How does regulation affect Business

Comparing Business Regulation for Domestic Firms in 190 Economies and how government regulation impact business
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Dr.KiaraSimpson,United States,Researcher
Published Date:05-07-2017
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TH 14 EDITION A World Bank Group Flagship Report 2017 Doing Business Equal Opportunity for All Comparing Business Regulation for Domestic Firms in 190 EconomiesDoing Business 2017 Overview ƒ Doing Business measures aspects of he opportunity to find a job or seven. So it is perhaps unsurprising that regulation that enable or prevent develop one’s business idea is there are only 0.43 formal new businesses private sector businesses from Tcrucial for most people’s personal per 1,000 adults in Argentina. By contrast, starting, operating and expanding. These regulations are measured using satisfaction. It creates a sense of belong- in Georgia—where three procedures are 11 indicator sets: starting a business, ing and purpose and can provide an sufficient to start a business—there are dealing with construction permits, income that delivers financial stability. It over 5.65 formal new businesses per getting electricity, registering property, getting credit, protecting minority can raise people out of poverty or prevent 1,000 adults. investors, paying taxes, trading across them from falling into it. borders, enforcing contracts, resolving Failure is part of taking risks and innovat- insolvency and labor market regulation. But what does one need to find a job or ing. For people to be willing to start a ƒ Doing Business 2017 expands the paying to start a business, especially if that job new business there needs to be a well- taxes indicators to cover postfiling processes—tax audits, tax refunds and or business is in the private sector? Many developed system in place for closing busi- tax appeals—and presents analysis of things are needed, but well-functioning nesses that do not succeed. In addition to pilot data on selling to the government markets—that are properly regulated the complicated entry process in Argentina, which measures public procurement regulations. so that distortions are minimized—are if the business fails only 23 cents on the crucial. Governments play a pivotal role dollar are recovered after going through an ƒ Using the data originally developed by Women, Business and the Law, this year in establishing these well-functioning insolvency proceeding. By contrast, in the for the first time Doing Business adds a markets through regulation. If the land Czech Republic the same business failure gender component to three indicators— registry is not required to provide reli- would have a recovery rate of 67 cents starting a business, registering property, and enforcing contracts—and finds that able information on who owns what, for on the dollar. This higher recovery rate those economies which limit women’s example, the efficacy of the property also helps to explain the larger number of access in these areas have fewer women market is undermined making it difficult new businesses in Prague (at 3.42 formal working in the private sector both as for entrepreneurs to acquire property, new businesses per 1,000 adults) than employers and employees. put their ideas to practice and create in Buenos Aires. ƒ New data show that there has been an increase in the pace of reform—more new jobs. Without well-regulated credit economies are reforming and information sharing systems it is difficult implementing more reforms. for credit markets to thrive and be more OLD AND NEW FACTORS ƒ Doing Business has recorded over 2,900 inclusive. A properly functioning tax sys- COVERED IN DOING regulatory reforms across 186 economies tem is also key. Where the burden of tax BUSINESS since 2004. Europe and Central Asia has consistently been the region with administration is heavy—making it diffi- the highest average number of reforms cult to comply with tax obligations—firms Doing Business focuses on regulation that per economy; the region is now close to will have an incentive to avoid paying affects small and medium-size enterpris- having the same good practices in place as the OECD high-income economies. all taxes due or may opt for informality, es, operating in the largest business city A number of countries in the region— 1 thereby eroding the tax base. of an economy, across 11 areas. Ten of Georgia, Latvia, Lithuania, and the former these areas—starting a business, dealing Yugoslav Republic of Macedonia—are To start a business, entrepreneurs need a with construction permits, getting elec- now ranked among the top 30 economies in Doing Business. business registration system that is effi- tricity, registering property, getting credit, ƒ Better performance in Doing Business is cient and accessible to all. Doing Business protecting minority investors, paying on average associated with lower levels data on Argentina, for example, show taxes, trading across borders, enforcing of income inequality. This is particularly that it takes 14 procedures to start a new contracts and resolving insolvency—are the case regarding the starting a business and resolving insolvency indicator sets. business, double the global average of just included in the distance to frontier score 2 DOING BUSINESS 2017 and ease of doing business ranking. Doing distance to frontier and the overall doing audit and good practices in administrative Business also publishes indicators on labor business ranking. In paying taxes, the appeal processes. market regulation which are not included new postfiling processes component in the distance to frontier score or ease accounts for only 25% of the overall The VAT refund is an integral component of doing business ranking. The economic indicator set and, furthermore, there is a of a modern VAT system. The VAT has literature has shown the importance of positive correlation between the old and statutory incidence on the final con- 2 such regulations for firm and job creation, new part of the indicator. Economies sumer, not on businesses. According to international trade and financial inclusion. that have efficient processes for paying the tax policy guidelines set out by the For more discussion on this literature, see taxes during the regular filing period Organisation for Economic Co-operation the chapter About Doing Business. also tend to have efficient processes in and Development (OECD) a VAT system 4 the postfiling period. For the most part, should be neutral and efficient. Some Over time, Doing Business has evolved the formal regulatory environment as businesses will incur more VAT on their from focusing mainly on the efficiency measured by Doing Business does not purchases than they collect on their of regulatory processes to also measure differentiate procedures according to taxable sales in a given tax period and the quality of business regulation. Doing the gender of the business owner. The therefore should be entitled to claim the Business not only measures whether there addition of gender components to three difference from the tax authorities. Doing is, for example, a fast, simple and afford- separate indicators has a small impact Business data show that OECD high- able process for transferring property but on each of them and therefore a small income economies process VAT refunds also whether the land administration has impact overall. However, even if busi- the most efficiently with an average of systems in place that ensure the accuracy ness regulation as measured by Doing 14.4 weeks to issue a reimbursement of the information about that transfer. Business is gender blind in the majority (even including some economies where of economies, this does not mean that an audit is likely to be conducted). This year Doing Business expands further in practice men and women have equal by adding postfiling processes to the opportunities as business owners. Firms To analyze tax audits the Doing Business paying taxes indicators, including a gen- owned by women, for example, tend to case study scenario was expanded to der component in three of the indicators be smaller and less profitable than firms assume that a company made a simple 3 and developing a new pilot indicator set owned by men. error in the calculation of its income tax on selling to the government (figure 1.1). liability, leading to an incorrect corporate Also for the first time this year Doing While economies that do well in the income tax return and consequently an Business collects data on Somalia, bring- existing dimensions of the regulatory underpayment of due income tax liability. ing the total number of economies cov- environment covered by Doing Business The firm discovered the error and vol- ered to 190. also tend to do well in the new aspects untarily notified the tax authority. In 74 measured this year, it nevertheless is economies—even following immediate Although conceptually important, these important to document regulatory prac- notification by the taxpayer—the error in changes have a small impact on the tices in these new areas. Doing so helps the income tax return is likely to trigger to document standards of good practices an audit. And in 38 economies this error in new areas of regulation which policy will lead to a comprehensive audit of the FIGURE 1.1 What is changing in Doing Business? makers can use to chart out reforms and tax return. OECD high-income econo- set benchmarks. For more information on mies as well as Europe and Central Asia Starting a business the Doing Business methodology, see the economies have the simplest processes Registering property Paying taxes (adding data notes. in place to correct a minor mistake in the Enforcing contracts postfiling processes) income tax return. For an analysis of the Taxes data for the indicators, see the case study Indicators Indicators with new with new on paying taxes. The paying taxes indicator set is gender components components expanded this year to include postfiling processes—those processes that occur Gender after a firm complies with its regular tax This year for the first time Doing Business Pilot indicator set obligations. These include tax refunds, tax adds gender components to three indicator audits and tax appeals. In particular Doing sets included in the distance to frontier Business measures the time it takes to get score and ease of doing business ranking. Selling to the government a value added tax (VAT) refund, deal with These are starting a business, register- a simple mistake on a corporate income ing property and enforcing contracts. Source: Doing Business database. tax return that can potentially trigger an This addition is based on data originally OVERVIEW 3 collected by Women, Business and the (as measured by Women, Business and in female labor force participation and 5 12 Law the Law) perform worse on average on in more productive sectors. and updated by Doing Business. Another several important economic and social study finds that after changes were made Why is it important to incorporate a mea- development variables: formal years of to the Hindu Succession Act improving sure of gender differences? First, around education for women compared to men inheritance rights for women in India, half of the world’s population is female are lower, labor force participation rates there was an increase in education for 13 and therefore it is important that Doing for women compared to men are lower, girls. Improving land tenure security Business measures aspects of regulation the proportion of top managers who are benefits all, but a study of Rwanda’s land that specifically impact this large group. women is lower, the proportion of women tenure regularization program showed 14 For some years now the Women, Business in parliament is lower, the percentage of that women benefit the most. and the Law data have shown, for exam- women that borrow from financial insti- ple, that in some economies a female tutions relative to men is lower and child Twenty-three economies impose more 10 entrepreneur faces more obstacles than mortality rates are higher. procedures for women than men to start her male counterpart for a variety of a business. Sixteen limit women’s ability economic and business activities. To Doing Business builds on the work of to own, use and transfer property. And the extent that these obstacles are Women, Business and the Law by adding in 17 economies, the civil courts do not ignored, the Doing Business data will be gender components to three indicator value a woman’s testimony the same way incomplete. More importantly, over the sets this year. Starting a business now as a man’s. last two decades we have learned a great includes two case studies—one where deal about the relationship between vari- the entrepreneurs are men and one Three gender-related measures were ous dimensions of gender inequality and where the entrepreneurs are women—in added to the starting a business indicator 6 economic growth. order to address a previous lack of data set—whether a woman requires permis- on those economies where women face a sion to leave the house, whether there are There is ample evidence that those higher number of procedures. Registering gender-specific identification procedures economies that have integrated women property now measures legal gender and whether a married woman requires more rapidly into the workforce have differentiations in property rights for her husband’s permission to start a busi- improved their international competi- ownership, use and transfer. And enforc- ness. In 17 economies a married woman tiveness by developing export-oriented ing contracts was expanded to measure cannot leave the house without her manufacturing industries that tend to whether women's and men's testimony husband’s permission by law. Although favor the employment of women. For the have the same evidentiary weight in civil in practice this law may not be enforced, most part, legal gender disparities have courts. These three areas were selected it still reduces women’s bargaining power been shown to have a strong link with because there is enough evidence to within the household and can under- 7 female labor force participation. Studies show their relevance for economic mine their ability to pursue a business have also shown a clear link between development and because they fit well venture. In three economies the process economic growth and development and within the Doing Business methodology. of obtaining official identification is dif- 8 female labor force participation. One new area—quotas for women in ferent for men and women. The official corporate boards—was studied but not identification document is a pre-requisite Gender discrimination limits choices and included in this year’s report because the to starting a business. Doing Business has creates distortions that can lead to less evidence in this area has been mixed so not traditionally captured the process of efficient outcomes. An employer’s deci- far (box 1.1). obtaining identification in starting a busi- sion not to hire a woman based solely on ness; it is assumed that the entrepreneur her gender can lead to lower productivity Several studies highlight the importance has identification before deciding to for that particular firm. Where this prac- of equal opportunities for women entre- create a new business. However, when tice is widespread it can have negative preneurs, creating the need to measure capturing gender-specific procedures it is effects at the macro level—an economy’s the differences faced by women entre- crucial to include female-specific require- 11 output and growth potential can be lower preneurs when starting a new business. ments. In Benin, for example, a married 9 because of gender discrimination. Research also shows the importance woman must present a marriage certifi- of equal rules regarding property rights cate when applying for identification but The Women, Business and the Law team for men and women. One study finds the same requirement does not apply has documented and measured the legal that after a reform to the family law in to a married man. In four economies a disparities that are relevant to a woman’s Ethiopia that established more equitable woman requires her husband’s explicit economic empowerment. Economies property rights over marital property permission to start a business. This is the case in the Democratic Republic of where there are more gender differences between spouses, there was an increase 4 DOING BUSINESS 2017 BOX 1.1 Women in corporate boards Building on Women, Business and the Law data, this year Doing Business collected data on regulation that imposes quotas for women in corporate boards as well as sanctions and incentives for meeting those quotas. The data show that nine economies have such provisions. Seven of the nine economies that define quotas for women in corporate boards or impose penalties for noncompliance are OECD high-income economies—namely Belgium, France, Germany, Iceland, Israel, Italy and Norway. This type of regulation exists in other regions of the world but it is less common. The law in India, for example, requires that publicly- listed companies have at least one director that is a woman. Any business appointing a woman to a management position in Sierra Leone is now eligible for a tax credit equal to 6.5% of that female manager’s compensation. Although the data were collected, they were not included in the Doing Business indicators because the empirical evidence on the value of quotas for women in corporate boards is mixed. For example, some studies have questioned the link between women in the boardroom and firm performance, finding either no relationship between gender diversity and performance or even a a negative relationship. A Norwegian law mandating 40% representation of women in corporate boards is probably the most b researched regulation in this area. One study finds that there were no significant reductions in gender wage gaps. Another study of the same regulation reports a significant drop in stock prices when the law was made public and a deterioration in operating c performance. Nevertheless, another study found that firms with women in corporate boards undertake fewer workforce reduc- d tions than firms with only male board members. However, there are patterns of positive firm outcomes connected to the presence of women in important decision-making posi- tions. Quoting a broad range of studies, the World Bank argues that low gender diversity in corporate boards “is seen by many as undermining a company’s potential value and growth. Higher diversity is often thought to improve the board’s functioning by increasing its monitoring capacity, broadening its access to information on its potential customer base, and enhancing its e creativity by multiplying viewpoints. Greater diversity implies that board directors can be selected from a broader talent pool.” Indeed, there is evidence that companies benefit from fostering an increase in the number of women board directors. A study comparing the top and bottom quartiles of women board directors at Fortune 500 companies found that where there were higher f numbers of women on the board the companies thrived. Analyzing financial measures such as return on equity, return on sales, and return on invested capital, this study established that companies with more women board directors were able to outperform those with fewer by between 42 and 66%. There is also evidence that companies with greater participation of women in boards tend to have stronger ethical foundations. According to a report from the index provider MSCI, bribery, fraud or other corporate governance scandals are less common in g corporations with more women on their boards. The dataset used in this analysis included 6,500 boards globally. a. van Dijk and others 2012; Adams and Ferreira 2009. b. Bertrand and others 2014. c. Ahern and Dittmar 2012. d. Matsa and Miller 2013. e. World Bank 2011. f. Joy and others 2007. g. Lee and others 2015. Congo, where by law a married woman Restrictions on property ownership are region except Europe and Central Asia. needs the authorization of her husband far more common for married women Only one OECD high-income economy to incorporate a business. because these are normally linked to still has a restriction—in Chile the law family and marriage codes. provides fewer property rights to married The registering property indicators now women than to married men. include two aspects regarding ownership Restrictions for women on starting a rights. Doing Business measures whether business are more frequent in economies Economies with more restrictions for unmarried men and unmarried women in both the Middle East and North Africa women tend to have on average lower have equal ownership rights to property. and Sub-Saharan Africa. The restrictions female labor force participation and a Only two economies—Swaziland and measured in registering property are lower percentage of female labor force Tonga—grant fewer rights to unmarried more prevalent in Sub-Saharan Africa, relative to male. The same relationship women. However, when the same ques- while those measured in enforcing con- applies to women’s participation in firm tion is used to compare the property tracts are more present in the Middle ownership and management (figure 1.2). rights of married men with married wom- East and North Africa. However, these In fact, the new gender components en, differences arise in 16 economies. types of restrictions are present in every added to the distance to frontier have a OVERVIEW 5 and medium-size enterprises component FIGURE 1.2 Less equal business regulation is associated with fewer women running firms measures whether economies have set Firms with female top manager (%) up specific legal provisions or policies to promote fair access for small and 80 medium-size enterprises to govern- ment contracts. And for the complaints mechanism component, the indicators 60 measure the process to file a grievance regarding a public procurement project including who can file a complaint, where 40 to file a complaint and the independence of the review body as well as what rem- edies are granted. 0 -0.4 -0.3 -0.2 -0.1 0 The data show that 97% of the 78 Gender difference in distance to frontier economies analyzed have at least one or more online portals dedicated to public Firms with female participation in ownership (%) procurement and that close to 90% of economies impose a bid security deposit 80 requirement that suppliers must fulfill for their bid to be considered. In 37% of the 60 economies included in the selling to the government indicators, payment occurs 40 on average within 30 days while in 48% of the economies suppliers can expect 20 to receive payments between 31 and 90 days following completion of the contract. 0 This analysis is presented in the annex on -0.4 -0.3 -0.2 -0.1 0 selling to the government and the data are Gender difference in distance to frontier available on the Doing Business website. Sources: Doing Business database; Enterprise Surveys database (http://www.enterprisesurveys.org), World Bank. Note: The relationship between the percentage of firms with female participation in ownership and the difference in distance to frontier due to the addition of gender components in three topics is significant at the 1% level after ECONOMIES WITH MORE controlling for income per capita. The same applies when the analysis is done using the percentage of firms with a female top manager. BUSINESS-FRIENDLY REGULATIONS strong association with outcomes that five main areas: accessibility and trans- represent women’s economic empower- parency, bid security, payment delays, Doing Business scores economies based ment. These results are associations and incentives for small and medium-size on how business friendly their regulatory cannot be interpreted in a causal fashion. enterprises and complaints mechanisms. systems are using the distance to frontier For accessibility and transparency, score and the ease of doing business Procurement the annex discusses data on whether ranking. The distance to frontier score Public procurement is the process of information is accessible to prospective measures the distance of each economy purchasing goods, services or works by bidders and how that information can be to the “frontier,” which represents the the public sector from the private sector. accessed. For bid security, the indicators best performance observed on each of Overall, public procurement represents measure the amount that prospective the indicators across all economies in the on average 10 to 25% of GDP, making bidders need to pay upfront in order to Doing Business sample since 2005 or the the procurement market a unique pool be considered in the bidding process and third year in which data were collected of business opportunities for the private the form of the security deposit. For pay- for the indicator. For the getting electricity 15 sector. This year Doing Business includes ment delays, the annex discusses data on indicators, for example, the frontier is set an annex with analysis of a pilot indica- the time it takes for the firm to receive at three procedures, 18 days and no cost to tor set on public procurement regulation payment from the government after the obtain a new electricity connection in the called “selling to the government.” The contract is completed and the service has economy’s largest business city. The worst procurement process is studied across been delivered. The incentives for small for the same group of indicators is set at 6 DOING BUSINESS 2017 9 procedures, 248 days and 81 times the to file taxes (electronically). Although the it takes 60 days on average to transfer economy’s income per capita as the cost. top 20 economies already have simple, property in that region, for example, com- In addition, the getting electricity indica- effective and accessible business regu- pared to only 22 days for the same trans- action in OECD high-income economies. tors measure the reliability of electricity lations, they continued to implement supply and transparency of tariffs through reforms this year with a total of 20 reforms an index ranging from 0 to 8; in this case implemented among them. Hong Kong Following the expansion of the scope of 8 is the frontier score. For example, in SAR, China, for example, made starting a the indicators in last year’s report, Doing the case of reliability and transparency, business less costly by reducing the busi- Business now provides further clarity on an economy with a score of 6 would be ness registration fee while Sweden made the differences between well-designed considered to be 75% of the way to the it easier to transfer property and Norway and badly designed regulation. New data made enforcing contracts easier by intro- on the quality of regulation make it easier frontier and would have a distance to fron- tier score of that value. The ease of doing ducing an electronic filing system. to identify where regulation is enabling business ranking is based on economies’ businesses to thrive and where it is relative positions on the distance to fron- OECD high-income economies have enabling rent seeking. Doing Business mea- tier scores on ten different Doing Business on average the most business-friendly sures the quality of regulation by focusing indicator sets. For more details, see the regulatory systems, followed by Europe on whether an economy has in place the chapter on the distance to frontier and and Central Asia (figure 1.3). There is, rules and processes that can lead to good however, a large variation within those outcomes, linked in each case to Doing ease of doing business ranking. two regions. New Zealand has a ranking Business measures of efficiency. Scores are higher for economies that, for example, There was some change in the 20 econo- of 1 while Greece has a ranking of 61; FYR mies with the top scores due mainly to Macedonia stands at 10 while Tajikistan have a land administration system that the implementation of business regula- is at 128. The Sub-Saharan Africa region maintains a dependable database and pro- tory reforms (table 1.1) and, to a much continues to be home to the economies duces credible titles that are respected as lesser extent, on account of the methodol- with the least business-friendly regula- reliable by the legal system. Another way tions on average. However, this year the that Doing Business measures regulatory ogy changes mentioned above. Austria, Georgia and Latvia join the top 20 econo- regional improvement in the distance to quality is through the building quality con- trol index, which evaluates the quality of mies this year. Georgia implemented five frontier score for Sub-Saharan Africa was reforms as measured by Doing Business. almost three times as high as the aver- building regulations, the strength of qual- And Latvia implemented two – it improved age improvement for OECD high-income ity control and safety mechanisms, liability access to credit information (by launching economies. Nevertheless, there is still a and insurance regimes and professional a private credit bureau) and made it easier long way for Sub-Saharan Africa to go: certification requirements that ultimately FIGURE 1.3 The biggest gaps between regulatory efficiency and regulatory quality are in the Middle East and North Africa and in Sub-Saharan Africa Average distance to frontier score 80 70 60 50 40 30 20 10 0 OECD high income Europe & East Asia & Middle East & Latin America & South Asia Sub-Saharan Africa Central Asia Pacific North Africa Caribbean Regulatory efficiency Regulatory quality Source: Doing Business database. Note: The distance to frontier score for regulatory efficiency is the aggregate score for the procedures (where applicable), time and cost indicators from the following indicator sets: starting a business (also including the minimum capital requirement indicator), dealing with construction permits, getting electricity, registering property, paying taxes (also including the postfiling index), trading across borders, enforcing contracts and resolving insolvency. The distance to frontier score for regulatory quality is the aggregate score for getting credit and protecting minority investors as well as the regulatory quality indices from the indicator sets on dealing with construction permits, getting electricity, registering property, enforcing contracts and resolving insolvency.OVERVIEW 7 TABLE 1.1 Ease of doing business ranking Rank Economy DTF score Rank Economy DTF score Rank Economy DTF score ÏÏÏ 1 New Zealand 87.01 65 Azerbaijan 67.99 128 Tajikistan 55.34 ÏÏ 2 Singapore 85.05 66 Oman 67.73 129 Cabo Verde 55.28 ÏÏÏ 3 Denmark 84.87 67 Jamaica 67.54 130 India 55.27 ÏÏÏ 4 Hong Kong SAR, China 84.21 68 Morocco 67.50 131 Cambodia 54.79 ÏÏ 5 Korea, Rep. 84.07 69 Turkey 67.19 132 Tanzania 54.48 ÏÏ 6 Norway 82.82 70 Panama 66.19 133 Malawi 54.39 ÏÏ 7 United Kingdom 82.74 71 Botswana 65.55 134 St. Kitts and Nevis 53.96 Ï 8 United States 82.45 72 Brunei Darussalam 65.51 135 Maldives 53.94 ÏÏÏ 9 Sweden 82.13 73 Bhutan 65.37 136 Palau 53.81 Ï 10 Macedonia, FYR 81.74 74 South Africa 65.20 137 Mozambique 53.78 ÏÏ 11 Taiwan, China 81.09 75 Kyrgyz Republic 65.17 138 Grenada 53.75 ÏÏÏ 12 Estonia 81.05 76 Malta 65.01 139 Lao PDR 53.29 ÏÏ 13 Finland 80.84 77 Tunisia 64.89 140 West Bank and Gaza 53.21 ÏÏÏ 14 Latvia 80.61 78 China 64.28 141 Mali 52.96 ÏÏÏ 15 Australia 80.26 79 San Marino 64.11 142 Côte d'Ivoire 52.31 ÏÏÏ 16 Georgia 80.20 80 Ukraine 63.90 143 Marshall Islands 51.92 ÏÏ 17 Germany 79.87 81 Bosnia and Herzegovina 63.87 144 Pakistan 51.77 ÏÏÏ 18 Ireland 79.53 82 Vietnam 63.83 145 Gambia, The 51.70 ÏÏ 19 Austria 78.92 83 Qatar 63.66 146 Burkina Faso 51.33 ÏÏÏ 20 Iceland 78.91 83 Vanuatu 63.66 147 Senegal 50.68 ÏÏ 21 Lithuania 78.84 85 Tonga 63.58 148 Sierra Leone 50.23 Ï 22 Canada 78.57 86 St. Lucia 63.13 149 Bolivia 49.85 ÏÏ 23 Malaysia 78.11 87 Uzbekistan 63.03 150 Niger 49.57 ÏÏ 24 Poland 77.81 88 Guatemala 62.93 151 Micronesia, Fed. Sts. 49.48 ÏÏÏ 25 Portugal 77.40 89 Samoa 62.17 152 Kiribati 49.19 ÏÏÏ 26 United Arab Emirates 76.89 90 Uruguay 61.85 153 Comoros 48.69 ÏÏÏ 27 Czech Republic 76.71 91 Indonesia 61.52 154 Togo 48.57 ÏÏÏ 28 Netherlands 76.38 92 Kenya 61.22 155 Benin 48.52 ÏÏÏ 29 France 76.27 93 Seychelles 61.21 156 Algeria 47.76 ÏÏÏ 30 Slovenia 76.14 94 Saudi Arabia 61.11 157 Burundi 47.37 Ï 31 Switzerland 76.06 95 El Salvador 61.02 158 Suriname 47.28 ÏÏ 32 Spain 75.73 96 Trinidad and Tobago 60.99 159 Ethiopia 47.25 ÏÏ 33 Slovak Republic 75.61 97 Fiji 60.71 160 Mauritania 47.21 ÏÏ 34 Japan 75.53 98 Zambia 60.54 161 Zimbabwe 47.10 ÏÏÏ 35 Kazakhstan 75.09 99 Philippines 60.40 162 São Tomé and Príncipe 46.75 ÏÏÏ 36 Romania 74.26 100 Lesotho 60.37 163 Guinea 46.23 Ï 37 Belarus 74.13 101 Dominica 60.27 164 Gabon 45.88 ÏÏ 38 Armenia 73.63 102 Kuwait 59.55 165 Iraq 45.61 ÏÏÏ 39 Bulgaria 73.51 103 Dominican Republic 59.35 166 Cameroon 45.27 ÏÏ 40 Russian Federation 73.19 104 Solomon Islands 59.17 167 Madagascar 45.10 Ï 41 Hungary 73.07 105 Honduras 59.09 168 Sudan 44.76 Ï 42 Belgium 73.00 106 Paraguay 59.03 169 Nigeria 44.63 ÏÏ 43 Croatia 72.99 107 Nepal 58.88 170 Myanmar 44.56 ÏÏÏ 44 Moldova 72.75 108 Ghana 58.82 171 Djibouti 44.50 ÏÏ 45 Cyprus 72.65 108 Namibia 58.82 172 Guinea-Bissau 41.63 ÏÏ 46 Thailand 72.53 110 Sri Lanka 58.79 173 Syrian Arab Republic 41.43 ÏÏ 47 Mexico 72.29 111 Swaziland 58.34 174 Liberia 41.41 Ï 47 Serbia 72.29 112 Belize 58.06 175 Timor-Leste 40.88 ÏÏ 49 Mauritius 72.27 113 Antigua and Barbuda 58.04 176 Bangladesh 40.84 ÏÏ 50 Italy 72.25 114 Ecuador 57.97 177 Congo, Rep. 40.58 ÏÏ 51 Montenegro 72.08 115 Uganda 57.77 178 Equatorial Guinea 39.83 ÏÏ 52 Israel 71.65 116 Argentina 57.45 179 Yemen, Rep. 39.57 ÏÏÏ 53 Colombia 70.92 117 Barbados 57.42 180 Chad 39.07 ÏÏÏ 54 Peru 70.25 118 Jordan 57.30 181 Haiti 38.66 ÏÏ 55 Puerto Rico (U.S.) 69.82 119 Papua New Guinea 57.29 182 Angola 38.41 ÏÏ 56 Rwanda 69.81 120 Iran, Islamic Rep. 57.26 183 Afghanistan 38.10 ÏÏ 57 Chile 69.56 121 Bahamas, The 56.65 184 Congo, Dem. Rep. 37.57 ÏÏ 58 Albania 68.90 122 Egypt, Arab Rep. 56.64 185 Central African Republic 36.25 Ï 59 Luxembourg 68.81 123 Brazil 56.53 186 South Sudan 33.48 ÏÏ 60 Kosovo 68.79 124 Guyana 56.26 187 Venezuela, RB 33.37 61 Greece 68.67 125 St. Vincent and the Grenadines 55.91 188 Libya 33.19 ÏÏ 62 Costa Rica 68.50 126 Lebanon 55.90 189 Eritrea 28.05 Ï 127 Nicaragua 55.75Ï 190 Somalia 20.29Ï 63 Bahrain 68.44 Ï 64 Mongolia 68.15 Source: Doing Business database. Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. For the economies for which the data cover two cities, scores are a population-weighted average for the two cities. An arrow indicates an improvement in the score between 2015 and 2016 (and therefore an improvement in the overall business environment as measured by Doing Business), while the absence of one indicates either no improvement or a deterioration in the score. The score for both years is based on the new methodology.8 DOING BUSINESS 2017 lead to safe buildings. Efficient business second-highest incidence of reforms, with Business methodology. The data indicate regulatory systems allow entrepreneurs 77% of economies implementing at least that both factors have contributed. A to achieve business-related tasks simply, one reform captured by Doing Business. substantial number of the reforms implemented this year are in areas that quickly and inexpensively. Therefore, an economy scores better on the metric for Ten economies are highlighted this year for were added since Doing Business 2015 regulatory efficiency if it has a system in making the biggest improvements in their (figure 1.4). Around 26% of the reforms place that allows entrepreneurs to start a business regulations—Brunei Darussalam, implemented in the expanded indicator business through a small number of steps, Kazakhstan, Kenya, Belarus, Indonesia, sets were only made in these new areas. in short time and at lower cost. Serbia, Georgia, Pakistan, the United And another 17% concern both the new Arab Emirates and Bahrain. The ease of and old indicators. Indeed, over 40% of all reforms affected at least one of the Regulatory efficiency and regulatory doing business ranking for these econo- quality go hand in hand. Economies that mies ranges from 144 in Pakistan to 16 components added since Doing Business have efficient regulatory processes as in Georgia; on average it is 62. Compared 2015. The frequency of reform in the new measured by Doing Business also tend to to previous years there is a lower number areas varies substantially by topic, with have good regulatory quality. However, of top improvers from Sub-Saharan Africa the most reforms occurring within the the gap between the two measures even though this region accounts for over enforcing contracts and registering prop- varies significantly by region. In OECD a quarter of all reforms globally. erty indicators. In registering property, for example, this year the cadastral maps high-income economies, the average distance to the frontier score for regula- There are several possible explanations have been digitized and made available tory efficiency is 79.4 while regulatory for the increase in reform intensity. One online in Jakarta and Surabaya, Indonesia. quality lags at 73.4. In the Middle East is that economies are increasingly inter- The online application provides custom- and North Africa and Sub-Saharan Africa ested in improving business regulatory ers with access to a spatial database that the gap between efficiency and quality is conditions and therefore are reforming allows them to check property bound- larger: on efficiency these regions score more. Another is that there are more aries. And in enforcing contracts, the areas where reforms can be captured government of Rwanda introduced the 65.4 and 56.5 while on quality they score 45.2 and 36.7, respectively. following the expansion of the Doing Integrated Electronic Case Management FIGURE 1.4 Doing Business reforms in 2015/16 in the areas added since Doing ECONOMIES WITH THE Business 2015 LARGEST IMPROVEMENTS Number of reforms IN BUSINESS REGULATION 50 IN 2015/16 In 2015/16, 137 economies worldwide 40 implemented 283 business regulatory reforms. This represents an increase of 30 more than 20% compared to last year. In fact, the number of economies that imple- mented at least one reform increased 20 from 122 to 137, indicating that there are more economies trying to improve in the 10 areas measured in Doing Business. And 139 economies made an improvement 0 in the distance to frontier score; doing Dealing with Getting Registering Getting Protecting Paying Enforcing Resolving business is now easier and less costly in construction electricity property credit minority taxes contracts insolvency permits investors those economies compared to last year. With 49 reforms, starting a business Reforms on the new part Reforms on the old part Reforms on both parts of the indicator of the indicator continues to be the indicator set with the highest number of reforms followed by Source: Doing Business database. Note: The new components added since Doing Business 2015 are: the building quality control index in dealing with paying taxes with 46. Of the economies construction permits, the reliability of supply and transparency of tariffs index in getting electricity, the quality of in Europe and Central Asia, 96% imple- land administration index in registering property, 3 points in the strength of legal rights index and 2 points in the depth of credit information index in getting credit, extent of shareholder governance index in protecting minority mented at least one Doing Business reform. investors, post-filing in paying taxes, quality of judicial processes index in enforcing contracts and strength of insolvency framework index in resolving insolvency. Sub-Saharan Africa is the region with the OVERVIEW 9 System in Kigali city courts and all FIGURE 1.5 Low-income economies have made bigger improvements over time in the commercial courts. quality and efficiency of business regulation Average year-on-year improvement in distance to frontier score For a full discussion of the 283 reforms implemented in 2015/16 and more 15 information on the top improvers, see the chapter on reforming the business 12 environment. 9 6 ECONOMIES WITH THE LARGEST IMPROVEMENTS 3 IN BUSINESS REGULATION SINCE 2003 0 Low income Low middle income Upper middle income High income Each year Doing Business captures DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 substantive reforms implemented by economies across all ten indicator sets DB2012 DB2013 DB2014 DB2015 DB2016 DB2017 included in the ease of doing business ranking. Since Doing Business 2005 over Source: Doing Business database. 2,900 business regulatory reforms have Note: The red line shows the average global improvement in the distance to frontier score since 2004. The measure is normalized to range from 0 to 100, with 100 representing the frontier. Because of changes over the years in been implemented in 186 economies. methodology and in the economies and indicators included, the improvements are measured year on year using pairs of consecutive years with comparable data. Only Kiribati, Libya, Somalia and South Sudan have not implemented a reform Russian Federation have made the most captured by the Doing Business indicators. How did Europe and Central Asia accom- The majority of these reforms have been plish this? The most reformed Doing reforms in Europe and Central Asia, made in low-income and middle-income Business areas in Europe and Central Asia implementing over 30 reforms each economies, leading to more significant are starting a business, paying taxes and since 2004. Moreover, seven countries improvements in business regulation getting credit. Georgia, FYR Macedonia, in the region—Armenia, Belarus, Georgia, compared to high-income economies. Kazakhstan, Belarus, Armenia, and the Kazakhstan, Lithuania, FYR Macedonia The gap between high-income economies and low-income economies is therefore FIGURE 1.6 Europe and Central Asia has made a substantially bigger improvement in narrowing when it comes to the qual- business regulation over time than any other region ity and efficiency of business regulation Average year-on-year improvement in distance to frontier score (figure 1.5). 25 The reform intensity varies considerably 20 across regions. With over 26 reforms per economy since 2004, Europe and Central 15 Asia is the region that has reformed the most intensely since Doing Business 10 began gathering data on business regu- 5 lation. The global average is around 15 reforms per economy. These reforms 0 Europe & Sub-Saharan Middle East & South Asia East Asia & Latin America & OECD have produced significant improvements Central Asia Africa North Africa Pacific Caribbean high income in business regulation. Since 2004, economies in Europe and Central Asia DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 have improved over 20 points on average DB2012 DB2013 DB2014 DB2015 DB2016 DB2017 in the distance to frontier score, mov- ing into second position in the regional Source: Doing Business database. rankings behind the OECD high-income Note: The red line shows the average global improvement in the distance to frontier score since 2004. The measure is normalized to range from 0 to 100, with 100 representing the frontier. Because of changes over the years in economies for the most business-friendly methodology and in the economies and indicators included, the improvements are measured year on year using pairs of consecutive years with comparable data. regulations (figure 1.6). 10 DOING BUSINESS 2017 and Ukraine—reformed across all Doing Only 14 economies have not improved THE RELATIONSHIP Business indicators. Another 13 economies their business registration processes. BETWEEN BUSINESS implemented reforms in eight to 10 areas One of these economies is República REGULATION AND INCOME measured by Doing Business. This shows Bolivariana de Venezuela, where it takes INEQUALITY that economies tend to expand their 230 days to start a new business, signifi- reform efforts to encompass multiple cantly higher than the global average of business regulatory environments rather 21 days (down from 51 days in 2003). In A recent World Bank report focusing on than choosing a narrow reform path. the past year, República Bolivariana de poverty and shared prosperity provides Venezuela has actually made the pro- new evidence on the status of income The region with the lowest average cess more time consuming—an increase inequality worldwide. Domestic income number of reforms per economy is East of 44 days—by limiting the work inequality has fallen in more economies Asia and the Pacific with 13 reforms schedule of the public sector amidst an than it has risen since 2008 (across a per economy since 2004. This is partly energy crisis. sample of 81 economies). However, the due to the fact that the Pacific islands global average for domestic income have been slow to reform. The OECD The indicator set with the second highest inequality is larger today than 25 years 16 high-income economies have the lowest number of reforms is paying taxes, with ago. Indeed, income inequality is an average improvement, mainly because of 443 reforms implemented since 2004. important concern. Excessive income reduced room for progress. It is hard to But reforms captured within the getting inequality can have many negative advance by much when you are already credit indicators—although there were effects, including political instability and close to the top. only 400 recorded—have resulted in a civil unrest. The determinants of income bigger improvement in the distance to inequality have been widely studied in Reforming the requirements for starting frontier score. The data also show that the economic literature—what increases a business is by far the most common court systems, as captured in both the it, what can reduce it and its negative area for reform—586 reforms have been enforcing contracts and resolving insol- consequences. For example, policies vency indicator sets, are the institutions captured by the starting a business such as early childhood development, indicator set since 2004 (figure 1.7). reformed least frequently. universal education and health care FIGURE 1.7 Economies have improved regulatory processes the most in the area of starting a business Average year-on-year improvement in distance to frontier score 25 20 15 10 5 0 Starting Getting Trading Paying taxes Registering Dealing with Protecting Resolving Getting Enforcing a business credit across borders property construction minority insolvency electricity contracts permits investors DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 DB2015 DB2016 DB2017 Source: Doing Business database. Note: The red line shows the average global improvement in the distance to frontier score since 2004. The measure is normalized to range from 0 to 100, with 100 representing the frontier. Because of changes over the years in methodology and in the economies and indicators included, the improvements are measured year on year using pairs of consecutive years with comparable data.OVERVIEW 11 and infrastructure investments in roads FIGURE 1.8 Economies with more business-friendly regulation tend to have lower and electrification have been shown levels of income inequality on average to have positive effects in reducing 17 Gini index (0–100) income inequality. 80 70 Several recent studies link weaker eco- nomic growth to higher income inequal- 60 ity, although there is a debate on the 50 18 validity of these results. Growth analysis 40 is typically based on cross-country data 30 across multiple years. These data tend 20 to have statistical characteristics that make it harder to identify causality and 10 understand the links between variables. 0 Furthermore, the data on inequality in a 10 20 30 40 50 60 70 80 90 100 large cross-country setting and over time Distance to frontier score (0–100) is very limited and often may be imputed Sources: Doing Business database; PovcalNet (http://iresearch.worldbank.org/PovcalNet/index.htm), World Bank. between years. With that caveat in mind, Note: The figure compares distance to frontier score to the Gini index as calculated in PovcalNet. The data ranges from 2003 to 2013 and includes 713 observations. The correlation between the Gini index and the distance to studies linking economic growth and frontier score is -0.33. The relationship is significant at the 1% level after controlling for income per capita and inequality find that, for example, higher government expenditure. income inequality is associated with a smaller tax base and therefore lower tax more accessible, firms start smaller and Data across multiple years and econo- collection and more indebtedness by firm size can be a proxy for the income mies show that as economies improve 19 23 governments. There is also a gender of the entrepreneur. Doing Business data business regulation, income inequality component to income disparity; the data confirms this notion. There is a negative tends to decrease in parallel. Although show that where there are higher levels association between the Gini index, which these results are associations and do not of gender inequality, there are also higher measures income inequality within an imply causality, it is important to see such 20 levels of income inequality. Gender economy, and the distance to frontier relation. The results differ by regulatory inequality exists at various levels: edu- score, which measures the quality and area. Facilitating entry and exit in and out cational, access to assets and overall low efficiency of business regulation when the of the market—as measured by the start- 21 investment in girls and women. data are compared over time (figure 1.8). ing a business and resolving insolvency A considerable body of evidence con- FIGURE 1.9 Economies where it is easier to start a business tend to have lower levels firms that cross-country differences in of income inequality on average the quality of business regulation are strongly correlated with differences in 22 Gini index (0–100) income per capita across economies. 80 But can business regulation also be a fac- 70 tor in understanding income differences across individuals within an economy? 60 Business regulation that is transparent 50 and accessible makes it easier for people 40 of all income levels to access markets, 30 develop their businesses and navigate the 20 bureaucratic world. People of low income are more likely to benefit from transpar- 10 ent regulation because, unlike wealthy 0 10 20 30 40 50 60 70 80 90 100 individuals, they cannot afford experts to help them navigate the system and are Distance to frontier score for starting a business (0–100) more likely to be excluded from economic Sources: Doing Business database; PovcalNet (http://iresearch.worldbank.org/PovcalNet/index.htm), World Bank. opportunities when business regulation is Note: The figure compares the starting a business indicator distance to frontier score to the Gini index as cumbersome. In fact, research shows that calculated in PovcalNet. The data ranges from 2003 to 2013 and includes 713 observations. The correlation between the Gini index and the distance to frontier score is -0.35. The relationship is significant at the 1% level where business regulation is simpler and after controlling for income per capita and government expenditure.12 DOING BUSINESS 2017 and selling to the government. Selling to FIGURE 1.10 Economies where it is easier to close a business tend to have lower the government is a pilot indicator this levels of income inequality on average year, covering 78 economies. Gini index (0–100) 80 NOTES 70 60 1. For 11 economies the data are also collected for the second largest business city (see table 50 12A.1 in the data notes). 2. The correlation between the old part and 40 the new part of the paying taxes indicator 30 set is 0.92. 3. Amin 2010; Bruhn 2009. 20 4. OECD 2014a. 10 5. World Bank Group 2015a. 6. Klasen 1999; Duflo 2012. 0 7. Gonzales and others 2015. 10 20 30 40 50 60 70 80 90 100 8. Elborgh-Woytek and others 2013; Duflo 2012; Distance to frontier score for resolving insolvency (0–100) Revenga and Shetty 2012; World Bank 2011. 9. Esteve-Volart 2000 and 2004. 10. Iqbal and others 2016. 11. OECD 2012. Sources: Doing Business database; PovcalNet (http://iresearch.worldbank.org/PovcalNet/index.htm), World Bank. 12. Hallward-Driemeier and Hasan 2012. Note: The figure compares the resolving insolvency indicator distance to frontier score to the Gini index as calculated in PovcalNet. The data ranges from 2003 to 2013 and includes 713 observations. The correlation 13. Deininger and others 2010. between the Gini index and the distance to frontier score is -0.40. The relationship is significant at the 5% level 14. Ali and others 2014. after controlling for income per capita and government expenditure. 15. The European Union estimates that public procurement amounts to between 10 and 25% of GDP globally (see http://ec.europa indicators—have the strongest link with on the depth of credit information. The .eu/trade/policy/accessing-markets/public- income inequality reduction (figures case study on the strength of legal rights procurement/). The WTO estimates that public procurement represents between 1.9 and 1.10). These two Doing Business index discusses two approaches to the 10 and 15% of GDP (https://www.wto.org indicators are focused on equalizing reform process, one where the economy /english/tratop_e/gproc_e/gproc_e.htm). opportunities and access to markets. completely discards the existing laws and 16. World Bank 2016a. 17. World Bank 2016a. regulation and creates a new overarching 18. Kraay 2015. framework for secured transactions and 19. Aizenman and Jinjarak 2012. CONTENTS OF THIS YEAR’S another where the economy makes piece- 20. Gonzales and others 2015. 21. Dollar and Gatti 1999; World Bank 2011. REPORT meal reforms while preserving the existing 22. Marimon and Quadrini 2008; Barseghyan overarching framework. The case study on 2008; Freund and Bolaky 2008. This year’s report presents six case stud- the depth of credit information highlights 23. Klapper and others 2006. ies and two annexes. The case studies the importance of a well-functioning credit focus on the areas that are included in the bureau or registry for financial inclusion ease of doing business ranking while the and discusses how they can increase their annexes cover areas not included in the coverage by broadening the sources of ranking. The case studies and annexes information. The case study on protecting either present new indicators or provide minority investors analyzes the reforms further insights from the data collected that focus on the newest parts of the through methodology changes imple- indicator. Reforms implemented in India mented in the past two years. and Switzerland are discussed in detail. The case study on paying taxes presents The getting electricity case study high- and analyzes the new data on postfiling processes. Finally, the case study on trad- lights the importance of a reliable power supply for business and discusses the ing across borders discusses the impor- challenges and successes of four tance of single windows and electronic very different economies—Cameroon, systems for simplifying trade logistics and Guatemala, Indonesia and Pakistan. This reducing corruption. year, two case studies on getting credit are presented, one focusing on the strength The two annexes present the data analy- sis for two topics, labor market regulation of legal rights index and one focusing Doing Business 2017 About Doing Business ƒ Doing Business measures aspects of he foundation of Doing Business a simple way facilitates business expan- business regulation affecting domestic is the notion that economic activ- sion and innovation, and makes it easier small and medium-size firms defined Tity, particularly private sector for aspiring entrepreneurs to compete on based on standardized case scenarios development, benefits from clear and an equal footing. and located in the largest business city coherent rules: Rules that set out and of each economy. In addition, for 11 clarify property rights and facilitate the Doing Business measures aspects of economies a second city is covered. resolution of disputes. And rules that business regulation for domestic firms ƒ Doing Business covers 11 areas of busi- enhance the predictability of economic through an objective lens. The focus of ness regulation across 190 economies. interactions and provide contractual the project is on small and medium-size Ten of these areas—starting a business, partners with essential protections companies in the largest business city dealing with construction permits, against arbitrariness and abuse. Such of an economy. Based on standardized getting electricity, registering property, rules are much more effective in shap- case studies, Doing Business presents getting credit, protecting minority ing the incentives of economic agents in quantitative indicators on the regulations investors, paying taxes, trading across ways that promote growth and develop- that apply to firms at different stages borders, enforcing contracts and resolving insolvency—are included ment where they are reasonably efficient of their life cycle. The results for each in the distance to frontier score and in design, are transparent and accessible economy can be compared with those for ease of doing business ranking. Doing to those for whom they are intended and 189 other economies and over time. Business also measures features of can be implemented at a reasonable cost. labor market regulation, which is not The quality of the rules also has a crucial included in these two measures. bearing on how societies distribute the FACTORS DOING BUSINESS ƒ Doing Business relies on four main benefits and finance the costs of develop- MEASURES sources of information: the relevant ment strategies and policies. laws and regulations, Doing Business Doing Business captures several impor- respondents, the governments of the Good rules are a key to social inclusion. tant dimensions of the regulatory economies covered and the World Bank Enabling growth—and ensuring that all environment as it applies to local firms. Group regional staff. people, regardless of income level, can It provides quantitative indicators ƒ More than 39,000 professionals in 190 participate in its benefits—requires an on regulation for starting a business, economies have assisted in providing environment where new entrants with dealing with construction permits, get- the data that inform the Doing Business drive and good ideas can get started ting electricity, registering property, indicators over the past 14 years. in business and where good firms can getting credit, protecting minority ƒ This year’s report expands the paying invest and expand. The role of govern- investors, paying taxes, trading across taxes indicator set to cover postfiling ment policy in the daily operations of borders, enforcing contracts and resolv- processes—what happens after a firm domestic small and medium-size firms is ing insolvency (table 2.1). Doing Business pays taxes—such as tax refunds, tax a central focus of the Doing Business data. also measures features of labor market audits and administrative tax appeals. The objective is to encourage regulation regulation. Although Doing Business does ƒ Doing Business includes a gender that is designed to be efficient, acces- not present rankings of economies on dimension in four of the 11 indicator sible to all and simple to implement. the labor market regulation indicators sets. Starting a business, registering Onerous regulation diverts the energies or include the topic in the aggregate property and enforcing contracts of entrepreneurs away from developing distance to frontier score or ranking on present a gender dimension for the first their businesses. But regulation that is the ease of doing business, it does pres- time this year. Labor market regulation efficient, transparent and implemented in ent the data for these indicators. already captured gender disaggregated data in last year’s report. 14 DOING BUSINESS 2017 managed to create rules that facilitate TABLE 2.1 What Doing Business measures—11 areas of business regulation interactions in the marketplace without Indicator set What is measured needlessly hindering the development of Starting a business Procedures, time, cost and paid-in minimum capital to start a the private sector. limited liability company Dealing with construction permits Procedures, time and cost to complete all formalities to build a The distance to frontier and warehouse and the quality control and safety mechanisms in the construction permitting system ease of doing business ranking To provide different perspectives on Getting electricity Procedures, time and cost to get connected to the electrical grid, the reliability of the electricity supply and the transparency of tariffs the data, Doing Business presents data Registering property Procedures, time and cost to transfer a property and the quality of both for individual indicators and for the land administration system two aggregate measures: the distance Getting credit Movable collateral laws and credit information systems to frontier score and the ease of doing Protecting minority investors Minority shareholders’ rights in related-party transactions and in business ranking. The distance to frontier corporate governance score aids in assessing the absolute Paying taxes Payments, time and total tax rate for a firm to comply with all tax level of regulatory performance and regulations as well as post-filing processes how it improves over time. This measure Trading across borders Time and cost to export the product of comparative advantage and shows the distance of each economy to import auto parts the “frontier,” which represents the best Enforcing contracts Time and cost to resolve a commercial dispute and the quality of judicial processes performance observed on each of the indicators across all economies in the Resolving insolvency Time, cost, outcome and recovery rate for a commercial insolvency and the strength of the legal framework for insolvency Doing Business sample since 2005 or the Labor market regulation Flexibility in employment regulation and aspects of job quality third year in which data were collected for the indicator. The frontier is set at the highest possible value for indicators How the indicators are selected direct investment, market capitalization calculated as scores, such as the strength The choice of the 11 sets of Doing in stock exchanges and private credit as of legal rights index or the quality of land 2 Business indicators has been guided by a percentage of GDP. administration index. This underscores economic research and firm-level data, the gap between a particular economy’s specifically data from the World Bank Some Doing Business indicators give a performance and the best performance 1 Enterprise Surveys. higher score for more regulation and at any point in time and to assess the These surveys provide data highlighting the main better-functioning institutions (such absolute change in the economy’s regula- obstacles to business activity as reported as courts or credit bureaus). Higher tory environment over time as measured by entrepreneurs in more than 130,000 scores are given for stricter disclosure by Doing Business. The distance to frontier firms in 139 economies. Access to requirements for related-party trans- is first computed for each topic and then finance and access to electricity, for actions, for example, in the area of averaged across all topics to compute example, are among the factors identified protecting minority investors. Higher the aggregate distance to frontier score. by the surveys as important to busi- scores are also given for a simplified The ranking on the ease of doing business nesses—inspiring the design of the Doing way of applying regulation that keeps complements the distance to frontier Business indicators on getting credit and compliance costs for firms low—such score by providing information about getting electricity. as by easing the burden of business an economy’s performance in business start-up formalities with a one-stop shop regulation relative to the performance The design of the Doing Business or through a single online portal. Finally, of other economies as measured by indicators has also been informed by Doing Business scores reward economies Doing Business. theoretical insights gleaned from exten- that apply a risk-based approach to sive research and the literature on the regulation as a way to address social Doing Business uses a simple averaging role of institutions in enabling economic and environmental concerns—such as approach for weighting component development. In addition, the background by imposing a greater regulatory burden indicators, calculating rankings and papers developing the methodology on activities that pose a high risk to the determining the distance to frontier 3 for each of the Doing Business indicator population and a lesser one on lower-risk score. Each topic covered by Doing sets have established the importance activities. Thus the economies that rank Business relates to a different aspect of of the rules and regulations that Doing highest on the ease of doing business the business regulatory environment. Business focuses on for such economic are not those where there is no regula- The distance to frontier scores and outcomes as trade volumes, foreign tion—but those where governments have rankings of each economy vary, often ABOUT DOING BUSINESS 15 considerably, across topics, indicating TABLE 2.2 What Doing Business does not cover that a strong performance by an econo- Examples of areas not covered my in one area of regulation can coexist with weak performance in another (figure Macroeconomic stability 2.1). One way to assess the variability Development of the financial system of an economy’s regulatory performance Quality of the labor force is to look at its distance to frontier scores Incidence of bribery and corruption across topics (see the country tables). Morocco, for example, has an overall dis- Market size tance to frontier score of 67.50, meaning Lack of security that it is two-thirds of the way from the Examples of aspects not included within the areas covered worst to the best performance. Its distance In paying taxes, personal income tax rates to frontier score is 92.34 for starting a business, 83.51 for paying taxes and 81.12 In getting credit, the monetary policy stance and the associated ease or tightness of credit conditions for firms for trading across borders. At the same time, it has a distance to frontier score In trading across borders, export or import tariffs and subsidies of 33.89 for resolving insolvency, 45 for In resolving insolvency, personal bankruptcy rules getting credit and 53.33 for protecting minority investors. not, for example, capture aspects of not measure the cost of tariffs or of macroeconomic stability, development international transport. Doing Business FACTORS DOING BUSINESS of the financial system, market size, the provides a narrow perspective on the incidence of bribery and corruption or the infrastructure challenges that firms face, DOES NOT MEASURE quality of the labor force. particularly in the developing world, Many important policy areas are not through these indicators. It does not covered by Doing Business; even within The focus is deliberately narrow even address the extent to which inadequate the areas it covers its scope is narrow within the relatively small set of indica- roads, rail, ports and communications (table 2.2). Doing Business does not tors included in Doing Business. The may add to firms’ costs and undermine measure the full range of factors, policies time and cost required for the logistical competitiveness (except to the extent and institutions that affect the quality process of exporting and importing goods that the trading across borders indicators of an economy’s business environment is captured in the trading across borders indirectly measure the quality of ports or its national competitiveness. It does indicators, for example, but they do and border connections). Similar to the FIGURE 2.1 An economy’s regulatory environment may be more business-friendly in some areas than in others Distance to frontier score (0–100) Average of highest three topic scores Average of all topic scores 100 Average of lowest three topic scores 90 80 70 60 50 40 30 20 10 0 Source: Doing Business database. Note: The distance to frontier scores reflected are those for the 10 Doing Business topics included in this year’s aggregate distance to frontier score. The figure is illustrative only; it does not include all 190 economies covered by this year’s report. See the country tables for the distance to frontier scores for each Doing Business topic for all economies. New Zealand Denmark Korea, Rep. United Kingdom Macedonia, FYR Taiwan, China Estonia Georgia Ireland Canada Malaysia Austria Portugal Czech Republic Switzerland Slovenia Japan Slovak Republic Armenia Bulgaria Mauritius Russian Federation Italy Moldova Cyprus Israel Chile Columbia Rwanda Turkey Luxembourg Albania Mongolia Azerbaijan Brunei Darussalam Panama Kyrgyz Republic Botswana Malta Bosnia and Herzegovina Guatemala Tonga Ukraine Uzbekistan St. Lucia El Salvador Trinidad and Tobago Indonesia Seychelles Dominica Zambia Lesotho Ghana Honduras Namibia Swaziland Argentina Jordan Belize Barbados Guyana Iran, Islamic Rep. India Lebanon Tajikistan Cabo Verde Malawi West Bank and Gaza Lao PDR Mozambique Mali Côte d’Ivoire Gambia, The Senegal Niger Micronesia, Fed. Sts. Bolivia Benin Zimbabwe Algeria Ethiopia Madagascar São Tomé and Príncipe Myanmar Djibouti Cameroon Guinea-Bissau Congo, Rep. Liberia Haiti Chad Equatorial Guinea Central African Republic Venezuela, RB Eritrea16 DOING BUSINESS 2017 indicators on trading across borders, all TABLE 2.3 Advantages and limitations of the Doing Business methodology aspects of commercial legislation are not Feature Advantages Limitations covered by those on starting a business Use of standardized Makes data comparable across Reduces scope of data; only regulatory or protecting minority investors. And case scenarios economies and methodology reforms in areas measured can be while Doing Business measures only a transparent, using case scenarios that systematically tracked; the case are common globally scenarios may not be the most few aspects within each area that it common in a particular economy covers, business regulation reforms Focus on largest Makes data collection manageable Reduces representativeness of data should not focus only on these aspects, a business city (cost-effective) and data comparable for an economy if there are significant differences across locations because those that it does not measure are also important. Focus on domestic and Keeps attention on formal sector— Unable to reflect reality for informal formal sector where regulations are relevant and sector—important where that is firms are most productive large—or for foreign firms facing a Doing Business does not attempt to quan- different set of constraints tify all costs and benefits of a particular Reliance on expert Ensures that data reflect knowledge Indicators less able to capture variation respondents of those with most experience in in experiences among entrepreneurs law or regulation to society as a whole. conducting types of transactions The paying taxes indicators measure the measured total tax rate, which, in isolation, is a cost Focus on the law Makes indicators “actionable”— Where systematic compliance with the to businesses. However, the indicators because the law is what policy makers law is lacking, regulatory changes will can change not achieve full results desired do not measure—nor are they intended Source: Doing Business database. to measure—the benefits of the social a. In economies with a population of more than 100 million as of 2013, Doing Business covers business regulation and economic programs funded with in both the largest and second largest business city. tax revenues. Measuring the quality and efficiency of business regulation pro- vides only one input into the debate on within a country, particularly in federal world. Second, this choice reflects the the regulatory burden associated with states and large economies. But gather- focus of Doing Business on expanding opportunities for entrepreneurship: achieving regulatory objectives, which ing data for every relevant jurisdiction in can differ across economies. Doing each of the 190 economies covered by investors are encouraged to venture Business provides a starting point for Doing Business is infeasible. Nevertheless, into business when potential losses are this discussion and should be used in where policy makers are interested in limited to their capital participation. conjunction with other data sources. generating data at the local level, beyond the largest business city, Doing Business Another assumption underlying the has complemented its global indica- Doing Business indicators is that entre- preneurs have knowledge of and comply ADVANTAGES AND tors with subnational studies (box 2.1). LIMITATIONS OF THE Coverage was extended to the second with applicable regulations. In practice, METHODOLOGY largest business city in economies with a entrepreneurs may not be aware of what population of more than 100 million (as needs to be done or how to comply with The Doing Business methodology is of 2013) in Doing Business 2015. regulations and may lose considerable designed to be an easily replicable way to time trying to find out. Alternatively, they benchmark specific aspects of business Doing Business recognizes the limitations may intentionally avoid compliance—by not registering for social security, for regulation. Its advantages and limitations of the standardized case scenarios and should be understood when using the assumptions. But while such assumptions example. Firms may opt for bribery and data (table 2.3). come at the expense of generality, they other informal arrangements intended also help to ensure the comparabil- to bypass the rules where regulation is Ensuring comparability of the data across ity of data. Some Doing Business topics particularly onerous—an aspect that a global set of economies is a central are complex, and so it is important helps explain differences between the consideration for the Doing Business that the standardized cases are defined de jure data provided by Doing Business and the de facto insights offered by the indicators, which are developed around carefully. For example, the standardized 4 standardized case scenarios with specific case scenario usually involves a limited World Bank Enterprise Surveys. Levels assumptions. One such assumption is liability company or its legal equivalent. of informality tend to be higher in the location of a standardized business— There are two reasons for this assump- economies with particularly burdensome the subject of the Doing Business case tion. First, private, limited liability regulation. Compared with their formal study—in the largest business city of the companies are the most prevalent busi- sector counterparts, firms in the informal economy. The reality is that business reg- ness form (for firms with more than one sector typically grow more slowly, have owner) in many economies around the ulations and their enforcement may differ poorer access to credit and employ fewer ABOUT DOING BUSINESS 17 BOX 2.1 Comparing regulation at the local level: subnational Doing Business studies Subnational Doing Business studies, which are undertaken at the request of governments, expand the Doing Business analysis be- yond an economy’s largest business city. They measure variation in regulations or in the implementation of national laws across locations within an economy (as in Poland) or a region (as in South East Europe). Data collected by subnational studies over the past three years show that there can be substantial variation within an economy (see figure). In Mexico, for example, in 2016 registering a property transfer took as few as 9 days in Puebla and as many as 78 in Oaxaca. Indeed, within the same economy one can find locations that perform as well as economies ranking in the top 20 on the ease of registering property and locations that perform as poorly as economies ranking in the bottom 40 on that indicator. Different locations, different regulatory processes, same economy Time to register property (days) Oaxaca (78) 80 Isiolo (73) 58 60 Mangaung (52) Wroclaw (51) Mombasa (41) 40 33 32 Melilla (26) 26 Johannesburg (23) Bialystok 17 (18) 20 Madrid Puebla (12.5) (9) 0 Kenya Mexico Poland South Africa Spain Least time Most time Average time Source: Subnational Doing Business database. Note: The average time shown for each economy is based on all locations covered by the data: 11 cities in Kenya in 2016, 32 states in Mexico in 2016, 18 cities in Poland in 2015, 9 cities in South Africa in 2015 and 19 cities in Spain in 2015. While subnational Doing Business studies generate disaggregated data on business regulation, they go beyond a data collection exercise. They have been shown to be strong motivators for regulatory reform at the local level: • Results can be benchmarked both locally and globally because the data produced are comparable across locations within the economy and internationally. Comparing locations within the same economy—which share the same legal and regulatory framework—can be revealing: local officials struggle to explain why doing business is more challenging in their jurisdiction than in a neighboring one. • Highlighting good practices that exist in some locations but not others within an economy helps policy makers recognize the potential for replicating these good practices. This can yield discussions about regulatory reform across different levels of government, providing opportunities for local governments and agencies to learn from one another and resulting in local ownership and capacity building. Since 2005 subnational reports have covered 438 locations in 65 economies (see map). Seventeen economies—including the Arab Republic of Egypt, Mexico, Nigeria, the Philippines, and the Russian Federation—have undertaken two or more rounds of subnational data collection to measure progress over time. This year subnational studies were completed in Kenya, Mexico and the United Arab Emirates. Ongoing studies include those in Afghanistan (5 cities), Colombia (32 cities), three EU member states (22 cities in Bulgaria, Hungary and Romania) and Kazakhstan (8 cities). Subnational reports are available on the Doing Business website at http://www.doingbusiness.org/subnational. (continued)18 DOING BUSINESS 2017 BOX 2.1 Comparing regulation at the local level: subnational Doing Business studies (continued) Subnational studies cover a large number of cities across all regions of the world 56 cities in Europe and Central Asia 56 cities in OECD high-income economies 30 cities in the Middle East and North Africa 41 cities 76 cities in South Asia in East Asia and the Pacific 81 cities in Sub-Saharan Africa 98 cities in Latin America and the Caribbean Budget, Performance Review & Strategic Planning IBRD 42377 General Services Printing & Multimedia JULY 2016 This map was produced by the Map ECONOMIES WITH ONE SUBNATIONAL OR REGIONAL STUDY Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on ECONOMIES WITH MORE THAN ONE SUBNATIONAL OR REGIONAL STUDY this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Source: Subnational Doing Business database. workers—and these workers remain which little or no data are available from Business indicators are based on a reading outside the protections of labor law other sources. The data are collected of the law. In addition to filling out ques- and, more generally, other legal protec- through several rounds of communica- tionnaires, Doing Business respondents 5 tions embedded in the law. Firms in the tion with expert respondents (both submit references to the relevant laws, informal sector are also less likely to pay private sector practitioners and govern- regulations and fee schedules. The Doing taxes. Doing Business measures one set ment officials), through responses to Business team collects the texts of the rel- of factors that help explain the occur- questionnaires, conference calls, written evant laws and regulations and checks the rence of informality and give policy correspondence and visits by the team. questionnaire responses for accuracy. The makers insights into potential areas of Doing Business relies on four main sources team will examine the civil procedure code, regulatory reform. of information: the relevant laws and reg- for example, to check the maximum num- ulations, Doing Business respondents, the ber of adjournments in a commercial court governments of the economies covered dispute, and read the insolvency code to DATA COLLECTION IN and the World Bank Group regional staff identify if the debtor can initiate liquidation PRACTICE (figure 2.2). For a detailed explanation or reorganization proceeding. These and of the Doing Business methodology, see other types of laws are available on the 6 The Doing Business data are based on a the data notes. Doing Business law library website. Since detailed reading of domestic laws and the data collection process involves an regulations as well as administrative Relevant laws and regulations annual update of an established database, requirements. The report covers 190 having a very large sample of respon- The Doing Business indicators are based economies—including some of the mostly on laws and regulations: around dents is not strictly necessary. In smallest and poorest economies, for 60% of the data embedded in the Doing principle, the role of the contributors ABOUT DOING BUSINESS 19 FIGURE 2.2 How Doing Business collects and verifies the data Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct. Data collection and analysis Questionnaire Report development launch The Doing Business team distributes the questionnaires, analyzes the relevant laws and regulations along Data verification The Doing Business team updates with the information in the The report is published, the questionnaires and consults questionnaires. followed by media outreach with internal and external experts. and findings dissemination. The Doing Business team travels to The Doing Business team shares around 30 economies. preliminary information on reforms with governments (through the World The Doing Business team engages in Bank Group’s Board of Executive conferences calls, video conferences Directors) and World Bank Group and in-person meetings with regional teams for their feedback. government officials and private sector practitioners. The Doing Business team analyzes the data and writes the report. Comments Governments and World Bank Group on the report and data are received regional teams submit information on from across the World Bank Group regulatory changes that could through an internal review process. potentially be included in the global count of regulatory reforms. is largely advisory—helping the Doing Doing Business respondents professionals answer the questionnaires Business team to locate and understand More than 39,000 professionals in 190 related to paying taxes, dealing with the laws and regulations. There are quickly economies have assisted in providing construction permits, trading across bor- diminishing returns to an expanded pool the data that inform the Doing Business ders and getting electricity. Information 7 of contributors. This notwithstanding, indicators over the past 14 years. that is incorporated into the indicators is the number of contributors rose by 58% This year’s report draws on the inputs of also provided by certain public officials 8 between 2010 and 2016. more than 12,500 professionals. Table (such as registrars from the company 12.2 in the data notes lists the number of or property registry). Extensive consultations with multiple respondents for each indicator set. The contributors are conducted by the Doing Business website shows the num- The Doing Business approach is to work team to minimize measurement error ber of respondents for each economy and with legal practitioners or other profes- for the rest of the data. For some each indicator set. sionals who regularly undertake the indicators—for example, those on deal- transactions involved. Following the ing with construction permits, enforcing Selected on the basis of their expertise in standard methodological approach for contracts and resolving insolvency—the these areas, respondents are profession- time-and-motion studies, Doing Business time component and part of the cost als who routinely administer or advise breaks down each process or transaction, component (where fee schedules are on the legal and regulatory requirements such as starting a business or register- lacking) are based on actual practice in the specific areas covered by Doing ing a building, into separate steps to rather than the law on the books. This Business. Because of the focus on legal ensure a better estimate of time. The introduces a degree of judgment by and regulatory arrangements, most of time estimate for each step is given by respondents on what actual practice the respondents are legal professionals practitioners with significant and routine looks like. When respondents disagree, such as lawyers, judges or notaries. In experience in the transaction. the time indicators reported by Doing addition, officials of the credit bureau or Business represent the median values registry complete the credit information There are two main reasons that of several responses given under the questionnaire. Accountants, architects, Doing Business does not survey firms. The first relates to the frequency with assumptions of the standardized case. engineers, freight forwarders and other ‚ ‚ ‚ ‚‚ ‚‚ ‚