Table of Contents Doing Business – Cover Note........................................................................................1 A. Contents of the Upcoming Report ...........................................................................3 B. Data Collection and Verification .............................................................................4 C. Main Messages in Doing Business: How to Reform in 2007..................................6 D. How Global Benchmarking Inspires Reform ..........................................................8 E. How to Construct an Investors’ Attractiveness Index ...........................................10 Annex 1: Doing Business Project: 175 Sample Economies ........................................21 Annex 2: Doing Business project: 60 Countries Visited .............................................22 Annex 3: Mock-Ups of the Proposed Front Page ........................................................23 Doing Business 2007 Cover note This note provides a guide and background materials for the informal Board meeting on June 29th 2006 to discuss the upcoming (4th) Doing Business report. Several of the 43 reforms inspired and informed by the Doing Business project are described. The team’s proposals are outlined, including planned changes in response to the Board’s comments at the informal meeting in December 2005. Topics include: I. Coverage of the upcoming Doing Business report • In its fourth year of publication, the Doing Business report benchmarks business regulation in 175 economies (up from 155 in last year’s report). • It includes data on 20 small states. This addition, funded by Iceland, brings coverage to all of Africa except Somalia and Liberia (Annex 1). • No new indicators are presented: all 10 sets of indicators were covered last year. • Sixty countries were visited by the team during the data collection process (Annex 2). II. Main theme of the report: How to Reform • Analysis is presented from 50 case studies of reform. • Three main messages emerge from the analysis o Africa is reforming o What gets measured gets done (43 reforms informed by Doing Business) o Reform while you can (after election victories). • A list of all reformers will be included as an Appendix to the report, to show the absolute improvement of sample economies in addition to their relative improvement on the Ease of Doing Business rankings. III. Titles and Cover Page • Two options for the title of the report are proposed: Version 1: Benchmarking business regulation in 175 economies Doing Business How to Reform in 2007 Version 2: Regulatory obstacles to Doing Business How to Reform 4th edition (mock-ups of the front page, including a version following last year’s format are provided as Annex 3) 1 • The title of the Hiring and Firing Workers chapter is changed to Employing Workers. IV. Investors’ attractiveness index • The report will include a chapter on how to use Doing Business indicators with other indicators in constructing an Investors’ Attractiveness Index. This chapter analyzes data on: o macroeconomic stability o business infrastructure o lack of skilled workers o absence of law and order. • This chapter will also compare the rankings in the Ease of Doing Business and the newly-created Investors’ Attractiveness index with the rankings in the Institutional Investor’s Investor Risk index, the World Economic Forum’s Global Competitiveness Index, and International Country Risk Guide’s Investor Risk index. V. Important dates • In August 2006, the Doing Business website will launch a display of relevant laws and regulations from all economies. This information is freely available to would- be reformers, researchers and staff in international organizations or the private sector. • The proposed launch date is September 6. Attachments: A. Contents of the upcoming report B. Data collection and verification methodology C. Main messages of the upcoming report D. How global benchmarking inspires reform E. How to construct an Investors’ Attractiveness Index Annex 1: 175 economy sample Annex 2: List of 60 countries visited by the Doing Business team during data collection Annex 3: Mock-ups of the proposed front page 2 A. Contents of the Upcoming Report Benchmarking Business Regulation in 175 Economies Doing Business How to reform in 2007 1. Overview 2. Starting a business 3. Getting licenses 4. Employing workers 5. Registering property 6. Getting credit 7. Protecting investors 8. Paying taxes 9. Trading across borders 10. Enforcing contracts 11. Closing a business 12. How to use Doing Business with other indicators in constructing an Investors’ Attractiveness Index ……… 13. References 14. Data notes 15. Doing Business Indicators 16. Country tables (175 economies) 17. Acknowledgments 3 B. Data Collection and Verification The Doing Business data collection process • The Doing Business team, with academic advisers, designs a survey instrument. • The survey utilizes a standardized business case to ensure comparability across countries and over time—with assumptions about the legal form of the business, its size, location and nature of operations. • Surveys are administered through more than 5,000 local experts. • The local experts have several rounds of interaction (typically four) with the Doing Business team, through conference calls, written correspondence and for the first time in 2006, 60 country visits (annex 2) • The preliminary results are presented to both academics and practitioners for refinements in the survey and further rounds of data collection. • The data are subjected to numerous tests for robustness, which lead to revisions or expansions of the collected information. For example, the case study for data on enforcing contracts was revised to consider a dispute over a larger amount of unpaid debt, after it became clear that court and attorney fees were often too high to expect small debt cases to reach the court. Local partners’ selection • The Doing Business team identifies leading business regulation experts from the private sector in 175 economies—such as incorporation lawyers and consultants for business entry, litigation lawyers and judges for contract enforcement, real estate lawyers and property registrars for registering property. • Most local contributors are identified through their membership in global networks. For example, global partnerships have been established between the Doing Business project and the Lex Mundi Association of law firms, the International Bar Association, PwC (PricewaterhouseCoopers) tax specialists, and offices of the largest freight forwarder in the world, Panalpina. • In almost all cases there are at least two respondents per country. • The Starting a Business data have on average more than five respondents per country. The typical local partner assists about 150 businesses through the entry procedures every year. Therefore, on average the business entry experts have dealt with 500-750 cases per country. The Doing Business complaints process All indicators and corresponding data details are available on the Doing Business website at http://www.doingbusiness.org. In August 2006 the Doing Business website will launch a display of the relevant laws and regulations from all economies. Anyone may view and verify the calculation of the indicators this way. Questions on the methodology and challenges to data may be submitted through the “Challenge the data” function on the website. Updated indicators, as well as any revisions of or corrections to the printed data, are posted on the website. 4 Since the publication of Doing Business in 2005, 26 challenges to the data have been received. In four instances, data were corrected as a result of these complaints: the number of procedures and time to start a business in Burkina Faso, the cost of registering property in Senegal, the time to go through bankruptcy in Switzerland and the time and cost to go through bankruptcy in Russia. Since the publication of Doing Business in 2006, 19 challenges to the data have been received. In 5 cases (Algeria, France, Hong Kong (China), Morocco, United Kingdom) every data point has been reviewed by government experts. The challenges have resulted in 6 changes to the data: the investors’ protection index in Algeria, the legal rights index in France, the time necessary to prepare tax returns in the United Kingdom, the procedures for business entry in Ghana, the presence of credit information in Morocco, and the duration of business licensing procedures in Botswana. In addition, the Doing Business team has corrected 18 data points due to new information obtained during travel of the team and recruitment of an expanded set of respondents. Such changes affect the data in Nepal, several Pacific Islands, Bangladesh, and Niger. 5 C. Main Messages in Doing Business: How to Reform in 2007 Africa is reforming In Cote d’Ivoire, registering property took 369 days in 2005. Today it takes 32 days, thanks to a new decree that cuts the requirement to obtain the governor’s consent to transfer property. In Burkina Faso, a one-stop shop for business registration was launched. Procedures for starting a business fell from 12 to 8 and time from 45 to 34 days. Madagascar moved up 8 places on the ease of starting a business ranking after reducing the minimum capital required for start-ups. Tanzania introduced electronic data interchange and risk-based inspections in customs. Time to clear imports fell by 12 days. Last year Africa was behind all other regions in the pace of reforms. This year, it ranks 3rd among regions. Reforms are happening faster in Africa than in the Middle East or Latin America. Almost half of African countries made at least one reform—up by 25% from last year. Several reforms affect more than one set of Doing Business indicators. Nigeria, Uganda and Gambia made big improvements to courts, while Tanzania strengthened investor protections with a new Companies Act. More improvements are underway. Benin, Burkina Faso, Cameroon, Kenya, Gambia, Madagascar, Mali, Mozambique, Niger, Malawi and Zambia have all started further reforms to simplify business regulation and strengthen property rights. What gets measured gets done In 2003, IDA13 set explicit targets on the time and cost of starting a business. In particular, a 7% reduction was to be achieved over a 2-year period. This target was achieved and 16 IDA countries reformed one or both aspects of business entry. In 2004, the United States’ Millennium Challenge Account (MCA) made eligibility for funding conditional on performance on the time and cost of business start-up. Since then, reforms in 13 countries have started in an attempt to meet the MCA criteria. The lesson—what gets measured gets done. Publishing annual data on the ease of doing business inspires governments to reform. Since its start in October 2003, the Doing Business project has informed 43 reforms around the world. In Mexico, the federal government is monitoring the states’ performance on doing business indicators. And the states are reforming as a result, with faster business and property registration. Mozambique is reforming several aspects of its business environment, with a goal to reach the top ranking on the ease of doing business in SADC countries. Georgia has targeted the top 25 list and has used several Doing Business indicators as benchmarks in reform progress. Mauritius and Saudi Arabia have targeted the top 10. 6 Reform while you can Eighty percent of reforms on the ease of doing business take place in the first 15 months of new governments. This is true for rich countries like Belgium and the Netherlands, middle-income countries like Egypt and Serbia and Montenegro, and poor countries like Rwanda. Recently elected governments—such as those in Colombia and Benin—can learn from the top reformers by pushing through significant reforms at the start of their term. In the words of Egypt’s Minister of Investment Mohieldin: “Reform is like repairing a car with the engine running – there is no time to strategize.” The lesson for donors is to move in quickly with advice when a new government is elected and help formulate the reform plans. 7 D. How Global Benchmarking Inspires Reform Doing Business provides a wealth of information on reforming regulations, allowing reformers to address bottlenecks. With 175 economies covered by the project, reformers can also make international comparisons and identify best practices from around the world. Because the indicators are updated annually, it is easy to monitor progress. For these reasons, Doing Business is linked to 43 reforms. In 2005, Doing Business included an additional tool—country rankings—which allow countries to compare themselves on every topic as well as on the overall regulatory environment for doing business. Here are 3 examples of how these rankings have inspired reform. Mexico—improving investor protections and state-level regulations In 2005, Mexico ranked 125th among 155 economies on the strength of investor protections, providing some of the weakest protections in the world for minority shareholders. A new securities law was drafted in March 2004, but as of November 2005 there was no consensus between the government and the private sector on its final text. The draft proposed by the Mexican Ministry of Finance faced opposition by lobbying interests, who were blocking the vote and proposing their own watered-down version of the law. The government requested the support of the Doing Business team in simulating the impact of the proposed reform on the strength of protecting investors’ rankings. These simulations showed that if the government draft were adopted, Mexico would shoot up in the ranking by 80 places—to 45th place. But if the alternative law were adopted, Mexico’s rank would fall to 132. Armed with these figures, the government presented the proposal to Congress. The law was passed and confirmed by the Senate within a few days. The new law came into force January 2006. Mexico also showed that rankings can spur reforms beyond the federal level of government. In 2005, local governments and chambers of commerce in Mexico initiated a sub-national Doing Business study in 13 Mexican cities. The results highlighted many opportunities for improving local administrative procedures, which can be changed by a governor or a mayor. The report gained the attention of both the local and federal governments of Mexico, and the state-level indicators have been adopted as an annual exercise, to monitor the states’ progress. The study is now expanded to all 30 Mexican states, and has inspired similar projects in Brazil, Nigeria, Ukraine and China. Georgia—aiming to be the top reformer and ranked in the top 25 When the new Georgian government came into power in early 2004, regulations were not conducive to doing business—with a ranking of 123rd amongst (then) 145 countries on the ease of doing business. Inspired by reforms in Central Europe and other former Soviet republics, Georgia has undertaken sweeping reforms. The target is to reach the top-25 list within the term of the current government. To achieve this ambitious goal the government has introduced major reforms: cutting the number of licenses from 909 to 159, simplifying the tax code to eliminate 12 out of 21 taxes, reducing the time to register property from 39 to 9 days and improving credit information by setting up a credit bureau in July 2005. In Doing Business in 2006: Creating 8 Jobs, Georgia was credited as the second top reformer in the world and its ranking jumped to 100. The reforms continue in the second year of the government. In May 2006 a new labor law was passed. It removed restrictions on working hours and dismissal procedures, allowing for individual agreements between the parties. These changes brought Georgia closer to its goals: its rank on the ease of employing workers jumped from 65 to 11. A draft insolvency law is under discussion in parliament. The government has amended the Company Law, lowering minimum capital requirement for stating a business tenfold (from 2,000 lari to 200 lari), and setting up a new company register, which cuts 4 days from registration time. Reforms to the customs code are also underway. Georgia is going to be a top-10 reformer in the upcoming Doing Business report again. Mozambique—reform to reach the top rank in SADC In 2005 Mozambique was in 110th place on the ease of doing business. With urging from the re- elected President, the government of Mozambique formulated plans to achieve the top-ranking in Doing Business of any SADC country by 2008. To achieve this goal Mozambique has reformed business registration, passed a new commercial code, and plans to revise the bankruptcy law and streamline trade. But with only a fraction of population employed in the formal sector, labor reform is currently the main priority. The current draft labor law has developed using the Doing Business data as as benchmark information. It makes a number of changes: it extends the duration of term contracts, reduces previously excessively high severance payments and provides for greater flexibility of working hours, allowing for easier adjustments between the periods of high and low demand for labor. On request of the government the Doing Business team simulated the impact of the proposed reform on Mozambique’s ranking on the ease of employing workers indicator—showing a jump from 113 to 61. 9 E. How to Construct an Investors’ Attractiveness Index This section describes work in progress on the expansion of Ease of Doing Business to include several other indicators (for example macroeconomic stability) in a newly-created Investors’ Attractiveness index. It also compares Ease of Doing Business and the newly-created Investors’ Attractiveness index with 3 existing indices: Institutional Investor’s Investor Risk index, the World Economic Forum’s Global Competitiveness Index, and International Country Risk Guide’s Investor Risk index. The Ease of Doing Business index focuses on business regulations affecting access to finance and the entry, expansion and exit of businesses. The index is calculated as the ranking on the simple average of country percentiles on each of the 10 topics covered in Doing Business: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. The ranking on each topic is the simple average of the percentile rankings on its component indicators. Here is an example of how the Ease of Doing Business is calculated. The ranking on starting a business is the average of the country percentile rankings on the procedures, days, cost and paid- in minimum capital requirement to register a business. It takes 5 procedures, 5 days and 2.9% of annual income per capita in fees to open a business in Iceland. The minimum capital required amounts to 17% of income per capita. On these 4 indicators, Iceland ranks in the 7th, 1st, 8th and 48th percentiles. So on average, Iceland ranks in the 16th percentile on the ease of starting a business. It ranks in the 15th percentile on trading across borders, 8th percentile on enforcing contracts, 7th percentile on closing a business, 52nd percentile on protecting investors and so on. Higher ranks indicate simpler regulation and stronger protections of property rights. The simple average of Iceland’s percentile rankings on all topics is 22%. When all countries are ordered by their average percentile rank, Iceland is in 12th place (in Doing Business in 2006). The current index is limited to measuring business regulations. It does not account for a country’s proximity to large markets, macroeconomic conditions, quality of infrastructure services (other then services related to trading across borders), availability of skilled workers, security of property from theft and looting, or the underlying strength of institutions. Adding indicators on these topics would increase the significance of Ease of Doing Business for assessing the attractiveness of investment. The Doing Business team is presently developing a set of indicators on infrastructure quality. These indicators will be introduced in the September 2007 edition (5th edition) of Doing Business. The team has also attempted to develop a set of indicators on law and order, but so far the methodology is not of sufficient quality to merit development across the 175-economy sample. An alternative approach is to use indicators from other sources and add them to the Ease of Doing Business index. Consistent with the Doing Business methodology, only hard data (not data based on perceptions of managers or investors) are considered. This is done to maintain a direct link with policy reforms. We use macroeconomic data from the International Monetary Fund, education data from the World Development Indicators, infrastructure data from various 10 sources summarized in Estache and Goicoechea (2005), and law and order data from the International Peace Research Institute in Oslo. The analysis is provided below. The new variables are first treated as simple additions to the existing Doing Business indicators, for example by adding a macroeconomic stability index as an 11th topic. But as these indicators may be more important factors for doing business than, say, protecting equity investors, the analysis is alternatively done by considering new sets of indicators as equivalent to the whole Ease of Doing Business index. In other words, macroeconomic stability is as important as all the 10 Doing Business indicators combined. Both alternatives are probably extreme. Data a. Macroeconomic Stability Macroeconomic stability is an important factor for doing business and for long-term economic growth. Three indicators are most commonly used in the growth literature: the rate of inflation, total debt to GDP, and the budget deficit (surplus) as a percentage of GDP. Data on inflation come from the World Development Indicators and are available for all economies in the Doing Business sample. The IMF publishes data on debt burdens and budget deficits in 81 and 137 economies, respectively. The macroeconomic stability index is computed as the average of the percentile ranking of each of the 3 indicators, using the same methodology as for the 10 Ease of Doing Business indicators. Adding macroeconomic stability as the 11th indicator in the Ease of Doing Business changes little: the original and newly-expanded indices are correlated at 99%. The most notable changes in the ranking are Cameroon (rank changes from 130 to 114), Congo Republic (148 to 134), Azerbaijan (98 to 85), Jamaica (from 43 to 56), Hungary (from 52 to 65), and Eritrea (from 137 to 149). Some OECD countries fall in the rankings: for example, Portugal from 42 to 47, France from 44 to 48, Japan from 10 to 13, Germany from 19 to 21. Using the alternative calculation whereby macroeconomic stability is considered as important as all the Doing Business indicators gives a different outcome. The correlation between the original and expanded indices is now 83%. Many poor, especially African, countries jump significantly in the ranking. For example, Congo Republic goes from 148 to 42, Togo from 149 to 54, Cameroon from 130 to 44. Several OECD countries fall significantly: Hungary from 52 to 120, Japan from 10 to 46, Portugal from 42 to 66, France from 44 to 57. b. Business infrastructure Good infrastructure (access to telephone, electricity and paved roads) reduces the cost of doing business. However, there isn’t an established source for such information. A recent World Bank paper (Estache and Goicoechea, 2005)1 compiles an extensive dataset of infrastructure indicators from various sources. But many developing countries are not included and the data span different years (from 1997 to 2003) depending on the series. We hence limit the analysis to the 3 most- commonly available indicators: the number of phone lines per 1,000 people (data available for 153 economies), the percentage of roads that are paved (69 economies), and electricity consumption per capita (116 economies). 1 Estache, Antonio and Ana Goicoechea, (June 2005), “A research database on infrastructure economic performance”, World Bank Policy Research Working Paper 3643. 11 The business infrastructure index is computed as the average of the percentile ranking of each of the 3 indicators, using the same methodology as for the 10 Ease of Doing Business indicators. Adding the infrastructure index as an 11th indicator in the Ease of Doing Business the ranking changes little: the original and newly-expanded indices are correlated at 98%. The largest improvements are in Europe: Russia jumps from 79 to 65, Ukraine from 124 to 111, Bulgaria from 62 to 53 and France from 44 to 37. The biggest decreases in ranks are in the Pacific islands (Palau from 50 to 66, the Solomons from 53 to 62, Papua New Guinea from 64 to 74, Kiribati from 45 to 52) and Africa (Kenya from 68 and 80, Uganda from 72 from 85, Namibia from 33 to 38, Zambia from 67 to 75). Using the alternative calculation whereby business infrastructure is considered as important as all the Doing Business indicators gives a similar outcome. The correlation between the original and expanded indices is now 90%. The improvements are mostly in Eastern Europe: Ukraine from 124 to 61, Croatia from 118 to 57, Belarus from 106 to 50, Bulgaria from 62 to 40. Also, Egypt improves from 141 to 100, China from 91 to 65, France from 44 to 26 and India from 116 to 102. The biggest decreases in ranks are in the Pacific islands (Palau from 50 to 125, the Solomons from 53 to 99, Papua New Guinea from 64 to 110, Kiribati from 45 to 82) and Africa (Kenya from 68 and 116, Uganda from 72 from 118, Namibia from 33 to 79, Zambia from 67 to 105). c. Lack of skilled workers The availability of skilled workers is another important factor in the ease of doing business. Some such data are available from perception surveys, as in the Global Competitiveness Report. But these data only cover about 100 economies. Data on primary, secondary and tertiary school enrollment are available in the World Development Indicators. The Lack of skilled workers index is computed as the average of the percentile ranking of each of the 3 indicators, using the same methodology as for the 10 Ease of Doing Business indicators. Adding the Skilled workers index as an 11th indicator in the Ease of Doing Business the ranking changes little: the original and newly-expanded indices are correlated at 99%. The East European countries gain the most: Russia from 79 to 65, Slovenia from 63 to 49, Belarus from 106 to 94, Bulgaria from 62 to 55. Some OECD countries gain too: France from 44 to 39, the Netherlands from 24 to 20, Austria from 32 to 29. The Pacific islands and some African countries fall in the rankings: Micronesia from 56 to 76, Papua New Guinea from 64 to 80, the Solomons from 53 to 67, Ethiopia from 101 to 113, Zambia from 67 to 77. Using the alternative calculation whereby the Lack of skilled workers index is considered as important as all the Doing Business indicators gives a similar change in the ranking. The correlation between the original and expanded indices is now 82%. Russia gains 49 ranks (from 79 to 30), Bulgaria 26 ranks, France 17 ranks, the Netherlands 11 ranks. Micronesia falls 74 ranks, Papua New Guinea 61 ranks, Zambia 50 ranks. d. Law and order The absence of security makes investment riskier and therefore less attractive. Few people are willing to invest in a country where their business can be vandalized. Unfortunately, datasets on 12 law and order have not been compiled to-date. The dataset that comes closest is published annually by the International Peace Research Institute in Oslo. It has two indicators: the number of deaths caused by civil conflict and an index of the intensity of civil conflict. The first data series ends in 2002 as of June 10, 2006). Therefore, it does not include Iraq or Haiti as a conflict country. The second series is updated to 2004. However, it includes both localized conflicts (such as Chechnya in the Russian Federation and Kashmir in India) and nation-wide conflicts (such as in Iraq). For this reason, it assigns the same score (3, complete lack of security) to both Russia and Iraq. India has the same rating as Cote d’Ivoire. Consequently, the data are of limited use in assessing the ease of doing business. The Doing Business team has started a research project on constructing law and order indicators, in cooperation with di Tella University in Argentina. The goal of this project is to yield indicators that can be collected across the whole Doing Business sample and avoid the problems of existing indicators. Creating an Investors’ Attractiveness Index The analysis suggests that it is possible to add macroeconomic stability, business infrastructure, and lack of skilled workers indices to the Ease of Doing Business and create an Investors’ Attractiveness Index. It is less clear how the new sets of indicators should be weighted in this new index. If the 3 new indices are added as the 11th, 12th, and 13th set of indicators in the Ease of Doing Business, the new index is correlated with the original index at 98.4%. In other words, the rankings remain stable (Table 1, column 2). Four countries, all in the former Soviet Union or former Yugoslavia, improve their rankings significantly: Russia (from 79 to 56), Slovenia (from 63 to 41), Ukraine (from 124 to 103), Kazakhstan (from 86 to 65). The southern European countries (Greece, Italy, France, Portugal and Spain) jump by 10 ranks on average. Several African countries experience falls in the ranking: Ghana (from 82 to 111), Zambia (from 67 to 92), Malawi (from 96 to 116), Mozambique (from 110 to 127). Jamaica falls from 43 to 60, the Solomons from 53 to 74. If the 3 new indices are added as the 2nd, 3rd, and 4th set of indicators in Ease of Doing Business, the new index is correlated with the original index at 84.3%. The big movers are the same countries as in the previous exercise but now the changes in ranks are larger (Table 1, column 3). For example, Russia’s rank jumps from 79 to 30, Slovenia’s from 63 to 18; Ghana’s from 82 to 144, Zambia’s from 67 to 134 and Jamaica’s from 43 to 97. Another source of information – the World Bank’s Enterprise Surveys – can inform the appropriate weights for the 3 new sets of indicators. The Enterprise Surveys are a standard product of the Private Sector Vice-Presidency and data are published for 68 economies. Surveys have recently been finalized or will soon be finalized for another 27 economies. All the data and the questionnaire are presented at http://rru.worldbank.org/EnterpriseSurveys. 13 Table 1: Ease of Doing Business, 3 scenarios (all data are from Doing Business in 2006: Creating Jobs) # Ease of Doing Business # Investors’ Index 1 # Investors’ Index 2 (original index) (weights 1/13) (weights 1/4) 1 New Zealand 1 New Zealand 1 Australia 2 Singapore 2 Australia 2 New Zealand 3 United States 3 Norway 3 Norway 4 Canada 4 Canada 4 Denmark 5 Norway 5 Singapore 5 Finland 6 Australia 6 Denmark 6 Sweden 7 Hong Kong, China 7 Hong Kong, China 7 Canada 8 Denmark 8 United States 8 Ireland 9 United Kingdom 9 United Kingdom 9 Hong Kong, China 10 Japan 10 Ireland 10 United Kingdom 11 Ireland 11 Finland 11 Iceland 12 Iceland 12 Iceland 12 Switzerland 13 Finland 13 Sweden 13 Netherlands 14 Sweden 14 Japan 14 Spain 15 Lithuania 15 Switzerland 15 Belgium 16 Estonia 16 Estonia 16 Korea, Rep. 17 Switzerland 17 Belgium 17 Estonia 18 Belgium 18 Lithuania 18 Slovenia 19 Germany 19 Germany 19 Austria 20 Thailand 20 Netherlands 20 Germany 21 Malaysia 21 Spain 21 Lithuania 22 Puerto Rico 22 Korea, Rep. 22 France 23 Mauritius 23 Thailand 23 Portugal 24 Netherlands 24 Chile 24 United States 25 Chile 25 Latvia 25 Latvia 26 Latvia 26 Austria 26 Bulgaria 27 Korea, Rep. 27 Israel 27 Israel 28 South Africa 28 Puerto Rico 28 Japan 29 Israel 29 Malaysia 29 Chile 30 Spain 30 Mauritius 30 Russian Federation 31 Maldives 31 South Africa 31 Kazakhstan 32 Austria 32 Fiji 32 Czech Republic 33 Namibia 33 Portugal 33 United Arab Emirates 34 Fiji 34 France 34 Kuwait 35 Taiwan, China 35 Tonga 35 Poland 36 Tonga 36 Taiwan, China 36 Singapore 37 Slovak Republic 37 Czech Republic 37 Thailand 38 Saudi Arabia 38 Maldives 38 Italy 39 Samoa 39 Slovak Republic 39 South Africa 40 Botswana 40 Kuwait 40 Macedonia, FYR 41 Czech Republic 41 Slovenia 41 Tonga 42 Portugal 42 Saudi Arabia 42 Slovak Republic 43 Jamaica 43 Namibia 43 Fiji 44 France 44 Kiribati 44 Marshall Islands 45 Kiribati 45 Marshall Islands 45 Kiribati 14 # Ease of Doing Business # Investors’ Index 1 # Investors’ Index 2 (original index) (weights 1/13) (weights 1/4) 46 Armenia 46 Bulgaria 46 Mauritius 47 Kuwait 47 Samoa 47 Taiwan, China 48 Marshall Islands 48 Poland 48 Greece 49 Vanuatu 49 Armenia 49 Oman 50 Palau 50 Botswana 50 Puerto Rico 51 Oman 51 Oman 51 Peru 52 Hungary 52 Vanuatu 52 Ukraine 53 Solomon Islands 53 Palau 53 Malaysia 54 Poland 54 United Arab Emirates 54 Belarus 55 Nepal 55 Panama 55 Panama 56 Micronesia, Fed. Sts. 56 Russian Federation 56 Armenia 57 Panama 57 Tunisia 57 Saudi Arabia 58 Tunisia 58 Hungary 58 China 59 Nicaragua 59 Italy 59 Tunisia 60 Pakistan 60 Jamaica 60 Palau 61 Mongolia 61 Nepal 61 Croatia 62 Bulgaria 62 Micronesia, Fed. Sts. 62 Vanuatu 63 Slovenia 63 Macedonia, FYR 63 Romania 64 Papua New Guinea 64 Peru 64 Jordan 65 Bangladesh 65 Kazakhstan 65 Maldives 66 Colombia 66 Mongolia 66 Azerbaijan 67 Zambia 67 Colombia 67 Argentina 68 Kenya 68 Greece 68 Hungary 69 United Arab Emirates 69 Jordan 69 Mexico 70 Italy 70 Mexico 70 Brazil 71 Peru 71 Romania 71 Samoa 72 Uganda 72 Argentina 72 Costa Rica 73 Mexico 73 El Salvador 73 Moldova 74 Jordan 74 Solomon Islands 74 Botswana 75 Sri Lanka 75 Nicaragua 75 El Salvador 76 El Salvador 76 Kenya 76 Georgia 77 Argentina 77 Bangladesh 77 Colombia 78 Romania 78 Moldova 78 Ecuador 79 Russian Federation 79 Pakistan 79 Lebanon 80 Greece 80 China 80 Syrian Arab Republic 81 Macedonia, FYR 81 Kyrgyz Republic 81 Micronesia, Fed. Sts. 82 Ghana 82 Papua New Guinea 82 Kyrgyz Republic 83 Moldova 83 Sri Lanka 83 Nepal 84 Kyrgyz Republic 84 Uganda 84 Mongolia 85 Uruguay 85 Costa Rica 85 Guyana 86 Kazakhstan 86 Uruguay 86 Venezuela, RB 87 Bosnia and Herzegovina 87 Azerbaijan 87 West Bank and Gaza 88 Paraguay 88 Lebanon 88 Iran, Islamic Rep. 89 Costa Rica 89 Belarus 89 Uruguay 90 Yemen, Rep. 90 Bosnia and Herzegovina 90 Indonesia 91 China 91 Paraguay 91 Namibia 92 Serbia and Montenegro 92 Zambia 92 Paraguay 93 Turkey 93 Georgia 93 Bosnia and Herzegovina 15 # Ease of Doing Business # Investors’ Index 1 # Investors’ Index 2 (original index) (weights 1/13) (weights 1/4) 94 Nigeria 94 Ecuador 94 Dominican Republic 95 Lebanon 95 Guyana 95 Kenya 96 Malawi 96 Lesotho 96 Philippines 97 Lesotho 97 Turkey 97 Jamaica 98 Azerbaijan 98 Nigeria 98 Cameroon 99 Vietnam 99 Dominican Republic 99 Lesotho 100 Georgia 100 Serbia and Montenegro 100 Honduras 101 Ethiopia 101 Iran, Islamic Rep. 101 Morocco 102 Morocco 102 Morocco 102 Albania 103 Dominican Republic 103 Ukraine 103 Togo 104 Bhutan 104 Croatia 104 Uzbekistan 105 Guyana 105 Vietnam 105 Timor-Leste 106 Belarus 106 Brazil 106 Bangladesh 107 Ecuador 107 Yemen, Rep. 107 Bolivia 108 Iran, Islamic Rep. 108 Indonesia 108 Sri Lanka 109 Guatemala 109 Philippines 109 Sao Tome and Principe 110 Mozambique 110 Honduras 110 Nicaragua 111 Bolivia 111 Ghana 111 Algeria 112 Honduras 112 Bolivia 112 Nigeria 113 Philippines 113 Syrian Arab Republic 113 Turkey 114 Iraq 114 Venezuela, RB 114 Solomon Islands 115 Indonesia 115 Guatemala 115 Uganda 116 India 116 Malawi 116 Serbia and Montenegro 117 Albania 117 Albania 117 Egypt, Arab Rep. 118 Croatia 118 West Bank and Gaza 118 Vietnam 119 Brazil 119 Bhutan 119 India 120 Venezuela, RB 120 Ethiopia 120 Pakistan 121 Syrian Arab Republic 121 India 121 Guatemala 122 Afghanistan 122 Sao Tome and Principe 122 Congo, Rep. 123 Sao Tome and Principe 123 Cameroon 123 Papua New Guinea 124 Ukraine 124 Iraq 124 Bhutan 125 West Bank and Gaza 125 Algeria 125 Senegal 126 Zimbabwe 126 Uzbekistan 126 Cambodia 127 Mauritania 127 Mozambique 127 Yemen, Rep. 128 Algeria 128 Benin 128 Benin 129 Benin 129 Senegal 129 Iraq 130 Cameroon 130 Timor-Leste 130 Rwanda 131 Madagascar 131 Cambodia 131 Cote d'Ivoire 132 Senegal 132 Afghanistan 132 Lao PDR 133 Cambodia 133 Zimbabwe 133 Ethiopia 134 Haiti 134 Madagascar 134 Zambia 135 Angola 135 Egypt, Arab Rep. 135 Madagascar 136 Sierra Leone 136 Togo 136 Malawi 137 Eritrea 137 Mauritania 137 Afghanistan 138 Uzbekistan 138 Rwanda 138 Zimbabwe 139 Rwanda 139 Congo, Rep. 139 Tanzania 140 Tanzania 140 Cote d'Ivoire 140 Central African Republic 141 Egypt, Arab Rep. 141 Haiti 141 Niger 16 # Ease of Doing Business # Investors’ Index 1 # Investors’ Index 2 (original index) (weights 1/13) (weights 1/4) 142 Timor-Leste 142 Tanzania 142 Sudan 143 Burundi 143 Lao PDR 143 Burkina Faso 144 Guinea 144 Angola 144 Ghana 145 Cote d'Ivoire 145 Sierra Leone 145 Mali 146 Mali 146 Mali 146 Mauritania 147 Lao PDR 147 Eritrea 147 Mozambique 148 Congo, Rep. 148 Guinea 148 Haiti 149 Togo 149 Burundi 149 Angola 150 Niger 150 Niger 150 Guinea 151 Sudan 151 Sudan 151 Chad 152 Chad 152 Central African Republic 152 Burundi 153 Central African Republic 153 Chad 153 Sierra Leone 154 Burkina Faso 154 Burkina Faso 154 Eritrea 155 Congo, Dem. Rep. 155 Congo, Dem. Rep. 155 Congo, Dem. Rep. Source: Doing Business project. The enterprise survey data show the relative importance of constraints to the ease of doing business. In particular, question N.1 of the survey asks businesses to rate the 3 most important obstacles to their operations (see exact wording of the question below). Of the 16 possible constraints listed in the question, macroeconomic instability appears as the 5th most important obstacle in the surveys (behind, access to finance, corruption, tax rates, and tax administration), electricity as the 8th most important obstacle, inadequately trained workforce as the 13th, and transportation as 16th. Question N.1 You have indicated that several obstacles affect the operation and growth of this business. Here is a card with the obstacles I just listed (HAND RESPONDENT CARD LISTING ALL FACTORS). Please tell me the three that you think are currently the biggest problems, beginning with the worst of all three. FACTOR RANK Access to finance (availability and cost) Access to land Business licensing and permits Corruption Crime, theft and disorder Customs and trade regulations Electricity Functioning of the courts Inadequately educated workforce Labor regulations Macroeconomic instability Political instability Practices of competitors in the informal sector Tax administration Tax rates Transportation INTERVIEWER: CHECK THAT RESPONDENT UNDERSTANDS DIRECTIONS 1=BIGGEST PROBLEM, 2=SECOND BIGGEST, 3=THIRD BIGGEST Source: World Bank’s Enterprise Surveys. 17 This evidence suggests that of the 3 new indices, macroeconomic stability should receive the highest weight, followed by business infrastructure. Lack of skilled workers comes last. At least according to managers, these constraints are about as important as business licensing, labor regulations, courts, trading across borders – each of which is a separate Doing Business topic. Which rankings change the most between Ease of Doing Business and Investors’ Attractiveness? The comparison between the Ease of Doing Business index and the Investors’ Attractiveness index reveals several patterns. The comparisons here are based on adding the 3 new indices as the 11th, 12th, and 13th set of indicators to the Ease of Doing Business to produce the Investors’ Attractiveness index. Countries in the former Soviet Union and former Yugoslavia improve their rankings the most: Russia (from 79 to 56), Slovenia (from 63 to 41), Ukraine (from 124 to 103), Macedonia (from 81 to 63), Kazakhstan (from 86 to 65), Uzbekistan (138 to 126), Azerbaijan (98 to 87). This is explained by the addition of infrastructure and skilled workers indicators. The southern European countries (Greece, Italy, France, Portugal and Spain) see the second-most increase in their rankings in the new index. They jump by 10 ranks on average: Greece by 12, Italy by 11, France by 10, Spain and Portugal by 9. This is explained by the addition of infrastructure indicators. Countries in Eastern Europe see the third-most increase in their rankings in the new index. Bulgaria jumps 16 ranks, Croatia 14, Romania 7, Poland 6, the Czech Republic 4, Latvia 1. This is explained by the addition of infrastructure and skilled workers indicators. African countries experience the biggest falls in the ranking: Ethiopia (from 101 to 120), Ghana (from 82 to 111), Zambia (from 67 to 92), Malawi (from 96 to 116), Mozambique (from 110 to 127), Uganda (from 72 to 84), Mauritius (23 to 30). Some island economies also see deterioration in the ranking: Jamaica falls from 43 to 60, the Solomons from 53 to 74, Papua New Guinea from 64 to 82. This is explained by the addition of infrastructure and skilled workers indicators. Other notable differences between the Ease of Doing Business and the Investors’ Attractiveness indices: China improves by 11 ranks, Turkey falls by 4 ranks, Saudi Arabia by 4, Japan by 4, India by 5, the United States by 5, Pakistan by 19. Comparisons with other investor indices We next compare the Ease of Doing Business and the newly-created Investors’ Attractiveness Index with 3 existing indices: Institutional Investor’s Investor Risk index, the World Economic Forum’s Global Competitiveness Index, and International Country Risk Guide’s Investor Risk index. These indices have smaller coverage of developing countries and contain 147, 109 and 122 economies that overlap with the Doing Business sample, respectively. 18 Ease of Doing Business correlates 81%, 80% and 75% with the Institutional Investor’s Investor Risk index, the World Economic Forum’s Global Competitiveness Index, and International Country Risk Guide’s Investor Risk index, respectively. Investors’ Attractiveness correlates 86%, 83% and 81% with the Institutional Investor’s Investor Risk index, the World Economic Forum’s Global Competitiveness Index, and International Country Risk Guide’s Investor Risk index, respectively. Several patterns emerge in explaining the differences. First, relative to the newly-constructed Investors’ Attractiveness index, the Institutional Investor’s Investor Risk index gives significantly lower ratings to African countries and former Soviet Union economies and significantly higher ratings to large emerging markets. For example, Zambia falls 41 ranks, Kenya 31 ranks, Uganda 30 ranks, Namibia 25 ranks, Mauritius 24 ranks, Malawi 22 ranks; Armenia falls 51 ranks, Moldova 51 ranks, the Kyrgyz Republic 41 ranks, Lithuania 20 ranks, Georgia 20 ranks, Estonia 19 ranks, Latvia 15 ranks; Egypt rises 65 ranks, India 63 ranks, Brazil 43 ranks, China 41 ranks, Indonesia 28 ranks. Regression analysis including total GDP as an additional explanatory variable shows that the difference between the Ease of Doing Business and the newly-constructed Investors’ Attractiveness index, on the one hand, and the Institutional Investor’s Investor Risk index, on the other hand, is almost fully explained by size of the economy: Institutional Investor rewards larger markets and punishes smaller economies. Second, relative to the newly-constructed Investors’ Attractiveness index, the World Economic Forum’s Global Competitiveness Index gives significantly lower ratings to former Soviet Union economies and significantly higher ratings to large emerging markets and to countries in the Middle East and North Africa. For example, the Kyrgyz Republic falls by 42 ranks, Armenia by 33 ranks, Russia by 24 ranks, Lithuania by 21 ranks, Latvia by 15 ranks; Tunisia goes up by 10 ranks, Morocco by 11, Jordan by 15, the United Arab Emirates by 24, Algeria by 26 and Egypt by 57; Turkey rises by 17 ranks, Indonesia by 18, China by 21, Brazil by 26, India by 51. Regression analysis including total GDP and a Middle East and North Africa (MENA) variable as additional explanatory variables shows that the difference between the Ease of Doing Business and the newly-constructed Investors’ Attractiveness index, on the one hand, and the World Economic Forum’s Global Competitiveness Index, on the other hand, is 75% explained by size of the economy and the MENA dummy: the World Economic Forum rewards larger markets and punishes smaller economies. This is not surprising as most of the respondents to the World Economic Forum’s survey are international investors. It is not obvious from the analysis why the Global Competitiveness Index consistently rates MENA countries higher relative to other indices. Third, relative to the newly-constructed Investors’ Attractiveness index, the ICRG Investor Risk index gives significantly lower ratings to many OECD countries and significantly higher ratings to countries in the Middle East and North Africa. For example, the United States falls by 37 ranks (to #45), New Zealand by 24 ranks, Australia by 19 ranks, the United Kingdom by 14 ranks, Spain by 10 ranks, Germany by 5 ranks, Canada and France by 3 ranks; (Colombia, 19 Pakistan and Thailand also fall by 40 ranks each); Syria rises by 16 ranks, Yemen and Saudi Arabia by 17 ranks, Iran by 22 ranks, Oman by 27 ranks, Kuwait by 28 ranks, United Arab Emirates by 33 ranks and Algeria by 70 ranks (to #34). 20 Annex 1 Doing Business Project: 175 Sample Economies 1 Afghanistan 60 Grenada 119 Papua New Guinea 2 Albania 61 Guatemala 120 Paraguay 3 Algeria 62 Guinea 121 Peru 4 Angola 63 Guinea-Bissau 122 Philippines 5 Antigua and Barbuda 64 Guyana 123 Poland 6 Argentina 65 Haiti 124 Portugal 7 Armenia 66 Honduras 125 Puerto Rico 8 Australia 67 Hong Kong, China 126 Romania 9 Austria 68 Hungary 127 Russia 10 Azerbaijan 69 Iceland 128 Rwanda 11 Bangladesh 70 India 129 Samoa 12 Belarus 71 Indonesia 130 São Tomé and Principe 13 Belgium 72 Iran 131 Saudi Arabia 14 Belize 73 Iraq 132 Senegal 15 Benin 74 Ireland 133 Serbia and Montenegro 16 Bhutan 75 Israel 134 Seychelles 17 Bolivia 76 Italy 135 Sierra Leone 18 Bosnia and Herzegovina 77 Jamaica 136 Singapore 19 Botswana 78 Japan 137 Slovakia 20 Brazil 79 Jordan 138 Slovenia 21 Bulgaria 80 Kazakhstan 139 Solomon Islands 22 Burkina Faso 81 Kenya 140 South Africa 23 Burundi 82 Kiribati 141 Spain 24 Cambodia 83 Korea 142 Sri Lanka 25 Cameroon 84 Kuwait 143 St. Kitts and Nevis 26 Canada 85 Kyrgyz Republic 144 St. Lucia 27 Cape Verde 86 Lao PDR 145 St. Vincent and the Grenadines 28 Central African Republic 87 Latvia 146 Sudan 29 Chad 88 Lebanon 147 Suriname 30 Chile 89 Lesotho 148 Swaziland 31 China 90 Libya 149 Sweden 32 Colombia 91 Lithuania 150 Switzerland 33 Comoros 92 Macedonia, FYR 151 Syria 34 Congo, Dem. Rep. 93 Madagascar 152 Taiwan, China 35 Congo, Rep. 94 Malawi 153 Tajikistan 36 Costa Rica 95 Malaysia 154 Tanzania 37 Côte d'Ivoire 96 Maldives 155 Thailand 38 Croatia 97 Mali 156 Timor-Leste 39 Czech Republic 98 Marshall Islands 157 Togo 40 Denmark 99 Mauritania 158 Tonga 41 Djibouti 100 Mauritius 159 Trinidad and Tobago 42 Dominica 101 Mexico 160 Tunisia 43 Dominican Republic 102 Micronesia 161 Turkey 44 Ecuador 103 Moldova 162 Uganda 45 Egypt 104 Mongolia 163 Ukraine 46 El Salvador 105 Morocco 164 United Arab Emirates 47 Equatorial Guinea 106 Mozambique 165 United Kingdom 48 Eritrea 107 Namibia 166 United States 49 Estonia 108 Nepal 167 Uruguay 50 Ethiopia 109 Netherlands 168 Uzbekistan 51 Fiji 110 New Zealand 169 Vanuatu 52 Finland 111 Nicaragua 170 Venezuela 53 France 112 Niger 171 Vietnam 54 Gabon 113 Nigeria 172 West Bank and Gaza 55 Gambia 114 Norway 173 Yemen 56 Georgia 115 Oman 174 Zambia 57 Germany 116 Pakistan 175 Zimbabwe 58 Ghana 117 Palau 59 Greece 118 Panama **Note: economies in bold are included in the Doing Business sample for the first time this year, financed by an Iceland trust fund 21 Annex 2 Doing Business Project: 60 Countries Visited 1 Angola 31 Malawi 2 Antigua and Barbuda 32 Maldives 3 Bangladesh 33 Mali 4 Benin 34 Marshall Islands 5 Bhutan 36 Mauritius 6 Botswana 37 Micronesia 7 Burkina Faso 38 Mozambique 8 Burundi 39 Namibia 9 Cape Verde 40 Nepal 10 Central African Republic 41 Nicaragua 11 Comoros 42 Niger 12 Congo, Dem. Rep. 43 Oman 13 Congo, Rep. 44 Palau 14 Djibouti 45 São Tomé and Principe 15 Dominica 46 Senegal 16 Egypt 47 Sierra Leone 17 Equatorial Guinea 48 St. Kitts and Nevis 18 Eritrea 49 St. Lucia 19 Ethiopia 50 St. Vincent and the Grenadines 20 Fiji 51 Sudan 21 Gabon 52 Suriname 22 Gambia 53 Swaziland 23 Grenada 54 Trinidad and Tobago 24 Guatemala 55 United Arab Emirates 25 Guinea 56 Vanuatu 26 Guinea-Bissau 57 Venezuela 27 Kenya 58 West Bank and Gaza 28 Kiribati 59 Yemen 29 Kyrgyz Republic 60 Zambia 30 Madagascar 61 Zimbabwe 22 Annex 3 Mock-Ups of the Proposed Front Page 23 24 25