Doing Business in 2005

Washington, D.C., September 8, 2004 – Slovakia was the world’s top reformer in improving its investment climate over the past year, allowing it to join the top 20 economies in the world on ease of doing business, according to a new report from the World Bank Group (WBG)

Doing Business in 2005: Removing Obstacles to Growth, a report cosponsored by the World Bank and International Finance Corporation, the private sector lending arm of the World Bank Group, finds that, while new entrants into the European Union were also among the top reformers of investment climate, several economies in Europe and Central Asia (ECA) continue to rank among the world’s least friendly for business. 

The report finds that for many countries, often simple reforms, can help create job opportunities for women and young people, encourage businesses to move into the formal economy, and promote economic growth.  A close look at the separate factors evaluated by the report also suggests where Georgia might make significant improvements. In particular, it appears that Georgia could greatly improve the ease of doing business in Georgia through increased efficiency of courts, decreased costs of registering businesses and property, and through the introduction of credit information bureaus.

Georgia compares very favorably in the ease of starting a business, with less days required than almost all EU accession countries.  The cost to start a business, however, is fairly high, almost twice that of Russia or Armenia.  Similarly, while the time to register property in Georgia is fairly short compared to the rest of the region, the cost is significantly higher than its neighbors – five times that of Azerbaijan and almost three times Armenia.

Access to credit is an important issue for growing businesses. The report looks at two indicators that impact on access to credit, the legal protection of the rights of borrowers and creditors and the availability of credit information.  Georgia performs extremely well in terms of legal rights, with only two of 26 of the ECA economies rated higher.  Together with all of the CIS, however, Georgia lacks credit information bureaus, which makes it difficult for lenders to assess the risk of borrowers, forcing entrepreneurs to rely more heavily on personal relations and collateral to access credit.

Another source of financing for businesses is direct equity investment.  The 2005 report looks at the disclosure of financial and ownership information required by local law, and Georgia scores extremely well on this index – tied with Kazakhstan with the highest rating among CIS countries.  While creditors and investors have strong legal right, Georgian courts look relatively inefficient, which may mean that these rights are poorly enforced, depriving Georgian businesses of access to capital.  The cost of enforcing a contract in Georgia among the highest in the region, almost twice that of Armenia and three times that of Ukraine.  The average time stands at 375 days, a significant increase from last year’s report of 180 days.

Georgia is, of course, not alone among countries with room for improvement.  The report, which benchmarks regulatory performance and reforms in 145 nations, finds that poorer nations, through administrative procedures, still make it two times harder than rich nations for entrepreneurs to start, operate, or close a business, and businesses in poor nations have less than half the property rights protections available to businesses in rich countries.
 
On average, it takes a business six procedures, 8 percent of income per capita, and 27 days to get started in high-income OECD countries; in ECA countries, the same process takes 10 procedures, 15 percent of income per capita, and 42 days.  Among the worst regional performers in time of business registration were Belarus (79 days) and Azerbaijan (123 days).

Potential investors in Canada and the United Kingdom enjoy all seven main types of access to the ownership and financial information of publicly listed companies, while investors in Russia have less than half as much access.

Overall, rich countries undertook three times as many investment climate reforms as poor countries last year. European Union members were especially active in enacting reforms, with almost two reforms per country. The top 10 reformers for the most recent survey year were Slovakia, Colombia, Belgium, Finland, India, Lithuania, Norway, Poland, Portugal, and Spain.

Other findings related to ECA economies:

• Of the 58 countries that reformed business regulation or strengthened the protection of property rights in the last year, 16 were in ECA. EU entrants reformed the most; Central Asian economies reformed the least.

• Five economies in the region ranked in the top quartile of 145 countries on the ease of doing business: Lithuania, Slovakia, Latvia, Czech Republic, and Estonia. Georgia is in second quartile. Belarus, Ukraine, Romania, and Uzbekistan scored lowest in the region.

“Poor countries that desperately need new enterprises and jobs risk falling even further behind rich ones who are simplifying regulation and making their investment climates more business friendly,” said Michael Klein, World Bank/IFC Vice President for Private Sector Development and IFC Chief Economist. 
 
Doing Business in 2005 updates the work of last year’s report on five sets of business environment indicators: starting a business, hiring and firing workers, enforcing contracts, getting credit, and closing a business; it expands the research to 145 countries and adds two new indicators, registering property and protecting investors. Since last year, 13 governments have asked for their countries to be included in the Doing Business analysis.

The Doing Business project is the product of more than 3,000 local experts – business consultants, lawyers, accountants, and government officials – and leading academics, who provided methodological support and review.  The data, methodology, and names of contributors are publicly available online.

The main research findings of Doing Business in 2005:

• Businesses in poor countries face larger regulatory burdens than those in rich countries.

• The payoffs from reform appear to be large.

• Heavy regulation and weak property rights exclude the poor – especially women and younger people – from doing business.

The top 20 economies in terms of ease of doing business are New Zealand, United States, Singapore, Hong Kong/China, Australia, Norway, United Kingdom, Canada, Sweden, Japan, Switzerland, Denmark, Netherlands, Finland, Ireland, Belgium, Lithuania, Slovakia, Botswana, and Thailand.

Investment climate indicators and analysis, along with information on ordering the report, are available on the Doing Business website: http://rru.worldbank.org/doingbusiness.

The full report is available online to journalists at the World Bank’s Media Briefing Center  http://media.worldbank.org/.