Doing Business Blog - The World Bank Group

Honduras: Modern Property Registry System

Let’s imagine that you want to buy and register a warehouse in the industrial area of the city of Comayagua, in the north-west of Tegucigalpa, Honduras. Suppose that you have identified the owner.

First, you have to travel to Comayagua and visit the registry’s office. You have to check if the house is registered under the name of the person who claims to be the owner. It is also recommendable to check for any encumbrances (lien or restriction on use).

Second, you might also visit the office of the cadaster located at the Municipality to check the map of the property and cross-check its size and boundaries with the information obtained at the registry.

This is a costly process. But luckily, this is no longer necessary. Due diligence can now be done on-line from any computer in the world. The city of Comayagua was a pioneer in integrating the register and cadastral information on a single digital support ten years ago. The same reform is currently being introduced in Tegucigalpa.

Mozambique: On Reform Path

Recently, the Doing Business team visited Mozambique, and saw first-hand its path of reform and new policies to ease doing business. Last year Mozambique climbed 6 spots on the global Doing Business ranking, from 140 to 134. In 2006 a new commercial code was implemented. The new code increased minority shareholders protection and made it easier to hold directors and controlling shareholders liable for misconduct. In SADC, only South Africa has better regulations for protecting minority shareholders.

Mozambique also recently passed a new labor code. This is likely to have a positive change to its ranking on the Doing Business employing workers indicator.  The maximum duration of term contracts was extended to 72 months (that is a term contract of up to 2 years renewable twice), allowing workers and employers increased employment options. Mozambique is slowly making its labor market more flexible.

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.

A Woman for All Women

Women from government, public and private sector congregated in London on April 2 for the Women of the Future Economic Empowerment Summit where a dialogue among global female leaders began to discuss the importance of women’s role in the economy. Pinky Lilani – founder of the Asian Women of Achievement Awards and author of the Indian cookbook Spice Magic – founded and coordinated the Summit.

During the event she noted: “I wanted to get people of influence and people who can make a difference to come together to discuss issues that basically effect women deeply, but I wanted men involved in the situation because really we can’t do much without them, and the objective is to begin a conversation which I hope will become louder and will engage more and more people on issues like climate change, leadership styles, and entrepreneurship. It was really to get women together and make a difference.”

Regarded as one of the world’s most powerful businesswomen, Indra Nooyi (see picture of Indra and me), the CEO and chairman of PepsiCo, gave an inspirational keynote address. Indra candidly spoke about how her success did not come without a struggle. She outlined three important aspects of progress for women in the workplace:

Oral Justice

I just came back from a visit to Bogota. The Doing Business reform team (see picture) was there this week to learn about progress with business regulatory reforms in Colombia. Several positive reforms are taking place: in trading across borders, in registering property, in taxes, and in enforcing contracts.

The most impressive reform is happening in the courts. The main feature is moving to oral presentation of evidence in commercial (and other civil) disputes. This is done to reduce delays. If reforms in other countries like Mexico (2005) and Georgia (2007) are any indication, Colombian litigants are in for a major improvement.

What's the big deal? Well, now every piece of evidence has to be presented to the judge in writing. Each party to the commercial dispute writes and submits to the judge and their opponent. They, in turn, take time to read and respond. And so it goes.

Who came up with such crazy system? The Spanish colonizers. But that's another story.

The Credit Crunch in Zambia

Commercial banks - mostly subsidiaries of foreign banks - are the most dominant financial institutions in Zambia. The banking system is comprised of 14 commercial banks, holding 90 percent of financial assets. Foreign equity participation is significant, accounting for three quarters of the banking system capitalization with regional leaders such as Standard Chartered, Barclays or Stanbic controlling a sizable part.

However, a financial sector diagnostic carried out by the World Bank Group noted that by the end of 2005, credit to the private sector by banks represented only 8% of GDP in 2005. Furthermore, only 5,000 people hold 90% of loans, and just 8% of Zambia's adult population had a bank account as of 2005.

Metro and Doing Business Commonalities

Picture this: you are standing on a platform full of people looking up at a screen which usually shows the train schedule. Alas, instead of the train destination and time, it only tells you that a train will be coming – not where to or when. If you happen to live in Washington D.C. and took the red line on the metro this weekend, this pretty much sums up the experience – followed by a 30 to 40 minute wait. Forget planning.

So what does this have to do with regulation or the investment climate? Well, every entrepreneur has to interact with government officials to comply with regulations in operating a company. Doing Business tracks some of these transactions through its indicators on, for example, starting a business, transferring a property title or enforcing a contract through the courts.

What’s the Best Minimum?

It depends. However, when it comes to paid-in capital requirement the best minimum is zero. 75 economies in the Doing Business sample of 178 agree with this statement. Nevertheless, the rest do not and impose minimum paid-in capital requirement of up to 36 times the income per capita of the country. However, at least one of those 75 economies is now considering imposing a minimum paid-in capital requirement – Antigua and Barbuda.

Antigua and Barbuda currently has no minimum capital requirement. That is, the shareholders decide on how much to invest initially in the business, depending on the industry and banking financing requirements. However, the Company Registrar feels this solution is not optimal because it promotes the creation of fake companies and it does not provide enough protection to creditors. Consequently, there is a request from the registrar to raise the paid-in minimum capital requirement to EC$ 100,000 (over USD37,000 and over 3 times Antigua and Barbuda’s income per capita). Will this be a step forward?

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.

The Master of the High Court

The illustrious title does not refer to the most brilliant lawyer in town, nor to a towering court of appeals-judge. The true master of the High Court in Suva, Republic of Fiji Islands, is Jay Udit, a so-called judge in chambers. Yet, his name stirs up universal acclaim for bringing down court delays. Lawyers give kudos, and sometimes a sour face, to his powers in the court room. A Doing Business delegation to the Fijian capital was privileged to see his court in session.

Tuesday morning, 8h15, in a court room packed with attorneys: two court clerks calling the case, lawyers answering with name and “here for plaintiff”, or “here for defendant.” On the bench, Master Udit, speaking up: “This case has been going on since June last year, what is the reason, where is the problem? Clerk, reschedule in ten days, I order costs.” followed by a “But, sir..” – to no avail.

To the next, with displays of bewilderment, “You need more than a month just to get your documents in order?” Then inquiring “If you are pursuing settlement, why do you file in court?” Impatiently, he adds ”What is the question here? What is the nature of the question you cannot resolve?” Finally revealing, angrily, “Trials are scheduled 2 to 3 months in advance, there really is no excuse for missing time.”

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.

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.

The Devil In the Detail

Thinking, talking and writing about regulatory and institutional reform is one thing. Implementing those reforms is a different thing. And when it comes to reform implementation, the devil is often in the detail. A Belgian devils story - not related to its national soccer team - illustrates this point.

Project “Fenix” was an ambitious project to introduce e-courts in Belgium, which would allow lawyers and court personnel to access case files online. Court cases would be transferred electronically as they travel from first instance to appeals and to the Supreme Court. Lawyers would be able to submit their court briefs by e-mail, instead of hand-delivering hard copies to the court.

Even in a small country like Belgium, more than 800,000 court decisions are passed every year. Around 40% of all the country's paperwork is generated by the justice sector.

Project Fenix started as a simple technical harmonization project, but developed into a much more ambitious undertaking. If the project had become a success, it would have served as an example to the rest of Europe.

Singapore: Making It Easier Even for Lawyers

As we travel around the world, the Doing Business team visits government authorities and institutions. An inevitable visit is to the courts. I was amazed when I arrived to the so-called “UFO building” -- the new building of the Supreme Court of Singapore. It is called the UFO building because of its particular futuristic shape.

Upon my arrival, I realized that something was strange. There were no lines in order to present cases to a judge, and everything was calm and organized. I thought I was at the wrong place. But no, I was in a real court!

In Singapore, the number 1 ranked country in the ease of doing business for the second year running, when lawyers go to court, they do not need to stand in lines anymore. When they arrive, they go directly to a computer where they sign in and receive a ticket which clarifies the time and location where they should present their cases.

The View Beyond One’s Nose

The devil is in the details. Reforms are no different. With the rising popularity of business climate reforms, countries are eagerly computerizing, digitizing or, even better, creating virtual one stop shops for anything from company start-up to licensing systems to customs. And in many cases it works. But sometimes, small grains of sand get in the way.

On a recent trip to Malaysia, the Company Registrar there described in detail the new computerized registration system. “In the near future, everything will be electronic”. But even with a brand new system, Malaysia will not compare to Denmark or New Zealand.

Why? Because company documents have to be stamped prior to registration. But, according to the Company Registrar, this is not a requirement of his agency. True. But this makes no difference to the entrepreneur who still has to make a trip to the stamp office and scan the document before enjoying the new online system. Entrepreneurs are literally on the edge between old and new. Not the most efficient system.

In the Lion's Mouth

“When your hand is in the lion’s mouth, be careful how you pull it out,” goes one proverb.

Three years after a brokered peace, one would think that Liberia is safely out of the lion’s mouth. UN troops continue to patrol Monrovia, aid agencies are rushing in with their checkbooks, and Liberians are starting to rebuild their businesses and their country. But looks may be deceiving.

The Liberian government recently requested advisory work to improve the country’s performance on the Doing Business indicators. The request makes sound political sense. Reform may put the Liberian government in good standing with the donors holding the purse strings. Also, investment promotion campaigns are lent much more credibility when the World Bank classifies a country as a top reformer. One only needs to flip through the Financial Times or The Economist to see the incredible marketing job that Saudi Arabia and Georgia have done with their status as top reformers.

Easy Access to Credit - Makes for Ugly Buildings?

Lacking credit can be good. Just visit old Sana'a, Yemen - a UNESCO cultural heritage site.

The gingerbread-like houses look like the making of a whimsical architect. In fact, their unique design is due to a lack of credit. Instead of building a four-storey house, Sana'a families build in stages. First floor first, and live there. Once they save enough money, a second floor is built. And so on. It has taken centuries to get to the current look. Had easy access to credit been available, old Sana'a houses could have looked like the IFC Washington DC building.

Still, lack of credit is bad for doing business. The merchants in old Sana'a can attest to that. Their tiny stores can barely fit all the wares. This may change soon. The Central Bank of Yemen is considering a reform of its credit registry. How would this help? The presence of good credit registries is shown to increase access to capital, especially for new and small businesses. This is documented in a recent article in the Journal of Financial Economics, by Simeon Djankov, Caralee McLiesh and Andrei Shleifer (Harvard).

Paying Taxes – Atlantic Tour

Albert Einstein once said regarding preparing his tax return: "This is too difficult for a mathematician. It takes a philosopher." Fortunately, 35 countries made it easier for companies to pay taxes over the past year, including 8 that actually went beyond rate reducing and simplified tax administration.

The World Bank/IFC jointly with PricewaterhouseCoopers launched on November 19^th a new report on taxes across the world – "Paying Taxes 2008 – The global picture". The report sent me on a world tour to present it and spread the word – taxes can be made simpler. I started in Brussels, city of chocolate and gauffres, but also high tax burden for business.

Luckily, the Belgians are planning on following their Dutch neighbors in business tax simplification. In Brussels the main discussion focused on corporate income tax and what should be the correct tax rate.

Country (and Ranking) Hopping in Southeast Asia, Part I

A couple of weeks ago Sylvia Solf and I returned from a whirlwind five-country "roadshow" in Southeast Asia, with an additional stop for me in Bangladesh. The East Asia-Pacific region has the greatest variation in economy rankings of any region in the Doing Business index, from top-ranked Singapore to #168 Timor-Leste. Now we would have the chance to see for ourselves the different business environments in the region. We started off the mission in Malaysia, then went on to Brunei, Indonesia, Vietnam and Thailand. A few highlights:

Malaysia

The Petronas Towers in Kuala Lumpur symbolize the huge economic strides that Malaysia has made since independence (when we arrived, decorations from the celebration of the 50th anniversary of the country's independence from Great Britain still festooned the streets, along with lights for Eid ul-Fitr — called Hari Raya Puasa in Malaysia). Impressively, Malaysia ranks 24th in the overall ease of Doing Business rankings, ahead of Austria, South Korea and France. And by all outward measures that we could see, business is booming in Malaysia — certainly if the traffic jams that often bogged down our progress across Kuala Lumpur (popularly known as "KL") are any indication.

We presented the Doing Business indicators and methodology to probably the largest audience either Sylvia or I has ever seen — 500 private- and public-sector registrants at a workshop hosted by MITI, the Malaysian Ministry of International Trade and Industry. The audience was engaged, even through the Methodology presentation.

Country (and Ranking) Hopping in Southeast Asia, Part II

Vietnam

Our next port of call was Hanoi, which is an inviting city that has so far avoided the relative hustle and bustle of KL, Jakarta and Bangkok (although once the scooters that throng Hanoi's streets are replaced with cars, all bets are off). Participants in the presentation and panel discussion in Hanoi were encouraged that Vietnam ranked ahead of some of its neighbors in the region but, noting that Thailand and Malaysia rank in the top 30 in the overall ease of doing business, also seemed determine to improve the business environment in Vietnam.

Engaging in Reform, and a Note from Yemen

Relations are said to go through three stages: lust, rust and dust. Engaging in reform is more complicated, requiring double that. At least this is the experience of the Doing Business team.

First comes denial. When the results of Doing Business are published (see the latest installment out as of September 2007), the media picks them up, lauding successful reformers and embarrassing laggards. Angry denials are heard: “The data are wrong. This is not us. The respondents are all opposition members. We will teach those bird-brains at the World Bank a painful lesson.”