Doing Business Blog - The World Bank Group

New Doing Business Report on South East Europe

The Doing Business team has just come out with a new subnational report, this time on South East Europe. It is a timely contribution - South East Europe is becoming increasingly integrated into the European economy, and business reform will undoubtedly help improve regional competitiveness. The subnational report provides detailed data on business regulation in 22 cities in the economies of Albania, Bosnia and Herzegovina, Croatia, Kosovo, FYR Macedonia, Montenegro, and Serbia. You can download copies of the report and the press release in seven languages at the bottom of this post. 

One of the big findings from the report is that the cities of South East Europe don't have to look far for models of reform - there  are already a number in the region. Bitola (FYR Macedonia) came out on top as the easiest city to do business. Business start-up in Bitola is both fast and cheap. Starting a business requires only 8 procedures and 10 days at a cost of 3.9 percent of income per capita. Shkodra (Albania) is another good example with six procedures, seven days, and a cost of 25.7 percent of income per capita to start a business. A hypothetical city combining all the best regional practices would rank among the top ten locations in the world on the ease of doing business – there is a big potential for sharing practices across the region.

As for the motivations behind reform, I leave you with a short tale from the authors of the report:

Zlatko has a dream. He wants to start a Web design company in his hometown of Bitola (Macedonia, FYR) after completing his computer science degree in Belgium...In only 10 days, his company will be operational and his first project can be well under way. He is fortunate. If he tried to register his business in Mostar (Bosnia and Herzegovina), he would have to wait for 61 days before he could welcome his first clients. He knows that even if he could wait that long, his clients could not.

Here are copies of the press release in a number of languages: 

Download doing_business_press_release_SEE_albania.doc

Download doing_business_press_release_SEE_bih.doc

Download doing_business_press_release_SEE_croatia_eng_version.doc

Download doing_business_press_release_SEE_croatia.doc

Download doing_business_press_release_SEE_english.doc

Download doing_business_press_release_SEE_fyr_macedonia.doc

Download doing_business_press_release_SEE_kosovo_albanian.doc

Download doing_business_press_release_SEE_kosovo_serbian.doc

Download doing_business_press_release_SEE_montenegro.doc

Download doing_business_press_release_SEE_serbia.doc

Here are copies of the Doing Business South East Europe report in various languages:

Download DB08_Subnational_Report_SEE_Albanian.pdf

Download DB08_Subnational_Report_SEE_Bosnian.pdf

Download DB08_Subnational_Report_SEE_Croatian.pdf

Download DB08_Subnational_Report_SEE_English.pdf

Download DB08_Subnational_Report_SEE_Macedonian.pdf

Download DB08_Subnational_Report_SEE_Montenegrin.pdf

Download DB08_Subnational_Report_SEE_Serbian.pdf

And here is a brief disclaimer for the most populous cities covered:

Download disclaimer_for_most_populous_cities.doc

The Top-100 Businesses in Bulgaria

The other day the business weekly Capital published the list of 100 largest businesses in Bulgaria.

One memorable note: not a single "new economy" firm. The list is dominated by energy (46.1 percent of revenues), metals (15.7 percent), trade (8.7 percent) and telecoms (7.4 percent). With all the software engineers produced in the country, no software firm makes the list.

Another interesting note: 55 of the top-100 operate in Sofia (the capital city).

A third point: over half of the businesses have foreign owners.

A final point: about 40 percent of the top-100 are businesses that started since 1995.

The study of business evolution and industrial structure in developing countries is so nascent, that top-100 lists can add a lot to our understanding of economic growth.

Real Sign of Success

Georgia has been a top reformer in the last four doing business reports, ever since the Saakhashvili government took office.

Since then, annual growth hovers around ten percent each year, and investment has increased six-fold. Georgia now has more business per adult population than all countries but New Zealand and Singapore.

But the real signs of success are these: in 2007 the number of births increased 3.1 percent relative to 2006; and the number of deaths fell by 2.5 percent. This resulted in a population growth of 8,109 people: higher than any year since 1992. One of the reasons is this: average household income went up by 9.5 percent, while average household expenditure grew by 7.3 percent.

In other words, the standard of living is going up, and with this families decide to have more children. (Interestingly, Bulgaria - another top-10 reformer last year - also registered its first positive population growth since 1985).

The conclusion: if you want your population to grow, reform.

Why Foreign Investors Get a Bad Name

I am vacationing in Bulgaria and had a first-hand experience in how foreign investors get a bad name. Half-way through my second day in Aprilzi, a mountainous town in central Bulgaria, the electricity went off. I called the electricity company, to report the problem. "Not a problem," the company representative said, "we disconnected you."

The rest of the conversation is not fit for posting. The gist is that the electricity distribution in this region was recently acquired by CEZ, a Czech company. The company instituted a free replacement of all electricity meters--with one catch. If you don't take up the offer, you get disconnected. You get connected after you paid a fine - but with a 3 day delay!

After some frantic calling and pulling decades-old strings, I was told that if I drove super fast and caught a particular official just about to leave, some small money would do the trick. So I did.

The office of the official, call him the electricity gatekeeper, was full with 8 other just-disconnected people. They all were cursing CEZ and all foreign owners. "This never happened before these expletive expletive came in." I started defending the Czech investors, to no avail. The fellow disconnected simply disregarded me.

And then it struck me: this truly never happened before. The state electricity company never disconnected anyone. It was inefficient, but friendly. The Czechs are very efficient, including at disconnecting.

Most people seem to prefer the former.

Romania: E-Procurement Remedy

Public procurement plays a major role in most economies. In OECD countries, public procurement accounts for 15% of GDP and in the new EU member states like Romania the number is approximately 16%.

Contracts for public works can comprise large, long-term infrastructure contracts, such as building utilities and roads, but also smaller, shorter contracts like supplying public institutions with goods and materials. Given the extent and complexity of public procurement, this activity is particularly vulnerable to abuses.

Special tools such as e-procurement can increase transparency, efficiency and lower costs of government activities, assuming that the necessary legal framework and technology infrastructure are implemented. Taking into account the importance of public procurement, Doing Business is currently developing a new set of indicators to reflect procurement practices in the electricity sector around the world.

The Kyrgyz Reform, Big Time

On Thursday the Kyrgyz parliament adopted 4 reforms that will significantly improve the business environment in the country. Changes were introduced to the joint stock companies law, the state registration of legal entities law, the Civil Code, and the town planning and architecture law. See details (in Russian) here.

Prime Minister Chudinov (picture) and Minister of Economy Japarov led the reform effort. The reforms will make it easier to start a business, increase the protection of minority shareholders, simplify the procedures for obtaining construction licenses, and increase credit information.

The reforms happened quickly. In April the government announced a "100-days of reforms" plan, led by Minister Japarov. Inter-ministerial committees were organized on several topics of interest to businesses. Most prominent among these were the four cited above. Ideas on how to reform were debated, and drafts proposed. The proposals were then discussed at an investors forum.

Most important, the media was invited to all discussions and actively covered the debates and progress. This gave the government little room for delays. Hence the new, made-in the Kyrgyz Republic, slogan: What gets committed to in front of TV cameras, gets done.

The Kyrgyz media gets a high mark for its role in making the reforms happen.

Business Entry in Bulgaria, Still Slow Going

Last week I visited the business register in Sofia. Since January, it has become an administrative agency, albeit still responsive to the Ministry of Justice. The latter is the reason why the transition hasn't been as smooth as many had hoped.

In an earlier blog, I had opined on the unfortunate decision to keep business registration as part of the judiciary. Now some of the results of this decision have become obvious. First, the registrars were required to have significant legal experience, to match that of judges. Yet, since registration is now an administrative process, their pay scale is that of court clerks (about 450 leva a month, $360) instead of that of judges (1,200 leva). Guess what? Few applicants have come forward to join the new agency.

The Next Singapore?

Georgia's government won a decisive victory at the polls this week - the parliamentary election yielded 120 seats (of 150) for the ruling party.

This is a great success for reform too. Previous Doing Business analyses suggest that in transition economies (those that started from central planning) two terms are needed for reforms to count. Examples include Slovakia's reforms under Ivan Miklos (1998-2006); and Estonia under Mart Laar who served as prime minister in 1992-94 and again in 1999-2002).

Now Georgia has the chance to repeat the success of Estonia and Slovakia. The government should have a higher goal, however: to overtake Singapore as the easiest place to do business in the world.

Top Reformer Votes Today

Georgia, the top reformer in Doing Business 2007, and also the country that has improved the most on the ease of doing business since 2003, is busy voting Wednesday.

The ruling party is expected to win a majority. A second term will cement the big advances in the business environment made during the first mandate.

The theme of the campaign is job creation. The economy has grown at a brisk pace - over 9% in each of the last 4 years. Yet the number of jobs has increased by less: mainly because the large job increases in the private sector were pitted against reducing the size of government and government employment. Also, new technology in some sectors, for example in wineries, allow for a more capital-intensive process.

As the economy continues its growth, the services and agriculture sectors are growing too and more jobs are opening. The banking sector creates the most opportunities for high-paying jobs, and many young graduates go there.

The new prosperity has allowed the government to finance large infrastructure projects, linking regions that were previously hard to do business with. This brings more road construction jobs to poorer regions. Most importantly, it will bring other employment once the roads are opened.

Still, a lot remains to be done and a second term in office will be as busy as the first.

Paying Taxes: Easy in Bulgaria

Only 9.72% of managers in Bulgaria identify tax rates as a major constraint. Only 13.74% identify tax administration as a constraint. These are the results of the latest World Bank enterprise survey in Bulgaria, done in late 2007.

On these scores Bulgaria is far ahead of the rest of the region. Among East Europeans, nearly 30% still view tax rates as a major constraint. And as recently as 2005, over 20% of Bulgarian managers thought so.

The difference is a series of reforms on reducing tax rates and making it possible to pay taxes online. In this regard Eastern Europe has led the world over the last decade, with Bulgaria as one of the top reformers. In Doing Business 2008, Bulgaria was named the top global reformer in taxes. Businesses seem to agree.

Privatization of Building Control Proceedings

The Dealing with Licenses indicator of Doing Business measures the administrative hurdles associated with building a new warehouse in the main economic center of 181 countries. Every year the Doing Business report records reforms in countries around the world that make it easier for builders to get their new constructions approved faster.

Over the last decade, building control systems in Europe have undergone significant changes. In the past, public building offices were the only ones allowed to establish building standards and issue building permits, perform inspections, and issue completion certificate if new constructions were in compliance with these standards. Fiscal constraints of municipalities and dissatisfaction with lengthy processes initiated a trend towards liberalization of aspects of building control proceedings.

President Says...

When a country is ranked badly on some indicator, the first instinct of government officials is to blame the indicator's methodology, source, bias, or all of the above. Some government officials take a long time to move beyond this point and engage in constructive discussions on reform ideas.

Morocco is an example in Doing Business - the last 3 years have been spent in debating minute details on methodology instead of outlining reform priorities.

How refreshing then that at a recent cabinet meeting in Baku, the president Aliyev (see picture) told his ministers: "If Azerbaijan is ranked badly on an indicator, it's either because you haven't reformed enough or because you have failed to provide sufficient information on reforms. Either way, the burden is on you."

With this kind of attitude, one can be optimistic about improvements in the business environment in Azerbaijan. With the support of the IFC, several reforms have already taken place since Doing Business 2008 was published. Most important among these: the creation of a single-window for business start-ups.

Knowing the “Right Person”

Trying to hunt for the “real formula of fees” to connect to electricity can be a challenge in Tajikistan. I realized that during my recent trip for data collection there. Special decrees and fee schedules are not publicly available. Construction specialists warned me of reluctance on the side of state agencies to share information. Phone calls to the State Electric Company (Barki Tojik) to get the real fee schedule and ultimate cost that companies would have to pay for obtaining electricity connection, were in vain. The person on the other end in the State Electric Company was not forthcoming.

I had to do it the only way: find “the right person”.

Aiming for Top 25

In February 2008 in Minsk, the Doing Business team (see picture) met with 45 government officials from 17 different agencies of the Republic of Belarus. Every single one of these representatives expressed their absolute commitment to ease business regulation in the country. Their aim is to be among the top 25 countries in the ease of doing business and top 10 reformers in the World Bank’s Doing Business 2009 report.

One might argue that the goal that Belarus has set seems rather ambitious, not least because this country is currently ranked at number 110.

Santa Claus Comes to Town

In a speech prior to the European Convention on the Future of Europe in 2002, the former Romanian Minister of Public Information commented that most Romanians viewed the European Union in four distinct ways: Santa Claus with his bag full of goodies; a museum with free movement; a big supermarket; or a rolling stone threatening to crash them.

As a result of European Union (EU) accession, Romania will receive a financial boost of approximately 19.667 billion Euros. This sum will be spent under the 2007-2013 program. The goal of this program is to pursue one of the Union’s enshrined missions, namely, to reduce disparities between levels of development in various EU regions.

Seven operational programs were set up last year including in economic competitiveness, regional development, transportation, environment, human resource performance, administrative capacity and technical assistance.

When Cold Winter and Energy Shortage Meet

Crossing streets in Khudjent, the northern capital of Tajikistan, can be a risky enterprise. One has a dilemma of either freezing in cold that runs down to as low as 20 below zero, or being run down by cars. “This year's cold is unbelievable. One thing is to come from freezing weather outside and warm up inside the house. But when you come home into a yet worse cold, that is devastating,” claims Rahim Aka – a taxi driver.

Unprecedented winter made people start using more electricity thus overloading the old Soviet infrastructure. Politicians decided to introduce a so-called “fan blackout”. “It is bad enough coming home in the evening and having barely an hour to feed oneself before electricity is turned off at 9pm. But also, we have only one hour of power in the morning between 7-8 am, barely enough time to shower and heat a cup of tea,” continues Rahim Aka.

Kyrgyzstan: Number 53?

During a meeting with private sector in January, the President of Kyrgyzstan publicly admonished the Government for being passive at improving the investment climate of Kyrgyzstan. He reproached his ministers for not paying attention to all sorts of ratings of international institutions. Doing Business was one that he specifically cited and asked the ministers to focus on.

Soon thereafter, the Minister of Economic Development, defending his policies before the Parliament of Kyrgyzstan seconded the President, but was bolder in his projections. He said that Kyrgyzstan can aim at being ranked number 53 in Doing Business 2009.

Kyrgyzstan has until recently been at the forefront of economic reform in Central Asia. However, political realities stalled the economic agenda for a while. Today, a desire to improve the business environment has been revived. This week, the Kyrgyz Prime Minister reached out to Doing Business, but did so in an unusual way: through a popular newswire websites - making its commitment to business regulatory reform public.

How to be a President? Study Economics

In a new display of the power of economics, two economists are battling for the presidency of the Czech Republic.

Vaclav Klaus, the incumbent, was the first post-communist minister of finance and then a prime minister for much of the 1990s. Klaus was behind the mass-privatization reforms in Czechoslovakia and later in the Czech Republic. Jan Svejnar, the challenger (see picture), is an economist at the University of Michigan.

Their wives are economists too. Katherine Terrell, Svejnar's wife, teaches labor economics. She was also this blogger's PhD thesis advisor. Livia Klausova is a former president of the Czech Economics Association.

After three rounds of voting, the last one yesterday, neither Klaus nor Svejnar have reached the required majority. Voting resumes next Friday. Whoever wins, economics thinking will be brought into politics in Prague for another 5 years.

This gives me pause. You see, my wife is an economist too.

Wedding Regulation and Boosting Savings

Wedding ceremonies and dowry tend to have a direct effect on how soon poor people can alleviate their plight. Or, so the Government of Tajikistan seems to be showing. To regulate such a private matter, it passed a law in the summer of 2007 "On Streamlining Traditions, Celebrations, and Rituals in Republic of Tajikistan". It even created a special state body- Department for Streamlining Traditions and Customs of Executive Office of President of Republic of Tajikistan.

The Law regulates diverse issues such as funerals and birthdays. It limits the number of people that can be invited to a wedding, and forbids the celebration of promotion and appointment to state related jobs, for example. This is a difficult task not only in Tajikistan but in the whole of Central Asia, where respect is earned through sharing joyous occasions with numerous friends and relatives.

Reforms in Business Regulation: Evidence From Russia

A new article by Evgeny Yakovlev and Ekaterina Zhuravskaya studies regulatory reforms in Russia between 2001 and 2004. Based on the analysis of 2,000 businesses over the period 2001-2006, the authors note that the reforms reduced the administrative costs of firms; but, the progress of reform had a substantial variation across Russian regions.

In particular, the reforms had better results in regions with a transparent government, low corruption, better access of the public to independent media sources, a powerful industrial lobby, and stronger fiscal autonomy. In regions that had these characteristics, Yakovlev and Zhuravskaya found a substantial positive effect on net business entry and the growth of employment in small firms.

Top Reformer Wins Election in Georgia

Mikhail Saakashvili won the presidential election in Georgia on Jan. 5. Preliminary results suggest he got about 53% of the vote, enough to avoid a run-off.

Since 2004, when Saakashvili won his first mandate, Georgia has been the fastest reforming economy according to Doing Business. For three years running, it appeared in the top-10 reformers' list; and was the top reformer in Doing Business 2007. In 2004-2007, Georgia's rank on the ease of doing business jumped from 137 to 18.

Out of Court: Business Entry in Bulgaria

Starting today (January 2), an entrepreneur establishing a business in Bulgaria would not go to the court. Instead, he will visit the newly-established trade registry.

This reform is long overdue: the original date was supposed to be December 2006. It was delayed to July 2007, and again for another six months. With each delay, the deputy minister responsible for the establishment of the trade registry resigned. If another delay takes place, the minister of justice has pledged she would resign too.

Strictly speaking, the earliest the registry would open for business is on January 20. This is due to a time-honored tradition: each year judges and court clerks have 6 weeks off starting mid-December to "clean the inventory of cases." These are currently kept on paper only despite an existing electronic system that can easily accommodate the information.

Measuring Economic Freedom

Freedom is good to have, but difficult to measure. The Heritage Foundation has been doing it for more than a decade. Recently, the methodology of the Index of Economic Freedom was improved and the analysis made available for free on the web. Among the main improvements: constructing continuous indices from 0 to 100 (most free) in place of the previous discrete ones, which varies from 1 to 5; adding a category of labor freedom; linking the business freedom index to the business entry, business licenses, and business exit indicators in Doing Business; and doing regional comparative analyses.

What do the Heritage experts say about Azerbaijan, to take one example? It is the world's 107th freest economy (of 141 in the sample). Azerbaijan ’s overall score is just below the regional average. The country’s level of monetary freedom is high. Corporate tax rates enhance Azerbaijan 's score, although the government also imposes other taxes. Most of the state-owned businesses have been privatized. That and limited government spending give Azerbaijan a high “freedom from government” score. Financial freedom, investment freedom, property rights, and corruption remain problematic, as is an underdeveloped judicial system - see figure of Azerbaijan ’s scores in Heritage (2007).

We Are Number Four!

Macedonia has many claims to fame, as is evident from the minute you land in the country at the Alexander The Great airport. For example, Mother Theresa was also born in Macedonia. 

Recently, Macedonia has been priding itself on making it to the top 10 reformer list in Doing Business 2008. In fact advertisements with the message “We are number four!” ran on television for weeks surrounding the launch of the Doing Business report. Macedonia made it to number 4 of the top 10 reformers by eliminating the minimum capital requirement, speeding up time for obtaining construction permits, and improving tax administration.

Such valiant reform efforts bring Macedonia to #75 out of 178 countries on the ease of doing business. The government recently invited the Doing Business team to visit them in order to discuss possible reforms to improve their ranking further.  Allen Dennis and I visited Skopje and held successful meetings with the government to discuss possibilities for reform in the short and medium term. 

The government also briefed us on ongoing reform efforts across the 10 topics that Doing Business covers. These ranged from digitalizing the Cadastre to being able to register a company within just 4 hours.

The Power of the Word

Turkmen public officials can now read The Economist and the Doing Business reports.

During a recent meeting of the Cabinet of Ministers, the Turkmen President Gurbanguly Berdymukhammedov requested that his ministers consider the ‘wishes and requests’ of public servants while preparing the list of permitted periodicals. He said: “Turkmenistan should receive the most interesting and respected publications from all over the world.” This would hardly have been possible several years ago during the presidency of his predecessor Niyazov.

The new President has been lifting the ‘old curtain’ that prevented free access to information. Since February 2007, two internet cafés in Ashgabat have been opened. Some may think it's not much, but it is a good start.

Does freedom of information lead to learning from best practices and innovations around the world?

From Nobel Prize to Reforms in Azerbaijan - How Would You Do It?

Every year on December 10th when the Nobel Laureates take center-stage in Stockholm to receive their Nobel Prizes from the King of Sweden, many Azeris proudly recall their country’s connection to the creation of the prize.

In 1870 Ludvig and Robert Nobel came to Baku to found Nobel Brothers Oil Extracting Partnership, the company that by the turn of the 20th century turned into the largest oil producer in the world. About 12% of the money left to establish the Nobel Prizes by their brother Alfred Nobel came from the sale of his shares in the company. Over one hundred years later, Azerbaijan is enjoying its second oil boom.