Policy Implications for Iceland Melissa Johns Investment Policy Specialist, World Bank November 21, 2006 Doing Business 2007: How to reform.

Policy Implications for Iceland

Melissa Johns Investment Policy Specialist, World Bank

November 21, 2006

Doing Business 2007: How to reform

Doing Business indicators

• Starting a business

• Dealing with licenses

• Employing workers

• Registering property

• Enforcing contracts

• Getting credit

• Trading across borders

• Protecting investors

• Paying taxes

• Closing a business

2006 2007 2008

www.doingbusiness.org

• Update of 2006

• Add 20 countries

- funded by Iceland

•How to reform

- 50 case studies

• Update of 2007

• Add Not paying bribes

• Add Using infrastructure

0

5

10

15

20

25

30

1 2 3 4 5 6 7 8

0

50

100

150

200

250

300

Starting a business in Gambia in January 2006

1. Check the uniqueness of the company name

2. Notarize the company statutes

3. Payment of stamp duty and deposit of corporate tax with commissioner

4. Register with commercial registry

5. Obtain operational licenses

6. Register with Labor department

7. Register employees for Social security

8. Make a company seal

Procedures

Tim

e (

Nu

mb

er

of

days) C

ost (%

of G

NI p

er c

ap

ita)

Cost(right axis)

Time (left Axis)

Top 30 on the ease of doing business, 2007

16. Lithuania 17. Estonia18. Thailand 19. Puerto Rico20. Belgium21. Germany22. Netherlands23. Korea24. Latvia25. Malaysia26. Israel27. St. Lucia28. Chile29. South Africa30. Austria

1. Singapore2. New Zealand3. United States4. Canada5. Hong Kong, China6. United Kingdom7. Denmark8. Australia9. Norway10. Ireland11. Japan

12.ICELAND13.Sweden 14.Finland15.Switzerland

OECD easiest for doing business

OECDEU25

East A

sia

East E

urop

e

Latin

Am

erica

Middl

e Eas

t

South

Asia

Africa

Average ease of Doing Business in 2007

Poor countries regulate most

4

5

6

7

8

9

10

11

12

0 50 100 150 200

Doing Business Rank 2007

GN

I p

er C

apit

a

Comparative ranking in the OECD

2 3 4 6 7 8 9 10 11 12 13 14 15 20 21 22 2330 35 39 40

82

109

Ease of Doing Business 2007

Iceland’s overall ranking: #12

8 812 13 13 13 16 18

30

42

83

Registeringproperty

Enforcingcontracts

Overall Gettingcredit

Payingtaxes

Closing abusiness

Starting abusiness

Tradingacrossborders

Dealingwith

licenses

Employingworkers

Protectinginvestors

Rankings per topic

Areas for reform

Iceland’s overall ranking: #12

Topic Iceland’s Ranking

World’s Highest Ranking

Starting a business 16 Canada

Dealing with licenses 30St. Vincent and the

Grenadines

Employing workers 42 United States

Registering property 8 New Zealand

Getting credit 13 United Kingdom

Protecting investors 83 New Zealand

Paying taxes 13 Maldives

Trading across borders 18 Hong Kong, China

Enforcing contracts 8 Denmark

Closing a business 13 Japan

Procedures to enforce a contract

14 14 1519 19

21 22

2730

Icela

nd

Norway

Denmar

k

Sweden UK

Franc

e

Nether

lands

Finlan

d

Germ

any

Procedures to enforce a contract

Global leader

Time to register property

1 2 4 514

21

40 42

183

Norway

Sweden

Icela

nd

Nether

lands

Finlan

dUK

Germ

any

Denmar

k

Franc

e

Time to register property, days

Global leader

What to reform in Iceland?

• Protecting investors– increase disclosure requirements for related-party

transactions– facilitate shareholder judicial redress for damage caused to

company through self-dealing

• Employing Workers– extend allowable duration of fixed term contracts– loosen requirements on night work– reduce mandatory notice period

• Dealing with licenses– privatize inspections– reduce delays for construction board approvals and

occupancy permit

  Iceland Denmark Norway

Disclosure Index 4 7 7

What corporate body provides legally sufficient approval for the transaction? (0-3)

2 2 2

Immediate disclosure to the public and/or shareholders (0-2)1 2 2

Disclosures in published periodic filings (0-2)0 2 1

Disclosures by Mr. James to board of directors (0-2)1 1 1

Requirement that an external body review the transaction before it takes place (0=no, 1=yes)

0 0 1

Investor Protection Index 5 6.3 6.7

Protecting investors compared

Flexible labor laws, low unemployment in Denmark

0

5

10

15

0 20 40 60 80

Rigidity of Employment index (0-100)

Un

em

plo

ym

en

t (%

of

tota

l la

bor

forc

e,

20

04

)

Denmark

United Kingdom

Belgium

France

Spain

Germany

Ireland

Austria

Finland

PortugalSweden

Italy

Greece

Iceland

Iceland’s reforms

• Dealing with licenses– administrative agencies were consolidated– as a result, the time required to obtain a design

approval from Reykjavik construction board decreased to 33 days from 45

– total time decreased to 111 days from 123

• Paying taxes– net wealth tax (.6% on net wealth) was abolished in

2005– total tax rate decreased to 27.86% from 27.88%– number of tax payments decreased to 18 from 19

Top OECD (high income) reformers in 2005/06

CountryStarting

a business

Dealing with

licenses

Employing workers

Registering property

Getting credit

Protecting investors

Paying taxes

Trading across

borders

Enforcing contracts

Closing a business

France √ √ √ √ √Australia √ √ √Denmark √ √Germany √ √Greece √ √

Italy √ √

Japan √ √

Korea √ √

Spain √ √

Sw itzerland √ √

Reforms affecting Doing Business indicators on:

Countries are ranked by number of reforms; countries having the same number of reforms are listed alphabetically.

Reform payoff: creating jobs

0

5

10

15

20

Countries ranked by ease of doing business, quintiles

HigherLower

Un

em

plo

ym

en

t (%

)

Note: Relationship is statistically significant at the 1% level and remains significant when controlling for income per capita

New countries added

Iceland funded the inclusion of 20 new countries for Doing Business 2007:

– 9 in Africa • Cape Verde, Comoros, Djibouti, Equatorial Guinea, Gabon,

Gambia, Guinea-Bissau, Seychelles, Swaziland

– 9 in LAC • Antigua and Barbuda, Belize, Dominica, Grenada, St. Kitts

and Nevis, St Lucia, St Vincent and the Grenadines, Suriname, Trinidad and Tobago

– 2 in ECA• Montenegro, Tajikistan

As a group, small states near global average

OECD

East

Asia

East

Eur

ope

Latin

Am

erica

Small S

tate

s

Mid

dle

East

South

Asia

Africa

Average ease of Doing Business

…But there is large variation

1727 31 32 33

41 4451 53 56 58 59 60 62

69 72 73 7684 85 87

106113

122125132136138

144150

161169173174

Esto

nia

St. Lu

cia Fiji

Mau

ritius

Antigua

& B

arbu

da

Samoa

St. Vin

cent

& th

e Gre

nadine

s

Tong

a

Maldive

s

Belize

Vanua

tu

Trinid

ad a

nd T

obag

o

Kiriba

ti

Palau

Solom

on Is

land

s

Dominica

Grena

da

Swaz

iland

Seych

elles

St. Kitt

s & N

evis

Mar

shal

l Isla

nds

Micr

ones

ia

Gambia

Surinam

e

Cape

Verde

Gabon

Guyan

a

Bhuta

n

Comor

os

Equa

toria

l Guine

a

Djibou

ti

São T

omé

& Prin

cipe

Guine

a-Biss

au

Tim

or-L

este

Doing Business 2007 ranking

Small states average ranking by indicator

56 62 68 7382

8997

109 114125

Dealin

g with

licen

ses

Payin

g ta

xes

Emplo

ying

worke

rs

Tradin

g ac

ross

bord

ers

Starti

ng a

bus

ines

s

Closin

g a

busin

ess

Prote

ctin

g in

vesto

rs

Regist

erin

g pr

oper

ty

Enfor

cing

contr

acts

Get

ting

cred

it

Average ranking for small states

Small states did not reform much this year

89%82%

67%61% 58%

35%26% 25%

Percentage of countries with at least one reform, 2005/06