal fees are higher(figure 2.2). in Grenada (25%) and Dominica (22%) and lower in Grenada requires the fewest procedures to open a Antigua and Barbuda (11%) and St. Kitts and Nevisbusiness of any OECS country. But these procedures take (14%). Registration fees also vary widely—from EC$200the longest time to complete due to slow agency interac- (Antigua and Barbuda) to EC$1,200 (Grenada). In St.tions (figure 2.3). After the entrepreneur files the regis- Kitts and Nevis, one third of start-up costs are paid fortration documents with the registry, the registrar then obtaining the business license.informs the tax authority and social security agency of Some reforms are underway. In Grenada, where thethe proposed business. These agencies subsequently com- company registry is combined with the property registry,plete the registrations and inform the firm. This saves the lawyers take on average 3 days to search for a companyentrepreneur trips to multiple agencies, but it still takes name. As one lawyer put it, “The room is always veryover a month to complete all the registrations. Compare crammed and we are always fighting with our colleaguesthat to 7 days in Puerto Rico and 8 days in Jamaica. to get hold of the books.” Not surprisingly, mistakes The OECS countries have already harmonized their occur and duplicate company names exist. But this iscompanies acts, but the procedures required in each changing: an ongoing project will digitize all records.country to start a new business continue to vary. Busi- Antigua and Barbuda separated the company registrynesses in St. Vincent and the Grenadines and St. Kitts from the high court, cutting the registration time fromand Nevis must obtain a separate business license, which 31 to 21 days. But records are still kept in paper format.increases the time and costs of starting a business. In St. The St. Kitts registry has an electronic database, but theKitts and Nevis, entrepreneurs must complete an extra registry in Nevis, the island where most companies areprocedure—obtaining the criminal record of the compa- registered, still uses paper records.ny’s directors.
  9. 9. 6 DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATESWhat to reform Computerize records and introduce electronic name searchReduce the number of proceduresReforms to new business start-up can be simple, inex- Creating a unified electronic database of businesses canpensive and often do not require legislative changes. Ex- cut the time spent on business registration, especially ifperience across the world shows how removing obstacles it links several government agencies. Also, countries canto business start-up is associated with new formal busi- benefit from using the internet. Online procedures suchnesses, added jobs and more investment.1 OECS coun- as search for company name can cut start-up time andtries could simplify business start-up by eliminating pro- cost. Introducing electronic databases and online filingcedures such as the need to obtain criminal records or can reduce time to start a business by 50%.2 Moving for-general business licenses. These steps add bureaucratic ward, the OECS could follow the lead of the Europeanhurdles to company registration and do not improve the Union and create a unified name database for businesses,quality of the business or how it serves the public. accessible online.3 Another way to simplify business start-up is by cre-ating a single access point for entrepreneurs, bringingofficials from different agencies into a single location Notesor sharing information between agencies. Currently 1. World Bank. 2005. Doing Business in 2006: Creating Jobs.entrepreneurs in the OECS must separately register Washington, D.C.the company, obtain the tax identification number and 2. World Bank. 2004. Doing Business in 2005: Removingregister for social security. Portugal introduced a fast- Obstacles to Growth. Washington, D.C.track system to start a business that cut the time from 3. European Business Register. 2006. http://www.ebr.org.54 to 8 days last year. The reform reduced the numberof approvals and government visits in business start-up. It was implemented in 5 months and cost aroundUS$350,000. Guatemala also linked commercial, tax andsocial security registration last year.
  10. 10. 7 Dealing with licensesIn 2004, Hurricane Ivan swept through the Caribbean construction requires a thorough review of the existingleaving a massive trail of destruction and claiming regulations and adjustment as needed on the basis ofdozens of lives. Grenada was the worst hit, with 90% practical experience.of homes suffering damage. In the days following the Doing Business measures the procedures, time anddevastating storm, the BBC reported that: “Ivan left Gre- costs involved for a typical medium-size company tonada a wasteland of flattened houses, twisted metal, and construct a 2-story warehouse in the country’s largestsplintered wood.” Grenadians realized that the damage city. The warehouse complies with all zoning and build-stemmed in part from poor construction practices, with ing regulations. It has electricity, water and seweragefew or inadequate building inspections and frequent fail- connections, as well as a fixed phone line.ure to meet established building code standards. On average, it takes 11 procedures, 127 days and Stricter codes result in fewer deaths—except when 24% of the average OECS country’s income per capitaregulation is so burdensome that construction compa- for a builder to comply with all regulations. Across thenies go around them altogether. Control of the process OECS countries, however, there are wide variations. St.by the government is unrealistic. Yet letting businesses Vincent and the Grenadines is the world’s top performerdo what they like can result in disaster. Striking the and OECS leader (table 3.1). It takes 11 procedures, 74right balance between consumer safety and affordable days and costs 10.6% of income per capita to build a TABLE 3.1 TABLE 3.2 St. Vincent and the Grenadines—global #1 Who regulates licensing the most, and who the least? OECS Global Cost Economy ranking ranking Procedure Time (% income Economy (number) (days) per capita) St. Vincent and the Grenadines St. Vincent and the Grenadines 74 0.6 St. Kitts and Nevis 7 St. Kitts and Nevis 4 7 5. St. Lucia 3 0 St. Lucia 9 39 34.9 Grenada 4 Grenada 8 4 36.5 Antigua and Barbuda 5 5 Antigua and Barbuda 39 7.8 Dominica 6 34 Dominica 95 6.8 Note: Rankings are the average of the country rankings on the procedures, time andcost to build a warehouse. See the Data notes for details. Source: Doing Business database (www.doingbusiness.org). Source: Doing Business database (www.doingbusiness.org).
  11. 11. 8 DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATESwarehouse there. St. Kitts and Nevis and St. Lucia also up and drive him to the site. This takes time and mostrank in the top 10. Building a warehouse is most difficult people don’t do it.”in Dominica, where costs are lower but it takes 195 days Lack of inspections and irregular enforcement alsoto comply with all procedures (table 3.2). compromise worker safety on building sites. A respon- The variation across islands is partly due to different dent in St. Kitts and Nevis comments: “Local contractorsprocessing times by the local planning authorities. In do not enforce proper safety standards at the construc-Dominica it can take up to 7 months for the licensing tion sites. Hard hats are not worn consistently andauthority to process and approve a building plan (fig- workers often walk barefoot on the site.” In contrast,ure 3.1). In St. Kitts and Nevis and St. Vincent and the international contractors working in OECS countriesGrenadines, this process takes 1 month. impose more stringent occupational health and safety Lost time and multiple administrative procedures standards to meet their insurance requirements. More-are costly in and of themselves. So are the associated over, foreign firms tend to abide by the building codes offees for building plan approvals, utility connections their country of origin and choose to hire independentand inspections. These processes are most expensive inspectors such as certified engineers or designers toin Grenada, where the cost is equivalent to 36.5% of inspect their sites.income per capita. The high fees charged for buildingplan approvals stand out in particular. St. Lucia follows,with fees costing 34.5% of income per capita. There, the What to reformhigh cost is due to high charges for electrical, fire andbuilding plan approvals. In contrast, a local construction Introduce risk-based inspectionscompany in St. Vincent and the Grenadines spends only Currently, inspections are inconsistent across OECS10.6% of income per capita and in Dominica, 16.8%. countries. In Antigua, the building code requires 10 Effective construction regulation goes beyond the inspections for each building site but these rarely occur.speed and cost of completing a construction job. Pro- A better approach would be to introduce risk-basedtecting public safety and health through an effective inspections: one inspection once the foundation is laidinspection system is also important. Across the OECS and another after construction is completed. This wouldcountries, inspections are rare. In St. Kitts and Nevis, un- ensure that the building is in compliance with the sub-announced inspections take place 4 or 5 times through- mitted plans and that faulty work is not masked or safetyout the building process. In Dominica, buildings are jeopardized. The current movement throughout theinspected 3 times. In Grenada, St. Lucia and Antigua Caribbean to standardize inspection procedures and im-and Barbuda, no inspections are carried out. One rea- prove building code enforcement is a welcome reform.son is lack of transport for the development authorities.An engineer in Antigua and Barbuda notes: “If I want Adopt a “silence is consent” rulemy site inspected, I have to call the inspector, pick him Time is money for businesses. Often, entrepreneurs doFIGURE 3.1 not know when their building application will be ap-Building a warehouse in Dominica—burdensome proved. Sometimes the application process takes longer than actual construction. To avoid the time uncertainty, Time to build a warehouse (days) a statutory time limit can be set for officials to respond 200 to and decide on an application. If the time limit is ex- Installation of electrical lines ceeded, consent is automatically inferred and the project 150 proceeds. This approach would be most appropriate for administrative procedures where safety is not critical. 100 Consolidate project clearances and provide Apply for environmental impact asessment information to builders to improve transparency 50 Apply for planning permission In St. Lucia, builders must get sign-off on the technical specifications of building plans from the Health Depart- 0 1 Procedures 11 ment, the Ministry of Communications and Works, the Fire Department, and the Development Control Author- Source: Doing Business database (www.doingbusiness.org).
  12. 12. DEALINg WITH LICENSES 9 Do not mandate use of specific sources for materialsity. Negotiating the bureaucracy takes 4 to 5 months. InSt. Vincent and the Grenadines, all project clearances The Commonwealth Act, which applies to all OECSare consolidated into one office—the Development Plan- member countries, requires construction companies toning Authority—and the clearance process takes only 1 purchase materials from within CARICOM. In 2005,month. there was a cement shortage in St. Kitts and Nevis. Con- Unless one is a seasoned contractor in Antigua and tractors eager to keep their projects on track wanted toBarbuda, it would be close to impossible to find out all import cement from Colombia. Such imports requirethe steps and procedures required to obtain a building cabinet-level approval, which proved to be burdensomepermit. “It’s a shot in the dark and you just hope you get and slowed down construction by several months. Hav-it right,” one respondent comments. “Even the govern- ing no restrictions on construction materials wouldment printery does not have copies of the building code.” enable contractors to adapt to market conditions as theyA publicly available chart showing which offices to visit, arise, helping keep costs down so that local industrieswhen and with what documents, and listing the offices’ stay competitive.addresses, working hours and contact numbers, wouldsave builders a lot of time and frustration.Provide on-the-job training to developmentauthority staffRespondents across the OECS countries point to thepoor capacity of the local authorities to review buildingplans and carry out on-site inspections. “It’s not the faultof the people who work in the Development Control Au-thority. They simply don’t receive any on-the-job train-ing and have no resources to inspect building sites,” saysan Antiguan contractor. Development authority capacitywould improve with staff training and sufficient budgetand transport resources to enable inspections.
  13. 13. 0 DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES Employing workersEmployment regulations are designed to protect workers regulation is supposed to protect are hurt the most.from arbitrary, unfair or discriminatory actions by their Labor regulations in OECS countries are relativelyemployers. These regulations—from mandatory mini- flexible compared to the global average (table 4.1). St.mum wage, to premiums for overtime work, grounds for Lucia’s labor regulations offer the most flexibility to em-dismissal and severance pay—have been introduced to ployers, while Dominica’s, the least. But OECS countriesremedy apparent market failures. still fall behind the world’s top performers. Top perform- But each point of regulation creates a new restric- ers include other small states such as Maldives and thetion on a company’s ability to use its workforce effec- Marshall Islands as well as larger economies like Hongtively. Governments struggle to reach the right balance Kong (China) and the United States.between labor market flexibility and job stability. Most Hiring employees in OECS countries is relativelydeveloping countries err on the side of excessive rigidity, easy. Each country allows fixed-term contracts, givingto the detriment of businesses and workers alike. The less businesses the flexibility to hire more workers whenflexible the regulations, the more businesses will find a demand for their products rises, without imposing highway around them—hiring workers informally, paying costs for dismissal if demand declines. Such contractsthem low wages and avoiding health insurance or other can be used for any type of task and do not limit thesocial benefits (figure 4.1). Those whom employment duration of the contract.FIGURE 4.1Rigid employment regulation, more informality Informal sector (share of GDP) TABLE 4.1 Where is employing workers easy, and where not? Greater OECS Global Economy ranking ranking St. Lucia 9 Grenada 34 St. Kitts and Nevis 3 35 Antigua and Barbuda 4 40 Lesser St. Vincent and the Grenadines 5 48 Easiest Most di cult Dominica 6 50 Countries ranked by ease of employing workers, quintiles Note: Relationships are signi cant at the 1% level and remain signi cant when controlling Note: Rankings are the average of the country rankings on the difficulty of firing and the cost of for income per capita. firing indices. See the Data notes for details. Source: Doing Business database (www.doingbusiness.org), Schneider and Klinglmair (2004). Source: Doing Business database (www.doingbusiness.org).
  14. 14. EMPLoYINg WoRKERS Restrictions in working hours, however, lower OECS rounding severance pay vary widely. St. Kitts and Neviscountries’ performance on the Doing Business employing is the most restrictive, requiring 60 weeks of severance,workers measurement. Employees working more than 8 followed by St. Lucia with 56 weeks. Grenada is the leasthours a day or during a weekend or holiday must receive burdensome, requiring only 20 weeks of severance payovertime pay equal to at least one and a half times the reg- for an employee of 20 years (table 4.2).ular wage, except in St. Lucia where such compensation Making labor regulations more flexible is aboutis only required for weekend overtime work. In Domi- creating jobs. But the message is often lost in bad mar-nica, few restaurants are open on Sundays and holidays keting on the part of reformers. Opponents of flexiblebecause of these regulations, according to respondents employment stall reforms by pitting business againstof our survey. This creates a net financial loss in the tour- workers. Rigid regulation indeed benefits a select groupism sector. Yet such rigid regulations allegedly increase of incumbent workers, but it shuts out others from a jobworkers’ welfare. In economies driven by the highs and in the formal sector altogether. And when someone doeslows of tourism, agribusiness and construction, workers lose a job, it is harder to find a new one.might prefer that employers adjust to changing demandthrough flexible working hours rather than through thealternatives: termination or informal work. What to reform Redundancy regulations are also important. Em-ployers in OECS countries benefit from relatively flexible Allow flexible working hoursfiring laws—they are not required to notify a third party To accommodate fluctuations in demand, businessesprior to dismissal, or to solicit third party approval. But sometimes need to have longer workweeks. The currentif a company needs to let people go, obstacles do exist. premiums for overtime work result in higher productionIn St. Kitts and Nevis and in St. Vincent and the Grena- costs and lost competitiveness. To meet a temporarydines, an employer must notify the labor commissioner 20% increase in demand, labor costs in OECS countriesfirst if the company is to make more than 10 employees increase by 30%. Other countries (Hungary, Czech Re-redundant. Dominica, St. Vincent and the Grenadines public) have addressed these swings by allowing swapsand St. Kitts and Nevis have priority rules for reemploy- of working hours between peak and low times. Coun-ment, requiring employers to first rehire senior staff that tries that move to more flexible working hours can bringwere previously dismissed. labor costs down considerably. Long dismissal notification periods and high sev-erance pay requirements can also be burdensome to Move from severance pay to unemploymentemployers. Notification times are similar across OECS insurancecountries and are low compared to the global average, Rather than requiring high severance payments whichranging from 1 month in Antigua and Barbuda to 2 often hit a troubled business at the worst possible time,months in St. Kitts and Nevis. In contrast, rules sur- OECS countries could introduce unemployment insur- ance. This shifts the focus of regulation from protecting jobs to helping workers deal with the transition to a new TABLE 4.2 job when it becomes necessary. Severence pay—high in the OECS Introduce a unified labor code Firing cost Economy (weeks of salary) As CARICOM integration advances, more people and Grenada 0 especially youth will take advantage of job opportunities Antigua and Barbuda 48 away from their home islands. Greater flexibility in labor Dominica 49 regulations and a unified labor code would facilitate this St. Vincent and the Grenadines 54 growing labor mobility, which in turn will lead to higher St. Lucia 56 employment levels in the region. St. Kitts and Nevis 60 Source: Doing Business database (www.doingbusiness.org).
  15. 15. DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES Registering propertyHelen, the owner of a retail company in Basseterre, wants and Timor-Leste. In Maldives, companies are not al-to buy a warehouse outside of town to store her extra lowed to transfer property at all. In the Marshall Islands,inventory. She has identified the property she wants and only one property has been registered in the last year andnegotiated a good deal with the owner. But it will take al- that process took 2 years and multiple disputes.most 3 months and will cost 13.3% of the property value The OECS countries fare better. Still, registeringto legally transfer the property title. Helen doesn’t have property there is costly. A domestic entrepreneur spendsthat much money. The deal is put on hold. on average 47 days and 11% of property value to transfer Making it difficult to transfer title on property dis- title of land from one owner to another.1 Transferring titlecourages investment. When it is too burdensome to go is easiest in St. Lucia and Antigua and Barbuda (tablethrough the official channels, owners transfer ownership 5.1). Registration is most difficult in St. Kitts and Nevisinformally. Governments lose transfer tax revenue. Own- and Grenada. The best performer, St. Lucia, ranks 51st outers lose clear title to their land. And the ability to use the of the 175 countries measured by Doing Business on theland as collateral for a business loan can be lost. ease of registering property. Grenada ranks 145th. Among the 175 economies measured by Doing Busi- In St. Lucia the entrepreneur needs 20 days from startness, 4 small island states prove most difficult to register to finish to transfer the title on a piece of property—theproperty—the Maldives, Marshall Islands, Micronesia shortest time among OECS countries. But there are wide FIGURE 5.1 Almost 3 months to register property in St. Kitts and Nevis TABLE 5.1 Time (days) Where is it easy to register property, and where not? Singapore 9 OECS Global Economy ranking ranking St. Lucia 20 St. Lucia 5 Antigua and Barbuda 26 Antigua and Barbuda 7 St. Vincent and the Grenadines 37 Dominica 3 78 St. Vincent and the Grenadines 4 0 Dominica 40 St. Kitts and Nevis 5 36 Grenada 77 Grenada 6 45 St. Kitts and 81 Nevis Note: Rankings are the average of the country rankings on the procedures, time and cost to register property. See the Data notes for details. Source: Doing Business database (www.doingbusiness.org). Source: Doing Business database (www.doingbusiness.org).
  16. 16. REgISTERINg PRoPERT Y 3differences between St. Lucia and the rest. In Antigua and is done online and takes only a few minutes.Barbuda, it takes 26 days to register property. It takes over Registering property is also expensive in OECS5 weeks in St. Vincent and the Grenadines and Dominica, countries—ranging from 7.3% to 13.3% of propertyand more than 11 weeks in Grenada and St. Kitts and value. Costs come largely from stamp duties and otherNevis (figure 5.1). taxes, followed by legal fees, since lawyers complete St. Lucia has the shortest process for transferring most of these procedures on behalf of their clients. Intitle on property. It takes 5 steps: the lawyer searches Antigua and Barbuda, Dominica and St. Kitts and Nevis,the title at the land registry, checks for encumbrances at the costs add up to over 13% of property value (figurethe High Court, parties pay taxes at the Inland Revenue 5.3). Compare that with Slovakia and New Zealand,Authority, the lawyer prepares the deed of sale and reg- where entrepreneurs pay only 0.1%. St. Lucia and Gre-isters the title deed with the land registry. The last step nada have the lowest costs among the OECS countriesaccounts for 14 out of the 20 days needed to complete studied but they are still higher than in other Caribbeanthe transfer (figure 5.2). Other OECS countries require economies. The cost in Belize is 5% of property value,similar procedures, with some additions. In St. Kitts Guyana 4.5%.and Nevis, the land plan must be verified by a surveyor, Stamp duties and other taxes and fees vary fromcausing a delay of 2 weeks. Obtaining clearance from the country to country. Grenada has the lowest stamp dutywater authority takes 2 weeks in Grenada. Property valu- at 1% of property value, but also charges 5% transfer tax.ation in St. Vincent and the Grenadines takes 9 days. Property owners in St. Kitts and Nevis face the highest The longest delays are at the property registries. stamp duties at 12%, followed by 10% for St. Vincent andOften, the registries are overloaded and lack sufficient the Grenadines and Antigua and Barbuda. In Dominica,staff. In St. Vincent and the Grenadines, lawyers must registration fees add another cost of 2.5% of propertysearch large books page by page for encumbrances. One value, and in St. Vincent and the Grenadines it is 2%.respondent in Dominica summarized her experience at Often, both the buyer and the seller must pay taxes andthe registry: “There is not enough staff and the method stamp duties.is laborious. It requires physical handling of documentsand takes anywhere from a couple of weeks up to severalmonths.” Just receiving confirmation of the title takes What to reformtime. In addition to property titles, the registry in St.Kitts and Nevis also handles deeds of conveyance, bills Digitize records and introduce online accessof sale, intellectual property, probate, marriages, friendly Evidence shows that efficient property registration issocieties, newspapers and trade unions. It takes 2 months associated with greater access to land and finance.2 Itto register the title transfer. Antigua and Barbuda is the is also linked with less corruption and informality. Re-most efficient, with 7 days to register the transfer. Still, formers in OECS countries should follow the lead of St.the time can be shortened—in New Zealand the process Lucia, Antigua and Barbuda and Grenada to fully digitizeFIGURE 5.2 FIGURE 5.3Registering property in St. Lucia Registering property in the OECS—expensive Time to register property Cost Cost (% of property value) (days) (% of property value) Kiribati 0.1 21 6 St. Lucia 7.3 Cost Time Grenada 7.6 14 4 St. Vincent and 11.9 Register title deed the Grenadines with land registry Antigua and Barbuda 13.0 7 2 Dominica 13.0 0 0 St. Kitts and 13.3 1 5 Nevis Procedures Source: Doing Business database (www.doingbusiness.org). Source: Doing Business database (www.doingbusiness.org).
  17. 17. 4 DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATESregistry records. Dominica has an electronic database ofrecords which cuts the time to search the title to oneday, although the actual title certificates are paper-based.Grenada expects to fully digitize its records by 2008. Allrecords from 1992 are already available electronically.The next step will be to introduce online title search,execution and registration—following the example ofthe Netherlands and Australia.Consolidate and reduce taxes and feesCountries in the OECS could also cut stamp duties andother fees. This does not necessarily mean reducinggovernment revenues. High costs encourage informaltransactions and underreporting of property values.Government revenue is lost and the title security forproperty owners falls. In 2005, 15 countries (includ-ing Costa Rica and Nicaragua) reduced or eliminatedtransfer tax and stamp duties. Another simple reform isto consolidate payments. Grenada’s entrepreneurs mustcomplete 3 separate steps to comply with registrationpayments—stamp duty, transfer tax and registration fee.One single payment, preferably at the registrar, wouldsave them time in completing the transaction.Notes1. Doing Business records all the procedures necessary to transfer a property title from the seller to the buyer when a domestic company purchases land and a building. The case of a foreign buyer is not measured. See the Data notes for details.2. World Bank. 2004. Doing Business in 2005: Removing Obstacles to Growth. Washington, D.C.
  18. 18. 5 Getting creditAccess to credit is consistently cited by the private sector Credit information sharing allows creditors to dis-as one of the greatest barriers to growing a business in tinguish good borrowers from bad, price loans correctlyOECS countries. Small businesses are constrained the and reduce the costs of client screening. This can be donemost. Doing Business covers two dimensions of access to through a public credit registry or a private credit bureau.credit in the OECS: access to credit information and the Access to credit information has expanded in manylegal rights of borrowers and lenders. Where lenders have countries but not yet in the OECS. The Dominicanmore information about potential borrowers, they can Republic has started offering more information on out-make better loans to a broader base of customers. And, standing loans and on-time payments. The Dominicanwhere a broad pool of assets may be pledged and lenders Republic, Honduras and Portugal are also allowing bu-can collect them easily, more loans are extended. reaus to use public sources of credit information, such as Getting credit is difficult across the OECS (table court files, when preparing their credit reports. Mauritius6.1). All six countries fall in the bottom half of the global established a new credit registry in 2005 (figure 6.1).ranking on the ease of getting credit. The main reasons There are no credit information agencies in theinclude the lack of a credit information system and OECS. Currently, credit information on borrowers isweaknesses in the regulations affecting the legal rights only available through informal data-sharing agree-of borrowers and lenders. FIGURE 6.1 Expanding credit information TABLE 6.1 Depth of credit information index (0–6) 2005 2006 Getting credit—difficult in the OECS OECS Global Dominican Republic Economy ranking ranking El Salvador Honduras United Kingdom . . Nicaragua Hong Kong, China . . Thailand Grenada 83 Kazakhstan St. Vincent and the Grenadines 83 Bulgaria Antigua and Barbuda 3 0 China Dominica 4 0 Georgia St. Lucia 5 0 Algeria St. Kitts and Nevis 6 7 Mauritius 0 1 2 3 4 5 6 Source: Doing Business database (www.doingbusiness.org). Source: Doing Business database (www.doingbusiness.org).
  19. 19. 6 DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATESments between banks. Lenders must contact multiple tion proceedings.banks to get client references—which can take up to 3 Out-of-court enforcement, which allows creditorsdays. References are usually general and can be mislead- to seize and sell collateral without court involvement, ising. According to one respondent, “It’s as vague as you unavailable in four of the OECS states. Creditors in Gre-can imagine. Sometimes other banks would try to pass nada and St. Kitts and Nevis can seize and sell collateralon bad clients to us by presenting them in a better light without a judicial order. But in the other OECS countriesthan they deserve, while if they try to attract a client, it’s judicial intervention is required. This often takes a longthe opposite.” A bank might indicate that “the client has time. In St. Lucia for example, land foreclosure can takebeen delinquent on a 6-digit loan,” but no specific figures up to 7 years.or details of the delinquency are shared. When the type of security is agreed upon, lenders Collateral laws regulate which assets firms can use want to check for existing rights to the collateral. Theas security to raise capital—from a farmer pledging his best way is through an efficient and well-organizedcow for a tractor loan to the securitization of loan port- collateral registry. While all OECS countries have reg-folios that drives mortgage finance in the United States. istries that handle collateral in one form or another, noBy providing creditors with a right to an asset on default, country has a specialized collateral registry. OECS reg-collateral also reduces a lender’s cost for screening loan istries are also paper-based, which often causes delays inapplicants. And well-designed collateral agreements the creation and enforcement of security rights.facilitate the efficient sale and liquidation of bankrupt Registering collateral takes 2 days in St. Kitts andfirms, if this should become necessary. Nevis, Antigua and Barbuda and Dominica, but up to 15 Doing Business measures 10 areas affecting the rights days in Grenada. Even though the same legal proceduresof borrowers and creditors. Grenada and St. Vincent and apply across the OECS, delays are caused due to overbur-the Grenadines score 7 out of 10 on the strength of legal dened registrar facilities. The situation is most difficult inrights index. St. Lucia, Dominica and Antigua and Bar- Grenada. Ever since Hurricane Ivan destroyed Grenada’sbuda are in the middle with 6, while St. Kitts and Nevis supreme court and interrupted business and legal activ-scores 5. Although a global leader in this area is Hong ity, the Grenadian registry has been confined to oneKong (China), poor countries such as Kenya also score room. Its staff still faces a large backlog of requests. Thewell (figure 6.2). current effort to create an electronic registry should help A common weakness in all OECS countries is the address the problem and is expected to significantlytreatment of secured creditors in liquidation proceed- reduce the time to register collateral.ings. The Companies Act, which is harmonized acrossthe OECS, stipulates that in liquidation proceedings thetax and employee claims rank before debt to secured What to reformcreditors. This makes creditor risk higher. Worldwide,62% of countries rank secured creditors first in liquida- Establish a credit information system The need for a credit information-sharing system inFIGURE 6.2Who has the most legal rights, and who the least? OECS countries is apparent. Private credit bureaus have been more successful worldwide than public bureaus. Strength of legal rights index (0–10) Regulations permit them to collect data from various Hong Kong (China) sources—banks, utility companies, etc. and provide both Kenya positive and negative credit information. When India Grenada St. Vincent and established a new consumer credit bureau in 2005, it the Grenadines enabled banks to check the credit history of more than St. Lucia 12 million borrowers in the first year. Antigua and Barbuda Credit bureaus also allow banks to share the fixed Dominica cost of having a credit information system, which ben- Jamaica efits the banks and their customers. With the move Trinidad and Tobago towards further CARICOM integration and the growing St. Kitts and Nevis cross-country movement of individuals and companies, 0 2 4 6 8 10 the need for a unified OECS-wide credit bureau will Source: Doing Business database (www.doingbusiness.org).
  20. 20. gE T TINg CREDIT 7 Introduce electronic collateral registrygrow further. Companies creating multi-country opera-tions are likely to borrow from banks in their new host More than 25 countries make the collateral registryislands, while individuals will seek credit as they settle accessible electronically. Those that do often have sig-in jurisdictions away from home in their pursuit of job nificantly faster registration and more credit, controllingopportunities. for other factors. The Romanian registry permits notice filing and is online, allowing creditors to check for exist-Provide general asset descriptions in secured ing liens instantly.transactionsWhen banks in the OECS set up collateral agreements, Refrain from credit subsidiesthey accept a limited set of assets as security: land, ve- Access to credit is critical to ensure strong businesshicles and inventory. They also require detailed descrip- growth—and a lack of access affects small business thetions of the assets, such as a vehicle’s chassis and engine most. Problems often lie in weak credit informationnumbers. This forces borrowers to continually revise the systems and weak collateral laws. Reformers should ad-collateral agreement every time an asset leaves the pool. dress these areas first. Some have been tempted by theExpanding the assets that can be used as collateral, al- idea that subsidies can increase access to credit. But ex-lowing for a rotating pool of assets and providing general perience shows otherwise. Before being closed in 2005,asset descriptions makes it easier for borrowers to secure Mexico’s Banrural, which subsidized loans for farmers,a loan and for lenders to approve it. lost $20 million a month. Every dollar of loans cost 30 cents to process, and more than 45% of loans wereEnable out-of-court enforcement nonperforming. Worse, the continued subsidies kept outEnsuring that out-of-court enforcement does not col- sound lending from private banks.lapse at the first objection of the debtor cuts enforce-ment time by three-quarters on average. The less courtsare involved, the shorter the time and the more willingcreditors are to lend. But if the case does go to court,summary proceedings can improve efficiency by limit-ing the debtor’s ability to delay the process. Armenia hasrecently encouraged enforcement out of court by remov-ing the requirement that summary judgment be agreedto by both parties following a debtor’s default.
  21. 21. 8 DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES Protecting investorsFinancial markets can prosper where laws regulate self- OECS countries fall short, however, in the disclosuredealing—the use of corporate assets for personal gain— required for large transactions involving a corporateand punish looting by corporate insiders. Regulations insider (table 7.1). The OECS regulations require fullcan encourage equity financing by requiring companies disclosure to the board of directors in case one of itsto report on their operations and allowing investors to members has a conflict of interest in a company’s trans-vet major actions by the company. Where small investors action, but no immediate disclosure of the transaction tosee a high risk of expropriation, they do not invest. the shareholders or the public is required. Nor is a review The harmonized companies acts and civil procedure of the transaction by an external expert required. Mexicocodes provide the foundation for strong corporate gov- recently reformed its laws to require all of these things.ernance in OECS countries. Based on these provisions, Investors do have redress against directors whothe OECS score 6.3 out of a maximum of 10 possible harm the company for their own profit. The companiespoints in the Doing Business protecting investors’ mea- acts permit investors to recover damages against anysurements. New Zealand—the global best performer— director when the company’s actions are unfair or preju-scores 9.7 (figure 7.1). Because all the applicable laws dicial to minority shareholders. Investors may also voidare harmonized, there is no variation among the OECS the harmful transaction, although the director cannot becountries. fined or imprisoned for it. And while at trial, investorsFIGURE 7.1New Zealand tops the global ranking in investor protections Strength of investor protection index (0–10) 10 8 OECS score 6 4 Regional average Jamaica Fiji Norway Mauritius United States Singapore New Zealand for Latin America Note: Scores on the strength of investor protection index are the average of each country’s performance on the extent of disclosure, extent of director liability and ease of shareholder suit indices. See the Data notes for details. Source: Doing Business database (www.doingbusiness.org).
  22. 22. PRoTEC TINg INVESToRS 9FigurE 7.1 have extensive rights to access information and chal-Who protects investors the most, and who the least? lenge witnesses in court. Strength of The Eastern Caribbean Stock Exchange’s effort to Extent of Extent of Ease of investor disclosure director shareholder protection create new corporate governance principles is a good index liability index suit index index start to strengthening investor protections. Around theNew Zealand 0 9 0 9.7 world, since 2004, 13 countries have increased theirIsrael 7 9 9 8.3 disclosure requirements: Israel, Italy, Mexico, Pakistan,Mauritius 6 8 9 7.7 Peru, Romania, Spain, Sweden, Thailand, Turkey, UnitedOECS 4 8 7 6.3 Kingdom and Vietnam. Broader disclosure require-France 0 5 5.3 ments can deepen investor trust—thereby deepeningIceland 4 5 6 5.0 investment—in OECS companies.Source: Doing Business database (www.doingbusiness.org).
  23. 23. 0 DoINg BuSINESS 2007: oRgANIZATIoN oF EASTERN CARIBBEAN STATES Paying taxesAll businesses complain about taxes. But governments St. Lucia has the lowest tax burden among OECSneed to collect taxes to provide the public goods neces- countries, paying 31.5% of commercial profits1 andsary for businesses to grow and society to prosper. Yet ranks 9th out of 175 economies (table 8.1). Businessesthere are good and bad ways to collect taxes. In many in St. Vincent and the Grenadines and Dominica alsodeveloping countries tax evasion is high because rates pay about a third of commercial profits in taxes. Theare high, administration is complex and people feel their tax burden is higher in Grenada (42.8%), Antigua andtax money is wasted. Barbuda (48.5%) and St. Kitts and Nevis (52.7%) (figure Doing Business records all the taxes paid by a me- 8.1). Corporate income tax and payroll taxes account fordium-size company during its second year of operations. the majority of tax payments. But businesses in OECSTo allow comparisons across countries, Doing Business countries also pay several stamp duties. For example,measures all taxes—including corporate income tax, Antigua and Barbuda, Grenada and St. Lucia charge asocial security contributions and labor taxes paid by small fixed amount on check transactions.the employer, property taxes, dividend tax, capital gains Some OECS countries are reforming. Antigua andtax, financial transactions tax, waste collection taxes and Barbuda lowered corporate tax by 5% in 2005. This fol-vehicle and road taxes—paid by a standardized firm. lows an international trend: 23 countries reduced profitConsumption taxes such as sales tax or value-added tax tax in 2005. After the reform in Antigua and Barbuda,are excluded. FIGURE 8.1 St. Lucia—lowest tax burden in the OECS TABLE 8 .1 Total tax rate (% of commercial pro ts) Where is it easy to pay taxes, and where not? Economy Global ranking Mauritius 24.8 St. Lucia 9 St. Lucia 31.5 Dominica 0 St. Vincent and 33.6 Solomon Islands 3 the Grenadines Seychelles 4 Dominica 34.8 St. Vincent and the Grenadines 3 Grenada 42.8 Grenada 45 Antigua and Barbuda 48.5 St. Kitts and Nevis 6 St. Kitts and 52.7 Antigua and Barbuda 45 Nevis Note: Rankings are the average of the country rankings on the number of payments, time and total tax rate. See the Data notes for details. Source: Doing Business database (www.doingbusiness.org). Source: Doing Business database (www.doingbusiness.org).

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