1 Managing for Development Results Second International Roundtable Marrakech, February 4, 2004 Seminar IV: Infrastructure, Private Sector Development and.

1

Managing for Development ResultsSecond International Roundtable

Marrakech, February 4, 2004

Seminar IV: Infrastructure, Private Sector Development and Governance: What Can We Measure?

Private Sector Development – Doing Business 2004

Neil Roger Director, Investment Climate Department,

World Bank Group

2

Growth achieves more than redistribution

0.0

50.0

100.0

150.0

200.0

250.0

1960 1965 1970 1975 1980 1985 1990 1995 2000

Korea, Manufacturing Value Added

Official Net Resource Flows to Dev. Countries (US$)

Total Grants to Dev. Countries, Excl. Tech. Coop. (US$)

Source: World Bank WDI Database (2002).

3

— Catch-up is possible —

Time to double income:Pre-industrial: 350

yearsBritain (1780-1830) 175

yearsBritain in 19th century 65 yearsFast growers since WWII

(Japan, China, Thailand, 10 years

Botswana, Ireland, Chile….) or less

Market-friendly growth – The hope for poverty reduction

POSSIBLE“CATCH-UP”

4

Factor accumulation accounts for only a fraction of income differences (in percent)

23

22

100 55

Output per

immigrant

worker in US

Output per

worker in home

country

Diff erence in

output due to

higher physical

capital in US

Diff erence in

output due to

institutional

environment

Source: Calculations based on Hendricks (2002).

5

Transition to policy and institutions that foster growth

Benchmark institutional performance (Doing Business helps)

Identify weaknesses and bottlenecks (Doing Business helps)

Study international good practices (Doing Business helps)

Overcome vested interests

Start with partial reforms, which may lead to a virtuous reform cycle

Successful reforms are sometimes heterodox (China, Korea, Vietnam, …)

Continuous reform

6

Aims of Doing Business

To document business regulation by law and

in practice

Comparable data across over 130 countries

Replicability by other scholars, over time

Coverage of specific topics

Description and analysis of policy reform

7

Doing Business Indicators

• Regulation of Entry

• Labor Regulations

• Contract Enforcement

• Credit Markets• Credit information• Collateral

• Bankruptcy

• Bureaucratic Hassle• Business licenses • Inspections

•Corporate Governance

• Property titling

• Taxation

• Customs

• Protection of Property• Law and Order

2004 2005 2006

Products: Report, academic papers, country profiles, website databasehttp://rru.worldbank.org/doingbusiness

8

Example of the methodology: Starting a business

Case Study

Limited liability company Domestic SME Largest city General commercial

activity Capital = 10 x GNI per

capita Turnover = 10 x capital

How to enter?

Indicators Procedures Time Cost (% GNI per

capita)

9

Benchmarking: Pakistan (Jan. 1, 2002)

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10

0

5

10

15

20

25

30

35

40

45

50

Time(left axis)

Cost(right axis)

1. Pay bank fee for procs 2, 3 and 42. Check name for uniqueness3. Stamp memorandum and articles4. Register at Registrar of Companies5. Make a company seal6. Apply for a National Tax Number 7. Register for sales tax8. Register for professional tax9. Register with Social Security 10. File for old age benefits

Tim

e, d

ays

Procedure

Co

st, %

of

per

cap

ita

inco

me

10

Tracking reform: Pakistan (Jan. 1, 2003)

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10

0

5

10

15

20

25

30

35

40

45

50

Time(left axis)

Cost(right axis)

Procedure

Co

st, %

of

per

cap

ita

inco

me

Tim

e, d

ays

11

Days to Start a Business

2

29

6273 74

94

136 146

203

0

50

100

150

200

250

Australia OECDAverage

IDAAverage

Sub-Saharan

AfricaAverage

LatinAmerica

andCaribbean

Average

Cambodia BurkinaFaso

Angola Haiti

Shortest Time - Global

12

Employment Regulation Index

20

4552 52 53 54

60 61

78

0

1020

30

4050

60

70

8090

100

Singapore OECDAverage

IDAAverage

Sub-Saharan

AfricaAverage

BurkinaFaso

Cambodia Haiti LatinAmerica

andCaribbean

Average

Angola

Most Flexibility - Global

13

Number of Procedures to Enforce a Contract

11

17 18

24 2530

33

4146

05

101520253035404550

Australia OECDAverage

Cambodia BurkinaFaso

IDAAverage

Sub-Saharan

AfricaAverage

LatinAmerica

andCaribbean

Average

Haiti Angola

Fewest Procedures - Global

14

Years to go through Insolvency

0.4

1.8

3.4 3.53.7

4.0

no practiceno practice no practice0

1

2

3

4

5

Ireland OECDAverage

IDAAverage

Sub-Saharan

AfricaAverage

LatinAmerica

andCaribbean

Average

BurkinaFaso

Cambodia Haiti Angola

Shortest Insolvency Process - Global

15

Main Findings

Developing countries have more regulations than do developed countries. Reform is continuous in most developed countries, not so in developing ones.

Burdensome regulation frequently results in inferior economic and social outcomes

Many reforms that are undertaken in developed countries can be implemented in developing countries too.

16

Finding #1

Poor countries regulate business the most checks and balances in government are the

weakest the possibility of using regulation to harass

entrepreneurs and extract bribes is the

highest

17

Countries that regulate business the most

Bolivia Burkina Faso Chad Costa Rica Guatemala Mali Mozambique Paraguay The Philippines Venezuela

18

Countries that regulate business the least

Australia Canada Denmark Hong Kong (China) Jamaica The Netherlands New Zealand Singapore Sweden United Kingdom

19

Who Regulates More?

30

27 27

18

66

63

56

43

11

12

10

7

5355

53

43

Low income Lower middle income Upper middle income High income(benchmark)

Contract Procedures Court-Powers in Bankruptcy Index Entry Procedures Employment Laws Index

less regulation

more regulation

20

Finding #2

Heavier regulation generally brings bad economic and social outcomes Longer delays and higher cost of public

services; more unemployed people, higher corruption, less productivity and investment

Not better quality of private or public goods

Disadvantaged groups suffer the most

21

More procedures, less productivity

0

10

20

30

40

1 2 3 4

Countries ranked by procedures to start a business (quartile)

Lab

or

Pro

du

ctiv

ity

($1,

000)

moreless

22

Who loses? The poor and the disadvantaged

Cor

rup

tion

Procedures to Start a Business

ALB

DZA

ARG

ARM

AUS

AUT

AZE

BGD

BLR

BEL

BOL

BIH

BWA

BRA

BGRBFA

CMR

CAN CHL

CHN

COL

CRI

CIV

HRV

CZE

DNK

DOM

ECU

EGY

ETH

FIN

FRA

GEO

DEU

GHA

GRC

GTM

HND

HKG

HUNIND

IDNIRN

IRL

ISR

ITA

JAM

JPN

JOR

KAZ

KEN

KOR

KGZ

LVA

LBN

LTU

MDG

MWI

MYS

MLI

MEX

MDA

MNG

MAR

MOZ

NPL

NLD

NZL

NICNER

NGA

NOR

PAK

PAN

PER

PHL

POL

PRT

ROM

RUSSAU

SEN

SER

SGP

SVK

SVN

ZAF

ESP

LKA

SWE

CHE

SYR

TWA

TZA

THA

TUN

TUR

UGA

UKR

ARE

GBR

USA URY

UZB

VEN

VNM

YEM

ZMB

ZWE

Info

rmal

Em

ploy

men

t

Procedures to Start a Business

ALB

DZAARG

ARM

AUS

AUT

AZE

BGD

BLR

BEL

BEN

BOL

BIH

BWA

BRA

BGR

BFACMRCAN

CHL

CHN

COL

CRI

CIV

HRV

CZE

DNKDOMECU

EGY

ETH

FIN

FRA

GEO

DEUGHA

GRC

GTM

HND

HKGHUN

IND

IDN

IRN

IRL

ISR

ITAJAM

JPN

JOR

KAZ

KEN

KOR

KGZ

LVA

LBN

LTU

MDGMWI

MYS

MLI

MEX

MDA

MNG

MAR

MOZNPL

NLD

NZL

NIC

NER

NGA

NOR

PAK

PAN

PER

PHL

POLPRT

ROM

RUS

SAU

SEN

SERSGP

SVK

SVN

ZAFESP

LKA

SWE

CHE

SYR

TWA

TZA

THA

TUN

TUR UGA

UKR

ARE

GBR

USA

URY

UZB

VEN

VNM

YEM

ZMB

ZWE

More CorruptionA Larger Informal Sector

Note: Partial scatterplots controlling for income per capita. Relationships are statistically significant at 5% level.

23

One example: Female unemployment

0

5

10

15

20

25

30

35

40

20 30 40 50 60 70 80

Employment Law Index

Fem

ale

Un

emp

lym

ent

(%)

Note: Partial scatterplots controlling for income per capita. Relationships are statistically significant at 5% level.

24

Small firms in poor countries benefit the most from good regulation

3 4 5 6

Poor countries, small firms

Poor countries,all firms

All countries, all firms

Increase with information sharing %

Impact of Credit Information Bureaus on Firm’s Access to Finance

Note: Figure shows the impact of information sharing on the percent of firm finance from formal sources, controlling for income, rule of law, firm ownership, age, sector and size. The effect of information sharing is significant at the 1% level in each case, and the effect of small firms in poor countries is significantly different from the full sample.

25

Finding #3

One size often fits all – in the manner of business regulation Good practices can be transferred from one

country to another Good practices exist in poor countries

26

A lesson for everyone: Don’t use notaries in company registration

Without notary

38 days

Without notary 19

With notary 53 days

With notary26

Time Cost (% of income per capita)

27

Some Patterns

Latin American countries regulate more

China versus India

East Asian countries regulate less

Nordic countries

Reform fatigue?

28

How to Use the Report

Motivate reforms through benchmarking: from Serbia to Sweden

Identify good practices to follow

What to export through bilateral aid programs?

Linking aid to performance

29

Some reforms in business registration

Single registration forms and single registration number, e.g. France, Finland, Slovak Republic, Turkey

Eliminating court and notary involvement, e.g. Honduras, Italy, Nicaragua

30

Some reforms in labor regulation

Different minimum wage criteria for new entrants and workers with experience, e.g., Chile, Colombia

Flexibility in peak vs slow periods, e.g., Czech Republic

31

Some reforms in contract enforcement

Simplify court procedures, for example: Introducing oral procedures, e.g. Paraguay,

Italy, Mexico Reducing notifications, e.g., Bulgaria,

Estonia Not suspending enforcement upon appeal,

e.g., Tanzania

Specialized courts, e.g. Netherlands, Tanzania, or specialized judges within general courts, e.g.Uganda

32

Some reforms in credit market institutions

Establish credit information registries. Public credit registries can work in poor countries, e.g., Mozambique, Malaysia

Private out of court enforcement of collateral agreements, e.g. Albania , USA, and summary proceedings, e.g. Moldova

33

Some reforms in insolvency systems

Creditor involvement in appointment, replacement and work of bankruptcy administrator, e.g. Papua New Guinea

Mandatory continued education for bankruptcy practitioners, e.g., Germany

Focus on out of court collateral enforcement

34

What Next?

35

Registering Property

What are the steps, time and cost to register property?

How well do property laws and registers protect property rights of business?

What is the interaction between property rights laws and efficient property registers?

36

Dealing with Licenses and Inspections

I have registered, now what? Steps time and cost to obtain licenses and permits to operate: the case of construction

How do countries enforce regulations? Labor and Tax inspections

Which countries enforce the most? In what areas? With what results? Which countries have the most discretion in enforcement?

37

Protecting Investors

A private limited liability company Structure and organization Disclosure of ownership Duties of officers, director, and

shareholders Challenging board resolutions Assignment of litigation costs Evidence in court proceedings Related party transactions Loans or guarantees to related parties