58008 Quick response to crisis Some economies showed a quick response to the crisis. Faced by Global highlights rising numbers of insolvencies and debt disputes, 16 economies, - A new measure shows that business regulation worldwide is mostly Eastern European and OECD high-income economies, reformed becoming more conducive to doing business. Over the past 5 years their insolvency regimes. These include the Baltic states as well as about 85% of economies have made it easier for local entrepreneurs Belgium, the Czech Republic, Hungary, Romania, Spain and the United Kingdom. ICELAND to start and operate a business. - Developing economies are increasingly active. In 2009/10, NORWAY SWEDEN THE NETHERLANDS 66% reformed business regulation; 6 years before, only 34% did. CANADA DENMARK RUSSIAN - Between June 2009 and May 2010 governments in 117 POLAND UNITED FED IRELAND KINGDOM GERMANY POL UKRAINE GERMANY economies implemented 216 business regulation reforms making it CZECH REPUBLIC BELGIUM easier to start and operate a business. SLOVAK REPUBLIC LUXEMBOURG - New technology is saving time and cost around the world. For AUSTRIA SWITZERLAND HUNGARY FRANCE ITALY example, more than 100 economies use electronic systems for SLOVENIA ROMANIA traders. And 105 use information and communication technology for CROATIA PORTUGAL SPAIN business start-up. Singapore's online system saves new firms an UNITED STATES BOSNIA & estimated $42 million a year. In Mauritius a computerized system cut HERZ. SERBIA the time for all types of business registrations by 80%. ITALY KOSOVO BULG. TUNISIA MONTENEGRO MOROCCO FYR ALBANIA MACEDONIA ALGERIA W THE BAHAMAS GREECE DOMINICAN REP. PUERTO RICO (U.S.) MEXICO JAMAICA HAITI ANTIGUA AND BARBUDA CAPE VERDE MAURITANIA BELIZE ST. KITTS AND NEVIS DOMINICA MALI NIGER GUATEMALA HONDURAS ST. LUCIA SENEGAL ST. VINCENT AND THE GAMBIA BURKINA EL SALVADOR NICARAGUA THE GRENADINES GRENADA GUINEA-BISSAU GUINEA FASO BENIN COSTA RICA PANAMA R.B. DE TRINIDAD AND TOBAGO NIGERIA VENEZUELA GUYANA SURINAME SIERRA LEONE CÔTE GHANA D'IVOIRE COLOMBIA LIBERIA TOGO CAMEROON EQUATORIAL GUINEA ECUADOR SÃO TOMÉ AND PRÍNCIPE GABON KIRIBATI CONGO Sub-Saharan Africa & Middle East and North Africa SAMOA PERU BRAZIL Trade was a big focus in Sub-Saharan Africa and the Middle East and North Africa. The 2 regions accounted for half of all trade A facilitation reforms. Latin America and the Caribbean BOLIVIA FIJI TONGA Economies in Latin America and the Caribbean focused on NA making it easier to trade across borders and register property in 2009/10. Peru and Grenada, for example, made trading faster and PARAGUAY halved the time to transfer property. URUGUAY CHILE ARGENTINA HIGHLIGHTS FROM DOING BUSINESS 2011 Economies that improved the most in the ease of doing business in 2009/10 Economies that made the largest absolute improvements over the past 5 years Kazakhstan and Rwanda improved the most in the ease of doing business in 2009/10 and made among the largest absolute improvements over the past 5 years. Source: Doing Business database A COPUBLICATION OF THE WORLD BANK AND THE INTERNATIONAL FINANCE CORPORATION © 2010 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone 978-750-8400; fax 978- 750-4470; Internet www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax 202-522-2422; e-mail pubrights@worldbank.org. Additional copies of Doing Business 2011: Making a Difference for Entrepreneurs, Doing Business 2010: Reforming through Difficult Times, Doing Business 2009, Doing Business 2008, Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Business in 2005: Removing Obstacles to Growth and Doing Business in 2004: Understanding Regulations may be purchased at www.doingbusiness.org. ISBN: 978-0-8213-7960-8 E-ISBN: 978-0-8213-8630-9 DOI: 10.1596/978-0-8213-7960-8 ISSN: 1729-2638 Library of Congress Cataloging-in-Publication data has been applied for. Printed in the United States Contents Doing Business 2011 is the eighth in a series of annual reports investigating the Preface v regulations that enhance business activity and those that constrain it. Doing Business Executive summary 1 presents quantitative indicators on business regulations and the protection of property About Doing Business: rights that can be compared across 183 economies--from Afghanistan to Zimbabwe-- measuring for impact 12 and over time. Starting a business 18 Regulations affecting 11 areas of the life of a business are covered: starting a business, Dealing with construction permits 26 dealing with construction permits, registering property, getting credit, protecting Registering property 32 investors, paying taxes, trading across borders, enforcing contracts, closing a busi- Getting credit 39 ness, getting electricity and employing workers. The getting electricity and employing workers data are not included in the ranking on the ease of doing business in Doing Protecting investors 47 Business 2011. Paying taxes 54 Trading across borders 63 Data in Doing Business 2011 are current as of June 1, 2010. The indicators are used to analyze economic outcomes and identify what reforms have worked, where and why. Enforcing contracts 70 Closing a business 77 The methodology for the employing workers indicators changed for Doing Business 2011. See Data notes for details. Annex: pilot indicators on getting electricity 84 THE DOING BUSINESS WEBSITE Download reports Annex: employing workers 93 Access to Doing Business reports as well as Current features subnational and regional reports, reform case News on the Doing Business project http://www.doingbusiness.org studies and customized country and regional References 105 profiles Rankings http://www.doingbusiness.org/Reports Data notes 110 How economies rank--from 1 to 183 Subnational and regional projects Summaries of Doing Business http://www.doingbusiness.org/Rankings Differences in business regulations at the reforms in 2009/10 134 Doing Business reforms subnational and regional level Country tables 144 Short summaries of DB2011 reforms, lists of http://www.doingbusiness.org/ reformers since DB2004 Subnational-Reports http://www.doingbusiness.org/Reforms Law library Acknowledgments 206 Historical data Online collection of laws and regulations Customized data sets since DB2004 relating to business and gender issues http://www.doingbusiness.org/Custom-Query http://www.doingbusiness.org/Law-library http://wbl.worldbank.org Methodology and research The methodology and research papers Local partners underlying Doing Business More than 8,200 specialists in 183 economies http://www.doingbusiness.org/Methodology who participate in Doing Business http://www.doingbusiness.org/Research http://www.doingbusiness.org/Local-Partners/ Doing-Business Business Planet Interactive map on the ease of doing business http://rru.worldbank.org/businessplanet v Preface A vibrant private sector--with firms making investments, creating jobs and improving productivity--promotes growth and expands opportunities for the poor. In the words of an 18-year-old Ecuadoran in Voices of the Poor, a World Bank survey capturing the perspectives of poor people around the world, "First, I would like to have work of any kind." Enabling private sector growth--and ensuring that poor people can participate in its benefits--requires a regulatory environment where new entrants with drive and good ideas, regardless of their gender or ethnic origin, can get started in business and where firms can invest and grow, generating more jobs. Doing Business 2011 is the eighth in a series of annual reports benchmarking the regulations that enhance business activity and those that constrain it. The report presents quantitative indicators on business regulation and the protection of property rights for 183 economies--from Afghanistan to Zimbabwe. The data are cur- rent as of June 2010. A fundamental premise of Doing Business is that economic activity requires good rules--rules that establish and clarify property rights and reduce the cost of resolving disputes; rules that increase the predictability of economic interac- tions and provide contractual partners with certainty and protection against abuse. The objective is regulations designed to be efficient, accessible to all and simple in their implementation. Doing Business gives higher scores in some areas for stronger property rights and investor protections, such as stricter disclosure requirements in related-party transactions. Doing Business takes the perspective of domestic, primarily smaller companies and measures the regulations applying to them through their life cycle. Economies are ranked on the basis of 9 areas of regulation--for starting a business, dealing with construction permits, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. In addition, data are presented for regulations on employing workers and for a set of pilot indica- tors on getting electricity. Doing Business is limited in scope. It does not consider the costs and benefits of regula- tion from the perspective of society as a whole. Nor does it measure all aspects of the business environment that matter to firms and investors or affect the competitiveness of an economy. Its aim is simply to supply business leaders and policy makers with a fact base for informing policy making and to provide open data for research on how business regulations and institutions affect such economic outcomes as productivity, investment, informality, corruption, unemployment and poverty. Through its indicators, Doing Business has tracked changes to business regulation around the world, recording more than 1,500 important improvements since 2004. Against the backdrop of the global financial and economic crisis, policy makers around the world continue to reform business regulation at the level of the firm, in some areas at an even faster pace than before. These continued efforts prompt questions: What has been the impact? How has busi- ness regulation changed around the world--and how have the changes affected firms and economies? Doing Business 2011 presents new data and findings toward answer- ing these questions. Drawing on a now longer time series, the report introduces a new measure to illustrate how the regulatory environment for business has changed in absolute terms in each economy over the 5 years since Doing Business 2006 was pub- lished. This measure complements the aggregate ranking on the ease of doing business, which benchmarks each economy's current performance on the indicators against that of all other economies in the Doing Business sample. Research is also taking advantage vi DOING BUSINESS 2011 of the longer time series, and studies on business regulation reforms in Latin America and Eastern Europe and Central Asia show some promising results. But this is only the beginning. The coming years will be exciting as this growing time series and other emerging data sets allow researchers and policy makers to find out more about what works in business regulation--and how and why. Since its launch in 2003, Doing Business has stimulated debate about policy through its data and benchmarks, both by exposing potential challenges and by identifying where policy makers might look for lessons and good practices. Governments have reported more than 270 business regulation reforms inspired or informed by Doing Business since 2003. Most were nested in broader programs of investment climate reform aimed at enhancing economic competitiveness, as in Colombia, Kenya and Liberia. In struc- turing their reform programs for the business environment, governments use multiple data sources and indicators. And reformers respond to many stakeholders and interest groups, all of whom bring important issues and concerns to the debate. World Bank Group dialogue with governments on the investment climate is designed to encourage critical use of the data, sharpening judgment, avoiding a narrow focus on improv- ing Doing Business rankings and encouraging broad-based reforms that enhance the investment climate. Doing Business would not be possible without the expertise and generous input of a network of more than 8,200 local experts, including lawyers, business consultants, ac- countants, freight forwarders, government officials and other professionals routinely administering or advising on the relevant legal and regulatory requirements in the 183 economies covered. In particular, the Doing Business team would like to thank its global contributors: Allen & Overy LLP; Baker & McKenzie; Cleary Gottlieb Steen & Hamilton LLP; Ius Laboris, Alliance of Labor, Employment, Benefits and Pensions Law Firms; KPMG; the Law Society of England and Wales; Lex Mundi, Association of Independent Law Firms; Noronha Advogados; Panalpina; PricewaterhouseCoopers; PricewaterhouseCoopers Legal Services; Russell Bedford International; SDV Interna- tional Logistics; and Toboc Inc. The project also benefited throughout the past year from advice and input from gov- ernments and policy makers around the world. In particular, the team would like to thank the governments of Burkina Faso, Colombia, the Arab Republic of Egypt, the Republic of Korea, the former Yugoslav Republic of Macedonia, Mexico, Portugal and Rwanda for providing statistical information on the impact of business regulation re- forms as well as the more than 60 governments that contributed detailed information on business regulation reforms in 2009/10. This volume is a product of the staff of the World Bank Group. The team would like to thank all World Bank Group colleagues from the regional departments and networks for their contributions to this effort. Janamitra Devan Vice President and Head of Network Financial & Private Sector Development The World Bank­International Finance Corporation 1 Executive FIGURE 1.1 Easing start-up, payment of taxes and trade most popular in 2009/10 Share of economies with at least 1 Doing Business reform making it easier to do business, by topic (%) summary Starting a business 0 20 40 60 80 Paying taxes Trading across borders Registering property Dealing with construction permits Doing Business reform Getting by report year credit Closing DB2011 only a business DB2005­DB2011 Enforcing contracts Protecting investors Against the backdrop of the global finan- Note: Not all indicators are covered for the full period. Paying taxes, trading across borders, dealing with construction permits and protecting investors were introduced in Doing Business 2006. cial and economic crisis, policy makers Source: Doing Business database. around the world took steps in the past year to make it easier for local firms start-up to closing (box 1.1). The results factors relevant for business. For exam- to start up and operate. This is impor- have stimulated policy debates in more ple, it does not evaluate macroeconomic tant. Throughout 2009/10 firms around than 80 economies and enabled a grow- conditions, infrastructure, workforce the world felt the repercussions of what ing body of research on how firm-level skills or security. Nor does it assess mar- began as a financial crisis in mostly high- regulation relates to economic outcomes ket regulation or the strength of financial income economies and then spread as across economies.1 A fundamental prem- systems, both key factors in understand- an economic crisis to many more. While ise of Doing Business is that economic ing some of the underlying causes of the some economies have been hit harder activity requires good rules that are trans- financial crisis. But where business regu- than others, how easy or difficult it is to parent and accessible to all. lation is transparent and efficient, oppor- start and run a business, and how effi- Doing Business does not cover all tunities are less likely to be based on per- cient courts and insolvency proceedings are, can influence how firms cope with BOX 1.1 Measuring regulation throughout the life cycle of a local business crises and how quickly they can seize new opportunities. This year's aggregate ranking on the ease of doing business is based on indicator sets that Between June 2009 and May 2010 measure and benchmark regulations affecting 9 areas in the life cycle of a business: starting governments in 117 economies imple- a business, dealing with construction permits, registering property, getting credit, protecting mented 216 business regulation reforms investors, paying taxes, trading across borders, enforcing contracts and closing a business. Doing Business also looks at regulations on employing workers and, as a new initiative, get- making it easier to start and operate ting electricity (neither of which is included in this year's aggregate ranking).1 a business, strengthening transparency and property rights and improving the Doing Business encompasses 2 types of data and indicators. "Legal scoring indicators," such efficiency of commercial dispute resolu- as those on investor protections and legal rights for borrowers and lenders, provide a mea- tion and bankruptcy procedures. More sure of legal provisions in the laws and regulations on the books. Doing Business gives higher than half those policy changes eased scores in some areas for stronger property rights and investor protections, such as stricter start-up, trade and the payment of taxes disclosure requirements in related-party transactions. "Time and motion indicators," such (figure 1.1). as those on starting a business, registering property and dealing with construction permits, Through indicators benchmarking measure the efficiency and complexity in achieving a regulatory goal by recording the pro- 183 economies, Doing Business sheds light cedures, time and cost to complete a transaction in accordance with all relevant regulations on how easy or difficult it is for a local from the point of view of the entrepreneur. Any interaction of the company with external entrepreneur to open and run a small to parties such as government agencies counts as one procedure. Cost estimates are recorded medium-size business when complying from official fee schedules where these apply. For a detailed explanation of the Doing Business with relevant regulations. It measures methodology, see Data notes. and tracks changes in the regulations 1. The methodology underlying the employing workers indicators is being refined in consultation with relevant experts and stakehold- ers. The getting electricity indicators are a pilot data set. (For more detail, see the annexes on these indicator sets.) Aggregate rankings applying to domestic, primarily smaller published in Doing Business 2010 were based on 10 indicator sets and are therefore not comparable. Comparable rankings based on 9 topics for last year along with this year are presented in table 1.2 and on the Doing Business website (http://www.doingbusiness.org). companies through their life cycle, from 2 DOING BUSINESS 2011 FIGURE 1.2 mostly in Eastern Europe and Central Seventy-five percent of economies in East Asia and the Pacific reformed Asia and the OECD high-income group, business regulation in 2009/10 reformed their insolvency regimes, in- Share of economies with at least 1 Doing Business reform making it easier to do business (%) cluding Belgium, the Czech Republic, Eastern Europe & Central Asia 84 Hungary, Japan, the Republic of Korea, East Asia 75 Romania, Spain, the United Kingdom & Pacific and the Baltic states (table 1.1).6 Particu- OECD high income 67 larly in times of economic distress, ef- South 63 ficient court and bankruptcy procedures Asia Middle East are needed to ensure that assets can be & North Africa 61 reallocated quickly and do not get stuck Sub-Saharan in court. Most of the reforms in this area Africa 59 Latin America focused on improving or introducing & Caribbean 47 reorganization procedures to ensure that Source: Doing Business database. viable firms can continue operating. Be- fore, it was common for insolvent firms in many economies of Eastern Europe sonal connections or special privileges, land.4 It makes sense for policy makers and Central Asia to be liquidated even and more economic activity is likely to to help such businesses grow. Improving if they were still viable. Not surprisingly, take place in the formal economy, where their regulatory environment is one way the average recovery rate in the region as it can be subject to beneficial regulations of supporting them. calculated by Doing Business is 33 cents and taxation. Since 2003, when the Doing Consider the story of Bedi Limited, on the dollar. In OECD high-income Business project started, policy makers in a garment producer in Nakuru, Kenya.5 economies the average is 69 cents. more than 75% of the world's economies After spending 18 months pursuing a Swift action has been the name of have made it easier to start a business in trial order for school items from Tesco, the game in Eastern Europe and Central the formal sector. A recent study using one of the largest retail chains in the Asia. The region's policy makers have data collected from company registries United Kingdom, Bedi lost out on the been the most active in implementing in 100 economies over 8 years found chance to become part of its global supply business regulation reforms as measured that economies with efficient business chain. Bedi had everything well planned by Doing Business since 2004. This past registration systems have a higher firm to meet a delivery date set for July. But year was no different, with 21 of 25 entry rate and greater business density the goods were delayed at the port. When economies (84%) reforming business on average.2 they arrived in the United Kingdom in regulation. Besides improving insolvency Ultimately this is about people. The August, it was too late. The back-to- procedures, making it easier for firms economic crisis has made it more im- school promotion was over. Changes to to start up and to pay taxes were popu- portant than ever to create new jobs and regulations and procedures can help im- lar measures--more than a third of the preserve existing ones. As the number of prove the overall trade logistics environ- region's economies introduced changes unemployed people reached 212 million ment, enabling companies like Bedi to in each of these areas. Less happened in in 2009, 34 million more than at the onset capture such growth opportunities. some of the other areas, such as credit of the crisis in 2007,3 job creation became information systems. But thanks to 36 a top priority for policy makers around WHAT WERE THE TRENDS reforms in this area since 2004, such the world. With public budgets tighter IN 2009/10? TABLE 1.1 as a result of stimulus packages and con- Economies improving the most in each tracting fiscal revenues, governments For policy makers seeking to improve Doing Business topic in 2009/10 must now do more with less. Unleashing the regulatory environment for business, Starting a business Peru the job creation potential of small private priorities varied across regions this past Dealing with construction Congo, Dem. Rep. enterprises is therefore vital. year. permits Small and medium-size businesses Registering property Samoa Getting credit Ghana indeed have great potential to create QUICK RESPONSE TO CRISIS Protecting investors Swaziland jobs. They account for an estimated 95% Paying taxes Tunisia of firms and 60­70% of employment in The global crisis triggered major legal Trading across borders Peru OECD high-income economies and 60­ and institutional reforms in 2009/10. Enforcing contracts Malawi 80% of employment in such economies Facing rising numbers of insolven- Closing a business Czech Republic as Chile, China, South Africa and Thai- cies and debt disputes, 16 economies, Source: Doing Business database. EXECUTIVE SUMMARY 3 systems are already better developed. Doing Business by 25% by 2015. Small mies introduced changes (7 in all), India Average coverage is up from 3% of the Pacific island states, which face special continued improvements to its electronic adult population to 30%. challenges, have also been active, getting registration system for new firms by key support from donors. allowing online payment of stamp fees. ECONOMIES IN EAST ASIA AND THE Across Eastern Europe the implemen- PACIFIC HIT THEIR STRIDE TRADE FACILITATION POPULAR IN tation of European Union regulations For the first time in the 8 years of Doing AFRICA AND THE MIDDLE EAST encouraging electronic systems triggered Business reports, economies in East Asia About half of all trade facilitation re- such changes as the implementation of and the Pacific were among the most forms in 2009/10 took place in Sub- electronic customs systems in Latvia and active in making it easier for local firms Saharan Africa (with 9) and the Middle Lithuania. to do business. Eighteen of 24 econo- East and North Africa (6). Several were mies reformed business regulations and motivated by regional integration. Some WHERE IS IT EASIEST TO DO institutions--more than in any other of these efforts built on existing ini- BUSINESS? year. The pace of Doing Business reforms tiatives such as the Southern African had been steadily picking up since 2006, Customs Union. In East Africa single Globally, doing business remains easi- when only a third of the region's econo- border controls speeded up crossings est in OECD high-income economies. mies implemented such reforms. In the between Rwanda and Uganda. Different In Sub-Saharan Africa and South Asia past year 75% did (figure 1.2). electronic data systems are still used by entrepreneurs have it hardest and prop- Emerging-market economies such customs authorities in Kenya, Tanzania erty protections are weakest across the 9 as Indonesia, Malaysia and Vietnam and Uganda. But efforts are under way areas of business regulation included in took the lead, easing start-up, permit- to create a single interface between these this year's ranking on the ease of doing ting and property registration for small systems. Overall, 27 of 46 Sub-Saharan business (figure 1.3). and medium-size firms and improving African economies implemented Doing Singapore retains the top ranking credit information sharing. Hong Kong Business reforms, 49 in all. on the ease of doing business this year, SAR (China), after seeing the number of In the Middle East and North Af- followed by Hong Kong SAR (China), bankruptcy petitions rise from 10,918 in rica 11 of 18 economies implemented New Zealand, the United Kingdom, the 2007 to 15,784 in 2009, is working on a business regulation reforms, 22 in all. United States, Denmark, Canada, Nor- new reorganization procedure. Six modernized customs procedures and way, Ireland and Australia (table 1.2). The momentum in the region may port infrastructure to facilitate trade and Change continued at the top. Among the continue. Recently leaders of the Asia- align with international standards. These top 25 economies, 18 made it even easier Pacific Economic Cooperation (APEC) include Bahrain, the Arab Republic of to do business this past year. Within the organization launched an initiative Egypt and the United Arab Emirates. FIGURE 1.3 aimed at making it easier for small and Which regions have the most business- medium-size companies to do business ELECTRONIC SYSTEMS ON THE RISE friendly environment in Doing Business? through systematic peer learning and AROUND THE GLOBE #1 assistance across economies. The idea is In economies around the world, regard- economy that economies in the region that have less of location and income level, policy OECD high income 30 benefited from making it easier to do makers adopted technology to make it business can now share their experience easier to do business, lower transac- with others. The Korea Customs Service, tions costs and increase transparency. In for example, estimates that predictable Latin America and the Caribbean, where Eastern Europe & Central Asia 72 cargo processing times and rapid turn- 47% of economies implemented business East Asia & Pacific 87 over by ports provide a benefit of some regulation reforms in the past year, 23 of Latin America & Caribbean 96 Middle East & North Africa $2 billion annually. Singapore's online the 25 reforms simplified administrative South Asia 117 registration system for new firms saves processes. Many did so by introducing businesses an estimated $42 million an- online procedures or synchronizing the Sub-Saharan Africa 137 nually.7 Using firm surveys, planners operations of different agencies through identified 5 priority areas for the APEC electronic systems. In this way Brazil, initiative--starting a business, getting Chile, Ecuador and Mexico simplified credit, trading across borders, enforcing start-up, Colombia eased construction 183 Average ranking on contracts and dealing with permits. The permitting, and Nicaragua made it easier the ease of doing business goal is to improve regulatory perfor- to trade across borders. (1­183) mance in those areas as measured by In South Asia, where 5 of 8 econo- Source: Doing Business database. 4 DOING BUSINESS 2011 TABLE 1.2 Rankings on the ease of doing business DB2011 DB2010 DB2011 DB2011 DB2010 DB2011 DB2011 DB2010 DB2011 RANK RANK ECONOMY REFORMS RANK RANK ECONOMY REFORMS RANK RANK ECONOMY REFORMS 1 1 Singapore 0 62 61 Fiji 1 123 116 Russian Federation 2 2 2 Hong Kong SAR, China 2 63 82 Czech Republic 2 124 122 Uruguay 1 3 3 New Zealand 1 64 56 Antigua and Barbuda 0 125 121 Costa Rica 0 4 4 United Kingdom 2 65 60 Turkey 0 126 130 Mozambique 1 5 5 United States 0 66 65 Montenegro 3 127 124 Brazil 1 6 6 Denmark 2 67 77 Ghana 2 128 125 Tanzania 0 7 9 Canada 2 68 64 Belarus 4 129 131 Iran, Islamic Rep. 3 8 7 Norway 0 69 68 Namibia 0 130 127 Ecuador 1 9 8 Ireland 0 70 73 Poland 1 131 128 Honduras 0 10 10 Australia 0 71 66 Tonga 1 132 142 Cape Verde 3 11 12 Saudi Arabia 4 72 62 Panama 2 133 132 Malawi 2 12 13 Georgia 4 73 63 Mongolia 0 134 135 India 2 13 11 Finland 0 74 69 Kuwait 0 135 133 West Bank and Gaza 1 14 18 Sweden 3 75 72 St. Vincent and the Grenadines 0 136 136 Algeria 0 15 14 Iceland 0 76 84 Zambia 3 137 134 Nigeria 0 16 15 Korea, Rep. 1 77 71 Bahamas, The 0 138 137 Lesotho 0 17 17 Estonia 3 78 88 Vietnam 3 139 149 Tajikistan 3 18 19 Japan 1 79 78 China 1 140 138 Madagascar 2 19 16 Thailand 1 80 76 Italy 1 141 139 Micronesia, Fed. Sts. 0 20 20 Mauritius 1 81 79 Jamaica 1 142 140 Bhutan 1 21 23 Malaysia 3 82 81 Albania 1 143 143 Sierra Leone 3 22 21 Germany 1 83 75 Pakistan 1 144 144 Syrian Arab Republic 3 23 26 Lithuania 5 84 89 Croatia 2 145 147 Ukraine 3 24 27 Latvia 2 85 96 Maldives 1 146 141 Gambia, The 0 25 22 Belgium 1 86 80 El Salvador 0 147 145 Cambodia 1 26 28 France 0 87 83 St. Kitts and Nevis 0 148 146 Philippines 2 27 24 Switzerland 0 88 85 Dominica 0 149 148 Bolivia 0 28 25 Bahrain 1 89 90 Serbia 1 150 150 Uzbekistan 0 29 30 Israel 1 90 87 Moldova 1 151 154 Burkina Faso 4 30 29 Netherlands 1 91 86 Dominican Republic 0 152 151 Senegal 0 31 33 Portugal 2 92 98 Grenada 3 153 155 Mali 3 32 31 Austria 1 93 91 Kiribati 0 154 153 Sudan 0 33 34 Taiwan, China 2 94 99 Egypt, Arab Rep. 2 155 152 Liberia 0 34 32 South Africa 0 95 92 Seychelles 1 156 158 Gabon 0 35 41 Mexico 2 96 106 Solomon Islands 1 157 156 Zimbabwe 3 36 46 Peru 4 97 95 Trinidad and Tobago 0 158 157 Djibouti 0 37 35 Cyprus 0 98 94 Kenya 2 159 159 Comoros 0 38 36 Macedonia, FYR 2 99 93 Belize 0 160 162 Togo 0 39 38 Colombia 1 100 101 Guyana 3 161 160 Suriname 0 40 37 United Arab Emirates 2 101 100 Guatemala 0 162 163 Haiti 1 41 40 Slovak Republic 0 102 102 Sri Lanka 0 163 164 Angola 1 42 43 Slovenia 3 103 108 Papua New Guinea 1 164 161 Equatorial Guinea 0 43 53 Chile 2 104 103 Ethiopia 1 165 167 Mauritania 0 44 47 Kyrgyz Republic 1 105 104 Yemen, Rep. 0 166 166 Iraq 0 45 42 Luxembourg 1 106 105 Paraguay 1 167 165 Afghanistan 0 46 52 Hungary 4 107 111 Bangladesh 2 168 173 Cameroon 1 47 49 Puerto Rico 0 108 123 Marshall Islands 1 169 168 Côte d'Ivoire 1 48 44 Armenia 1 109 97 Greece 0 170 172 Benin 1 49 48 Spain 3 110 110 Bosnia and Herzegovina 2 171 169 Lao PDR 1 50 39 Qatar 0 111 107 Jordan 2 172 170 Venezuela, RB 1 51 51 Bulgaria 2 112 117 Brunei Darussalam 3 173 171 Niger 1 52 50 Botswana 0 113 109 Lebanon 1 174 174 Timor-Leste 1 53 45 St. Lucia 0 114 114 Morocco 1 175 179 Congo, Dem. Rep. 3 54 55 Azerbaijan 2 115 113 Argentina 0 176 175 Guinea-Bissau 1 55 58 Tunisia 2 116 112 Nepal 0 177 177 Congo, Rep. 1 56 54 Romania 2 117 119 Nicaragua 1 178 176 São Tomé and Principe 1 57 57 Oman 0 118 126 Swaziland 2 179 178 Guinea 0 58 70 Rwanda 3 119 118 Kosovo 0 180 180 Eritrea 0 59 74 Kazakhstan 4 120 120 Palau 0 181 181 Burundi 1 60 59 Vanuatu 0 121 115 Indonesia 3 182 182 Central African Republic 0 61 67 Samoa 1 122 129 Uganda 2 183 183 Chad 0 Note: The rankings for all economies are benchmarked to June 2010 and reported in the country tables. This year's rankings on the ease of doing business are the average of the economy's rankings on 9 topics (see box 1.1). Last year's rankings, shown in italics, are adjusted: they are based on the same 9 topics and reflect data corrections. The number of business regulation reforms includes all measures making it easier to do business. Source: Doing Business database. EXECUTIVE SUMMARY 5 group of top 25, Sweden improved the used performance measures in the judi- goods crossing the national border and most in the ease of doing business, rising ciary since the late 1990s. Malaysia in- a modern inspection system (TC-SCAN) from 18 to 14 in the rankings. It reduced troduced a performance index for judges at the border crossing point shared with the minimum capital requirement for in 2009. Case disposal rates are already China. As a result, the time to export fell business start-up, streamlined property improving. by 8 days, the time to import by 9 days registration and strengthened investor and the number of documents required protections by increasing requirements MORE WAYS OF TRACKING for trade by 1. Kazakhstan also increased for corporate disclosure and regulating CHANGE IN BUSINESS the legal requirements for disclosure in the approval of transactions between in- REGULATION related-party transactions. Thanks to the terested parties. amendments to its company law, compa- Economies where it is easy for Every year Doing Business recognizes the nies must describe transactions involv- firms to do business often have advanced 10 economies that improved the most in ing conflicts of interest in their annual e-government initiatives. E-government the ease of doing business in the previous report. kicked off in the 1980s, and economies year and introduced policy changes in 3 The runner-up this year was Rwanda, with well-developed systems continue to or more areas. This past year Kazakhstan followed by Peru, Vietnam, Cape Verde, improve them. Hong Kong SAR (China) took the lead (table 1.3). Kazakhstan Tajikistan, Zambia, Hungary, Grenada and Singapore turned their one-stop amended its company law and intro- and Brunei Darussalam. shops for building permits into online duced regulations to streamline business Yearly movements in rankings can systems in 2008. Denmark just intro- start-up and reduce the minimum capi- provide some indication of changes in duced a new computerized land reg- tal requirement to 100 tenge ($0.70). It an economy's regulatory environment istration system. The United Kingdom made dealing with construction permits for firms, but they are always relative. recently introduced online filing at com- less cumbersome by introducing several An economy's ranking might change be- mercial courts. new building regulations in 2009, a new cause of developments in other econo- Top-ranking economies also often one-stop shop for construction-related mies. Moreover, year-to-year changes in use risk-based systems to focus their formalities and a risk-based approach for rankings do not reflect how the business resources where they matter most, such permit approvals. Traders benefit from regulatory environment in an economy as the supervision of complex building improvements to the automated customs has changed over time. projects. Germany and Singapore are information system and risk-based sys- To illustrate how the regulatory en- among the 85 economies that have fast- tems. Several trade-related documents, vironment as measured by Doing Busi- track permit application processes for such as the bill of lading, can now be ness has changed within economies over small commercial buildings. submitted online, and customs declara- time, this year's report introduces a new Finally, these economies tend to tions can be sent in before the cargo measure. The DB change score provides hold public servants accountable through arrives. Modernization efforts, already a 5-year measure of how business regu- performance-based systems. Australia, under way for several years, also include lations have changed in 174 economies.8 Singapore and the United States have a risk management system to control It reflects all changes in an economy's TABLE 1.3 The 10 economies improving the most in the ease of doing business in 2009/10 Dealing with Trading Starting a construction Registering Protecting Paying across Enforcing Closing a Economy business permits property Getting credit investors taxes borders contracts business Kazakhstan Rwanda Peru Vietnam Cape Verde Tajikistan Zambia Hungary Grenada Brunei Darussalam Note: Economies are ranked on the number and impact of reforms. First, Doing Business selects the economies that implemented reforms making it easier to do business in 3 or more of the 9 topics included in this year's aggregate ranking (see box 1.1). Second, it ranks these economies on the increase in their ranking on the ease of doing business from the previous year using comparable rankings. The larger the improve- ment, the higher the ranking as a reformer. Source: Doing Business database. 6 DOING BUSINESS 2011 FIGURE 1.4 DB change score In the past 5 years about 85% of economies made it easier to do business 0.5 Five-year measure of cumulative change in Doing Business indicators between DB2006 and DB2011 0.4 0.3 Doing business became easier 0.2 0.1 GEORGIA RWANDA BELARUS BURKINA FASO MALI KYRGYZ REPUBLIC CROATIA KAZAKHSTAN GHANA MACEDONIA, FYR EGYPT, ARAB REP. UKRAINE MOZAMBIQUE CHINA ALBANIA TAJIKISTAN NIGERIA CZECH REPUBLIC SYRIAN ARAB REPUBLIC UZBEKISTAN COLOMBIA AZERBAIJAN SENEGAL MADAGASCAR ARMENIA PERU MAURITIUS VIETNAM SIERRA LEONE TIMOR-LESTE BOSNIA AND HERZEGOVINA POLAND GUATEMALA MEXICO HAITI ZAMBIA INDIA DOMINICAN REPUBLIC YEMEN, REP. RUSSIAN FEDERATION TOGO MALAWI TUNISIA DENMARK CAMBODIA INDONESIA CÔTE D'IVOIRE FRANCE IRAN, ISLAMIC REP. NIGER ANGOLA MOROCCO SLOVENIA THAILAND LAO PDR SLOVAK REPUBLIC PORTUGAL HONG KONG SAR, CHINA CONGO, DEM. REP. UNITED KINGDOM SERBIA BENIN GUINEA-BISSAU GAMBIA, THE ROMANIA SUDAN PARAGUAY BULGARIA BANGLADESH MALDIVES UGANDA MAURITANIA SWEDEN ALGERIA BOTSWANA VANUATU ETHIOPIA CAMEROON SAUDI ARABIA SWAZILAND TANZANIA TURKEY AUSTRALIA JORDAN UNITED ARAB EMIRATES BRAZIL PAPUA NEW GUINEA Note: The DB change score illustrates the level of change in the regulatory environment for local entrepreneurs as measured by 9 Doing Business indicator sets over a period of 5 years. This year's DB change score ranges from ­0.1 to 0.54. More details on how the DB change score is constructed can be found in the Data notes. Source: Doing Business database. business regulation as measured by the not a one-time effort and that the changes It created its first credit bureau, computer- Doing Business indicators--such as a introduced were substantial. Since 2005 ized the company registry and overhauled reduction in the time to start a business Rwanda has implemented 22 business its property registration system, moving thanks to a one-stop shop or an increase regulation reforms in the areas measured from a deed to a title registration system. in the strength of investor protection by Doing Business. Results show on the The multiyear reform reduced the time index thanks to new stock exchange rules ground. In 2005 starting a business in to transfer property from 24 weeks to 5. that tighten disclosure requirements for Rwanda took 9 procedures and cost 223% The state now guarantees the title and its related-party transactions. The findings of income per capita. Today entrepre- authenticity. Regulatory reforms in Mali are encouraging: in about 85% of the 174 neurs can register a new business in 3 picked up in recent years. Key achieve- economies, doing business is now easier days, paying official fees that amount to ments include customs reforms, a new for local firms (figure 1.4). 8.9% of income per capita. More than one-stop shop for business start-up and The 10 economies that made the 3,000 entrepreneurs took advantage of amendments to the civil procedure code largest strides in making their regulatory the efficient process in 2008, up from an in 2009 that strengthened protections for environment more favorable to business average of 700 annually in previous years. minority shareholders and improved the are Georgia, Rwanda, Belarus, Burkina Registering property in 2005 took more (still lengthy) court procedures to resolve Faso, Saudi Arabia, Mali, the Kyrgyz Re- than a year (371 days), and the transfer commercial disputes. public, Croatia, Kazakhstan and Ghana. fees amounted to 9.8% of the property Some large emerging-market econ- All implemented more than a dozen value. Today the process takes 2 months omies also made significant changes at Doing Business reforms over the 5 years. and costs 0.4% of the value. A new com- a steady pace. China is one. Over sev- Several--including Georgia, Rwanda, pany law adopted in 2009 strengthened eral years China introduced 14 policy Belarus, Burkina Faso, the Kyrgyz Re- investor protections by requiring greater changes making it easier to do business, public, Croatia and Kazakhstan--have corporate disclosure, increasing the li- affecting 9 areas covered by Doing Busi- also been recognized as top 10 Doing ability of directors and improving share- ness. In 2005 a new company law reduced Business reformers in previous years. holders' access to information. what had been one of the world's high- Rwanda, for example, was recog- Others, such as Ghana and Mali, est minimum capital requirements from nized last year. The cumulative improve- took a steady approach, improving the 1,236% of income per capita to 118%. ment over the past 5 years as measured by business environment over several years. In 2006 a new credit registry started the DB change score shows that this was Ghana implemented measures in 6 areas. operating. Today 64% of adults have a EXECUTIVE SUMMARY 7 DB change score 0.5 0.4 0.3 0.2 0.1 VENEZUELA, RB SWITZERLAND ARGENTINA SINGAPORE ZIMBABWE GRENADA PAKISTAN NORWAY ICELAND ESTONIA GUINEA GABON PALAU CHAD ITALY FIJI SOLOMON ISLANDS UNITED STATES KOREA, REP. COSTA RICA AFGHANISTAN BHUTAN HONDURAS WEST BANK AND GAZA CAPE VERDE MONGOLIA GUYANA MICRONESIA, FED. STS. LESOTHO TAIWAN, CHINA ISRAEL EL SALVADOR MOLDOVA IRELAND HUNGARY MARSHALL ISLANDS SAMOA MALAYSIA URUGUAY IRAQ BELGIUM BURUNDI OMAN NICARAGUA DJIBOUTI TONGA PUERTO RICO LEBANON ECUADOR GREECE LATVIA KENYA PHILIPPINES KUWAIT SOUTH AFRICA ERITREA CANADA ST. VINCENT AND THE GRENADINES ANTIGUA AND BARBUDA TRINIDAD AND TOBAGO SRI LANKA KIRIBATI BELIZE JAMAICA EQUATORIAL GUINEA AUSTRIA CENTRAL AFRICAN REPUBLIC DOMINICA SEYCHELLES BOLIVIA NEW ZEALAND PANAMA ST. KITTS AND NEVIS SPAIN ST. LUCIA NEPAL SÃO TOMÉ AND PRINCIPE NETHERLANDS JAPAN CHILE GERMANY COMOROS LITHUANIA NAMIBIA FINLAND CONGO, REP. SURINAME ­0.1 Doing business became more difficult credit history. In 2007, after 14 years of reform but also on the starting point. especially well researched. But corre- consultation, a new property rights law For example, Finland or Singapore, with lation does not mean causality. Other came into effect, offering equal protec- efficient e-government systems in place country-specific factors or other changes tion to public and private property and and strong property rights protections by taking place simultaneously--such as expanding the range of assets that can be law, has less room for improvement. Oth- macroeconomic reforms--may also have used as collateral. ers, such as Italy, implemented several played a part. India implemented 18 business reg- regulatory reforms in areas where results How do we know whether things ulation reforms in 7 areas. Many focused might be seen only in the longer term, would have been any different without on technology--implementing electronic such as judiciary or insolvency reforms. the regulatory reform? Some studies business registration, electronic filing for have been able to test this by investi- taxes, an electronic collateral registry and WHAT IS THE EFFECT ON FIRMS, gating variations within a country over online submission of customs forms and JOBS AND GROWTH? time, as when Colombia implemented payments. Changes also occurred at the a bankruptcy reform that streamlined subnational level. In India, as in other Rankings and the 5-year measure of cu- reorganization procedures. Following the large nations, business regulations can mulative change (DB change score) are reform, viable firms were more likely vary among states and cities. While Doing still only indicative. Few would doubt the to be reorganized than liquidated, and Business focuses on the largest business benefit of reducing red tape for business, firms' recoveries improved.11 Other stud- city in an economy, it complements its particularly for small and medium-size ies investigated policy changes that af- national indicators with subnational businesses. But how do business regula- fected only certain firms or groups. Using studies, recognizing the interest of gov- tion reforms affect the performance of the unaffected group as a control, they ernments in these variations. According firms and contribute to jobs and growth? found that reforms easing formal busi- to Doing Business in India, 14 of the 17 A growing body of empirical research ness entry in Colombia, India and Mexico Indian cities covered in the study imple- has established a link between the regu- led to an increase in new firm entry and mented changes to ease business start- latory environment for firms and such competition.12 Thanks to simplified mu- up, construction permitting and property outcomes as the level of informality, nicipal registration formalities for firms registration between 2006 and 2009.9 employment and growth across econo- in Mexico, the number of registered busi- The level of change depends not mies.10 The broader economic impact nesses increased by 5%, and employment only on the pace of business regulation of lowering barriers to entry has been by 2.8%, in affected industries. 8 DOING BUSINESS 2011 FIGURE 1.5 DB2011 Eastern Europe and Central Asia setting a strong pace DB2010 Share of economies with at least 1 Doing Business reform making it easier to do business by Doing Business report year (%) DB2009 100 100 DB2008 96 91 91 DB2007 89 83 84 83 DB2006 80 79 75 73 75 71 67 67 67 67 67 63 63 60 59 61 62 62 61 63 59 57 58 56 56 53 52 48 50 50 46 47 40 39 38 35 25 20 0 East Asia Eastern Europe OECD Latin America Middle East South Sub-Saharan & Pacific & Central Asia high income & Caribbean & North Africa Asia Africa Note: Several economies have been reclassified to the OECD high-income group and are treated as if part of that group for the full period: the Czech Republic, Hungary and the Slovak Republic from Eastern Europe and Central Asia in 2008, and Poland and Slovenia in 2010; and Israel from the Middle East and North Africa in 2010. In addition, 15 additional economies were added to the sample between Doing Business 2006 and Doing Business 2011. Source: Doing Business database. Other promising results are emerg- WHERE ARE THE OPPORTUNITIES There they lack access to formal business ing. Using panel data from enterprise IN DEVELOPING ECONOMIES? credit and markets, and their employees surveys, new research associates busi- receive fewer benefits and no protec- ness regulation reforms in Eastern Eu- More than 1,500 improvements to busi- tions. Globally, 1.8 billion people are rope and Central Asia with improved ness regulations have been recorded by estimated to be employed in the informal firm performance.13 While such factors Doing Business in 183 economies since sector, more than the 1.2 billion in the as macroeconomic reforms, technologi- 2004. Increasingly, firms in developing formal sector.15 cal improvements and firm characteris- economies are benefiting. In the past While overly complicated proce- tics may also influence productivity, the year about 66% of these economies made dures can hinder business activity, so results are encouraging. it easier to do business, up from only 34% can the lack of institutions or regulations The region's economies were the of this group 6 years before. Compelling that protect property rights, increase most active in improving business regu- results are starting to show, as illustrated transparency and enable entrepreneurs lation over the past 6 years, often in re- by Rwanda and Ghana, and these results to make effective use of their assets. sponse to new circumstances such as the have inspired others. When institutions such as courts, col- prospect of joining the European Union This is good news, because oppor- lateral registries and credit information or, more recently, the financial crisis tunities for regulatory reform remain. bureaus are inefficient or missing, the (figure 1.5). Some 93% of its economies Entrepreneurs and investors in low- and talented poor and entrepreneurs who eased business start-up, and 20 econo- lower-middle-income economies con- lack connections, collateral and credit mies established one-stop shops. Starting tinue to face more bureaucratic formali- histories are most at risk of losing out.16 a business in the region is now almost as ties and weaker protections of prop- So are women, because institutions and easy as it is in OECD high-income econo- erty rights than their counterparts in regulations such as credit bureaus and mies. Immediate benefits for firms are high-income economies. Exporting, for laws on movable collateral support the often cost and time savings. In Georgia a example, requires 11 documents in the types of businesses that women typically 2009 survey found that the new start-up Republic of Congo but only 2 in France. run--small firms in low-capital-inten- service center helped businesses save an Starting a business still costs 18 times as sive industries in both the formal and the average of 3.25% of profits--and this much in Sub-Saharan Africa as in OECD informal sector (box 1.2).17 is just for registration services. For all high-income economies (relative to in- Today only 1.3% of adults in low-in- businesses served, the direct and indirect come per capita). Many businesses in come economies are covered by a credit savings amounted to $7.2 million.14 developing economies might simply opt bureau. Many micro, small and medium- out and remain in the informal sector. size enterprises, which typically have EXECUTIVE SUMMARY 9 BOX 1.2 Encouraging women in business Women make up more than 50% of the world's population but less than 30% of the labor force in some economies. This represents untapped potential. For policy makers seeking to increase women's participation in the economy, a good place to start is to ensure that institutions and laws are accessible to the types of businesses and jobs women currently hold. Take credit bureaus. With the advent of microfinance institutions in the 1970s, poor women in some parts of the world were able to access credit for the first time. By 2006 more than 3,330 microfinance institutions had reached 133 million clients. Among these clients, 93 million had been in the poorest groups when they took their first loans, and 85% of the poorest were women. But only 42 of 128 credit bureaus in the world cover microfinance institutions, limiting the ability of their borrowers to build a credit history. A new World Bank Group project, Women, Business and the Law, looks into discrepancies such as these as well as regulations that explicitly differentiate on the basis of gender.1 A recent analysis of existing literature concludes that aspects of the business regulatory environment are estimated to disproportionately af- fect women in their decision to become an entrepreneur and their performance in running a formal business. Barriers to women's access to finance might drive their concentration in low-capital-intensive industries, which require less funding but also have less potential for growth and development. One possible barrier is that women may have less physical and "reputational" collateral than men.2 Women can benefit from laws facilitating the use of movable assets such as equipment or accounts receivable as security for loans. While women often lack legal title to land or buildings that could serve as collateral, they are more likely to have movable assets. In Sri Lanka women commonly hold wealth in the form of gold jewelry. Thankfully, this is accepted by banks as security for loans.3 Women often resort to informal credit, which involves high transactions costs. A recent study in Ghana reports that women, to ensure access to credit, invest considerable time in maintaining complex networks of informal credit providers.4 Improving firms' access to formal finance has been shown to pay off, by promoting entrepreneurship, innovation, better asset allocation and firm growth.5 Everyone should be able to benefit, regardless of gender. 1. http://wbl.worldbank.org/. 2. Klapper and Parker (2010). 3. Pal (1997). 4. Schindler (2010). 5. World Bank (2008). 95% of their assets in movable property added 50 economies to the sample. In access levels that exist outside the Doing rather than real estate, cannot use those the past year Doing Business has been Business report as well as other data on assets to raise funds to expand their busi- working on 2 indicator sets--a new set the availability and reliability of electric- ness. But this is not so everywhere. While on getting electricity and a refined one ity supply and consumption prices. The only 35% of Sub-Saharan African econo- on employing workers.18 new data allow objective comparison of mies have laws encouraging the use of the procedures, time and cost to obtain all types of assets as collateral, 71% of IDENTIFYING REGULATORY REFORM a new electricity connection across a East Asian and Pacific and 68% of OECD POSSIBILITIES IN GETTING ELECTRICITY wide range of economies. Some, such as high-income economies do. Seventy low- According to World Bank surveys of Germany, Iceland and Thailand, perform and lower-middle-income economies businesses, managers in 108 economies well: a business with moderate electricity lack centralized collateral registries that consider the availability and reliability of demand can get a connection in 40 days tell creditors whether assets are already electricity to be the second most impor- or less. But in the Czech Republic it can subject to the security right of another tant constraint to their business activ- take 279 days, in Ukraine 309 and in the creditor. All this presents an opportunity ity, after access to finance. Studies have Kyrgyz Republic 337. for changes that can promote the growth shown that poor electricity supply ad- Analysis of the data presented in the of firms and employment. versely affects the productivity of firms annex on getting electricity sheds some and the investments they make in their light on both bottlenecks and possible WHAT'S NEXT? productive capacity.19 But electricity ser- starting points for dialogue on regulatory vices not only matter to businesses; they reform. In 100 of 176 economies con- Doing Business has been measuring busi- also are among the most regulated areas nection costs are insufficiently transpar- ness regulation from the perspective of of economic activity. Doing Business ent.20 Utilities present customers with local firms and tracking changes over measures how such regulations affect individual budgets rather than clearly time since 2003. Since its initiation, the businesses when getting a new connec- regulated capital contribution formu- project has introduced 5 new topics and tion. The indicators complement data on las. This reduces the accountability of 10 DOING BUSINESS 2011 World Bank Group initiatives provide BOX 1.3 Other World Bank indicator sets on business regulations valuable complementary data based on a different approach. These include the Women, Business and the Law (http://wbl.worldbank.org/) World Bank Enterprise Surveys. Data on legal differentiation on the basis of gender in 128 economies, covering 6 areas As Doing Business continues to Investing Across Borders (http://iab.worldbank.org/) measure and track changes to business Data on laws and regulations affecting foreign direct investment in 87 economies, covering 4 areas regulation around the world from the Subnational Doing Business (http://www.doingbusiness.org/Subnational/) perspective of local firms, these and Doing Business data comparing states and cities within economies (41 studies covering other data sets provide a rich base for 299 cities) policy makers and researchers alike to World Bank Enterprise Surveys (http://www.enterprisesurveys.org/) continually test and improve their under- Business data on more than 100,000 firms in 125 economies, covering a broad range of standing of what works and what does business environment topics not--and why. utilities that provide a critical economic balance is no easy task. service, exposes customers to potential To inform policy makers and re- abuse and might mask excessively high searchers, Doing Business is working to 1. Some 656 articles have been published in peer-reviewed academic journals, and utility cost structures. In many econo- refine the methodology for its employing about 2,060 working papers are available mies it is customers, not the utility, that workers indicators and expand the data through Google Scholar (http://scholar. must take on the complex process of set. Based on input from a consultative google.com). coordinating clearances across multiple group of experts and stakeholders, new 2. Klapper, Lewin and Quesada Delgado government agencies, because oppor- thresholds are being introduced to recog- (2009). Entry rate refers to newly regis- tered firms as a percentage of total regis- tunities to streamline the coordination nize minimum levels of protection in line tered firms. Business density is defined as between the utility and other agencies with relevant conventions of the Interna- the number of businesses as a percent- are missed. In many middle-income tional Labour Organization--those for age of the working-age population (ages economies customers also face unneces- minimum wage, paid annual leave and 18­65). sarily complex procedural steps for fire the maximum number of working days 3. International Labour Organization (ILO) and wiring safety checks, while some per week. This provides a framework data. governments in Sub-Saharan Africa and for balancing worker protection against 4. OECD (2004b); ILO and SERCOTEC (2010, p. 12); South Africa, Department the Middle East and North Africa omit employment restrictions in the areas of Trade and Industry (2004, p. 18); requirements for such checks entirely. covered by the indicators. In addition, China, State Administration for Industry These and other findings suggest that new data are being collected on regula- and Commerce, http://www.saic.gov many governments and regulators could tions according to length of job tenure (9 .cn/english/; and Ayyagari, Beck and Demirgüç-Kunt (2007). ease a critical bottleneck for businesses by months, 1 year, 5 years and 10 years). The 5. Bedi (2009). encouraging reforms around the electric- annex on employing workers presents 6. In the United Kingdom, for example, ity connection process. Requiring more initial findings from this work. 19,077 companies were liquidated in transparency in utility connection pric- 2009, 22.8% more than in the previous ing and encouraging better interagency INITIATIVES COMPLEMENTING DOING year. coordination could be a start. BUSINESS 7. World Bank conference, "The Singapore The World Bank Group has introduced Experience: Ingredients for Successful Nation-Wide eTransformation," Singa- REFINING THE EMPLOYING WORKERS additional benchmarking indicator sets pore, September 30, 2009. INDICATORS that complement the perspectives of 8. Doing Business has tracked regulatory Maintaining and creating productive Doing Business (box 1.3). The Women, reforms affecting businesses throughout jobs and businesses is a priority for Business and the Law database, launched their life cycle--from start-up to clos- policy makers around the world, partic- in March 2010, for the first time provides ing--in 174 or more economies since ularly in these times. Good labor regu- objective measures of differential treat- 2005. Between 2003 and 2005 Doing Business added 5 topics and increased lation is flexible enough to help those ment based on gender. Investing Across the number of economies covered from currently unemployed or working in the Borders, launched in July 2010, provides 133 to 174. For more information on the informal sector to obtain new jobs in measures of business regulations from motivation for the 5-year measure of cu- the formal sector. At the same time, it the perspective of foreign investors. mulative change (DB change score), see About Doing Business. For more on how provides adequate protections for those Subnational Doing Business reports, in- the measure is constructed, see Data already holding a job, so that their pro- troduced in 2004, provide insights into notes. ductivity is not stifled. Finding the right variations within large economies. Other EXECUTIVE SUMMARY 11 9. World Bank (2009a). 10. For a comprehensive literature review on business start-up regulation as it relates to such economic outcomes as produc- tivity and employment, see Djankov (2009b) and Motta, Oviedo and Santini (2010). See also Djankov, McLiesh and Ramalho (2006). More research can be found on the Doing Business website (http://www.doingbusiness.org/). 11. Giné and Love (2006). 12. Aghion and others (2008), Bruhn (2008), Kaplan, Piedra and Seira (2007) and Cardenas and Rozo (2009). 13. Amin and Ramalho (forthcoming). Using data on a panel of about 2,100 firms in 28 economies in Eastern Europe and Central Asia, the authors compare changes in labor productivity over time in reforming and nonreforming econo- mies. The difference in the change in labor productivity between the 2 groups of economies is statistically significant at less than the 5% level. Differences in time-invariant factors such as firm com- position or GDP per capita do not affect the results. 14. International Finance Corporation, "IFC Helps Simplify Procedures for Georgian Businesses to Save Time and Resources," accessed September 20, 2010, http:// www.ifc.org/. 15. ILO data. 16. World Bank (2008). 17. Chhabra (2003) and Amin (2010). 18. Neither is included in this year's aggre- gate ranking on the ease of doing busi- ness. 19. See, for example, Calderon and Servén (2003), Dollar, Hallward-Driemeier and Mengistae (2005), Reinikka and Svens- son (1999) and Eifert (2007). Using firm-level data, Iimi (2008) finds that in Eastern Europe and Central Asia elimi- nating electricity outages could increase GDP by 0.5­6%. 20. In these economies the fixed connection fee based on publicly available fee sched- ules represents less than 1% of the total cost of connection. 12 DOING BUSINESS 2011 About Doing Business: measuring for impact Governments committed to the economic applying to them through their life cycle. establish and clarify property rights and health of their country and opportuni- Doing Business and the standard cost reduce the cost of resolving disputes, ties for its citizens focus on more than model initially developed and applied in rules that increase the predictability of macroeconomic conditions. They also the Netherlands are, for the present, the economic interactions and rules that pay attention to the laws, regulations and only standard tools used across a broad provide contractual partners with core institutional arrangements that shape range of jurisdictions to measure the protections against abuse. The objective: daily economic activity. impact of government rule-making on regulations designed to be efficient in The global financial crisis has business activity.1 their implementation, to be accessible renewed interest in good rules and regu- The first Doing Business report, pub- to all who need to use them and to be lation. In times of recession, effective lished in 2003, covered 5 indicator sets simple in their implementation. Accord- business regulation and institutions can and 133 economies. This year's report ingly, some Doing Business indicators support economic adjustment. Easy covers 11 indicator sets and 183 econo- give a higher score for more regulation, entry and exit of firms, and flexibility mies. Nine topics are included in the such as stricter disclosure requirements in redeploying resources, make it easier aggregate ranking on the ease of doing in related-party transactions. Some give to stop doing things for which demand business. The project has benefited from a higher score for a simplified way of has weakened and to start doing new feedback from governments, academics, implementing existing regulation, such things. Clarification of property rights practitioners and reviewers.2 The initial as completing business start-up formali- and strengthening of market infrastruc- goal remains: to provide an objective ties in a one-stop shop. ture (such as credit information and basis for understanding and improving The Doing Business project encom- collateral systems) can contribute to con- the regulatory environment for business. passes 2 types of data. The first come from fidence as investors and entrepreneurs readings of laws and regulations. The sec- look to rebuild. WHAT DOING BUSINESS COVERS ond are time and motion indicators that Until recently, however, there were measure the efficiency and complexity no globally available indicator sets for Doing Business provides a quantitative in achieving a regulatory goal (such as monitoring such microeconomic factors measure of regulations for starting a granting the legal identity of a business). and analyzing their relevance. The first business, dealing with construction per- Within the time and motion indicators, efforts, in the 1980s, drew on percep- mits, registering property, getting credit, cost estimates are recorded from official tions data from expert or business sur- protecting investors, paying taxes, trad- fee schedules where applicable.3 Here, veys. Such surveys are useful gauges ing across borders, enforcing contracts Doing Business builds on Hernando de of economic and policy conditions. But and closing a business--as they apply to Soto's pioneering work in applying the their reliance on perceptions and their domestic small and medium-size enter- time and motion approach first used by incomplete coverage of poor countries prises. It also looks at regulations on em- Frederick Taylor to revolutionize the pro- constrain their usefulness for analysis. ploying workers as well as a new measure duction of the Model T Ford. De Soto The Doing Business project, initi- on getting electricity. used the approach in the 1980s to show ated 9 years ago, goes one step further. It A fundamental premise of Doing the obstacles to setting up a garment fac- looks at domestic small and medium-size Business is that economic activity requires tory on the outskirts of Lima.4 companies and measures the regulations good rules. These include rules that ABOUT DOING BUSINESS 13 WHAT DOING BUSINESS DOES BASED ON STANDARDIZED entrepreneurs may spend considerable CASE SCENARIOS NOT COVER time finding out where to go and what Doing Business indicators are built on the documents to submit. Or they may avoid Just as important as knowing what Doing basis of standardized case scenarios with legally required procedures altogether-- Business does is to know what it does specific assumptions, such as the busi- by not registering for social security, for not do--to understand what limitations ness being located in the largest business example. must be kept in mind in interpreting city of the economy. Economic indicators Where regulation is particularly onerous, the data. commonly make limiting assumptions levels of informality are higher. Informal- of this kind. Inflation statistics, for ex- ity comes at a cost: firms in the informal LIMITED IN SCOPE ample, are often based on prices of con- sector typically grow more slowly, have Doing Business focuses on 11 topics, with sumer goods in a few urban areas. poorer access to credit and employ fewer the specific aim of measuring the regula- Such assumptions allow global workers--and their workers remain out- tion and red tape relevant to the life cycle coverage and enhance comparability. But side the protections of labor law.7 Doing of a domestic small to medium-size firm. they come at the expense of generality. Business measures one set of factors that Accordingly: Doing Business recognizes the limitations help explain the occurrence of infor- · Doing Business does not measure all of including data on only the largest busi- mality and give policy makers insights aspects of the business environment ness city. Business regulation and its en- into potential areas of reform. Gaining a that matter to firms or investors--or all forcement, particularly in federal states fuller understanding of the broader busi- factors that affect competitiveness. It and large economies, differ across the ness environment, and a broader per- does not, for example, measure security, country. And of course the challenges spective on policy challenges, requires macroeconomic stability, corruption, and opportunities of the largest business combining insights from Doing Business the labor skills of the population, the city--whether Mumbai or São Paulo, with data from other sources, such as underlying strength of institutions Nuku'alofa or Nassau--vary greatly across the World Bank Enterprise Surveys.8 or the quality of infrastructure.5 Nor countries. Recognizing governments' in- does it focus on regulations specific to terest in such variation, Doing Business WHY THIS FOCUS foreign investment. has complemented its global indicators · Doing Business does not assess the with subnational studies in such countries Doing Business functions as a kind of strength of the financial system or market as Brazil, China, Colombia, the Arab Re- cholesterol test for the regulatory envi- regulations, both important factors in public of Egypt, India, Indonesia, Kenya, ronment for domestic businesses. A cho- understanding some of the underlying Mexico, Morocco, Nigeria, Pakistan and lesterol test does not tell us everything causes of the global financial crisis. the Philippines.6 about the state of our health. But it does · Doing Business does not cover all In areas where regulation is complex measure something important for our regulations, or all regulatory goals, and highly differentiated, the standard- health. And it puts us on watch to change in any economy. As economies and ized case used to construct the Doing behaviors in ways that will improve not technology advance, more areas of Business indicator needs to be carefully only our cholesterol rating but also our economic activity are being regulated. defined. Where relevant, the standard- overall health. For example, the European Union's ized case assumes a limited liability One way to test whether Doing Busi- body of laws (acquis) has now grown to company. This choice is in part empiri- ness serves as a proxy for the broader no fewer than 14,500 rule sets. Doing cal: private, limited liability companies business environment and for com- Business covers 11 areas of a company's are the most prevalent business form in petitiveness is to look at correlations life cycle, through 11 specific sets of most economies around the world. The between the Doing Business rankings and indicators. These indicator sets do choice also reflects one focus of Doing other major economic benchmarks. The not cover all aspects of regulation in Business: expanding opportunities for indicator set closest to Doing Business in the area of focus. For example, the entrepreneurship. Investors are encour- what it measures is the OECD indicators indicators on starting a business or aged to venture into business when po- of product market regulation;9 the corre- protecting investors do not cover all tential losses are limited to their capital lation here is 0.72. The World Economic aspects of commercial legislation. The participation. Forum's Global Competitiveness Index employing workers indicators do not and IMD's World Competitiveness Year- cover all areas of labor regulation. The FOCUSED ON THE FORMAL SECTOR book are broader in scope, but these too current indicator set does not include, In constructing the indicators, Doing are strongly correlated with Doing Busi- for example, measures of regulations Business assumes that entrepreneurs are ness (0.79 and 0.64, respectively).10 addressing safety at work or the knowledgeable about all regulations in A bigger question is whether the right of collective bargaining. place and comply with them. In practice, issues on which Doing Business focuses 14 DOING BUSINESS 2011 matter for development and poverty portunities. But many have limited fiscal local entrepreuneurs improves matters reduction. The World Bank study Voices space for publicly funded activities such more than their relative ranking. To aid in of the Poor asked 60,000 poor people as infrastructure investment or for the assessing such improvements, this year's around the world how they thought they provision of publicly funded safety nets report presents a new metric (DB change might escape poverty.11 The answers and social services. Reforms aimed at score) that allows economies to compare were unequivocal: women and men alike creating a better investment climate, in- where they are today with where they pin their hopes above all on income cluding reforms of business regulation, were 5 years ago. The 5-year measure from their own business or wages earned can be beneficial for several reasons. of cumulative change shows how much in employment. Enabling growth--and Flexible regulation and effective institu- economies have reformed business regu- ensuring that poor people can participate tions, including efficient processes for lations over time (for more details, see in its benefits--requires an environment starting a business and efficient insol- Data notes). This complements the yearly where new entrants with drive and good vency or bankruptcy systems, can facili- ease of doing business rankings that ideas, regardless of their gender or ethnic tate reallocation of labor and capital. As compare economies with one another at origin, can get started in business and businesses rebuild and start to create new a point in time. where good firms can invest and grow, jobs, this helps to lay the groundwork for As economies develop, they generating more jobs. countries' economic recovery. And regu- strengthen and add to regulations to Small and medium-size enterprises latory institutions and processes that are protect investor and property rights. are key drivers of competition, growth streamlined and accessible can help en- Meanwhile, they find more efficient ways and job creation, particularly in develop- sure that as businesses rebuild, barriers to implement existing regulations and ing countries. But in these economies up between the informal and formal sectors cut outdated ones. One finding of Doing to 80% of economic activity takes place are lowered, creating more opportunities Business: dynamic and growing econo- in the informal sector. Firms may be pre- for the poor. mies continually reform and update their vented from entering the formal sector DOING BUSINESS AS A regulations and their way of implement- by excessive bureaucracy and regulation. BENCHMARKING EXERCISE ing them, while many poor economies Where regulation is burdensome still work with regulatory systems dating and competition limited, success tends Doing Business, in capturing some key to the late 1800s. to depend more on whom you know dimensions of regulatory regimes, has than on what you can do. But where been found useful for benchmarking. DOING BUSINESS-- regulation is transparent, efficient and Any benchmarking--for individuals, A USER'S GUIDE implemented in a simple way, it becomes firms or economies--is necessarily par- easier for any aspiring entrepreneurs, tial: it is valid and useful if it helps Quantitative data and benchmarking regardless of their connections, to oper- sharpen judgment, less so if it substitutes can be useful in stimulating debate ate within the rule of law and to benefit for judgment. about policy, both by exposing poten- from the opportunities and protections Doing Business provides 2 takes on tial challenges and by identifying where that the law provides. the data it collects: it presents "absolute" policy makers might look for lessons In this sense Doing Business values indicators for each economy for each of and good practices. These data also pro- good rules as a key to social inclusion. It the 11 regulatory topics it addresses, and vide a basis for analyzing how different also provides a basis for studying effects it provides rankings of economies for 9 policy approaches--and different policy of regulations and their application. For topics, both by indicator and in aggre- reforms--contribute to desired out- example, Doing Business 2004 found that gate.13 Judgment is required in interpret- comes such as competitiveness, growth faster contract enforcement was associ- ing these measures for any economy and and greater employment and incomes. ated with perceptions of greater judicial in determining a sensible and politically Eight years of Doing Business data fairness--suggesting that justice delayed feasible path for reform. have enabled a growing body of research is justice denied.12 Reviewing the Doing Business rank- on how performance on Doing Busi- In the context of the global crisis ings in isolation may show unexpected ness indicators--and reforms relevant policy makers continue to face particular results. Some economies may rank un- to those indicators--relate to desired challenges. Both developed and devel- expectedly high on some indicators. And social and economic outcomes. Some oping economies have been seeing the some economies that have had rapid 656 articles have been published in impact of the financial crisis flowing growth or attracted a great deal of invest- peer-reviewed academic journals, and through to the real economy, with rising ment may rank lower than others that about 2,060 working papers are available unemployment and income loss. The fore- appear to be less dynamic. through Google Scholar.14 Among the most challenge for many governments is For reform-minded governments, findings: to create new jobs and economic op- how much the regulatory environment for ABOUT DOING BUSINESS 15 · Lower barriers to start-up are in broader programs of reform aimed The Doing Business data are based on associated with a smaller informal at enhancing economic competitiveness, domestic laws and regulations as well as sector.15 as in Colombia, Kenya and Liberia, for administrative requirements. (For a de- · Lower costs of entry encourage example. In structuring their reform tailed explanation of the Doing Business entrepreneurship, enhance firm programs for the business environment, methodology, see Data notes.) productivity and reduce corruption.16 governments use multiple data sources · Simpler start-up translates into greater and indicators. And reformers respond to INFORMATION SOURCES FOR THE DATA employment opportunities.17 many stakeholders and interest groups, · The quality of a country's contracting all of whom bring important issues and Most of the indicators are based on laws environment is a source of comparative concerns to the reform debate. World and regulations. In addition, most of the advantage in trade patterns. Countries Bank Group dialogue with governments cost indicators are backed by official fee with good contract enforcement on the investment climate is designed to schedules. Doing Business respondents specialize in industries where encourage critical use of the data, sharp- both fill out written surveys and provide relationship-specific investments are ening judgment, avoiding a narrow focus references to the relevant laws, regu- most important.18 on improving Doing Business rankings lations and fee schedules, aiding data · Greater information sharing through and encouraging broad-based reforms checking and quality assurance. credit bureaus is associated with that enhance the investment climate. For some indicators--for example, higher bank profitability and lower the indicators on dealing with construc- bank risk.19 METHODOLOGY AND DATA tion permits, enforcing contracts and How do governments use Doing closing a business--part of the cost Business? A common first reaction is to Doing Business covers 183 economies-- component (where fee schedules are ask questions about the quality and rel- including small economies and some of lacking) and the time component are evance of the Doing Business data and the poorest countries, for which little or based on actual practice rather than the on how the results are calculated. Yet no data are available in other data sets. law on the books. This introduces a de- the debate typically proceeds to a deeper discussion exploring the relevance of BOX 2.1 the data to the economy and areas How economies have used Doing Business in regulatory reform programs where business regulation reform might make sense. To ensure coordination of efforts across agencies, such economies as Most reformers start out by seek- Colombia, Rwanda and Sierra Leone have formed regulatory reform com- ing examples, and Doing Business helps mittees reporting directly to the president that use the Doing Business in- in this (box 2.1). For example, Saudi dicators as one input to inform their programs for improving the business Arabia used the company law of France environment. More than 20 other economies have formed such committees at as a model for revising its own. Many the interministerial level. These include India, Malaysia, Taiwan (China) and countries in Africa look to Mauritius-- Vietnam in East and South Asia; the Arab Republic of Egypt, Morocco, Saudi the region's strongest performer on Arabia, the Syrian Arab Republic, the United Arab Emirates and the Republic of Doing Business indicators--as a source Yemen in the Middle East and North Africa; Georgia, Kazakhstan, the Kyrgyz Re- of good practices for reform. In the words public, Moldova and Tajikistan in Eastern Europe and Central Asia; Kenya, Liberia, of Luis Guillermo Plata, the former Malawi and Zambia in Sub-Saharan Africa; and Guatemala, Mexico and Peru in minister of commerce, industry and Latin America. tourism of Colombia, Beyond the level of the economy, the Asia-Pacific Economic Cooperation (APEC) It's not like baking a cake where you follow organization uses Doing Business to identify potential areas of regulatory reform, to the recipe. No. We are all different. But we champion economies that can help others improve and to set measurable targets. In can take certain things, certain key les- 2009 APEC launched the Ease of Doing Business Action Plan with the goal of mak- sons, and apply those lessons and see how ing it 25% cheaper, faster and easier to do business in the region by 2015. Drawing they work in our environment. on a firm survey, planners identified 5 priority areas: starting a business, getting credit, enforcing contracts, trading across borders and dealing with permits. The next 2 steps: the APEC economies setting targets to measure results, and the cham- Over the past 8 years there has been pion economies selected, such as Japan, New Zealand and the United States, de- much activity by governments in re- veloping programs to build capacity to carry out regulatory reform in these areas.1 forming the regulatory environment for domestic businesses. Most reforms relat- 1. Muhamad Noor (executive director of APEC), speech delivered at ASEAN-NZ Combined Business Council breakfast meeting, Auck- land, New Zealand, March 25, 2010, http://www.apec.org. ing to Doing Business topics were nested 16 DOING BUSINESS 2011 gree of subjectivity. The Doing Business DEVELOPMENT OF creation, Doing Business has made a se- THE METHODOLOGY approach has therefore been to work ries of amendments to the methodol- with legal practitioners or professionals The methodology for calculating each ogy for the employing workers indicators who regularly undertake the transac- indicator is transparent, objective and over the past 3 years, including in this tions involved. Following the standard easily replicable. Leading academics col- year's report. While this process has been methodological approach for time and laborate in the development of the indi- under way, the World Bank has removed motion studies, Doing Business breaks cators, ensuring academic rigor. Eight of the employing workers indicators as a down each process or transaction, the background papers underlying the guidepost from its Country Policy and such as starting and legally operating a indicators have been published in lead- Institutional Assessment questionnaire business, into separate steps to ensure a ing economic journals. and instructed staff not to use the indica- better estimate of time. The time estimate Doing Business uses a simple aver- tors as a basis for providing policy advice for each step is given by practitioners aging approach for weighting compo- or evaluating country development pro- with significant and routine experience nent indicators and calculating rankings. grams or assistance strategies. A note to in the transaction. Other approaches were explored, includ- staff issued in October 2009 outlines the Over the past 8 years more than ing using principal components and un- guidelines for using the indicators.20 11,000 professionals in 183 economies observed components. They turn out to In addition, the World Bank Group have assisted in providing the data that yield results nearly identical to those of has been working with a consultative inform the Doing Business indicators. simple averaging. The 9 sets of indicators group--including labor lawyers, em- This year's report draws on the inputs included in this year's aggregate ranking ployer and employee representatives and of more than 8,200 professionals. Table on the ease of doing business provide experts from the International Labour 14.1 lists the number of respondents sufficiently broad coverage across topics. Organization (ILO), the Organisation for for each indicator set. The Doing Busi- Therefore, the simple averaging approach Economic Co-operation and Develop- ness website indicates the number of is used. ment (OECD), civil society and the pri- respondents for each economy and each vate sector--to review the methodology indicator. Respondents are professionals IMPROVEMENTS TO THE and explore future areas of research.21 METHODOLOGY AND DATA REVISIONS or government officials who routinely The consultative group has met several administer or advise on the legal and The methodology has undergone contin- times over the past year, and its guidance regulatory requirements covered in each ual improvement over the years. Changes has provided the basis for several changes Doing Business topic. Because of the focus have been made mainly in response to in methodology, some of which have on legal and regulatory arrangements, country suggestions. For enforcing con- been implemented in this year's report. most of the respondents are lawyers. The tracts, for example, the amount of the Because the consultative process and credit information survey is answered by disputed claim in the case study was consequent changes to the methodology officials of the credit registry or bureau. increased from 50% to 200% of income are not yet complete, this year's report Freight forwarders, accountants, archi- per capita after the first year of data col- does not present rankings of economies tects and other professionals answer the lection, as it became clear that smaller on the employing workers indicators or surveys related to trading across borders, claims were unlikely to go to court. include the topic in the aggregate ranking taxes and construction permits. Another change relates to starting a on the ease of doing business. But it does The Doing Business approach to business. The minimum capital require- present the data collected for the indica- data collection contrasts with that of ment can be an obstacle for potential tors. Additional data collected on labor enterprise or firm surveys, which capture entrepreneurs. Initially Doing Business regulations are available on the Doing often one-time perceptions and experi- measured the required minimum capital Business website.22 ences of businesses. A corporate lawyer regardless of whether it had to be paid The changes so far in the methodol- registering 100­150 businesses a year up front or not. In many economies only ogy for the employing workers indicators will be more familiar with the process part of the minimum capital has to be recognize minimum levels of protection than an entrepreneur, who will register paid up front. To reflect the actual po- in line with relevant ILO conventions as a business only once or maybe twice. A tential barrier to entry, the paid-in mini- well as excessive levels of regulation that bankruptcy judge deciding dozens of mum capital has been used since 2004. may stifle job creation. Floors and ceil- cases a year will have more insight into This year's report includes changes ings in such areas as paid annual leave, bankruptcy than a company that may in the core methodology for one set of working days per week and the minimum undergo the process. indicators, those on employing workers. wage provide a framework for balancing With the aim of measuring the balance worker protection against excessive re- between worker protection and efficient strictiveness in employment regulations employment regulation that favors job (see Data notes). ABOUT DOING BUSINESS 17 Doing Business also continues to 10. The World Economic Forum's Global benefit from discussions with external Competitiveness Report uses part of the Doing Business data sets on starting a stakeholders, including participants in 1. The standard cost model is a quantita- business, employing workers, protect- the International Tax Dialogue, on the tive methodology for determining the ing investors and getting credit (legal administrative burdens that regulation survey instrument and methodology. rights). imposes on businesses. The method can All changes in methodology are ex- be used to measure the effect of a single 11. Narayan and others (2000). plained in the Data notes as well as on law or of selected areas of legislation or 12. World Bank (2003). the Doing Business website. In addition, to perform a baseline measurement of 13. This year's report does not present rank- all legislation in a country. ings of economies on the pilot getting data time series for each indicator and 2. This has included a review by the World electricity indicators or the employing economy are available on the website, be- Bank Independent Evaluation Group workers indicators. Nor does it include ginning with the first year the indicator (2008) as well as ongoing input from the these topics in the aggregate ranking on or economy was included in the report. International Tax Dialogue. the ease of doing business. To provide a comparable time series for 3. Local experts in 183 economies are sur- 14. http://scholar.google.com. research, the data set is back-calculated veyed annually to collect and update the 15. For example, Masatlioglu and Rigo- data. The local experts for each economy lini (2008), Kaplan, Piedra and Seira to adjust for changes in methodology are listed on the Doing Business website and any revisions in data due to correc- (2007), Ardagna and Lusardi (2009) and (http://www.doingbusiness.org). Djankov (2009b). tions. The website also makes available 4. De Soto (2000). 16. For example, Alesina and others (2005), all original data sets used for background 5. The indicators related to trading across Perotti and Volpin (2004), Klapper, papers. borders and dealing with construction Laeven and Rajan (2006), Fisman and Information on data corrections is permits and the pilot indicators on get- Sarria-Allende (2004), Antunes and ting electricity take into account limited Cavalcanti (2007), Barseghyan (2008), provided in the Data notes and on the web- aspects of an economy's infrastructure, Djankov and others (2010) and Klapper, site. A transparent complaint procedure including the inland transport of goods Lewin and Quesada Delgado (2009). allows anyone to challenge the data. If and utility connections for businesses. 17. For example, Freund and Bolaky (2008), errors are confirmed after a data veri- 6. http://www.doingbusiness.org/ Chang, Kaltani and Loayza (2009) and fication process, they are expeditiously Subnational/. Helpman, Melitz and Rubinstein (2008). corrected. 7. Schneider (2005). 18. Nunn (2007). 8. http://www.enterprisesurveys.org. 19. Houston and others (2010). 9. OECD, "Indicators of Product Market 20. World Bank (2009e). Regulation Homepage," http://www 21. For the terms of reference and com- .oecd.org/. position of the consultative group, see World Bank, "Doing Business Employing Workers Indicator Consultative Group," http://www.doingbusiness.org. 22. http://www.doingbusiness.org. 18 DOING BUSINESS 2011 Starting a FIGURE 3.1 Peru cut the time and procedures to start a business by a third business Time to start a business (days) 40 2009 Who improved the most in starting a business? Dealing with construction permits Time cut Cost cut from Registering property $685 to $564 from 41 days 1. Peru to 27 ­18% 2. Croatia Getting credit 30 ­34% 3. Kazakhstan Protecting investors 2010 Simplifying postregistration formalities 4. Zambia Paying taxes and creating an online one-stop shop 5. Cameroon Trading across borders made start-up easier 6. Mozambique 20 Enforcing contracts 7. Montenegro Closing a business 8. Mexico 9. Bangladesh 10 10. Cape Verde Procedures cut from 9 to 6 ­33% 2010 2009 0 Kainaz Messman, a successful young en- 1 9 trepreneur in Mumbai, says that she "grew Procedures (number) Source: Doing Business database. up in a sweet-smelling home." Her mother ran a small confectionery business there. several shareholders join together. Lim- found that government clerks seeking Her father also worked for himself. So it ited liability companies limit the finan- "speed payments" to process applications was no surprise when Kainaz started her cial liability of company owners to their were more likely to target women.2 In the own business. But it was not easy. "When investments, so personal assets are not worst case, additional barriers such as I started my business I knew how to put at risk. And companies have access to long, complex registration and licensing bake cakes and little else. Suddenly I was services and institutions from courts to procedures can make it impossible for thrown into the deep end without a float banks as well as to new markets. women to formalize a business. Indeed, and had no option but to swim."1 Many economies have simplified women typically make up a minority of Starting a business always takes a business registration. In India women like the owners of registered businesses--less leap of faith. And governments increas- Kainaz can now complete many registra- than 10% in the Democratic Republic of ingly are encouraging the daring. Since tion formalities online, including filing Congo and about 40% in Rwanda, for 2004 policy makers in more than 75% of incorporation documents, paying stamp example. the world's economies have made it easier fees and registering for value added tax. Research finds that business regula- for entrepreneurs to start a business in the They no longer have to stand in line. tions affect women's decision to become formal sector. Formal incorporation has This is a good thing, because bur- an entrepreneur.3 Many other factors many benefits. Legal entities outlive their densome procedures can affect women also determine whether women (and founders. Resources can be pooled as more than men. A study in India found men) become entrepreneurs, including TABLE 3.1 that women had to wait 37% longer than education level and cultural norms and Where is starting a business easy-- men on average to see the same local gov- traditions. But governments can help and where not? ernment official. Another, in Bangladesh, ensure a level playing field for all through Easiest RANK Most difficult RANK FIGURE 3.2 New Zealand 1 Iraq 174 What are the time, cost, paid-in minimum capital and number of procedures Australia 2 Djibouti 175 to get a local, limited liability company up and running? Canada 3 Congo, Rep. 176 Singapore 4 São Tomé 177 and Principe COST Macedonia, FYR 5 (% of income per capita) Haiti 178 Formal Hong Kong SAR, 6 operation China Equatorial Guinea 179 Belarus 7 Eritrea 180 $ NUMBER OF Georgia 8 Guinea 181 PROCEDURES Paid-in United States 9 Chad 182 minimum Rwanda 10 capital Guinea-Bissau 183 Note: Rankings are the average of the economy's rankings on the Entrepreneur procedures, time, cost and paid-in minimum capital for starting a TIME (days) business. See Data notes for details. Preincorporation Registration, incorporation Postincorporation Source: Doing Business database. STARTING A BUSINESS 19 TABLE 3.2 Who made starting a business easier in 2009/10--and what did they do? Feature Economies Some highlights Simplified registration formalities Bangladesh, Brunei Darussalam, Chile, Democratic Haiti, before the earthquake, eliminated the (seal, publication, notarization, inspection, Republic of Congo, Croatia, Grenada, Guyana, requirement that the office of the president or other requirements) Haiti, India, Kazakhstan, Kenya, Kyrgyz Republic, prime minister authorize publication of company Lithuania, Luxembourg, Panama, Syrian Arab statutes in the official gazette. Entrepreneurs can Republic, Tajikistan, Zimbabwe now publish them directly in the gazette. This cut start-up time by 90 days. Bangladesh replaced the requirement for buying a physical stamp with payment of stamp fees at a designated bank. It also enhanced its electronic registration system. Start-up time fell by 25 days. Introduced or improved online procedures Brazil, Brunei Darussalam, Chile, Croatia, Ecuador, Croatia made it possible for limited liability com- Germany, India, Indonesia, Islamic Republic of Iran, panies to file registration applications electroni- Italy, Malaysia, Mexico, Peru cally through the notary public. This cut 1 proce- dure and 15 days from the start-up process. Cut or simplified postregistration procedures (tax Brazil, Cape Verde, Arab Republic of Egypt, The Philippines introduced a one-stop shop for registration, social security registration, licensing) Montenegro, Mozambique, Peru, Philippines, Taiwan the municipal license and cut the inspection by (China) the mayor's office, reducing start-up time by 15 days. Created or improved one-stop shop Cameroon, FYR Macedonia, Mexico, Peru, Slovenia, Peru created an online one-stop shop allowing Tajikistan, Vietnam an entrepreneur to receive confirmation of busi- ness registration and the tax registration number at the same time. This cut 3 procedures and 14 days from start-up. Abolished or r e d u c e d Bulgaria, Denmark, Kazakhstan, Sweden, Syrian Arab Zambia eliminated its minimum capital require- minimum capital requirement Republic, Ukraine, Zambia ment. Syria reduced its requirement by two- thirds. Source: Doing Business database. transparent and easily accessible regula- interactions an entrepreneur is required these reforms, the average time to start tory processes. to have with government agencies. Busi- a company fell from 49 days to 34, and Rich or poor, men and women ness entry requirements go beyond simple the average cost from 86% of income per around the world seek to run and profit incorporation to include the registration capita to 41%. from their own business. A 2007 survey of a business name; tax registration; regis- among young people in the United States tration with statistical, social security and STREAMLINED PROCEDURES showed that 4 in 10 have started a busi- pension administrations; and registration Seventy-one economies streamlined the ness or would like to someday.4 With with local authorities.8 procedures to start a business. Of these, some 550,000 small businesses created In 2009/10, 42 economies made it some established or improved a one-stop across the country every month,5 entre- easier to start a business, with stream- shop by consolidating procedures into preneurs are a powerful economic force, lining registration formalities the most a single access point. But simplifying contributing half the GDP and 64% of popular feature of business registration procedures does not necessarily require net new jobs over the past 15 years.6 reforms (table 3.2). Peru improved the creating new institutions: 19 economies Such impacts are possible where business ease of starting a business the most, estab- simply merged procedural requirements registration is efficient and affordable. A lishing a one-stop shop and simplifying or delegated them to one agency. Georgia recent study using data collected from postregistration formalities at the district merged tax registration with company company registries in 100 economies council level. This reduced the number of registration in 2007. Kazakhstan did the over 8 years found that simple business procedures to start a business by 33%, the same in 2009. Ghana, Hungary, Monte- start-up is critical for fostering formal time by 34% and the cost by 18%. negro, Samoa and Singapore allow firms entrepreneurship. Economies with smart to check and reserve the company name business registration have a higher entry WHAT ARE THE TRENDS? at the time of company registration. In rate as well as greater business density.7 Portugal, Serbia and Ukraine the registry Doing Business measures the pro- Starting a business has become easier can now publish information about the cedures, time and cost for a small to across all regions of the world. In the company registration, so companies no medium-size enterprise to start up and past 7 years Doing Business recorded longer have to arrange with a newspaper operate formally (figure 3.2). The number 296 business registration reforms in 140 to advertise it. of procedures shows how many separate economies (figure 3.3). As a result of Other economies merged postregis- 20 DOING BUSINESS 2011 FIGURE 3.3 BIG CUTS IN PAID-IN MINIMUM CAPITAL Sub-Saharan Africa, Eastern Europe & Central Asia most active in start-up reforms Thirty-nine economies around the world Number of Doing Business reforms making it easier to start a business by Doing Business report year DB2006 reduced or abolished their minimum DB2005 DB2007 DB2008 DB2009 DB2010 DB2011 capital requirement in the past 7 years. Sub-Saharan Africa 65 Local entrepreneurs in the Middle East (46 economies) and North Africa benefited the most. Eastern Europe The average paid-in minimum capital & Central Asia 64 (25 economies) requirement in the region dropped from a record 847% of income per capita in OECD high income 49 2005 to 104% in 2010 (figure 3.4). (30 economies) Economies in the region also stream- Latin America lined processes by introducing new tech- & Caribbean 43 (32 economies) nologies, particularly since 2008. Com- Middle East & pared with other regions, however, the North Africa 35 use of e-services is still low. (18 economies) East Asia WHAT HAS WORKED? & Pacific 29 (24 economies) South Asia Policy makers can encourage entre- (8 economies) 11 preneurs to "take the plunge" by mak- ing start-up fast, easy and inexpensive. Note: A Doing Business reform is counted as 1 reform per reforming economy per year. The data sample for DB2005 (2004) includes 155 economies. Twenty-eight more were added in subsequent years. Among the most common measures have Source: Doing Business database. been creating a single interface, reducing or abolishing minimum capital require- tration procedures. This makes particu- face the highest paid-in minimum capi- ments and adopting technology. lar sense for tax registrations. In 2006 tal requirements, 146% of income per Armenia unified tax and social security capita on average. By contrast, entre- MAKING IT SIMPLE: ONE INTERFACE registrations, and Liberia merged value preneurs in two-thirds of economies in Businesses created what might have been added and income tax registrations. In Latin America and the Caribbean face no one of the world's first one-stop shops the past year Montenegro introduced a such requirements. 150 years ago, when the first department single form for registering with the em- store, Le Bon Marché, opened its doors ployment bureau, health fund, pension MANY ONE-STOP SHOPS IN EASTERN in Paris. The public loved the conve- fund and tax administration. EUROPE AND CENTRAL ASIA nience of one-stop shopping. Achieving Economies in Eastern Europe and Cen- this kind of convenience has been among PERSISTENT GAPS tral Asia were the most active in easing the main motivations for governments Despite business entry reforms, discrep- business start-up over the past 7 years, that have adopted this concept for busi- ancies remain among regions and in- with 93% introducing improvements. nesses since the 1980s. come groups. Entrepreneurs in OECD More one-stop shops have been estab- Today 72 economies around the high-income economies still benefit lished in this region than in any other. In world have some kind of one-stop shop from the fastest and least costly pro- 2002 the Russian Federation integrated for business registration, including the cesses to start a business, taking 14 days several registers under one function,9 50 that established or enhanced one in and costing 5.34% of income per capita freeing entrepreneurs from having to the past 7 years (table 3.3). It is not on average. And OECD high-income visit separate agencies involved in busi- surprising that such setups are popular. economies continue to improve, with 9 ness start-up. Since then 19 other econo- They do not necessarily require legal introducing or upgrading online proce- mies in the region, including Azerbaijan, changes. And entrepreneurs and govern- dures in the past 7 years. Belarus, the former Yugoslav Republic ments alike often see immediate benefits. Compared with OECD high-income of Macedonia, Serbia and Ukraine, have The coordination among government economies, starting a business takes 4 adopted similar approaches. The changes agencies eliminates the need for entre- times as long on average in Latin America in the region since 2005 reduced the preneurs to visit each agency separately, and the Caribbean--and costs 18 times average number of procedures by 4, the often to file similar or even identical as much (relative to income per capita) time by 21 days and the cost by 8.8% of information--yet maintains regulatory in Sub-Saharan Africa. Entrepreneurs income per capita. checks. In 2006 FYR Macedonia estab- in Sub-Saharan Africa also continue to lished a central registry allowing entre- STARTING A BUSINESS 21 FIGURE 3.4 DB2011 DB2006 Minimum capital reduced the most in the Middle East and North Africa Regional averages in starting a business 2010 Procedures (number) Time (days) global average OECD high income 6 7 OECD high income 14 22 Eastern Europe & Central Asia 6 10 Eastern Europe & Central Asia 16 37 South Asia 7 8 South Asia 25 38 East Asia & Pacific 8 8 East Asia & Pacific 39 51 Middle East & North Africa 8 11 Middle East & North Africa 20 39 Sub-Saharan Africa 9 11 Sub-Saharan Africa 45 62 Latin America & Caribbean 9 10 Latin America & Caribbean 57 74 8 34 Cost (% of income per capita) Paid-in minimum capital (% of income per capita) OECD high income 5.3 8.2 OECD high income 15.3 46.0 Eastern Europe & Central Asia 8.5 17.3 Eastern Europe & Central Asia 12.3 58.2 South Asia 24.5 41.1 South Asia 24.1 44.8 East Asia & Pacific 27.1 49.6 East Asia & Pacific 50.6 107.4 Middle East & North Africa 38.0 67.8 Middle East & North Africa 104.0 846.9 Sub-Saharan Africa 95.4 233.0 Sub-Saharan Africa 145.7 280.5 Latin America & Caribbean 36.2 58.4 Latin America & Caribbean 4.6 15.0 40.7 59.6 Note: The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. Source: Doing Business database. preneurs to complete company, tax and 25,000 to 100,000 rupiah, further reduc- One-stop shops are starting to ex- statistics registrations; open a company ing discretion. In Jakarta work is under pand beyond business registration for- bank account; and publish the notice of way to set up a one-stop shop that will in- malities. In Tbilisi, Georgia, a public the company's formation on the registry's clude business registration and licensing service center assists entrepreneurs not website. In the past year it streamlined for small and medium-size enterprises. only with business licenses and permits the process even more by adding regis- Zambia implemented a one-stop shop but also with investment, privatization tration with the social fund. One-stop like the one Jakarta is setting up. procedures, tourism-related issues and shops in economies as diverse as El Sal- While some one-stop shops are state-owned property management. Ac- vador and Mali offer similar services. solely for business registration, others cording to a firm survey in 2008, senior Single interfaces not only save time carry out many integrated functions, managers in Georgia spend only 2% and money; they also increase transpar- such as postregistration formalities. of their time dealing with regulatory ency. In Indonesia a new one-stop shop Some of these are virtual; others are requirements--and 92% of firms report for business permits opened recently in physical, with one or more windows. spending less than 10% of their time on Solo (formally known as Surakarta).10 In the 72 economies that have one-stop such requirements.11 By saving time, Civil servants sit in full view behind open shops offering at least one service besides Georgian entrepreneurs save money too. counters. There is no opportunity to seek business registration, start-up is more Another survey, in 2009, found that the "speed money." A flat fee of 5,000 rupiah than twice as fast as in those without service center's simplified procedures replaced a fee schedule ranging from such services (figure 3.5). helped businesses save an average of 3.25% of profits that year. For all busi- TABLE 3.3 nesses served, this amounted to direct Good practices around the world in making it easy to start a business and indirect savings of $7.2 million.12 Practice Economiesa Examples Economies with established one- stop shops are inspiring others to fol- Putting procedures online 105 Cape Verde, FYR Macedonia, Maldives, New Zealand, Puerto Rico, Saudi Arabia, Singapore low their lead. Portugal's one-stop shop, Having no minimum capital 80 Bangladesh, Belarus, Canada, Colombia, Mauritius, Tunisia, Empresa no dia (company in a day), was requirement Vietnam the inspiration for Uruguay's similarly Having a one-stop shop 72 Afghanistan, Azerbaijan, Italy, Jordan, Peru, Philippines, named Empresa en el dia. Rwanda a. Among 183 economies surveyed. Source: Doing Business database; World Bank (2009f ). 22 DOING BUSINESS 2011 FIGURE 3.5 Economies with a one-stop shop make starting a business easier Procedures and time by type of one-stop shop 10 Average, Number of Average Average economies without Type of one-stop shop economies procedures days 40 one-stop shop 8 (111 economies) Commercial registry sharing site with other agencies 7 30 6 Commercial registry coordinating with other agencies 22 20 Average, Nonregistry 4 economies with 14 one-stop shop coordinating with other agencies 10 (72 economies) Integrated 2 12 registration function 0 0 Online registration facility 17 Procedures Time (number) (days) 0 5 10 15 20 25 Source: Doing Business database. REDUCING OR ELIMINATING a company has invested is enough to total registration time fell by 80%. Sin- MINIMUM CAPITAL cover its establishment cost. gapore's online registration system saves The minimum capital requirement dates The reduction or elimination of businesses an estimated $42 million to the 18th century. Yet today 103 econo- minimum capital requirements in sev- annually.14 Electronic services are also mies still require entrepreneurs to put up eral economies was followed by a jump more accessible, saving entrepreneurs a set amount of capital before even start- in initial registrations. In the year after the time and cost of traveling to govern- ing registration formalities. Such require- Jordan reduced its requirement from ment agencies and waiting in line.15 ments are intended to protect investors 30,000 Jordanian dinars to 1,000, the Today 105 economies use informa- and creditors. But they have not proved number of newly registered companies tion and communication technology for to be effective. In 71% of the economies in the country increased by 18%. In Mo- services ranging from name search to en- requiring paid-in capital, the capital can rocco a reduction from 30,000 to 1,000 tirely online business registration. New be withdrawn immediately after incor- dirham led to a 40% increase in the fol- Zealand, the easiest place to start a busi- poration. So entrepreneurs often simply lowing year. Morocco is now considering ness, was the first to launch an online borrow the money. "It even created a abolishing the requirement altogether. In company registration system, in 1996 new market," explains an official from the many of the economies that did so, such (table 3.4). The online option has been United Arab Emirates. "Entrepreneurs as the Arab Republic of Egypt and the mandatory since July 1, 2008. Canada, would pay $20 just to borrow the required Republic of Yemen, companies are more the third easiest place to start a business, money for one day. A much higher inter- likely to declare their actual capital. followed suit in 1999. Its system has been est rate than anyone would ever receive entirely paperless since May 2006. India, from a bank." Moreover, fixed require- USING TECHNOLOGY TO BOOST Italy and Singapore also made online fil- ments do not account for differences in EFFICIENCY ing mandatory. Egypt recently launched firms' credit and investment risk. Governments around the world are a new system to establish companies Minimum capital requirements can increasingly using technology to im- electronically. The first phase of the sys- also have counterproductive effects. Re- prove the efficiency of services and tem, allowing online submission of the cent research suggests that they lower the accountability of public officials. registration application, is in place. entrepreneurship rates across the 39 E-government initiatives range from To encourage use, some economies economies studied.13 Not surprisingly, the data centers and shared networks to set lower fees for online registration. In economies that originally introduced the government-wide information infra- Belgium online registration costs 140 requirement have long since removed it. structure and unified service centers for and paper registration 2,004. In Canada Some economies have found other the public. Fifty-four economies intro- the costs are Can$200 and Can$350. In ways to protect investors and creditors, duced information and communication Estonia documents filed online no longer particularly in the case of limited liability technology in their business start-up have to be notarized. companies. Hong Kong SAR (China) out- processes in the past 7 years, saving lines provisions on solvency safeguards time and effort for businesses and gov- in its company act. Mauritius conducts ernments alike. When Mauritius intro- solvency tests. Taiwan (China) requires duced a computerized system for all an audit report showing that the amount types of business registrations in 2006, STARTING A BUSINESS 23 TABLE 3.4 WHAT ARE SOME RESULTS? Who makes starting a business easy--and who does not? Procedures (number) Making business entry easier has been Fewest Most popular around the world. Many econo- mies have undertaken business registra- Canada 1 China 14 New Zealand 1 Bolivia 15 tion reforms in stages--and often as part Australia 2 Brazil 15 of a larger regulatory reform program Kyrgyz Republic 2 Brunei Darussalam 15 (figure 3.6). Among the benefits have Madagascar 2 Greece 15 been greater firm satisfaction and sav- Rwanda 2 Philippines 15 ings and more registered businesses, fi- Slovenia 2 Guinea-Bissau 17 nancial resources and job opportunities. Belgium 3 Venezuela, RB 17 Finland 3 Uganda 18 BIG JUMPS IN REGISTRATIONS Hong Kong SAR, China 3 Equatorial Guinea 20 Egypt introduced a one-stop shop in Time (days) 2005. Further reforms included incor- Fastest Slowest porating more agencies in the one-stop New Zealand 1 Lao PDR 100 shop, introducing a flat fee structure and Australia 2 Brunei Darussalam 105 reducing and then abolishing the paid-in Georgia 3 Haiti 105 minimum capital requirement. The time Macedonia, FYR 3 Brazil 120 and cost of incorporation were reduced Rwanda 3 Equatorial Guinea 136 in both 2005 and 2006, and by 2007 Singapore 3 Venezuela, RB 141 the number of registered companies had Belgium 4 São Tomé and Principe 144 increased by more than 60%. Reductions Hungary 4 Congo, Rep. 160 Albania 5 Guinea-Bissau 216 of the minimum capital requirement in Canada 5 Suriname 694 2007 and 2008 led to an increase of more than 30% in the number of limited liabil- Cost (% of income per capita) ity companies. Least Most Business registration reforms in Denmark 0.0 Djibouti 169.9 FYR Macedonia made it one of the easi- Slovenia 0.0 Comoros 176.5 est places to start a business today. In Ireland 0.4 Togo 178.1 2006 company registration was changed New Zealand 0.4 Zimbabwe 182.8 from a judicial process to an administra- Canada 0.4 Guinea-Bissau 183.3 tive one, and a one-stop shop combined Sweden 0.6 Gambia, The 199.6 company, tax and statistics registrations. Puerto Rico 0.7 Haiti 212.0 United Kingdom 0.7 Chad 226.9 The publication requirement in the offi- Australia 0.7 Central African Republic 228.4 cial gazette was replaced with automatic Singapore 0.7 Congo, Dem. Rep. 735.1 registration on the registrar's website. In the year following these first changes, Paid-in minimum capital new firm registrations increased by % of income about 20%. Most per capita US$ Portugal eased business start-up in Chad 387 2,397 2006 and 2007, reducing the time to start Mauritania 412 3,956 Guinea-Bissau 415 2,117 a business from 54 days to 5. In 2007 and Burkina Faso 416 2,122 2008 new business registrations were up Djibouti 434 5,556 by 60% compared with 2006. In Belarus, Central African Republic 469 2,109 which reformed business entry in 2006, Togo 487 2,142 the number of new businesses registered Guinea 519 1,922 almost tripled in 2007 and 2008. In 2008 Niger 613 2,084 Colombia introduced online company Timor-Leste 921 5,000 registration. In 2009 new company reg- Note: Eighty economies have no paid-in minimum capital requirement. Source: Doing Business database. istrations increased by 20%, twice the increase experienced in previous years. In 2006 Rwanda simplified its registra- 24 DOING BUSINESS 2011 FIGURE 3.6 flexible employment regulations and One-stop shops popular in Eastern Europe and Central Asia and Sub-Saharan Africa low corporate taxes.24 Number of economies implementing change by region and feature, DB2005­DB2011 In evaluating impact, researchers Eastern Europe often face the dilemma of the counterfac- & Central Asia tual: how to determine what would have Sub-Saharan happened if there had been no action? Africa OECD Created or improved Luckily, some measures affect only a spe- one-stop shop high income Reduced or abolished cific group, allowing researchers to com- Latin America minimum capital requirement pare that group with those unaffected. & Caribbean Introduced online Middle East business registration When Mexico implemented a business & North Africa registration reform across municipalities East Asia in stages, researchers took advantage & Pacific of the opportunity. One study found South Asia that the reform increased the number of registered businesses by 5% and em- 0 5 10 15 Source: Doing Business database. ployment by 2.8%. Moreover, consumers benefited. Competition from new en- tion formalities. The following year 77% where it takes less time to register new trants lowered prices by 0.6%25.Another more firms registered. Malaysia reduced businesses have seen higher rates of entry study, using a different approach, found registration fees in 2008, in response to in industries with a potential for expan- similar results: a 5% increase in new reg- the economic crisis. New business regis- sion.17 Another finds that regulations af- istrations. It also found that the program trations increased by 15.8% in 2009. fect the decision to start a new business, was more effective in municipalities with Entrepreneurs open new businesses particularly for individuals who engage less corruption and cheaper additional even in times of economic crisis. In 2008 in an entrepreneurial activity to pursue postregistration procedures.26 Germany introduced a new legal form a business opportunity.18 Yet another Other recent studies investigate of limited liability company (Unterneh- study finds that regulatory costs remain whether reforms of business registra- mergesellschaft, or UG) with no minimum more burdensome for small firms than tion have different effects on economic capital requirement while maintaining for large ones.19 outcomes depending on the local insti- the 25,000 requirement for the standard A recent study finds that higher tutional setting. One such study looked form (GmbH). While many still opt for entry costs are associated with a larger at India's gradual elimination of the bu- the traditional form, the number of reg- informal sector and a smaller number of reaucratic industrial licensing system istered UGs increased by 12,000 between legally registered firms.20 Informal firms known as the "license raj." It shows that November 2008 and January 2010.16 Co- are typically less productive or efficient, the effect on manufacturing output, em- lombia also introduced a new type of adversely affecting overall productivity ployment, entry and investment varied limited liability company (sociedad por and growth.21 The same study also finds across Indian states, depending on the acciones simplificadas, or SAS) in 2008. that variations in regulatory costs across institutional environment.27 This type is incorporated by the share- countries lead to differences in total pro- Another study finds that in econo- holders through a private document, with ductivity and output. When regulation is mies with a favorable regulatory environ- no need for a public deed. Over the next too heavy handed, compliance and start- ment for firms, particularly for firm entry, year almost 18,000 such companies were up costs increase, cutting into firms' trade is more likely to improve living created, representing a big shift from the profits. This discourages entrepreneurs standards. If the structure for business traditional type to the new one. and increases the share of the population entry is flexible, trade openness can have choosing to become employees instead. a stronger impact on the allocation of re- BETTER ECONOMIC AND SOCIAL Job creation suffers.22 These costs also sources across and within industries. The OUTCOMES deter entrepreneurship driven by oppor- authors show that a 1% increase in trade These experiences in easing start-up il- tunity but have no impact on that driven is associated with a more than 0.5% rise lustrate some of the more immediate by necessity.23 Another recent study in income per capita in economies that results in cost savings and increased among 95 economies concluded that facilitate firm entry and has no positive registrations. Empirical research is in- more dynamic formal business cre- income effects in more rigid economies.28 creasingly focusing on economic and so- ation occurs in economies that pro- Lower entry costs combined with better cial outcomes such as entrepreneurship, vide entrepreuners with a stable legal credit information sharing are also associ- competition, corruption and productiv- and regulatory regime, fast and in- ated with a larger small and medium-size ity. One study shows that economies expensive registration process, more enterprise sector.29 STARTING A BUSINESS 25 10. World Bank (2009b). 11. World Bank (2009h). 1. Speech by Kainaz Messman at a May 5, 12. International Finance Corporation, "IFC 2010, ceremony held by the Federation Helps Simplify Procedures for Georgian of Indian Chambers of Commerce and Businesses to Save Time and Resources," Industry (FICCI) Ladies Organization accessed September 20, 2010, http:// in Mumbai, where she was honored as a www.ifc.org/. "young entrepreneur." 13. Van Stel, Storey and Thurik (2007). 2. Simavi, Manuel and Blackden (2010) cit- 14. World Bank conference, "The Singapore ing Corbridge (2007) and Government Experience: Ingredients for Successful of Bangladesh (2007). Nation-Wide eTransformation," Singa- 3. Ardagna and Lusardi (2010). pore, September 30, 2009. 4. Kauffman Foundation (n.d.). 15. World Bank (2009g). 5. "The United States of Entrepreneurs: 16. Common Register Portal of the German America Still Leads the World," The Federal States, https://www Economist, March 12, 2009. .handelsregister.de/rp_web. 6. U.S. Small Business Administration, 17. Ciccone and Papaioannou (2007). "Frequently Asked Questions: Advocacy 18. Ardagna and Lusardi (2008). Small Business Statistics and Research," accessed July 28, 2010, http://web.sba 19. Crain (2005). .gov/faqs/faqindex.cfm?areaID=24. 20. Barseghyan and DiCecio (2009). 7. Klapper, Lewin and Quesada Delgado 21. Dabla-Norris and Inchauste (2008). (2009). Entry rate refers to newly regis- 22. Fonseca, Lopez-Garcia and Pissarides tered firms as a percentage of total regis- (2001). tered firms. Business density is defined as the number of businesses as a percent- 23. Ho and Wong (2006). age of the working-age population (ages 24. Klapper and Love(2010). 18­65). 25. Bruhn (2008). 8. International Finance Corporation, FIAS, 26. Kaplan, Piedra and Seira (2007). "Business Entry," accessed September 23, 2010, http://www.fias.net/. 27. Aghion and others (2008). 9. World Bank (2009f). 28. Freund and Bolaky (2008). 29. Ayyagari, Beck and Demirgüç-Kunt (2007). 26 DOING BUSINESS 2011 Starting a business Dealing with FIGURE 4.1 The Democratic Republic of Congo made dealing with construction permits faster and cheaper construction Time (days) 240 2009 Who improved the most in dealing with construction permits 210 Time cut from 248 days to 128 permits? Registering property 1. Congo, Dem. Rep. 180 Getting credit 2. Paraguay Cutting fees and enforcing time limits Protecting investors 150 made it easier to deal with construction permits 3. Saudi Arabia 4. Croatia Paying taxes 120 5. Mexico Trading across borders 2010 90 6. Benin Enforcing contracts 7. Kazakhstan Closing a business 60 8. Romania Cost cut from $6,908 to $4,307 9. Vietnam 30 10. Peru 0 1 14 Source: Doing Business database. Procedures The devastating earthquake in Port-au- Prince in January 2010 left more than efficient, to avoid excessive constraints the global construction industry disap- 1.3 million Haitians homeless. Virtually on a sector that plays an important part peared in 2008 alone.4 every building in the capital was dam- in every economy (table 4.1). According In 2009/10, 19 economies made it aged or destroyed. Haiti lacks a com- to a recent OECD study, the construction easier to deal with construction per- prehensive national building law and industry accounts on average for 6.5% mits (table 4.2). Sub-Saharan Africa ac- seismic design code, and construction in of GDP.1 The building sector is Europe's counted for the most reforms of the con- Port-au-Prince had followed inadequate largest industrial employer, accounting struction permitting process, followed by standards and building practices. Just for about 7% of employment. In the Eastern Europe and Central Asia. For the a month later Chile was rocked by an European Union, the United States and first time a conflict-affected economy, earthquake 500 times as powerful as Japan combined, more than 40 million the Democratic Republic of Congo, im- the one in Haiti. The earthquake dam- people work in construction. It is es- proved the ease of dealing with construc- aged 750,000 homes. Many believe the timated that for every 10 jobs directly tion permits the most (figure 4.1). A outcome could have been worse. Chile's related to a construction project, an- regulatory reform program streamlined building codes and risk-based building other 8 jobs may be created in the local construction permitting in Kinshasa, re- rules have been regularly updated since economy.2 Small domestic firms account ducing the time to deal with construc- their adoption in 1931. for most of the sector's output and most tion permits from 248 days to 128 and Regulation of construction is critical of its jobs. the average cost from $6,908 to $4,307. to protect the public. But it needs to be Some of the jobs have been lost as Doing Business measures the pro- TABLE 4.1 a result of the global economic crisis. cedures, time and cost for a small to Where is dealing with construction Between December 2007 and January medium-size business to obtain all the permits easy--and where not? 2010, 1.9 million construction workers necessary approvals to build a simple Easiest RANK Most difficult RANK in the United States lost their jobs.3 commercial warehouse and connect it to Hong Kong SAR, 1 Malawi 174 According to the ILO, 5 million jobs in basic utility services (figure 4.2). Such in- China Burundi 175 Singapore 2 Serbia 176 FIGURE 4.2 St. Vincent and the 3 India 177 What are the time, cost and number of procedures to comply with formalities Grenadines to build a warehouse? Tajikistan 178 Belize 4 Ukraine 179 COST New Zealand 5 Tanzania 180 (% of income per capita) Marshall Islands 6 Completed China 181 warehouse Georgia 7 Russian Federation 182 NUMBER OF St. Kitts and Nevis 8 Eritreaa 183 PROCEDURES Maldives 9 Denmark 10 A business in Note: Rankings are the average of the economy's rankings on the the construction procedures, time and cost to comply with formalities to build a industry warehouse. See Data notes for details. TIME (days) a. No practice. Source: Doing Business database. Preconstruction Construction Postconstruction and utilities DEALING WITH CONSTRUC TION PERMITS 27 FIGURE 4.3 683% of income per capita to complete Eastern Europe and Central Asia leads in number of reforms in construction permitting all required procedures, down from 220 Number of Doing Business reforms making it easier to deal with construction permits by Doing Business report year days and 839% of income per capita DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 in 2005. OECD high-income economies Eastern Europe & Central Asia 33 have streamlined their systems the most. (25 economies) Obtaining approvals for building a sim- Sub-Saharan ple warehouse now takes on average Africa 23 (46 economies) 16 procedures, 166 days and 62.1% of OECD income per capita. high income 17 A large gap remains for much of (30 economies) the rest of the world. Authorities in East- Latin America ern Europe and Central Asia require & Caribbean 14 (32 economies) the most procedures to obtain construc- Middle East & tion approvals, 22 on average. Delays North Africa 12 are common in Sub-Saharan Africa. To (18 economies) comply with formalities takes longer East Asia & Pacific 11 than 2 months there than in OECD high- (24 economies) income economies. And in South Asia South Asia an entrepreneur has to pay on average (8 economies) 0 2,039% of income per capita in permit- Note: A Doing Business reform is counted as 1 reform per reforming economy per year. The data sample for DB2006 (2005) includes 174 ting fees. economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. Source: Doing Business database. MORE REFORMS IN EASTERN EUROPE AND CENTRAL ASIA dicators can be telling. A recent competi- WHAT ARE THE TRENDS? Eastern Europe and Central Asia was tiveness report by KPMG indicated that the region with the most reforms of con- construction costs and the permitting In an effort to ensure building safety struction permitting in the past 6 years process were among the top 20 factors while keeping compliance costs reason- (figure 4.3). Twenty economies imple- determining the location of a start-up in able, governments around the world mented 33 new regulations, mainly to re- the United States.5 have worked on consolidating permit- vamp outdated construction formalities ting requirements. Today an entrepre- from the communist era. And the region neur spends on average 202 days and that used to have the longest average TABLE 4.2 Who made dealing with construction permits easier in 2009/10--and what did they do? Feature Economies Some highlights Reduced time for processing permit applications Benin, Burkina Faso, Democratic Republic of Congo, In Benin a new commission to process building Croatia, Hungary, Kazakhstan, Mexico, Peru, Romania, permit applications reduced the average time Rwanda, Sierra Leone for dealing with construction permits from 410 days to 320. Streamlined procedures Côte d'Ivoire, Croatia, Kazakhstan, Mali, Mexico, Saudi Ukraine cut 9 of 31 procedures, reducing time by Arabia, Ukraine a third and cost by 6%. Adopted new building regulations Croatia, Hungary, Kazakhstan, Romania Amendments to Romania's construction law and building regulations cut time by 15 days and cost by 12.9%. Reduced fees Burkina Faso, Democratic Republic of Congo, Rwanda, Vietnam's new registration fee for completed Vietnam buildings cut total cost by 43%. Introduced or improved one-stop shop Kazakhstan, Paraguay, Russian Federation, Saudi In Paraguay a new single-window approach in Arabia the municipality cut time from 291 days to 179. Introduced risk-based approvals Kazakhstan, Mali Mali's new simplified environmental impact as- sessment for noncomplex commercial buildings cut time by 9% and cost by 32.7%. Improved electronic platforms or online services Colombia Colombia improved its electronic verification of prebuilding certificates, which cut 1 procedure. Source: Doing Business database. 28 DOING BUSINESS 2011 TABLE 4.3 The cost remains the second highest Good practices around the world in making it easy to deal with construction permits globally, at 1,631% of income per capita Practice Economiesa Examples on average. The high cost largely reflects Using risk-based building approvals 84 Colombia, Germany, Mauritius, Singapore high fees to connect to water, telephone Having an approved building code 43 Croatia, Kenya, New Zealand, Republic of Yemen Having a one-stop shop 22 Bahrain, Chile, Georgia, Hong Kong SAR (China) and electricity service. a. Among 183 economies surveyed. Source: Doing Business database. ONLINE IN THE MIDDLE EAST AND NORTH AFRICA... COST STILL HIGH IN AFRICA delays achieved significant time savings. Economies in the Middle East and North These changes reduced the average time In Sub-Saharan Africa 23 reforms mak- Africa that made dealing with construc- for dealing with construction formalities ing it easier to deal with construction tion permits easier focused on intro- by 30 days, from 280 to 250 (figure 4.4). permits were implemented in the past ducing online services and electronic Performance varies within the region. 6 years. Burkina Faso set up a new platforms. This trend was initiated in the Georgia, after 6 years of steady improve- one-stop shop, Kenya introduced risk- early 1990s by some Gulf Cooperation ments, has the most efficient permitting based approvals, Liberia reduced fees, Council countries (Bahrain, Qatar, Saudi system. To comply with formalities in and Benin, the Democratic Republic of Arabia and the United Arab Emirates). Tbilisi takes 98 days, far fewer than the Congo, Mali and Rwanda streamlined In Bahrain, where complying with build- regional average of 250 days or the Alba- permitting procedures. These improve- ing formalities takes the least time in the nian one of 331. ments have reduced permitting delays in region, applicants can download forms, the region by 16 days. More can be done. submit applications and building plans, FIGURE 4.4 track the status of their applications and Biggest time savings in the Middle East and North Africa pay bills--all online.6 The changes in the Regional averages in dealing with construction permits DB2011 DB2006 region reduced the average permitting Procedures (number) time by 41 days, making the Middle East OECD high income 16 16 2010 and North Africa the fastest globally. global Latin America & Caribbean 17 17 average 18 19 ...AND IN EAST ASIA Sub-Saharan Africa South Asia 18 18 The Middle East and North Africa was East Asia & Pacific 19 19 not the only region where technology Middle East & North Africa 19 20 was used to make construction permit- Eastern Europe & Central Asia 22 26 ting more efficient. In East Asia and the 17.9 Pacific, Singapore and Hong Kong SAR Time (days) (China) converted their one-stop shops OECD high income 166 175 for building permits to online systems Latin America & Caribbean 220 233 in 2008. In Singapore the Building and Sub-Saharan Africa 222 238 Construction Authority provides easy South Asia 241 244 access to relevant information and allows East Asia & Pacific 167 183 online submission of all paperwork. In Middle East & North Africa 152 193 Hong Kong SAR (China), while the appli- Eastern Europe & Central Asia 250 280 cation process still has to be completed 202 in person, all application forms and zon- Cost (% of income per capita) ing maps are now online. OECD high income 62.1 74.1 Latin America & Caribbean 191.1 332.0 WHAT HAS WORKED? Sub-Saharan Africa 1,631.3 1,753.7 South Asia 2,039.2 3,957.5 Smart regulation ensures that standards East Asia & Pacific 168.7 240.9 are met while making compliance easy and Middle East & North Africa 409.7 699.7 accessible to all. Coherent and transparent Eastern Europe & Central Asia 645.5 1,332.5 rules, efficient processes and adequate allo- 683.1 cation of resources are especially important Note: The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, in sectors where safety is at stake (table Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. Zimbabwe is not included in the samples due to the impact of inflation on the average cost estimates. 4.3). Construction is one of them. Source: Doing Business database. DEALING WITH CONSTRUC TION PERMITS 29 TABLE 4.4 growing environmental concerns. New Who makes dealing with construction permits easy--and who does not? Zealand chose an effective approach: Procedures (number) performance-focused building codes set Fewest Most targets and overall technical standards Denmark 6 Azerbaijan 31 but do not regulate how to achieve those Hong Kong SAR, China 7 Brunei Darussalam 32 standards. This allows room for innova- New Zealand 7 Guinea 32 tion in building techniques. Vanuatu 7 Poland 32 If provisions are too precise, this Sweden 8 El Salvador 34 creates a challenge for keeping regulation Maldives 9 Kazakhstan 34 up to date. Some building codes specify St. Lucia 9 Czech Republic 36 what materials can be used in construc- Georgia 10 China 37 Grenada 10 India 37 tion. This seems to make sense. The Marshall Islands 10 Russian Federation 53 materials are tested for safety, and their technical parameters mandated in the Time (days) code. But this approach works only when Fastest Slowest codes are up to date. And they rarely are Singapore 25 Brazil 411 in the transition economies of Eastern Korea, Rep. 34 Nepal 424 Europe and Central Asia, where such United States 40 Suriname 431 rules are most common. Construction Bahrain 43 Russian Federation 540 norms in Ukraine still refer to materials Colombia 50 Côte d'Ivoire 592 that used to be produced in the Soviet Vanuatu 51 Lesotho 601 Marshall Islands 55 Cyprus 677 Union. Today these materials are no lon- Solomon Islands 62 Cambodia 709 ger available, so no one can fully comply United Arab Emirates 64 Zimbabwe 1,012 with the regulations. New Zealand 65 Haiti 1,179 USING ONE-STOP SHOPS TO IMPROVE Cost (% of income per capita) COORDINATION Least Most Before a building plan is approved, ap- Qatar 0.8 Niger 2,352 propriate clearances are needed to en- St. Kitts and Nevis 4.8 Zambia 2,454 sure quality and safety. Often several Palau 5.1 Congo, Dem. Rep. 2,692 agencies are involved. To prevent overlap Trinidad and Tobago 5.1 Tanzania 2,756 and ensure efficiency, many economies Brunei Darussalam 6.7 Russian Federation 4,141 have opted to put the agencies in one St. Vincent and the Grenadines 7.0 Chad 6,684 location. These one-stop shops improve Malaysia 7.9 Burundi 7,048 Thailand 9.5 Zimbabwe 8,021 the organization of the review process-- Hungary 9.8 Afghanistan 11,355 not by reducing the number of checks Dominica 11.0 Liberia 29,574 needed but by better coordinating the Source: Doing Business database. efforts of different agencies. That way, more resources can be devoted to safety FOCUSING ON RESULTS In Nigeria a new national building checks rather than to paperwork. Efficient regulation starts with a uni- code was drafted in 2006, but it has yet to There are different ways to organize form building code--and its uniform be enforced. Some Nigerian states have a one-stop shop. In Paraguay authori- implementation. Forty-three economies started implementing several provisions ties moved professionals from 7 munici- globally have adopted uniform construc- of the code, such as by amending local pal departments into 1. Since early 2010 tion rules. Most commonly, a central urban and regional planning laws to Burkina Faso has held periodic meetings authority outlines the rules and local require new inspections and certificates. of all approving bodies to speed up clear- authorities implement them. When regu- Others have not. The result is wide varia- ances. In 2009 the local government in lations are not organized and applied tion across states--confusing for build- Hong Kong SAR (China), as part of its "Be coherently, builders and authorities can ers with projects in more than one.7 the Smart Regulator" program, merged 8 become confused about how to proceed. Building rules also have to be procedures involving 6 different agencies This often leads to delays, uncertainty adaptable so that they can keep up with and 2 private utilities through a one-stop and disputes. economic and technological change-- center. A single window facilitates interac- particularly important in the light of tion for customers. Globally, 22 economies 30 DOING BUSINESS 2011 FIGURE 4.5 Taking advantage of one-stop shops and streamlined procedures in construction permits One-stop shop 611 Streamlined procedures One-stop shop BURKINA FASO CANADA HONG KONG SAR, CHINA 9,757 171 All building permits issued Commercial building 9,375 Commercial building permits issued permits issued 150 209 213 7,899 Before reform After 1 year After 2 years Before reform After 1 year After 2 years Before reform After 1 year (2007/08) (2008/09) (2009/10) (2005) (2006) (2007) (2008) (2009) Source: Burkina Faso, Centre de Facilitation des Actes de Construire (CEFAC); Toronto City Building Department; Hong Kong SAR Government, Hong Kong Economic and Trade Office, Washington, D.C. coordinate agencies involved in approving WHAT ARE SOME RESULTS? the most dynamic and rapidly growing construction permits through some form sectors of the economy. The construction of one-stop shop. Over the past 6 years Doing Business area in the capital tripled between 2004 recorded 110 reforms streamlining con- and 2007, from 463,000 square meters to DIFFERENTIATING PROJECTS BY RISK struction permitting procedures world- 1.5 million. During the same period the Not all buildings involve the same social, wide. Governments, the private sector construction sector expanded from 6.3% cultural, economic or environmental im- and citizens alike are starting to see of GDP to 11%.10 pacts. A hospital or skyscraper cannot benefits. In other economies too, more effi- be compared with a 2-story commercial cient approval procedures allowed agen- warehouse. Efficient governments have GREATER CAPACITY cies to process greater volumes of permit implemented rigorous yet differentiated More efficient systems can prepare gov- approvals and increased client satisfac- construction permitting processes to ernments to take advantage of a pickup in tion. In 2006 Burkina Faso was among treat buildings according to their risk construction activity. Look at Colombia. the 10 economies with the most complex level and location. In 1995 obtaining building authorizations requirements in the world. Not surpris- Simple or low-risk buildings require in Bogotá took 3 years on average. Today ingly, a survey that year found that more less documentation than more complex it takes about a month. This is thanks to than 23% of local companies identified structures and can be approved faster. a broad program of reforms targeting licenses and permits as a major con- This saves time for both entrepreneurs the construction permitting process. The straint to doing business in the country.11 and authorities and allows them to di- government transferred the administra- To address this concern, a one-stop shop rect their efforts and resources more tion of building permits to the private for construction permits, the Centre de efficiently. Kazakhstan recently imple- sector, created a risk-based approval Facilitation des Actes de Construire, was mented differentiated approval proce- process and introduced electronic veri- opened in May 2008. A new regulation dures for complex and noncomplex proj- fication of the ownership status of build- merged 32 procedures into 15, reduced ects, allowing a fast-track procedure for ings and land. The changes were timely, the time required from 226 days to 122 projects under 1,000 square meters. Be- because construction activity took off. In and cut the cost by 40%. Entrepreneurs larus, Canada, Colombia and Germany 1996 the approved building construction took note. From May 2009 to May 2010 are among the 84 economies that have area was 11.3 million square meters. In 611 building permits were granted in functioning fast-track application pro- 2007 it was 19.2 million--70% more. Ouagadougou, up from an average of cesses for small commercial buildings. Meanwhile, the construction sector grew about 150 a year in 2002­06 (figure After Bavaria implemented differentiated from 6% of GDP to 7%.9 4.5).12 Another firm survey, conducted permitting approaches for low- and high- Georgia's story is similar. The gov- in 2009, showed that the share of entre- risk projects, builders saved an estimated ernment overhauled the construction preneurs considering the construction 154 million in building permit fees in a permitting system between 2005 and permitting process to be problematic had year, while building authorities needed 2009. Among other things, it created a dropped by 6 percentage points in the 270 fewer employees on their payroll.8 one-stop shop and gradually consoli- previous 3 years.13 dated 25 procedures into 10, reducing the time to comply with formalities from 195 days to 98. Today construction is among DEALING WITH CONSTRUC TION PERMITS 31 Hong Kong SAR (China), after fin- duced by 80% the number of in-person buildings erected do not comply with ishing 2 years of regulatory changes to visits made to building authorities by proper safety standards. Without clear reengineer its construction permitting out-of-state owners and architects.15 rules, enforcing even basic standards is a system, also saw an increase in volume. Reducing delays benefits more than daunting task. Structural incidents have The number of commercial building per- just builders and owners. A study in the multiplied. According to the Nigerian mits grew by 14%, from 150 in 2008 to United States estimates that accelerat- Institute of Building, 84 buildings col- 171 in 2009--despite the global eco- ing permit approvals by 3 months in a lapsed in the past 20 years, killing more nomic downturn. 22-month project cycle could increase than 400 people.22 The Canadian city of Toronto re- construction spending by 5.7% and vamped its construction permitting property tax revenue for local govern- process in 2005 by introducing time ments by 16%.16 limits for different stages of the process 1. OECD (2010). and presenting a unique basic list of GREATER SAFETY AND 2. PricewaterhouseCoopers (2005). TRANSPARENCY 3. U.S. Bureau of Labor Statistics, "Employ- requirements for each project. Later it provided for electronic information By some estimates 60­80% of building ment Situation," January 2010, http:// www.bls.gov/. and risk-based approvals with fast-track projects in developing economies are 4. ILO (2009). procedures ("Commercial Xpress" for undertaken without the proper permits 5. KPMG (2009). commercial buildings and "Residential and approvals.17 In the Philippines 57% 6. Bahrain, Ministry of Municipalities and Fast Track" for residential buildings). of new construction is considered illegal. Agricultural Affairs, http://websrv Between 2005 and 2007 the number of In Egypt this share might reach 90%.18 .municipality.gov.bh/. commercial building permits increased In Georgia before the new permitting 7. World Bank (2010a). by 24% and between 2005 and 2008 the process that was initiated in 2005, fewer 8. Bayerisches Staatsministerium des In- construction value of new commercial than 45% of construction projects had nern (2002). buildings rose by 84%.14 legal permits. If procedures are overly 9. Espinosa-Wang (forthcoming). complicated or costly, builders tend to 10. IFC (2008a). LOWER COST--FOR BUILDERS AND proceed without a permit. This leads to 11. World Bank Enterprise Surveys (http:// REGULATORS revenue losses for local authorities, limi- www.enterprisesurveys.org/). Effective and efficient use of information tations on access to credit for the build- 12. Information provided by Burkina Faso's technology can reduce the regulatory ers and owners and the loss of formal Centre de Facilitation des Actes de cost of construction. Jurisdictions across jobs in the construction sector.19 Construire. the United States are using informa- Overly complicated construction 13. World Bank Enterprise Surveys (http:// www.enterprisesurveys.org/). tion technology to increase efficiency. rules also can increase opportunities for 14. According to information provided by More than 500 now use an advanced corruption. World Bank Enterprise Sur- the City of Toronto's Office of the Chief e-permit processing system. Introduced vey data show that the share of firms Building Official, the construction value since 2003, the system has reduced the expecting to give gifts in exchange for of commercial buildings (excluding time that professionals in the construc- construction approvals is correlated with industrial and institutional buildings) rose from Can$1.56 billion in 2005 to tion industry spend on permits by 30­ the level of complexity and cost of deal- Can$2.87 billion in 2008. 40%. Interactive voice response systems ing with construction permits.20 Accord- 15. Information available at http://www enable customers to use a touch-tone ing to a 2005 survey conducted in 15 .natlpartnerstreamline.org/. telephone to connect with a jurisdiction's countries by Transparency International, 16. PricewaterhouseCoopers (2005). database of building code and land man- entrepreneurs perceive construction as 17. De Soto (2000). agement applications, reducing the time one of the most corrupt industries, sur- 18. De Soto (2000). to schedule and conduct inspections passing arms and defense, oil and gas, 19. Moullier (2009). from 2­3 days to less than 24 hours. real estate and mining.21 20. World Bank (2009d). Mobile field inspection technology has Good regulation ensures compli- 21. Kenny (2007). increased the number of inspections per ance with the standards and protects 22. Agence France Presse, "Nigeria Approves day by 25% and reduced contractors' the public while making the permitting Building Code," News24.com, August 3, downtime while waiting for inspections process transparent and affordable for 2006, http://www.news24.com/. Because and their results by 20%. More than 20 construction companies. Where infor- many cases go unreported, the actual U.S. cities use e-plan review. This system mal construction is rampant, the pub- figure is probably higher. of online submission of building plans lic can suffer. Nigeria, like Haiti, lacks has shortened the review period by 40%, a uniform building code that sets the eliminated the risk of lost plans and re- standards for construction. Many of the 32 DOING BUSINESS 2011 Starting a business FIGURE 5.1 Dealing with construction permits Samoa increased the efficiency of property registration Who improved the most Registering Time to register property (days) 150 2009 in registering property? 1. Samoa property Getting credit 120 2. 3. Maldives Cape Verde A 5-year project 4. Malaysia Protecting investors 90 introduced a title system Time cut by 5. Grenada and computerized 120 days Paying taxes 6. Malawi the property registry Trading across borders 60 7. Portugal Enforcing contracts Registration at Land, Survey 8. Hungary and Environment Department 9. Jamaica Closing a business 30 10. Denmark 2010 0 1 5 Procedures Source: Doing Business database. In the early 1990s people wanting to property is informal or poorly adminis- formal titles might go informal again. register property in Minsk needed to tered, it has little chance of being used Even if titles remain formal, property arrive outside the land registry by 5 a.m. as a guarantee. Hernando de Soto calls markets will not function effectively if and, if it was winter, keep a fire going to such assets "dead capital."2 The result regulations keep investment from being stay warm during the long wait.1 Newly is limited access to finance, which can channeled to its most productive use. independent Belarus had a complicated limit economic growth.3 Women can be And titles won't lead to more credit if col- registration process with many layers particularly affected. "I tried many times lateral laws make mortgaging property of duplication, leading to delays of up to apply for a loan but didn't get even a expensive and inefficient courts prevent to 231 days. The system could not keep quarter. They tell me to bring collateral banks from enforcing collateral when up with the growing real estate market. that I can't provide... One time they a debtor defaults. Some studies report That changed after 2004 (table 5.1). A asked for land and I don't even have land. cases where titling failed to bring signifi- new one-stop shop cut unnecessary pro- Sometimes they ask for buildings as col- cant increases in credit or income.5 cedures by centralizing the registration lateral as well," says Antonia, a detergent Doing Business records the full se- process and hired 10 times as many reg- manufacturer in Ghana. Her experience quence of procedures necessary for a istrars. Today registering property takes is not uncommon. In 9 of 128 economies, business to purchase a property from an- 15 days, and the system covers 5 mil- including Cameroon and Chile, women's other business and transfer the property lion property units and manages 760,000 ownership rights over movable and im- title to the buyer's name. The transaction sales and first-time registrations a year. movable property are not equal to men's, is considered complete when it is oppos- Property is often requested by and in even more economies women able to third parties and the purchasing banks as collateral for loans. But where have less right than men to mortgage it.4 company can use the property, use it TABLE 5.1 Ensuring formal property rights is as collateral in taking new loans or, if Where is registering property easy--and fundamental. Effective administration of necessary, sell it to another business where not? land is part of that. If formal property (figure 5.2). Easiest RANK Most difficult RANK transfer is too costly or complicated, In 2009/10, 21 economies made it Saudi Arabia 1 Angola 174 Georgia 2 Guinea-Bissau 175 FIGURE 5.2 New Zealand 3 Liberia 176 What are the time, cost and number of procedures required to transfer a property United Arab 4 Belgium 177 between 2 local companies? Emirates Eritrea 178 Armenia 5 COST Buyer can use Nigeria 179 Belarus 6 (% of property value) the property, Timor-Leste 180 resell it or use Lithuania 7 Micronesia, Fed. Sts. 181 it as collateral Norway 8 PROCEDURES Marshall Islands 182 Slovak Republic 9 Brunei Darussalam 183 Azerbaijan 10 Land & 2-story warehouse Seller with property Note: Rankings are the average of the economy's rankings on the registered and no procedures, time and cost to register property. See Data notes TIME for details. title disputes (days) Source: Doing Business database. Preregistration Registration Postregistration REGISTERING PROPERT Y 33 TABLE 5.2 Who made registering property easier in 2009/10--and what did they do? Feature Economies Some highlights Reduced taxes or fees Bangladesh, Cape Verde, Democratic Re- Average cost reduction: 3.6% of the property value public of Congo, Hungary, Jamaica, Mali Changes ranged from 2% of the property value in Jamaica to 6% in Hun- gary (which halved the transfer tax). Cape Verde introduced a fixed registra- tion fee, going from 2% of the property value to $256. Increased administrative efficiency Bosnia and Herzegovina, Grenada, Malawi, Average time saved: 66 days Maldives, Samoa, Sierra Leone Sierra Leone cut 150 days by removing restrictions on private land transfers. Grenada's registrar now focuses only on property matters. Malawi decentral- ized government consents for property transfers, saving 39 days. Computerized procedures Denmark, Malaysia, Poland, Samoa, Average time saved: 4 months Slovenia Time savings were greatest in Slovenia (9 months) and Samoa (4 months). Malaysia digitized property registration, saving more than 2 months. Introduced online procedures Austria, Denmark, Jamaica, Malaysia, Average time saved: 4 days Poland Malaysia introduced online procedures to assess and pay stamp duties, cut- ting 6 days. Jamaica provided online access to the company registry. Austria introduced electronic communication between notaries and the registry. Combined and streamlined procedures Denmark, Portugal, Sweden, Uruguay Average reduction: 4 days and 2 procedures New one-stop shops merged 3 procedures in Denmark and 4 in Portugal. Municipalities in Sweden and Uruguay abolished the requirement for clear- ance of preemption rights. Introduced fast-track procedures Jamaica, Peru Registration for simple property sales is possible in 2 days in Jamaica (down from 7) and Peru (down from 9). Source: Doing Business database. easier to register property, 7 of them in GLOBAL TRENDS brance and cadastre information. The 2 the OECD high-income group and 4 in The most popular feature of property reg- certificates are now issued together. Latin America and the Caribbean. Samoa istration reform in those 6 years, imple- Eight economies in Sub-Saharan improved the ease of registering property mented in 52 economies, was lowering Africa undertook similar measures. the most. It completed a 5-year project to transfer taxes and government fees. This Ethiopia and Rwanda decentralized their move to a title system and computerized reduced the cost by 3.1% of the property land registries to eliminate bottlenecks, the property registry, saving 4 months value on average. Sub-Saharan Africa creating new branches responsible for from the time to register property. Six was the most active, with 22 economies properties in their jurisdiction. Ethiopia's economies lowered the cost, and 6 (in- lowering costs. Two gradually reduced 10 new branches and Rwanda's 5 coordi- cluding Samoa) increased administrative high transfer costs, Burundi by 10% of nate the work with municipalities and efficiency at their registries (table 5.2). the property value and Burkina Faso by tax agencies. And Ethiopia's registry now Five others raised the cost to transfer 7%. Two others made big cuts all at once, assesses property's market value using property (compared with 2 on average in Rwanda by 8.8% of the property value predetermined tables, eliminating the previous years). Bahrain, Greece, Paki- and Mozambique by 7.5%. need for physical inspections. stan, Panama and Thailand raised the The second most popular feature, im- Twenty-eight economies, 9 in Sub- transfer tax by an average of 4.2% of the plemented in 32 economies, was streamlin- Saharan Africa, increased administrative property value--with Greece reversing ing procedures and linking or improving efficiency. Botswana and Madagascar previous cuts and Thailand reversing a agencies' systems to simplify registration. reorganized their land registries, hired temporary cut. Antigua and Barbuda and These measures reduced interactions be- more staff and added more comput- Belgium added new procedures. tween entrepreneurs and agencies--saving ers and branches. Botswana also linked 2 procedures on average--while maintain- staff salary increases to the achievement WHAT ARE THE TRENDS? ing security and controls. of targets set by the land department's Thirteen such reforms took place in 3-year plan. Mali and Niger reorganized In the past 6 years 105 economies un- Eastern Europe and Central Asia. Besides their land registries by reassigning work- dertook 146 reforms making it easier to Belarus, Azerbaijan and Kazakhstan also loads and enhancing supervision. transfer property (figure 5.3). Globally, created one-stop shops for property With 7 similar reforms, Latin Amer- the time to transfer property fell by 38% transfers. In Latvia the land registry can ica and the Caribbean was also active. and the cost by 10%. now check municipal tax databases di- Grenada recently nominated 2 new reg- rectly, saving entrepreneurs a step. FYR istrars, 1 dedicated to property transac- Macedonia centralized property encum- tions. This reduced the court registrar's 34 DOING BUSINESS 2011 FIGURE 5.3 average. The reason? High transfer taxes Fast pace in property registration reforms in Sub-Saharan Africa over the years (averaging 7% of the property value) and Number of Doing Business reforms making it easier to register property by Doing Business report year high professional fees, such as for law- DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 yers and notaries. In Brazzaville, in the Sub-Saharan Africa 42 Republic of Congo, notary fees amount (46 economies) to 4% of the property value. The transfer Eastern Europe process is also complicated, requiring 7 & Central Asia 29 (25 economies) procedures on average. Nineteen econo- mies require an assessment of taxes to be OECD high income 25 paid. This can add up to 3 procedures in (30 economies) such economies as Kenya and Uganda, Latin America where physical inspections are required. & Caribbean 22 (32 economies) A cumbersome system can create Middle East & opportunities for corruption. In Kenya in North Africa 12 2010 a raid uncovered thousands of land (18 economies) files blocked in the drawers of public South Asia officials hoping to collect bribes.6 The 9 (8 economies) need for ministerial consents can also East Asia add delays, up to 60­75 days in such & Pacific 7 economies as The Gambia, Lesotho, Ma- (24 economies) lawi and Nigeria. The good news: Ghana Note: A Doing Business reform is counted as 1 reform per reforming economy per year. The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, eliminated this consent in 2006. In 2005 Montenegro and Qatar, for a total of 183 economies. Côte d'Ivoire limited its use to proper- Source: Doing Business database. ties not included in the zoning plan, and workload, cutting the time to register Eleven, including France, the Nether- property sales doubled. Across the re- property by half. Guatemala's registry lands and New Zealand, offer electronic gion, land registries are still mostly paper improved customer service by install- registration. Portugal's new customer ser- based. This partly explains registration ing delegates in major banks, providing vice center, Casa pronto, has processed delays such as the 113 days in Benin and text message notifications and offering 109,000 transactions since its 2007 270 in Togo. The average time to transfer a special service for frequent users such launch and now covers 30% of sales. It property in the region is 68 days; the as notaries. Another new service blocks allows users not only to register property world average, 58. sales as extra security for customers not transfers but also to complete all due But efforts to improve property reg- expecting to sell property for a while. diligence--including checking tax pay- istration have been picking up. Econo- Employees benefit from an incentive ments, ownership and encumbrances-- mies such as Botswana, Burkina Faso, system that accounts for the speed and in one step. Madagascar, Mali and Mauritius have quality of their work. Combined with made agencies and systems more effi- computerization, these efforts halved the ...AND IN EASTERN EUROPE AND cient through incentives, reorganization CENTRAL ASIA time to transfer property in Guatemala. and better management tools. Despite In Eastern Europe and Central Asia most being paper based, the land registry in COMPUTERIZATION IN OECD property registration systems have un- Bamako, Mali, can complete registration HIGH-INCOME ECONOMIES... dergone a complete overhaul. Land and in 2­3 weeks. Through broad property OECD high-income economies, along building databases have been unified, reforms implemented since 2007, Mauri- with the Middle East and North Africa, then computerized. Today the region ac- tius has reduced the transfer tax by 5% of have the fastest property registration, counts for 5 of the top 10 economies on the property value, eliminated separate taking 33 days on average (figure 5.4). the ease of registering property. Trans- clearances by utilities and set strict time Compare that with the slowest--around ferring property takes on average 6 pro- limits for notaries and the land registry. 3 months on average in South Asia and cedures and costs 2.4% of the property Like most African economies, Mauritius East Asia and the Pacific. value, less than in any other region. lacks a cadastre, and it still requires Twenty-nine of 30 OECD high- a physical valuation for each property income economies have electronic reg- COST HIGHEST IN AFRICA sale. But a new computerized property istries, and 85% allow online access to In Sub-Saharan Africa, despite improve- registry linking the valuation office with information on encumbrances, either for ments, transferring property still costs a new cadastre that will use aerial maps all or for such professionals as notaries. the most, 9.6% of the property value on is expected to change this. REGISTERING PROPERT Y 35 FIGURE 5.4 delays. Checking for encumbrances still Property registration a third faster around the world since 2005 DB2011 DB2006 Regional averages in registering property takes 5 days on average, compared with 2010 only 1 in OECD high-income economies. Procedures (number) global OECD high income 5 5 average SPEEDY PROCESS IN THE MIDDLE East Asia & Pacific 5 5 EAST AND NORTH AFRICA Eastern Europe & Central Asia 6 7 Middle East & North Africa 6 6 Transferring property in the Middle East South Asia 6 7 and North Africa is as fast as in OECD Sub-Saharan Africa 7 7 high-income economies at 33 days on Latin America & Caribbean 7 7 average. In the United Arab Emirates it is 6 just 2 days. Eleven of 18 economies have Time (days) electronic databases for encumbrances OECD high income 33 44 and ownership verification, though Bah- East Asia & Pacific 87 99 rain is the only one offering online reg- Eastern Europe & Central Asia 38 121 istration. The average cost in the region Middle East & North Africa 33 52 remains fairly high, at 5.7% of the prop- South Asia 100 138 68 110 erty value. But in 5 economies, including Sub-Saharan Africa 69 86 Kuwait and Qatar, the cost is less than 1% Latin America & Caribbean 58 of the property value. In 9 others the cost Cost (% of property value) exceeds 5%--and it ranges up to 28% OECD high income 4.4 4.7 in the Syrian Arab Republic, with the East Asia & Pacific 4.1 4.5 world's highest transfer taxes. Eastern Europe & Central Asia 2.4 2.8 Middle East & North Africa 5.7 7.2 SOME LONG DELAYS IN SOUTH AND South Asia 6.3 6.9 EAST ASIA Sub-Saharan Africa 9.6 12.3 Transferring property can take time in Latin America & Caribbean 5.9 6.1 South Asia, 100 days on average. The cost 5.9 is also high, averaging 6.9% of the prop- Note: The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. erty value and ranging from almost 0 in Source: Doing Business database. Bhutan to 17% in Maldives. The process takes 6 procedures on average. COMPLEXITY IN LATIN AMERICA economies require a tax clearance. While East Asia and the Pacific has the Registering property in Latin America this generally takes 1 or 2 days, it can take second lowest average transfer cost, 4.1% and the Caribbean tends to be complex, up to 20 in Paraguay and 42 in Trinidad of the property value. While the aver- taking 7 procedures and 69 days on aver- and Tobago. Linking all agencies through age time to transfer property is 87 days, age. Numerous visits to different agencies a common database could help. several economies, mostly small island are often the reason. Seven economies Remarkably, 20 of the region's econ- states, stand out for the longest delays require a separate certificate from the omies have an electronic database for globally. In Kiribati transferring property commercial registry. Seven others man- encumbrances and ownership. But only takes 513 days, mostly for court verifica- date registrations beyond the land reg- 6 of them make their electronic database tion. In the Solomon Islands, where one istry, such as with the municipality, the available online for all. So paper cer- registry handles property, companies, tax agency or the cadastre. Sixteen of 32 tificates are still widely used, increasing movable property and intellectual prop- erty rights, registration takes 240 days. TABLE 5.3 And as in Sub-Saharan Africa, trans- Good practices around the world in making it easy to register property ferring property can require high-level Practice Economiesa Examples government consents. These take time, Using an electronic database for 108 Jamaica, Sweden, United Kingdom ranging from 25 days in the Solomon encumbrances Islands to 105 in Tonga. Setting time limits for registration 49 Botswana, Guatemala, Indonesia Some economies are moving for- Setting fixed transfer costs 17 Arab Republic of Egypt, Estonia, New Zealand ward with online services. In Hong Kong Offering expedited procedures 16 Azerbaijan, Bulgaria, Georgia SAR (China) and Malaysia taxes can be a. Among 177 economies surveyed. paid online. In Singapore all due diligence Source: Doing Business database. can be done online, through one portal. 36 DOING BUSINESS 2011 FIGURE 5.5 from 1 day to 32 and fees from $14 to Most economies in Eastern Europe and Central Asia have time limits for property registration Share of economies in region (%) $450. "I often get calls from friends who need to expedite a transfer," says a land Time limits, Time limits, No statutory and complying but not complying time limits registrar in Central America. But if expe- Eastern Europe 60 16 24 dited service is available to all, it doesn't & Central Asia matter whom you know in the registry. East Asia & Pacific 25 13 63 Expedited procedures are most OECD 23 3 73 popular in Eastern Europe and Central high income Latin America Asia, where 9 economies offer them. 16 84 & Caribbean In Moldova property can be registered Sub-Saharan 11 4 85 in 10 days (for $38), 3 days ($111) or 1 Africa day ($185). In Georgia in 2009 nearly South Asia 12 88 13% of transactions at the registry were Middle East expedited. Azerbaijan, Bulgaria and Ro- & North Africa 100 100% mania all introduced this option in the Note: Time limits are for final registration at the land registry. Source: Doing Business database. past 6 years. Expedited procedures can also apply to certificates. They save 6 WHAT HAS WORKED? COMPLYING WITH TIME LIMITS days for nonencumbrance certificates in Forty-nine economies worldwide have Argentina and 4 days for tax clearance by Governments worldwide have been mak- legal time limits for registration pro- Asmara Municipality in Eritrea. ing it easier for entrepreneurs to regis- cedures, and 13 of them have expe- ter and transfer property. Some good dited procedures. Globally, 77% of SETTING LOW FIXED FEES practices can help in achieving that goal economies comply with statutory time Seventeen economies have low fixed (table 5.3). limits. Eastern Europe and Central Asia, taxes and fees for property transfer, rang- OECD high-income economies and Latin ing from around $20 to $300, regardless GOING ELECTRONIC America and the Caribbean stand out for of the property value. Nine economies in Worldwide, 61% of economies have an the highest compliance (figure 5.5). Eastern Europe and Central Asia apply electronic database for encumbrances, In Eastern Europe and Central Asia fixed transfer taxes and fees, including including almost all OECD high-income 19 of 25 economies have time limits. Estonia, the Kyrgyz Republic and Rus- and Eastern European and Central Asian Most are a success. In only 4 economies-- sia. Egypt and New Zealand also do so. economies. But in Sub-Saharan Africa Bulgaria, FYR Macedonia, Serbia and Twelve others, including Finland, the and South Asia more than 80% still Ukraine--is compliance a problem. In Republic of Korea and Malawi, have fixed have paper-based systems. This makes Latin America and the Caribbean only 5 fees for registration but charge other a difference. In economies with comput- of 32 economies have statutory time lim- taxes and stamp duties in proportion to erized registries, transferring property its, ranging from 2 days in Peru to 30 in the property value. takes about half as much time. Properly Brazil. All 5 have good compliance. Spain Governments' administrative cost backed up, electronic databases can also has an innovative way to ensure compli- for registration is independent of the help ensure property security. In Haiti ance: the registry's fees are cut by 30% if property value, so registration fees can after the 2010 earthquake, damaged re- registration takes more than 15 days. be fixed and low. Combined with low cords in the paper-based land registry In the past 6 years 14 economies in- transfer taxes, this may encourage for- make reconstruction even harder.7 troduced time limits. But most went fur- mal registration and prevent under- Twenty-four economies as diverse ther. Twelve, including Belarus, Burkina reporting of property values. Four econo- as Belarus, Portugal and Zambia com- Faso, Egypt, FYR Macedonia, Mauritius mies switched to fixed registration fees puterized their registries in the past 6 and Rwanda, did so as part of broader re- in the past 6 years: Egypt and Poland in years. Full implementation can take forms that included merging procedures 2006, Rwanda in 2008 and Cape Verde time, ranging from 3 to 10 years. Gradual through computerization, reorganization in 2009. Rwanda made a radical change, implementation or a pilot approach can of the land registry or creation of one- reducing fees from 6% of the property facilitate the process. The cost can reach stop shops. value to $33. $2 million or more if surveying and ca- Among the 154 economies with dastre work is involved. But the impact OFFERING FAST-TRACK PROCEDURES transfer costs that vary with the property is substantial. These 24 economies cut Sixteen economies offer expedited regis- value, at least 21 have sliding scales for their average time to transfer a property tration procedures at a premium of 2­5 fees or taxes. In 16 economies tax rates in- in half, by about 3 months on average. times the basic fee. Time savings range crease with the property value. In Angola REGISTERING PROPERT Y 37 TABLE 5.4 of registration from 5.9% of the property Who makes registering property easy--and who does not? value to 1% in 2006, new property regis- Procedures (number) trations jumped by 39% in the following Fewest Most year. After Burkina Faso halved registra- tion taxes to 8%, the stock of properties Georgia 1 Ethiopia 10 Norway 1 Liberia 10 registered increased by 63% in the coun- Portugal 1 Qatar 10 try as a whole--and by 93% in the capital Sweden 1 Algeria 11 city, Ouagadougou. But with less than United Arab Emirates 1 Eritrea 11 10% of properties formally registered, Bahrain 2 Greece 11 there is still a long way to go. New Zealand 2 Uzbekistan 12 Increasing the efficiency of property Oman 2 Nigeria 13 registration systems benefits users as well Saudi Arabia 2 Uganda 13 Thailand 2 Brazil 14 as administrators. FYR Macedonia cut the time to register property by 40 days. Time (days) For the 177,000 people buying property Fastest Slowest in 2009, that meant being able to use or Portugal 1 Vanuatu 188 mortgage their property 40 days earlier. Georgia 2 Puerto Rico 194 Many benefited: twice as many proper- New Zealand 2 Suriname 197 ties were sold in 2009 as in 2007, despite Saudi Arabia 2 Guinea-Bissau 211 the financial crisis. New delays to regis- Thailand 2 Bangladesh 245 United Arab Emirates 2 Afghanistan 250 ter property sales cut the other way. In Lithuania 3 Togo 295 Denmark in 2009 practitioners reported Norway 3 Solomon Islands 297 losing thousands of kroner in interest be- Iceland 4 Haiti 405 cause transaction money was blocked in Australia 5 Kiribati 513 escrow accounts for more than a month Cost (% of property value) while the new online registry was being Least Most implemented.13 But new systems may be worth the wait. Electronic interactions Bhutan 0.00 Côte d'Ivoire 13.9 are more transparent. A survey in India Saudi Arabia 0.00 Guinea 14.0 Belarus 0.03 Maldives 16.9 found that fewer users paid bribes to ac- Kiribati 0.04 Chad 18.2 celerate e-government services.14 Slovak Republic 0.05 Central African Republic 18.5 Guatemala halved the time to trans- Kazakhstan 0.06 Cameroon 19.3 fer property, saving 45 days for each of New Zealand 0.08 Senegal 20.6 the about 100,000 people selling property Georgia 0.10 Comoros 20.8 each year.15 The land registry, digitized Russian Federation 0.14 Nigeria 20.9 over the past 5 years, offers cadastral Azerbaijan 0.23 Syrian Arab Republic 27.9 certificates as well as electronic access Source: Doing Business database. to data on encumbrances and owner- and Lithuania rates initially increase and found that receipt of a title increased ship. People choose to use electronic then decrease as the property value rises. land values by 30% as well as the pro- services: in 2005, 66% of certificates were pensity to invest.9 In Argentina property requested electronically; now 80% are. WHAT ARE SOME RESULTS? owners with formal title invested up to Buyers save the time and cost of going 47% more in their property.10 Security to the registry, standing in line and wait- Formal titles can help facilitate access in property ownership can also reduce ing 3 days for the paper certificate. And to credit. A study in Peru, where a large the need to defend land rights: a study they can get instant information about land titling program was implemented, in Peru showed that property titles al- encumbrances just before closing a prop- suggests that when requested by lend- lowed people to work more away from erty sale, increasing security. ers, property titles are associated with the home.11 Georgia now allows property trans- approval rates on public sector loans as In surveys in 99 economies, an aver- fers to be completed through 500 autho- much as 12% higher. And regardless of age of 21% of firms considered access to rized users, notably banks. This saves whether collateral is requested, interest land a major constraint to business.12 For time for entrepreneurs. A third of people rates are significantly lower for appli- some, formalizing title might simply be transferring property in 2009 chose au- cants with title.8 A study in Nicaragua too costly. When Egypt reduced the cost thorized users, up from 7% in 2007. 38 DOING BUSINESS 2011 Efficient systems also prepare econ- omies for the development of vibrant property markets. Belarus's unified and computerized registry was able to cope with the addition of 1.2 million new units over 3 years. The registry issued 1 million electronic property certificates in 2009. Georgia's new electronic registry managed 68,000 sales in 2007, twice as many as in 2003. FYR Macedonia's elec- tronic registry now covers almost all the country, twice as much as in 2006. 1. Interview with Andrei A. Gayev, State Property Committee, Minsk, Belarus, September 2008. 2. De Soto (2000). 3. World Bank (2008). 4. World Bank, Women, Business and the Law database (http://wbl.worldbank .org/). 5. Pande and Udry (2005). 6. "Lands Ministry Officers on the Spot," Daily Nation (Nairobi), March 1, 2010, http://www.nation.co.ke/; "Missing Titles, Logbooks Starve Small Firms of Credit," Financial Post (Nairobi), March 22, 2010. 7. Anastasia Moloney, "Unclear Land Rights Hinder Haiti's Reconstruction," Reuters, AlertNet, July 5, 2010, http:// alertnet.org/. 8. Field and Torero (2006). 9. Deininger and Chamorro (2002). 10. Galiani and Schargrodsky (2006). 11. Field (2007). 12. World Bank Enterprise Surveys, 2006­ 09 (http://www.enterprisesurveys.org). 13. Conference call with contributor. 14. Bhatia, Bhatnagar and Tominaga (2009). 15. Information provided by Guatemala's land registry and Doing Business data- base. 39 Starting a business FIGURE 6.1 Dealing with construction permits Do lenders have credit information on entrepreneurs seeking credit? Is the law favorable to borrowers and lenders using movable assets as collateral? Registering property Getting credit Credit information Protecting investors Potential Can movable assets be Paying taxes borrower used as collateral? Trading across borders MOVABLE Collateral Credit registries and Lender ASSET registry credit bureaus Enforcing contracts Closing a business Can lenders access credit information What types can be on borrowers? used as collateral? Maria produces soybeans for export. She such as future crops and inventory as than 80% of countries.3 Supporting the registered her small business after ob- collateral. It requires a specific descrip- use of collateral to lower the risks associ- taining her first microfinance loan. For tion of collateral in the loan agreement. ated with lending therefore matters in the past 5 years she has consistently Yet how can Maria know at the begin- the current economic context. repaid her loans, each time qualifying ning of the season how many pounds Doing Business measures 2 types of for a larger amount. Now she wants to of soybeans she will harvest? Where the institutions and systems that can facili- obtain a commercial loan to diversify secured transactions system has been tate access to finance and improve its al- production. Maria's several years as a improved--as it has in such economies location: credit information registries or diligent microfinance borrower will not as Bosnia and Herzegovina, Cambodia bureaus and the legal rights of borrowers go unnoticed. In Bolivia, as in 45 other and Vanuatu--farmers, retailers and and lenders in secured transactions and economies, private credit bureaus obtain other small businesses do not face this bankruptcy laws. These institutions and data on the repayment patterns of micro- problem (table 6.1). systems work best together. Informa- finance borrowers. Around the world movable assets, tion sharing helps creditors assess the Ideally, Maria's willingness to give not land or buildings, often account for creditworthiness of clients, while legal her next soybean harvest as collateral most of the capital stock of private firms rights can facilitate the use of collateral would also help her loan application. and an especially large share for micro, and the ability to enforce claims in the But Bolivia's legal framework for secured small and medium-size enterprises. event of default. transactions makes it extremely diffi- In the United States movable property Credit histories are no substitute cult for banks to accept movable assets makes up about 60% of the capital stock for risk analysis, whose importance has of enterprises.1 Unlike in Bolivia and been underscored by the global financial TABLE 6.1 other economies that do not allow a crisis. But when banks share informa- Where is getting credit easy-- general description of assets granted as tion, loan officers can assess borrowers' and where not? collateral, in the United States most of creditworthiness using objective crite- Easiest RANK Most difficult RANK this movable property could serve as ria. For regulators, credit information Malaysia 1 Syrian Arab 174 collateral for a loan. Research shows that systems provide a powerful tool for su- Hong Kong SAR, 2 Republic in developed economies borrowers with pervising and monitoring credit risk in China Tajikistan 175 collateral get 9 times as much credit as the economy. And greater information New Zealand 3 Bhutan 176 South Africa Djibouti 177 those without it. They also benefit from sharing can support competition. A re- 4 United Kingdom 5 Eritrea 178 repayment periods 11 times as long and cent study in the Middle East and North Australia 6 Madagascar 179 interest rates up to 50% lower.2 Africa found that lack of credit informa- Bulgaria 7 São Tomé and 180 In 2009, however, the global finan- tion systems may curtail competition in Israel Principe 8 Venezuela, RB 181 cial crisis adversely affected access to the banking sector.4 Singapore 9 United States Timor-Leste 182 credit globally. According to recent re- The 2 types of institutions are mea- 10 Palau 183 search, the volume of loans around the sured by 2 sets of indicators. One de- Note: Rankings are based on the sum of the strength of legal world declined from 74% of global GDP scribes how well collateral and bank- rights index and the depth of credit information index. See Data to 65%, while the volume at the national ruptcy laws facilitate lending. The other notes for details. Source: Doing Business database. level declined as a share of GDP in more measures the scope and accessibility of 40 DOING BUSINESS 2011 FIGURE 6.2 borrowers and lenders in Eastern Eu- Eastern Europe and Central Asia still leading in credit reforms rope and Central Asia. In East Asia and Number of Doing Business reforms making it easier to get credit by Doing Business report year the Pacific 10 economies strengthened DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 the legal rights of borrowers and lend- Eastern Europe & Central Asia 52 ers. These include Cambodia, China, the (25 economies) Solomon Islands and Vanuatu, all of Sub-Saharan which have introduced laws since 2007 Africa 26 allowing small and medium-size com- (46 economies) panies to use inventory and accounts Middle East & North Africa 23 receivable as collateral. In Tonga, in Au- (18 economies) gust 2010 the parliament adopted the East Asia Personal Property Securities Bill, which & Pacific 21 (24 economies) is about to come into force. Some OECD high-income economies, such as Den- Latin America & Caribbean 19 mark, also improved their collateral laws. (32 economies) And Australia will soon implement its OECD 2009 Personal Property Securities Act high income 18 (30 economies) establishing a national system for the registration of security interests in per- South Asia (8 economies) 11 sonal property.6 Still, secured transactions systems Note: A Doing Business reform is counted as 1 reform per reforming economy per year. The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, differ substantially among the 3 regions. Montenegro and Qatar, for a total of 183 economies. Most economies encourage the use of Source: Doing Business database. all types of assets as collateral through credit information available through relevant institutions, such as the registries laws allowing a general description of public credit registries and private credit for movable assets in Serbia (established assets in the loan contract. In East Asia bureaus and provides information on in 2005)5 and Cambodia (2007). and the Pacific almost 71% of econo- coverage (figure 6.1). Doing Business recorded 13 changes mies have such laws, and in the OECD Nineteen economies made it easier in laws to improve the legal rights of high-income group 67% do--though in to get credit in 2009/10. Ghana improved the most in both credit information and FIGURE 6.3 DB2006 DB2011 legal rights. Better regulations and institutions easing access to credit Regional averages in getting credit indicators 2010 global average WHAT ARE THE TRENDS? Strength of legal rights index (0­10) OECD high income 6.8 6.9 Doing Business data since 2005 show that Eastern Europe & Central Asia 5.7 6.6 credit information and secured transac- East Asia & Pacific 4.7 6.1 tions systems continue to vary across Latin America & Caribbean 5.1 5.5 regions, as do their strengths and weak- South Asia 4.4 5.4 nesses. A brief snapshot of trends over Sub-Saharan Africa 4.4 4.6 the past 6 years follows (figure 6.2). Middle East & North Africa 2.8 3.0 5.4 LEADING THE WAY IN LEGAL RIGHTS Depth of credit information index (0­6) Economies in the OECD high-income OECD high income 4.7 4.9 group, Eastern Europe and Central Asia Middle East & North Africa 1.9 3.3 and East Asia and the Pacific stand out Eastern Europe & Central Asia 2.3 4.0 globally for their regulations facilitating South Asia 1.6 2.1 the use of movable collateral and modern East Asia & Pacific 1.8 2.1 Latin America & Caribbean 3.3 4.5 secured transactions systems (figure 6.3). Sub-Saharan Africa 1.1 1.7 Economies in these 3 regions also had the 3.0 most reforms strengthening their legal Note: The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, frameworks as recorded by Doing Busi- Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. ness over the past 6 years. Some created Source: Doing Business database. GE T TING CREDIT 41 TABLE 6.2 Who made getting credit easier in 2009/10--and what did they do? Feature Economies Some highlights Created a unified registry for movable property Georgia, Ghana, Marshall Islands, The Marshall Islands and the Solomon Islands outsourced collateral Solomon Islands registration to virtual registries (accessible at http://www.stformi.com and http://www.stfosi.com). Ghana now requires any secured credit agreement covering an amount of 500 cedi (about $350) or above to be registered with the collateral registry. Allowed out-of-court enforcement of collateral Belarus, Estonia, Saudi Arabia, Estonia amended its code of enforcement procedure to allow out-of- Solomon Islands court enforcement after notarization of an agreement providing for this. Expanded range of revolving movable assets Marshall Islands, Saudi Arabia, The Solomon Islands passed Secured Transactions Act No. 5 of 2008. that can be used as collateral Solomon Islands Since the filing office started operating in 2009, 6,439 new registrations of movable collateral have been entered. Allowed a general description of debts Marshall Islands, Solomon Islands In both the Marshall Islands and the Solomon Islands the secured trans- and obligations actions act permits security interests to secure obligations described specifically or generally. Gave priority to secured creditors' claims outside Marshall Islands The Marshall Islands' secured transactions act provides that parties bankruptcy procedures secured by a security interest or lien have priority over all other claims except those associated with expenses relating to the disposition of the collateral. Improved regulatory framework related to shar- Guyana, Jordan, Rwanda, Rwanda reformed its regulatory framework, and a new private credit ing credit information United Arab Emirates, Vietnam bureau is starting operations. Created a new credit registry or bureau Ghana, Islamic Republic of Iran, Uganda's first private credit bureau covers more than 200,000 individu- Papua New Guinea, Uganda als. A new biometric data system allows each new loan applicant to be identified and issued a financial identity card. Papua New Guinea's credit bureau was set up at the initiative of a group of financial institu- tions with the goal of sharing credit information about their customers. Expanded set of information collected in credit Lithuania, Syrian Arab Republic Syria's public credit registry removed the minimum threshold for loans registry or bureau to be reported to the central bank. Provided online access to data at credit registry Azerbaijan, Lebanon Azerbaijan improved its infrastructure and communications systems. or bureau Commercial banks can now provide and receive information using an online platform. In Lebanon banks and financial institutions can now access the public credit registry online. Source: Doing Business database. Eastern Europe and Central Asia only is not enough, though. Clear priority formation systems, more than any other 54% do. Where a general description rules to resolve conflicting claims be- region (figure 6.4). The average coverage of assets is not allowed, the use of cer- tween secured creditors when a debtor by public credit registries and private tain types of movable collateral--such defaults can influence lending decisions credit bureaus increased from 4% of the as inventory and accounts receivable--is too. Strong creditor rights expand the adult population to 30%, while in OECD less appealing. Imagine a computer sales availability of loans because where lend- high-income economies it rose from 54% company wanting to use its inventory ers have better legal protection during to 67%. While coverage remains uneven, as collateral where the law requires that bankruptcy and reorganization, they are and a reliable credit information system each computer be identified by serial more willing to extend credit on favor- is only one element of stable financial number, color, weight and value. Using able terms.7 A recent study finds that markets, some economies benefited from the inventory as collateral would be al- where secured creditors have priority such systems during the global financial most impossible--because any changes over unsecured claims, the recovery rate crisis. A recent study suggests that in to it would have to be recorded at the for loans tends to be higher and the risks Serbia the credit bureau helped preserve registry or in the loan agreement. for creditors lower.8 liquidity in the banking sector and en- In Eastern Europe and Central Asia sure its stability during the crisis.9 A 69% of economies give the highest prior- CATCHING UP IN CREDIT study in transition economies suggests INFORMATION ity possible in bankruptcy to secured that in economies with poor creditor creditors (including, in several cases, Credit information systems are well rights, information sharing can improve priority over labor and tax claims). Only developed in most OECD high-income both access to credit and the terms of 16% of economies in the Middle East economies, and economies in Eastern loan contracts.10 and North Africa and 9% of those in Europe and Central Asia are catching In East Asia and the Pacific half Latin America and the Caribbean do up. In the past 6 years the region imple- the economies have no credit bureau or so. First priority for secured creditors mented 36 improvements to credit in- registry, scoring 0 on the depth of credit 42 DOING BUSINESS 2011 IBRD 37997 FIGURE 6.4 CR DIT REGISTRIES AND CREDIT RE OR BUREAUS AROUND THE WORLD Both private bureau and public registry exist Only private bureau exists Only public registry exists No private bureau or public registry exists Not in the Doing Business sample r r A public credit registry is defined as a database managed by the public sector, usually by the central bank or the d This map was produced by th e superintendent of banks, that collects information on the creditworthiness of borrowers (individuals or firms) in the r r r d Map Design Unit of The World Ban k. The boundaries, colors, denominations r financial system and facilitates the exchange of credit information amongst banks and financial institutions. and any other information shown on A private credit bureau is defined as a private firm or nonprofit organization that maintains a database on the r this map do not imply, on the part of The World Bank Group, any judgment r r creditworthiness of borrowers (individuals or firms) in the financial system and facilitates the exchange of credit on the legal status of any territory, or information among banks and financial institutions. r any endorsement or acceptance of such boundaries. s Source: Doing Business database OCTOBER 2010 information index. But things are im- collateral registry. West Bank and Gaza is Credit information is hardly shared proving. Timor-Leste is working to make in the process of adopting a new secured in Sub-Saharan Africa, even though its new public credit registry fully op- transactions law. South Africa is thought to have the erational. In the Pacific a regional credit In contrast, about three-fourths of world's oldest private credit bureau, es- bureau project is under way. The aim is the region's economies have reformed tablished in 1901. But efforts to develop to provide credit information across the their credit information systems since much-needed credit information systems islands using a "hub and spoke" system. 2005. Indeed, the region ranks second started picking up in 2008, when Zambia Such a system is generally built around a in the number of such reforms, with 22. established a private credit bureau. Its central hub that serves as the host for the In 2005 only 3 economies in the region database initially covered about 25,000 data and the main information technol- had private credit bureaus; today 7 do. borrowers. Thanks to a strong commu- ogy infrastructure. Participating econo- Yet the credit bureaus differ greatly in nications campaign and a central bank mies are linked into the hub as "spokes," scope. Nearly half the economies in the directive, coverage has grown almost benefiting from economies of scale. region have a score of 3 or less on the 10-fold, to more than 200,000 by the be- depth of credit information index, while ginning of 2010. A new private credit bu- CREDIT INFORMATION GAINS IN THE half have a score of 4 or more. Among reau started operating in Ghana in 2010, MIDDLE EAST AND NORTH AFRICA the best performers are Egypt, Lebanon, and one in Uganda in 2009. Another, in In the Middle East and North Africa Morocco, Saudi Arabia, Tunisia and the Rwanda, is getting ready to begin operat- banks cite lack of transparency among United Arab Emirates. ing. Kenya and Nigeria have started issu- small and medium-size enterprises and ing licenses for private credit bureaus. the weak financial infrastructure (credit GROWING MOMENTUM IN AFRICA information, creditor rights and collat- In Sub-Saharan Africa only 35% of econ- CONTINUED LEGAL CONSTRAINTS IN LATIN AMERICA eral infrastructure) as the main obstacles omies allow a general description of en- to lending more to such enterprises.11 cumbered assets. And only 13% give pri- The coverage provided by credit infor- Legal frameworks do little to encourage ority to secured creditors. A major effort mation systems in Latin America and the use of movable collateral. Only 11% is under way in the 16 member countries the Caribbean is among the highest in of economies in the region allow a gen- of the Organization for the Harmoniza- the world. But legal frameworks do not eral description of encumbered assets. tion of Business Law in Africa to amend necessarily encourage lending. Less than And until recently few had attempted the Uniform Act Organizing Securities, 9% of the region's economies give pri- to modify their legal structure. Saudi first implemented in 1998. In the mean- ority to secured creditors. Of the 32 Arabia amended its commercial lien law time Ghana introduced a new collateral economies in the region, only 14 permit in 2010 to expand the range of assets registry, in February 2010. out-of-court enforcement and 15 allow that can be used as collateral (table 6.2). a general description of assets. Only It also plans to implement an electronic 3 economies--Guatemala, Haiti and GE T TING CREDIT 43 Peru--have updated their secured trans- Now a project is under way to set up a WHAT HAS WORKED IN SECURED actions legislation since 2005. But Chile, regional credit bureau in the Caribbean. TRANSACTIONS? Honduras, Mexico and Nicaragua are Guyana recently passed the first credit expected to adopt new laws and regula- bureau law in Latin America to allow the A sound secured transactions system tions in the near future.12 They will join transfer of data to a regional credit bu- has 3 main pillars. The first, already ad- the growing number of countries that reau, the Credit Reporting Act 2010. dressed, relates to creation of the security are adopting the Inter-American Model interest, covering how and what kind of Law on Secured Transactions developed MORE OPPORTUNITY IN SOUTH ASIA movable property can be used as collat- under the umbrella of the Organization South Asia has opportunity for further eral. The second consists of the methods of American States in 2002. improvement. So far only India has a reg- of publicizing the security interest, usu- Initiatives are also under way to fur- istry that is unified geographically and by ally through registration. The third deals ther improve credit information sharing. asset type and that covers security inter- with priority rules and enforcement of Eighteen economies already have good ests in companies' movable property. But the security interest, determining how systems, with a score of 5 or higher on the registry is limited because it registers easily creditors can recover their invest- the depth of credit information index. only security interests over the assets of ment after default by the debtor. Over And Latin America has the largest per- incorporated companies, excluding such the years economies have focused on centage of economies with systems that entities as sole proprietorships. Afghani- a number of features of these 3 pillars include data from utilities, retailers and stan adopted a new secured transactions (table 6.3). trade creditors. But 12 economies, most law in 2009 but has not yet implemented of them small economies or Caribbean its registry. Nepal also adopted such a UNIFYING REGISTRIES island states, lack any kind of credit law, in 2006, but its registry too is not yet A centralized collateral registry protects bureau. operating. And Sri Lanka passed a new secured creditors' rights by providing For small economies, the high fixed secured transactions law in 2009 but has objective information on whether assets costs of private credit bureaus can be not yet implemented it. are already subject to the security right prohibitive. One alternative, if allowed South Asia has had the fewest im- of another creditor. It also helps clarify by law, is to transfer the data to a neigh- provements to credit information sys- priority among creditors. boring economy.13 Another is to create tems, limited mainly to India and Sri Sixty-seven of the 183 economies a regional credit bureau. Credit bureaus Lanka. But Afghanistan is now under- covered by Doing Business have an ef- covering Costa Rica, El Salvador and taking a groundbreaking effort to estab- ficient institution for registering security Honduras work out of a hub in Gua- lish a modern credit registry. interests in business assets over their temala. Such a system makes services entire geographic area.14 Thirteen econo- efficient while reducing the initial invest- mies, most of them in Eastern Europe ment for each participating economy. and Central Asia and East Asia and the Pacific, have collateral registries that fol- TABLE 6.3 low good practice standards (figure 6.5). Good practices around the world in making it easy to get credit These feature online access for registra- Practice Economiesa Examples tion and searches; register almost all Allowing out-of-court enforcement 105 Australia, India, Nepal, Peru, Russian Federation, types of assets as collateral, regardless Serbia, Sri Lanka, United States of the nature of the parties involved; es- Allowing a general description of 87 Cambodia, Canada, Nigeria, Romania, Rwanda, tablish clear parameters for priority; and collateral Singapore, Vanuatu, Vietnam maintain a central database searchable Maintaining a unified registry 67 Bosnia and Herzegovina, Ghana, Guatemala, by the debtor's name or a "unique identi- Marshall Islands, Federated States of Micronesia, fier." Once registered, security interests Montenegro, New Zealand, Romania, Solomon Islands immediately have effect against third parties. Distributing data on loans below 1% of 110 Albania, Bolivia, Bulgaria, France, Republic of income per capita Korea, Mexico, Saudi Arabia Electronic systems can increase ef- ficiency, but they are no magic wand. Distributing both positive and negative 96 Argentina, Brazil, China, Ecuador, Lithuania, credit information Morocco, Portugal, Rwanda, United Kingdom Spain created an electronic registration system in 2002. But since the law still Distributing credit information from 51 Australia, Canada, Denmark, Japan, Kenya, retailers, trade creditors or utilities as Kuwait, Netherlands, South Africa, United States, requires registrants to have their deed well as financial institutions Uruguay notarized before completing registration, a. Among 183 economies surveyed. most people still submit a paper-based Source: Doing Business database. registration form. As a result, there have 44 DOING BUSINESS 2011 TABLE 6.4 laws, with separate laws dealing with Who has the most credit information and the most legal rights for borrowers and different subsets of lenders or types of lenders--and who the least? collateral.17 Hong Kong SAR (China), Legal rights for borrowers and lenders (strength of legal rights index, 0­10) Ireland, Malaysia and Singapore are all Most Least examples. This fragmentation increases Hong Kong SAR, China 10 Bhutan 2 the risk of conflict between laws, such Kenya 10 Burundi 2 Kyrgyz Republic 10 Eritrea 2 as when determining the priority rules Malaysia 10 Madagascar 2 for secured creditors. It also increases Montenegro 10 Bolivia 1 the risk of the same security being regis- New Zealand 10 Djibouti 1 tered in different places, and that means Singapore 10 Syrian Arab Republic 1 greater risk for lenders. Such systems are Australia 9 Timor-Leste 1 not only less transparent but also more Denmark 9 Palau 0 United Kingdom 9 West Bank and Gaza 0 costly to operate. Borrowers covered by credit registries (% of adults) ALLOWING OUT-OF-COURT Most Least ENFORCEMENT Argentina 100 Burundi 0.21 For security interests to be cost-effective Australia 100 Djibouti 0.20 requires quick and inexpensive enforce- Canada 100 Côte d'Ivoire 0.19 Iceland 100 Burkina Faso 0.18 ment in case of default.18 Efficient en- Ireland 100 Ethiopia 0.13 forcement procedures are particularly New Zealand 100 Niger 0.13 important for movable property, which Norway 100 Qatar 0.10 generally depreciates over time. The ef- Sweden 100 Mauritania 0.10 ficiency of enforcement can influence the United Kingdom 100 Mali 0.10 United States 100 Madagascar 0.05 accessibility and terms of credit. Most economies recognize this: 105 of the 183 Note: The rankings reflected in the table on legal rights for borrowers and lenders consider solely the law. Problems may occur in the implementation of legal provisions and are not reflected in the scoring. Those on borrower coverage include only economies with a public economies covered by Doing Business credit registry or private credit bureau (139 in total). Another 44 economies have no credit registry or bureau and therefore no coverage. See Data notes for details. have legal provisions allowing the parties Source: Doing Business database. to a security agreement to agree to some form of out-of-court enforcement. been fewer online registrations than ex- legal framework. Some economies, such pected. In 2007 there were 10,472 on- as New Zealand and Romania, have a WHAT HAS WORKED IN CREDIT line registrations but 24,941 paper-based secured transactions law that treats all INFORMATION? ones. And in 2009, while 20,586 online security interests in movable property registrations were recorded, there were equally with respect to publicity, priority Forty-four economies around the world 32,739 paper-based registrations.15 and enforcement, regardless of the form still lack any kind of credit information Cost matters for the use of collateral in which the security interest is given system. But not just any credit bureau registries. A survey of 31 registries sug- (whether a pledge, a financial lease or a will do; many continue to cover only gests that the higher the fees to register loan and trust agreement, for example). a tiny fraction of the adult population or amend a security interest or to search Such laws are in line with internationally (table 6.4). Specific practices help in- the registry, the lower the volume of accepted practices. New Zealand adopted crease coverage, encourage use and pro- transactions recorded. The 2 economies its law in 1999. Called the Personal Prop- tect borrowers. with the lowest registration fees, New erty Securities Act, it includes all types Zealand ($2) and Romania ($10), have of collateral. New Zealand also has a CASTING A WIDE NET the most registrations. New Zealand's modern, online collateral registry for An ongoing study in Italy has looked peak was 649,188 registrations, in 2005, all types of movable assets. Not surpris- at the effect of providing a credit bu- while Romania's was 531,205, in 2007. ingly, the filings to register collateral far reau with repayment information from Malaysia, with one of the highest reg- outnumber those in similar economies. a water supply company. The findings istration fees ($90), had a peak of only And searches in the registry rose from show that more than 83% of water cus- 25,066, in 2008. 661,944 in 2002 to close to 2.5 million tomers who previously lacked a credit in 2009.16 history now have a positive one thanks UNIFYING THE LAWS Although movable property is to paying their utility bills.19 This makes To function properly, collateral regis- widely used as collateral, many econ- it easier for them to obtain credit. tries must be supported by an adequate omies still have fragmented collateral Including such data in credit bu- GE T TING CREDIT 45 FIGURE 6.5 PUBLICIZING THE SECURITY INTEREST: A COLLATERAL REGISTRIES AROUND THE WOR g Registries with centralized database for secured claims over com panies' assets Collateral registries likely to become operational i Collateral registries per province or state IBRD 37998 Good practice notice-based collateral registries d This map was produced by th e d Map Design Unit of The World Ban k. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of s Source: Doing Business database The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. OCTOBER 2010 reaus can also benefit the utility compa- for financial institutions seeking proven WHAT ARE SOME RESULTS? nies. According to a recent study survey- good customers. A study of Latin Ameri- ing 70 utility companies in the United can economies suggests that private credit In a world with asymmetric information, States, 72% reported that the benefits of bureaus that distribute both positive and banks are more likely to lend to larger credit reporting amounted to at least 2­5 negative information and have 100% par- firms, which typically are more trans- times the costs. Half of all customers in- ticipation from banks help increase lend- parent and use international accounting dicated that they would be more likely to ing to the private sector.22 standards. But supported by information pay their bills on time if those payments sharing systems, banks can sensibly ex- were fully reported to credit bureaus and STEERING CLEAR OF HIGH tend credit to smaller and less transpar- THRESHOLDS could affect their credit score.20 ent firms by basing their credit decisions In emerging markets, where the Coverage can also be affected by mini- on past borrower behavior.24 This can working poor make up more than 60% mum thresholds for the loans reported. increase entrepreneurs' opportunities for of the labor force,21 allowing the dis- High thresholds hurt groups that could success, regardless of personal connec- tribution of payment information from benefit most from credit information tions. One study found that an increase sources other than banks could make systems--such as small and medium- of 10 percentage points in the population a big difference. China has close to 750 size enterprises and female entrepre- share covered by a private credit bureau million mobile phone subscribers. Only neurs, whose loans are typically smaller. is associated with a 6% increase in pri- a fraction have taken out a commercial Private credit bureaus tend to have lower vate sector lending.25 loan in the past. For all others, the abil- minimum loan thresholds, with a global Lending officers tend to have sub- ity to unlock credit through a history of average of $459. For public credit regis- stantial discretion in offering loans, in- reliably paying mobile phone bills could tries the average exceeds $30,000. cluding in the interest rates they set open new opportunities. When smaller loans are reported and even in the types of collateral they to credit bureaus, more borrowers can require from a borrower. This can open REPORTING GOOD AS WELL AS BAD establish credit histories. When Belarus the door to bribery. By reducing the A credit information system that reports eliminated its $10,000 threshold in 2008, discretion in evaluating loan applicants, only negative information penalizes bor- more than 1 million women and men credit information systems can help re- rowers who default on payments--but benefited from having their loans--no duce corruption in bank lending.26 fails to reward diligent borrowers who pay matter the size--reported to the credit Access to credit remains particularly on time. Sharing information on reliable registry. Coverage of individuals rose sparse in developing economies. In devel- repayment allows customers to establish a from around 113,000 to 1,920,000 in a oped economies adults have an estimated positive credit history, useful information single year.23 3.2 bank accounts on average, and 81% 46 DOING BUSINESS 2011 FIGURE 6.6 Users take advantage of electronic registries for movable property as collateral Percentage increase in registrations indexed to the first year of the registry's existence Romania 2001­07 1. Fleisig, Safavian and de la Peña (2006). 2. Alvarez de la Campa and others (2010). First year of electronic 3. CGAP and World Bank (2010). registry 4. Anzoategui, Martinez Pería and Rocha 1,000 (2010). Kosovo 2008­09 5. Simpson and Menze (2000). 6. The Australian law was still awaiting implementation on June 1, 2010. Bosnia and Herzegovina 2004­09 Serbia 2005­09 7. Qian and Strahan (2007). 500 Albania 2001­07 8. Djankov, Hart, McLiesh and Shleifer (2008). 9. Simovic, Vaskovic and Poznanovic Slovak Republic 2003­08 (2009). 100 10. Brown, Jappelli and Pagano (2009). Year prior 1 2 3 4 5 6 to creation 11. Rocha and others (2010). of registry Years since creation of electronic registry 12. Kozolchyk (2009). Source: Doing Business database. 13. The Czech Republic, with a population of around 10 million, decided to out- have accounts. In developing economies system in the past 10 years--Albania, source its credit information services adults have 0.9 accounts on average, and Bosnia and Herzegovina, New Zealand in 2002 to a private firm already set up 28% have accounts.27 But the outlook is and Serbia--registrations of movable col- in Italy. The bureau has already reached almost 100% penetration in retail bank- improving. In the past 6 years 71 econo- lateral increased sharply (figure 6.6). Ser- ing. The banking register contains more mies implemented more than 121 re- bia's volume of registrations jumped from than 13 million records, covering 6.5 forms to improve credit information sys- 4,346 in 2005 to 24,059 in 2009, while million individuals. tems. Low-income economies increased Albania's rose from 1,874 in 2001 to 4,105 14. These may include company registries, the coverage of private or public credit in 2009, peaking at 9,860 in 2007. deed registries, filing offices and any other institution with a central elec- registries from 0.6% of the adult popula- Romania also improved its secured tronic database that records security tion to 2.3%.28 And 20 more economies transactions system, in 1999. In the next interests over companies' assets. gained a private credit bureau. 4 years 600,000 new security interests 15. Data provided by the Spanish registry, Institutions are of no benefit if they were registered, generating at least $60 Colegio de Registradores de la Propie- go unused. But a recent survey of col- million in sustainable credit.29 Viet- dad, Mercantiles y Bienes Muebles de España. lateral registries is encouraging: 20 of 27 nam is another good example. It passed 16. Doing Business database. registries that provided information on Decree 163 in 2006. Although its registry 17. Fleisig and de la Peña (2003). the volume of registrations showed a sub- is still being computerized, the number stantial increase since 2000 or since the of registrations increased from 43,000 in 18. Kozolchyk and Furnish (2006). year they were created. In 4 economies 2005 to 120,000 by the end of 2008.30 19. Preliminary findings of ongoing internal study at CRIF SpA, Italy (credit informa- that improved their secured transactions tion services firm). 20. Turner and others (2009). 21. Stein (2010). 22. Turner and Varghese (2007). 23. Doing Business database. 24. Brown, Jappelli and Pagano (2009). 25. Turner, Varghese and Walker (2007). 26. Barth and others (2009). 27. Kendall, Mylenko and Ponce (2010). 28. Doing Business database. 29. Fleisig, Safavian and de la Peña (2006). 30. Alvarez de la Campa and others (2010). 47 Starting a business FIGURE 7.1 Dealing with construction permits Swaziland's new company act strengthened investor protections 10 10 10 10 #1 Registering property economy Getting credit Eased access Protecting to corporate documents Average of investors Improved approval and disclosure Clarified 3 subindices 4.3 DB2011 Paying taxes requirements directors' 120 duties Trading across borders 2010 2.0 Enforcing contracts DB2010 Closing a business 2009 0 180 Extent of Extent of Ease of Strength Ranking on strength disclosure director shareholder of investor of investor protection index liability suits index protection index index index (1­183) Source: Doing Business database. In 2007 the directors of CNOOC Ltd., Legal provisions requiring disclo- sets by company insiders for personal a Chinese oil company incorporated in sure and access to information allow mi- gain. Related-party transactions are the Hong Kong SAR (China) and listed on the nority investors to monitor the activities most common example. High owner- Hong Kong Stock Exchange, wanted to de- of companies and preserve firm value. ship concentration and informal busi- posit funds in its sister company CNOOC These provisions matter for the ability of ness relations can create the perfect en- Finance Ltd. for 3 years.1 The transaction companies to raise the capital needed to vironment for such transactions, which represented more than 10% of CNOOC's grow, innovate, diversify and compete. allow controlling shareholders to profit net assets. Shareholders were concerned One common way to raise capital is to at the expense of the company's financial because the transaction was unsecured. obtain credit from banks--but with the health--whether because company as- If CNOOC Finance were to default or file global financial crisis, this has become sets are sold at an excessively low price, for bankruptcy, CNOOC would be unable increasingly challenging. Another way is assets are purchased at an inflated price to recover the money. A shareholders to issue or sell company shares to equity or loans are given by the company to meeting was called to approve the trans- investors. In return, investors ask for controlling shareholders on terms far action. More than 52% of independent transparency and accountability from better than the market offers. shareholders voted against it, forcing the the company's directors and the ability To ensure transparency and prevent company to recover the money already to take part in major decisions of the abuse, policy makers regulate related- deposited with CNOOC Finance. Poten- company. If the laws do not provide such party transactions. Research has found tial damage was prevented--thanks to protections, investors may be reluctant to that companies can independently im- the disclosure and approval requirements invest unless they become the controlling prove investor protections by adopting of the securities and company laws in shareholders.2 internal corporate governance codes. But Hong Kong SAR (China). One of the most important issues these are no substitute for a good legal in corporate governance, and a particu- framework.3 Strong regulations clearly TABLE 7.1 lar concern for minority investors, is define related-party transactions, pro- Where are investors protected--and self-dealing, the use of corporate as- mote clear and efficient disclosure re- where not? Most protected RANK Least protected RANK FIGURE 7.2 New Zealand 1 Guinea 174 How well are minority shareholders protected against self-dealing Singapore 2 Gambia, The 175 in related-party transactions? Hong Kong SAR, China 3 Micronesia, Fed. Sts. 176 Malaysia 4 Palau 177 Lawsuit Mr. James Extent of disclosure Canada 5 Vietnam 178 Disclosure and approval Colombia 6 Venezuela, RB 179 requirements 60% ownership, 90% ownership, Extent of director liability sits on board of directors sits on board of directors Ireland 7 Djibouti 180 Ability to sue directors Israel 8 Suriname 181 for damages Company A Company B United States 9 Lao PDR 182 Minority (buyer) (seller) Transaction United Kingdom 10 Afghanistan 183 shareholders involving Note: Rankings are based on the strength of investor protection conflict of interest Ease of shareholder suits index. See Data notes for details. Access by shareholders to documents Source: Doing Business database. plus other evidence for trial 48 DOING BUSINESS 2011 TABLE 7.2 2009/10 (table 7.2), slightly fewer than in Who strengthened investor protections in 2009/10--and what did they do? previous years. Swaziland strengthened Economy Area Some highlights investor protections the most (figure Chile Approval of An October 2009 amendment to the securities law requires stricter cor- 7.1). It adopted a new company act that related-party porate disclosure and approval of transactions between interested par- requires greater corporate disclosure, transactions ties. Improved score on the extent of disclosure index by 1 point. higher standards of accountability for Georgia Access to A November 2009 amendment to the civil procedure code allows par- internal ties to question their opponents during trial. The judge can interfere company directors and greater access corporate when the questions are inappropriate or irrelevant. Improved score on to corporate information. After about information the ease of shareholder suits index by 2 points. 10 years of discussion and drafting, the Kazakhstan Disclosure of Amendments to the Joint Stock Company Law and the Law on Account- new law came into force at the end of information ing and Financial Reports adopted in July 2009 require greater corpo- rate disclosure in company annual reports. Improved score on the extent April 2010. of disclosure index by 1 point. Morocco Disclosure of A decree was issued clarifying the interpretation of the company law WHAT ARE THE TRENDS? information with respect to the type of information in the report of the independent auditor who reviews related-party transactions. Improved score on the extent of disclosure index by 1 point. Over the past 6 years the most reforms Swaziland Approval of A new company act enacted in April 2010 requires approval by the to strengthen investor protections took related-party board of directors for related-party transactions. The director with a place in OECD high-income economies transactions conflict is allowed to participate in the voting. Improved score on the extent of disclosure index by 1 point. and the fewest in South Asia. Eastern Europe and Central Asia was the second Disclosure of Directors are now required to immediately disclose their conflict of in- information terest to the board of directors. Improved score on the extent of disclosure most active region. Progress was mixed index by 1 point. in East Asia and the Pacific and in the Directors' Directors found liable must now compensate the company for damages Middle East and North Africa. Investor liability caused and disgorge profits made from prejudicial related-party trans- actions. Improved score on the extent of director liability index by 4 points. protection reforms started to pick up in Access to Minority investors holding 5% of company shares can now request the Sub-Saharan Africa and in Latin Amer- internal appointment of a government inspector if they suspect mismanage- ica and the Caribbean (figure 7.3). corporate ment of the company's affairs. Improved score on the ease of shareholder information suits index by 1 point. STRONGEST PROTECTIONS IN OECD Sweden Approval of The NASDAQ Stockholm Stock Exchange adopted a new rulebook in HIGH-INCOME ECONOMIES related-party January 2010 requiring approval of transactions between interested transactions parties by a shareholders meeting. Improved score on the extent of disclo- OECD high-income economies have on sure index by 1 point. average the strongest protections of mi- External The rulebook also mandates an independent review of the terms of nority shareholder rights in the areas review of related-party transactions before approval by the shareholders. related-party Improved score on the extent of disclosure index by 1 point. measured. Four economies stand out transactions for their strict regulations on the trans- Tajikistan Disclosure of A January 2010 amendment to the Joint Stock Company Law requires parency of related-party transactions, information detailed disclosure of transactions between interested parties in the an- nual report. Improved score on the extent of disclosure index by 2 points. liability of company directors for self- dealing and ability of shareholders to sue Access to The amended law grants minority shareholders access to all corporate internal documents. Improved score on the ease of shareholder suits index by 1 directors for misconduct: Canada, New corporate point. Zealand, the United Kingdom and the information United States. Source: Doing Business database. Others offer strong protections in quirements, require shareholder partici- the areas measured. The indicator does some areas but not all. Fifteen of 30 pation in major decisions of the company not measure all aspects related to the economies, including Australia, France and set clear standards of accountability protection of minority investors, such as and Italy, clearly regulate approval and for company insiders. dilution of share value or insider trading. disclosure of related-party transactions. Doing Business measures the trans- Nor does it measure the dynamism of Seventeen economies, including Bel- parency of related-party transactions, capital markets or protections specific to gium, Japan and the United Kingdom, the liability of company directors for foreign investors. have clear provisions on director liability, self-dealing and the ability of sharehold- This year's ranking shows that New allowing minority investors to sue direc- ers to sue directors for misconduct. A Zealand protects minority investors the tors for misuse of corporate assets. Only 4 higher ranking on the strength of inves- most (table 7.1). Since 2005, 51 econo- economies, including France and Korea, tor protection index indicates that an mies have strengthened investor protec- limit the liability of directors to fraudu- economy's regulations offer stronger in- tions as measured by Doing Business, lent transactions. Five economies offer vestor protections against self-dealing in through 68 legal changes. Seven did so in easy access to corporate documents, both PROTEC TING INVESTORS 49 FIGURE 7.3 46 economies. Such efforts are worth- Steady strengthening of investor protections in Eastern Europe and Central Asia Number of Doing Business reforms strengthening investor protections by Doing Business report year while. More than half the region's econo- mies still have poor provisions or none at DB2006 DB2007 DB2008 DB2009 DB2011 all on disclosure and approval of related- OECD high income 18 party transactions, and regulations on (30 economies) DB2010 the liability of company directors for Eastern Europe mismanagement are often outdated. & Central Asia 15 (25 economies) MIXED PROGRESS IN EAST ASIA East Asia & Pacific 11 Six of the 24 economies in East Asia (24 economies) and the Pacific implemented 11 inves- Latin America tor protection reforms, aimed mostly at & Caribbean 9 (32 economies) strengthening disclosure requirements Sub-Saharan and directors' duties. Regional competi- Africa 7 tion for investment spurred legal changes (46 economies) in Indonesia and Thailand, inspired by Middle East & neighboring Hong Kong SAR (China) and North Africa 6 (18 economies) Singapore. These economies as well as Malaysia now offer strict protections for South Asia (8 economies) 2 minority investors: regulated approval of related-party transactions, a high level of Note: A Doing Business reform is counted as 1 reform per reforming economy per year. The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, disclosure, clear duties for directors and Montenegro and Qatar, for a total of 183 economies. easy access to corporate information. Source: Doing Business database. Others can still improve. The Lao directly and through a government in- in the region have also moved toward People's Democratic Republic and the spector, including Hungary and Sweden. defining clear standards and duties for Federated States of Micronesia lack In the past 6 years Doing Business directors. Only Bulgaria and Moldova clear rules on disclosure and approval of recorded 18 reforms in investor protec- still allow directors to waive their liability related-party transactions. Holding direc- tions in 14 of the 30 OECD high-income for misconduct. tors liable can be difficult in some coun- economies. These economies, includ- tries, including Vietnam. And Cambodia ing Iceland, Italy and Sweden, focused MANY NEW LAWS IN SUB-SAHARAN permits only limited access to corporate mainly on improving disclosure require- AFRICA documents for minority investors. ments for related-party transactions. Sub-Saharan Africa has had some of the most comprehensive investor protection MANY OUTDATED LAWS IN LATIN ACCELERATING CHANGE IN EASTERN reforms. Such economies as Botswana, AMERICA EUROPE AND CENTRAL ASIA Mozambique, Rwanda, Sierra Leone, Investor protection reforms were sparse In Eastern Europe and Central Asia Doing Swaziland and Tanzania updated their in Latin America and the Caribbean in Business recorded 14 reforms in investor company laws following global good the past 6 years, with a few exceptions. protections in 11 of the 25 economies. practices (figure 7.5). Rather than modi- Colombia consistently improved its leg- Most adopted new legislation. Exam- fying a few provisions, policy makers islation in the past 4 years. The Domini- ples are Albania and Tajikistan.4 Policy adopted entirely new laws. And more is can Republic adopted a new company makers emphasized stricter disclosure expected. The 16 member countries of law in 2009. Mexico adopted a new requirements and better standards for the Organization for the Harmonization securities law in 2006.5 Chile amended company directors. The region's average of Business Law in Africa have started its securities law in December 2009. score on the extent of disclosure index reviewing the Uniform Commercial Act. Doing Business recorded 9 reforms in rose from 4.9 to 6.3 between 2005 and Burundi, Kenya, Malawi and Uganda are investor protections in 7 of the region's 2010 (figure 7.4). developing new commercial laws to im- 32 economies. Thanks in part to these changes, prove corporate governance. Once these Rules governing self-dealing remain approval requirements for related-party are adopted, almost half the region's weak across the region. Clear provisions transactions are now well defined. Only 4 economies will have adopted a new com- are often missing, particularly on disclo- economies--Azerbaijan, Croatia, Cyprus mercial law since 2005. sure and approval. Only Colombia and El and Lithuania--still allow directors with Doing Business recorded 7 reforms Salvador require shareholder approval for a conflict of interest to vote. Economies in investor protections in 7 of the region's related-party transactions. Bolivia, Hon- 50 DOING BUSINESS 2011 FIGURE 7.4 DB2006 DB2011 Strongest investor protections in OECD high-income economies Regional averages in protecting investors indicators 2010 global Strength of investor protection index (0­10) Ease of shareholder suits index (0­10) average OECD high income 5.9 6.0 Eastern Europe & Central Asia 6.1 6.2 Eastern Europe & Central Asia 4.7 5.5 Middle East & North Africa 3.3 3.4 6.8 6.9 Middle East & North Africa 4.5 4.8 OECD high income East Asia & Pacific 5.2 5.3 East Asia & Pacific 6.0 6.3 Sub-Saharan Africa 4.2 4.4 Sub-Saharan Africa 4.9 5.0 South Asia 5.0 5.0 South Asia 6.3 6.3 Latin America & Caribbean 4.9 5.1 Latin America & Caribbean 6.0 6.0 5.1 5.7 Extent of director Extent of disclosure index (0­10) liability index (0­10) Eastern Europe & Central Asia 4.9 6.3 Eastern Europe & Central Asia 3.1 4.0 Middle East & North Africa 5.7 6.3 Middle East & North Africa 4.4 4.6 OECD high income 5.7 6.0 OECD high income 5.2 5.2 East Asia & Pacific 5.1 5.2 East Asia & Pacific 4.4 4.5 Sub-Saharan Africa 4.7 4.8 Sub-Saharan Africa 3.1 3.4 South Asia 4.4 4.4 South Asia 4.4 4.4 Latin America & Caribbean 4.0 4.1 Latin America & Caribbean 4.8 5.3 5.3 4.4 Note: The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. Source: Doing Business database. duras and Panama require no disclosure. term in the local language and context. WHAT HAS WORKED? Part of the reason might be out- Thanks to a committee of linguists from dated legislation. Most company laws in across the region, hawkamat al-sharikat, Economies with the strongest protections continental Latin America were adopted meaning "the governance of companies," of minority investors from self-dealing in the early 1970s. Nicaragua's dates to was agreed on after about a year.6 require more disclosure and define clear 1914, and Honduras's to 1948. The Carib- Despite recent improvements, legal duties for directors. They also have well- bean islands updated their legislation in protections in the region are often weak. functioning courts and up-to-date proce- the 1990s and more strictly regulate con- Access to corporate information during dural rules that give minority investors flicts of interest. One exception is Haiti, a trial to establish director liability is the means to prove their case and obtain which still uses commercial legislation often limited. Such access helps minority a judgment within a reasonable time. from the 19th century. The countries investors who suspect that the company that brought their legal traditions to the has been run improperly to gather the SETTING STRICT RULES OF DISCLOSURE region periodically update their laws, evidence needed to prove their case. Four Thirty-seven of the 183 economies cov- with Portugal last updating its securi- economies--Egypt, Morocco, Saudi Ara- ered by Doing Business stand out for the ties regulations in 2008, France its com- bia and Tunisia--have started to focus strictest rules on disclosure of related- mercial code in 2005 and Spain its civil more on regulating corporate disclosure party transactions. These include New procedure code in 2004. and related-party transactions. Zealand, Singapore, Albania and, thanks to investor protection reforms in 2009, PROTECTIONS OFTEN WEAK IN THE FEWEST INVESTOR PROTECTION Rwanda (table 7.3). The global financial MIDDLE EAST AND NORTH AFRICA REFORMS IN SOUTH ASIA crisis as well as earlier corporate scandals In the Middle East and North Africa South Asia has been the least active prompted governments around the world 6 investor protection reforms in 4 of in strengthening investor protections to strengthen disclosure requirements. the 18 economies have been recorded against self-dealing. Doing Business re- This has been the most popular feature in since 2005. When corporate governance corded 2 reforms in investor protections investor protection reforms since 2005, reforms started in 2001, the first chal- in 2 of the region's 8 economies--India accounting for 33 of the total. lenge was to find an Arabic equivalent and Pakistan. These 2, along with Ban- Eight economies, including Croa- for corporate governance. The reforms gladesh, have the strongest investor pro- tia, Maldives and Panama, require no would not have been possible without tections in the region. disclosure of related-party transactions. an agreement about the meaning of the Austria and Switzerland have strict dis- PROTEC TING INVESTORS 51 FIGURE 7.5 rectors in case of abusive related-party Stronger investor protections in Sub-Saharan African economies since 2005 transactions. These include Canada, Strength of investor protection index (0­10) Mexico and the United Arab Emirates, 6.3 6.3 which have rules encouraging directors 6.0 6.0 2010 to be prudent in the company's day- 5.7 5.0 to-day management. Thirty-seven econ- 4.7 4.3 omies, including Bulgaria, China and 2005 4.3 Kazakhstan, do not clearly regulate the 4.0 liability of directors for abusive related- party transactions. There, as long as the 2.7 interested parties comply with require- 2.0 ments for disclosure and approval of related-party transactions, they are not liable for any harm that results. The other 103 economies have rules on the liability Botswana Mozambique Rwanda Sierra Leone Swaziland Tanzania of directors, but often with loopholes. Source: Doing Business database. ALLOWING ACCESS TO EVIDENCE closure provisions--but only for "mate- without defining that concept. Once a potentially prejudicial related- rial" transactions not carried out "in In 21 economies, including Costa party transaction has occurred, what the ordinary course of business." Since Rica, the Philippines and Spain, related- recourse do minority shareholders have Austrian and Swiss law does not define party transactions can be approved by in court? This depends in part on their "material" transactions outside the "ordi- the manager, director, chief executive of- access to documentary evidence before nary course of business," even a related- ficer or whoever is specified in the com- and during the trial. Without access to party transaction representing 10% of pany statutes. In 44 economies, including evidence, it is more difficult for minor- the company's assets could be considered the Czech Republic, Israel and the United ity investors to prove that directors have to be in the "ordinary course of business." States, these transactions are approved been managing the company's affairs im- This contrasts with Belgian and French by the board of directors and interested properly. Economies can have good laws, law, which defines "ordinary course of parties are allowed to vote. Allowing but if access to corporate information is business" as excluding transactions rep- interested parties to vote can open the limited and courts are inefficient, inves- resenting 10% or more of assets. door to abuse. tors are unlikely to resort to the courts. Only 15 of the 183 economies cov- REGULATING APPROVAL OF RELATED- MAKING DIRECTORS LIABLE ered by Doing Business, including Israel PARTY TRANSACTIONS Economies with the strongest protections and Japan, permit full access to docu- The more participation by shareholders-- regulate not only disclosure and approval mentary evidence both before and dur- and the less by interested directors--in of related-party transactions but also the ing the trial. More than 30, including the approval of related-party transactions, liability of directors when such transac- Canada, the Dominican Republic and the greater the protections. Fifty-seven tions turn out to be prejudicial. This can Hong Kong SAR (China), allow share- economies require shareholder approval be done by adopting a clear catalogue holders access to any corporate docu- of large related-party transactions. Alba- of the rights and duties of directors or ment before the trial. Cyprus, France and nia and Tajikistan adopted such rules in a special regime of liability for directors the United Kingdom allow shareholders the past 5 years. in the event of an abusive related-party to request the appointment of a gov- Such approval mechanisms work transaction. The board of directors is ernment inspector with full powers to well only if the law does not allow many responsible for monitoring managerial verify and obtain copies of any corporate exceptions and if the approval is required performance and achieving an adequate document. Kazakhstan, New Zealand, at the time of the transaction. In Cam- return for shareholders while prevent- Peru and South Africa require that all eroon and Lebanon shareholders can ing conflicts of interest and balancing company documents related to the case vote on the transaction only at the an- competing demands on the corporation.7 be open for inspection during the trial. nual meeting, after the transaction has To fulfill their responsibilities effectively, Mauritania, Syria and the Republic of already occurred. Greece and the Slovak directors need clear rules and indepen- Yemen permit limited or no access to Republic require shareholder approval dent judgment. evidence during the trial, making it vir- only if the transaction does not take place Forty-three economies have clear tually impossible for minority investors "in the ordinary course of business"-- rules on the liability of company di- to prove their case. 52 DOING BUSINESS 2011 TABLE 7.3 ership to mitigate weaknesses in corpo- Who provides strong minority investor protections--and who does not? rate governance. Both ex ante protec- Extent of disclosure index (0­10) tions (extensive disclosure and approval Most Least requirements) and ex post measures against self-dealing (rights of action for Bulgaria 10 Afghanistan 1 minority shareholders) seem important. China 10 Bolivia 1 France 10 Cape Verde 1 The 2 combined are associated with Hong Kong SAR, China 10 Croatia 1 larger and more active stock markets, Indonesia 10 Honduras 0 lower block premiums, more listed firms, Ireland 10 Maldives 0 higher market capitalization and higher Malaysia 10 Micronesia, Fed. Sts. 0 rates of initial public offerings. New Zealand 10 Palau 0 Most economies that strengthened Singapore 10 Sudan 0 investor protections did so as part of Thailand 10 Switzerland 0 wider corporate governance programs-- Extent of director liability index (0­10) including Albania, Colombia, the Do- Most Least minican Republic, FYR Macedonia, Albania 9 Afghanistan 1 Mexico, Mozambique, Rwanda, Sierra Cambodia 9 Belarus 1 Leone and Thailand. This is a good thing. Canada 9 Benin 1 Most research suggests a positive rela- Israel 9 Bulgaria 1 tionship between sound corporate gov- Malaysia 9 Zimbabwe 1 ernance systems and firms' performance New Zealand 9 Marshall Islands 0 Rwanda 9 Micronesia, Fed. Sts. 0 as measured by valuation, operating per- Singapore 9 Palau 0 formance or stock returns.10 A Deutsche Slovenia 9 Suriname 0 Bank study of the Standard & Poor's 500 United States 9 Vietnam 0 shows that companies with strong or Ease of shareholder suits index (0­10) improved corporate governance struc- Easiest Most difficult tures outperformed those with poor or deteriorating governance practices by Kenya 10 Lao PDR 2 about 19% over a 2-year period.11 There New Zealand 10 Senegal 2 Colombia 9 Syrian Arab Republic 2 is room for more research to fully under- Hong Kong SAR, China 9 United Arab Emirates 2 stand which corporate governance provi- Ireland 9 Venezuela, RB 2 sions are important for different types of Israel 9 Yemen, Rep. 2 firms and environments.12 Mauritius 9 Guinea 1 Poland 9 Morocco 1 BENEFITS FOR MORE INVESTORS Singapore 9 Djibouti 0 For legal protections to be effective, United States 9 Iran, Islamic Rep. 0 they must be applied. But pinning down Source: Doing Business database. the precise effect of specific legislative changes in an economy is difficult. Such WHAT ARE SOME RESULTS? considered companies with a history of changes generally apply to all firms at the such transactions (even if not prejudicial) same time, leaving no counterfactual to Corporate scandals have shown the con- to be riskier investments than those with assess what would have occurred with- sequences of inadequate transparency no such history.8 out them. But the experiences of several and weak investor protections. Investors economies show how increased protec- take note. A study analyzing the effects PAYOFFS IN PERFORMANCE tions are benefiting greater numbers of of related-party transactions on com- Empirical research shows that stricter investors thanks to growth in both the panies listed on the Hong Kong Stock regulation of self-dealing is associated number of listed firms and the number Exchange during 1998­2000 finds that with greater equity investment and lower of enforcement cases uncovering preju- they led to significant losses in value for concentration of ownership.9 This is in dicial transactions. minority shareholders. Indeed, the mere line with the view that stronger legal Thailand amended its laws in 2006 announcement of a related-party trans- protections make minority investors and in 2008. Since 2005 more than 30 new action led to abnormal negative stock re- more confident about their investments, companies have joined its stock exchange, turns. The study concludes that investors reducing the need for concentrated own- bringing the number of listed companies PROTEC TING INVESTORS 53 TABLE 7.4 Good practices around the world in protecting investors Practice Economiesa Examples 1. OECD (2009). Allowing rescission of prejudicial 69 Brazil, Mauritius, Rwanda, United States 2. Dahya, Dimitrov and McConnell (2008). related-party transactions 3. Klapper and Love (2004). Regulating approval of related-party 57 Albania, France, United Kingdom 4. Lobet (2009). transactions 5. Johns and Lobet (2007). Requiring detailed disclosure 48 Hong Kong SAR (China), New Zealand, 6. Anna Nadgrodkiewicz and Aleksandr Singapore Sckolnikov, "What's in a Word? Cor- Allowing access to all corporate documents 43 Chile, Ireland, Israel porate Governance, Language and during the trial Institutional Change," Development Blog, Requiring external review of related-party 38 Australia, Arab Republic of Egypt, March 2, 2010, http://www.cipe.org. transactions Sweden 7. OECD (2004a). Allowing access to all corporate documents 30 Japan, Sweden, Tajikistan 8. Cheung, Rau and Stouraitis (2006). before the trial 9. Djankov, La Porta, López-de-Silanes and Defining clear duties for directors 27 Colombia, Malaysia, Mexico, Shleifer (2008). United States 10. Cross-country studies include Klap- a. Among 183 economies surveyed. per and Love (2004), Durnev and Kim Source: Doing Business database. (2005), Bauer, Guenster and Otten (2004) and Baker and others (2007). to 523. Since 2005 more than 85 trans- Exchange (BOVESPA) Index had fallen 11. Grandmont, Grant and Silva (2004). actions that failed to comply with the by 14% in U.S. dollar terms. But the mar- 12. Love (2010). disclosure standards have been suspended ket showed that it could recognize value 13. Information provided by the Securities while the Thai regulator requests clarifica- in solid businesses that offered good gov- and Exchange Commission of Thailand. tion. Thirteen of these were deemed to be ernance.16 In 2001 a special segment of 14. Indonesia Stock Exchange (2009). prejudicial and were therefore canceled, the exchange, Novo Mercado, had been 15. Information provided by Securities in each case preventing damage to the created for trading shares in companies Commission Malaysia. company and preserving its value.13 that voluntarily adopted corporate gov- 16. IFC (2006). In Indonesia, another economy that ernance practices that went beyond what 17. Doing Business does not take into ac- consistently improved its laws regulating was required under Brazilian law.17 The count the rules that apply in Novo Mer- investor protections, the number of firms assumption was that an investor per- cado because they are voluntary. listed on the Indonesia Stock Exchange ception of better corporate governance 18. IFC (2008b). increased from 331 to 396 between 2004 would boost share values. 19. BOVESPA (2010). and 2009. Meanwhile, market capitaliza- Initially people had little faith in this tion grew from 680 trillion rupiah ($75 possibility. But by 2004, for the first time billion) to 1,077 trillion rupiah ($119 in more than a decade, several leading billion).14 Malaysia and Singapore, both companies decided to go public. Their regional leaders in investor protections, initial public offerings, the first in Brazil have seen the number of listed firms rise since January 2002, signaled the begin- by more than 100 since 2005. In that same ning of a renaissance for the stock market. period the Malaysian securities commis- Toward the end of 2004 Novo Mercado sion has sanctioned more than 100 com- had 7 new listings. By the end of 2007 it panies for noncompliance with disclosure had 156 companies listed, representing requirements and more than 20 for non- 57% of BOVESPA's market capitalization, compliance with approval requirements 66% of its trading value and 74% of the for related-party transactions.15 number of trades in the cash market.18 Brazil's experience shows the value By the end of 2009 Novo Mercado had 3 that investors place on strong corporate more new listings.19 Imagine the benefits governance rules. For firms seeking eq- if its corporate governance rules applied uity funding in Brazil, 2002 and 2003 to all companies. were tough years. The São Paulo Stock 54 DOING BUSINESS 2011 Starting a business FIGURE 8.1 Dealing with construction permits Entrepreneurs in Tunisia benefit from e-system for paying taxes Who improved the most Registering property in paying taxes? Improvement (%) Getting credit 2008 1. Tunisia Protecting investors 84 hours 37% 2. Cape Verde Paying taxes 14 fewer 64% payments saved 3. 4. 5. São Tomé and Principe Canada Macedonia, FYR Trading across borders 6. Bulgaria Enforcing contracts 7. China Closing a business 2009 8. Hungary 9. Taiwan, China 10. Netherlands Payments Time Source: Doing Business database. For Carolina, who owns and manages a 35.7% of her profit in taxes. But that's not Taxes are essential. In most econo- Colombian-based retail business, pay- all. Recent evidence suggests that in deal- mies the tax system is the primary source ing taxes has become easier in the past ing with government authorities, female- of funding for a wide range of social and few years. In 2004 she had to make 69 owned businesses in Uganda are forced economic programs. How much revenue payments of 13 different types of taxes to pay significantly more bribes and are these economies need to raise through and spend 57 days (456 hours), almost 3 at greater risk of harassment than male- taxes will depend on several factors, months, to comply with tax regulations.1 owned businesses.2 including the government's capacity to Today, thanks to new electronic systems Some economies treat women dif- raise revenue in other ways, such as rents to pay social security contributions, she ferently by law. Côte d'Ivoire is an ex- on natural resources. Besides paying for needs to make only 20 payments and ample. There, married women can pay public goods and services, taxes also pro- spend 26 days (208 hours) a year on the 5 times as much personal income tax as vide a means of redistributing income, same task. But high tax rates mean that their husbands do on the same amount of including to children, the aged and the her firm still has to pay about 78.7% of income. Three other economies also im- unemployed. But the level of tax rates profit in taxes. Juliana, the owner of a pose higher taxes on women--Burkina needs to be carefully chosen. Recent firm juice processing factory in Uganda, faces Faso, Indonesia and Lebanon. But Israel, surveys in 123 economies show that com- a different environment. She makes 32 Korea and Singapore impose lower taxes panies consider tax rates to be among the payments cutting across 16 tax regimes on women, to encourage them to enter top 4 constraints to their business.4 The and spends about 20 days (161 hours) a the workforce. Explicit gender bias in economic and financial crisis has caused year on compliance. She has to pay only the tax law can affect women's decision fiscal constraints for many economies, to work in the formal sector and report yet many are still choosing to lower tax TABLE 8.1 Where is paying taxes easy-- their income for tax purposes.3 Reforms rates on businesses. Seventeen reduced and where not? that simplify tax administration and profit tax rates in 2009/10. Canada, Ger- Easiest RANK Most difficult RANK make it easier for everyone--individ- many and Singapore implemented tax Maldives 1 Jamaica 174 uals and firms--to pay taxes can also cuts in 2009 to help businesses cope with Qatar 2 Panama 175 remove gender biases. economic slowdown.5 Hong Kong SAR, 3 Gambia, The 176 China Bolivia 177 FIGURE 8.2 Singapore 4 Venezuela, RB 178 What are the time, total tax rate and number of payments United Arab 5 Chad 179 necessary for a local medium-sized company to pay all taxes? Emirates Congo, Rep. 180 Total tax rate Time Saudi Arabia 6 Ukraine 181 Ireland 7 Central African 182 To prepare, file and pay Republic % of profit Hours value added or sales tax, Oman 8 per year before all taxes profit tax and labor Kuwait 9 Belarus 183 taxes and contributions Canada 10 Note: Rankings are the average of the economy's rankings on the number of payments, time and total tax rate. See Data notes for details. Number of payments Source: Doing Business database. (per year) PAYING TAXES 55 BOX 8.1 Does an economy's size or resource wealth matter for the ease of paying taxes? Some economies, especially small ones, rely on 1 or 2 sectors to generate most government revenue. This enables them to function with a nar- rower tax base than would be possible in larger, more diverse economies. Maldives and Kiribati, for example, choose to tax mainly hotels and tourism, sectors not captured by the Doing Business indicators, which focus on manufacturing. Other economies, such as Qatar, the United Arab Emirates, Saudi Arabia and Oman, are resource-rich economies that raise most public revenue through means other than taxation. Among both resource-rich economies and small island developing states there is great variation in rankings on the ease of paying taxes (see figure).1 Differences in applicable tax rates account for some of the variation. But so do differences in the administrative burden. Among resource-rich economies the total tax rate ranges from as low as 11% of profit in Qatar to as high as 72% in Algeria. Among small economies the total tax rate averages around 38%. The administrative burden of paying taxes varies just as dramatically--being small or obtaining revenue from resources does not always make taxation administratively easy. To comply with profit, consumption and labor taxes can take as little as 12 hours a year in the United Arab Emirates and 58 in The Bahamas--and as much as 424 hours in São Tomé and Principe and 938 in Nigeria. Total tax rate and payments Time 250 1,000 180 Time (hours per year) Total tax rate 200 800 (% of profit) 150 600 Payments (number per year) 100 Ranking on the ease of paying taxes 100 400 50 50 200 0 10 0 MALDIVES QATAR SAUDI ARABIA OMAN KUWAIT KIRIBATI BAHRAIN NORWAY VANUATU TIMOR-LESTE BRUNEI DARUSSALAM TONGA SURINAME SEYCHELLES ST. LUCIA BAHAMAS, THE SOLOMON ISLANDS IRAQ ST. VINCENT AND THE GRENADINES DOMINICA SAMOA BELIZE FIJI GRENADA MICRONESIA, FED. STS. PALAU MARSHALL ISLANDS TRINIDAD AND TOBAGO COMOROS ST. KITTS AND NEVIS CAPE VERDE AZERBAIJAN IRAN, ISLAMIC REP. GUYANA ANTIGUA AND BARBUDA SÃO TOMÉ AND PRINCIPE NIGERIA EL SALVADOR ANGOLA ALGERIA CONGO, REP. UNITED ARAB EMIRATES 1. Resource-rich economies analyzed are those where fiscal revenues from hydrocarbons and minerals account for more than 50% of the total (based on International Monetary Fund estimates). Keeping tax rates at a reasonable vices that improve lives. Keeping rules as and pay 3 major types of taxes: profit level can be important for encouraging simple and clear as possible is undoubt- taxes, consumption taxes and labor taxes the development of the private sector edly helpful to taxpayers. Overly compli- and mandatory contributions. The total and the formalization of businesses. This cated tax systems risk high evasion. High tax rate measures the tax cost borne by the is particularly relevant for small and me- tax compliance costs are associated with standard firm (figure 8.2).8 dium-size enterprises, which contribute larger informal sectors, more corruption With these indicators, Doing Busi- to job creation and growth but do not and less investment. Economies with ness compares tax systems and tracks add significantly to tax revenue.6 Taxa- well-designed tax systems are able to tax reforms around the world from the tion largely bypasses the informal sec- help the growth of businesses and, ulti- perspective of local businesses, cover- tor, and overtaxing a shrinking formal mately, the growth of overall investment ing both the direct cost of taxes and sector leads to resentment and greater and employment.7 the administrative burden of complying tax avoidance. Decisions on whom to Doing Business addresses these con- with them. It does not measure the fiscal tax and at what part of the business cerns with 3 indicators: payments, time health of economies, the macroeconomic cycle can be influenced by many differ- and the total tax rate borne by a stan- conditions under which governments ent factors that go beyond the scope of dard firm with 60 employees in a given collect revenue or the provision of public this study. year. The number of payments indicator services supported by taxation. Tax revenue also depends on gov- measures the frequency with which the The top 10 economies on the ease of ernments' administrative capacity to company has to file and pay different paying taxes represent a range of revenue collect taxes and firms' willingness to types of taxes and contributions, adjusted models, each with different implications comply. Compliance with tax laws is im- for the way in which those payments are for the tax burden of a domestic medium- portant to keep the system working for made. The time indicator captures the size business (table 8.1). The top 10 in- all and to support the programs and ser- number of hours it takes to prepare, file clude several economies that are small or 56 DOING BUSINESS 2011 FIGURE 8.3 have it easiest. On average, they spend Tax reforms implemented by more than 60% of economies in the past 6 years 22 days (172 hours) on 15 tax pay- Number of Doing Business reforms making it easier to pay taxes by Doing Business report year ments a year. Businesses in low-income DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 economies continue to face the highest Eastern Europe & Central Asia 58 administrative burden (table 8.2). Glob- (25 economies) ally on average, businesses pay 47.8% of Sub-Saharan commercial profit in taxes and manda- Africa 40 tory contributions, 5.0 percentage points (46 economies) less than in 2004. OECD high income 40 (30 economies) TAX COMPLIANCE BECOMING EASIER Latin America Eleven economies in Eastern Europe and & Caribbean 24 (32 economies) Central Asia simplified tax payment in the 6 years since 2004. Average compli- East Asia & Pacific 23 ance time for businesses fell by about (24 economies) 2 working weeks as a result. The mo- Middle East & mentum for change started building in North Africa 18 (18 economies) Bulgaria and Latvia in 2005 and swept across the region to Azerbaijan, Turkey South Asia (8 economies) 8 and Uzbekistan in 2006, Belarus and Ukraine in 2007, the Kyrgyz Republic Note: A Doing Business reform is counted as 1 reform per reforming economy per year. The data sample for DB2006 (2004) includes 174 economies. The sample for DB2011 (2009) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, and FYR Macedonia in 2008 and Alba- Montenegro and Qatar, for a total of 183 economies. nia and Montenegro in 2009. But the Source: Doing Business database. administrative burden generally remains resource rich. But these characteristics compliance easier so as to reduce costs for high. Five of the region's economies rank do not necessarily matter for the admin- firms and encourage job creation. As in among those with the highest number of istrative burden or total tax rate faced by previous years, the most popular measure payments globally (table 8.3). businesses (box 8.1). was to reduce profit tax rates. Some Sub-Saharan African econo- Also among the top 10, Hong Kong mies also focused on easing tax compli- SAR (China), Singapore, Ireland and WHAT ARE THE TRENDS? ance. In 2010 Sierra Leone introduced Canada apply a low tax cost, with total administrative reforms at the tax author- tax rates averaging less than 30% of In the past 6 years more than 60% of the ity and replaced 4 different sales taxes profit. They also stand out for their low economies covered by Doing Business with a value added tax. In the past 5 years administrative burdens. They levy up to made paying taxes easier or lowered the 7 other economies--Burkina Faso, Cam- 9 different taxes on businesses, yet for a tax burden for local enterprises (figure eroon, Cape Verde, Ghana, Madagas- local business to comply with taxes takes 8.3). Globally on average, firms spend car, South Africa and Sudan--reduced only about 1 day a month and 6 pay- 35 days (282 hours) a year complying the number of payments by eliminating, ments. Electronic filing and payment and with 30 tax payments. A comparison merging or reducing the frequency of joint forms for multiple taxes are com- with global averages in 2004 shows that filings and payments. Mozambique, São mon practice among these 4 economies. payments have been reduced by 4 and Tomé and Principe, Sierra Leone, Sudan Tunisia, the economy that improved compliance time by 5 days (39 hours).10 and Zambia revamped existing tax codes the ease of paying taxes the most in Companies in high-income economies or enacted new ones in the past 6 years. 2009/10, followed their example. It fully TABLE 8.2 implemented electronic payment sys- Administrative burden lowest in high-income economies tems for corporate income tax and value Payments Time Total tax rate added tax and broadened their use to Income group (number per year) (hours per year) (% of profit) most firms. The changes reduced the Low 38 295 71.0 number of payments a year by 14 and Lower middle 35 359 40.3 compliance time by 84 hours. Thirty-nine other economies also Upper middle 31 272 43.4 made it easier for businesses to pay taxes in High 15 172 38.8 2009/10.9 Governments continued to lower Average 30 282 47.8 tax rates, broaden the tax base and make Source: Doing Business database. PAYING TAXES 57 TABLE 8.3 many economies in the region have sim- Who makes paying taxes easy and who does not--and where is the total tax rate highest and lowest? plified the process of paying taxes since 2004, saving businesses an average of 3 Payments (number per year) days a year. Still, only 12 of the region's 32 Fewest Most economies offer electronic filing and pay- Sweden 2 Sri Lanka 62 ment for firms. Colombia, the Dominican Hong Kong SAR, China 3 Côte d'Ivoire 64 Republic, Guatemala, Honduras, Mexico Maldives 3 Nicaragua 64 Qatar 3 Serbia 66 and Peru have introduced online filing Norway 4 Venezuela, RB 70 and payment systems since 2004, elimi- Singapore 5 Jamaica 72 nating the need for 25 separate tax pay- Mexico 6 Montenegro 77 ments a year and reducing compliance Timor-Leste 6 Belarus 82 time by 11 days (83 hours) on average. Kiribati 7 Romania 113 Mauritius 7 Ukraine 135 The boldest measures: since 2004 Colom- bia has reduced the number of payments Time (hours per year) by 49 and compliance time by 248 hours, Fastest Slowest the Dominican Republic has cut pay- Maldives 0 Ukraine 657 ments by 65 and time by 156 hours, and United Arab Emirates 12 Senegal 666 Mexico has reduced the number of pay- Bahrain 36 Mauritania 696 Qatar 36 Chad 732 ments by 21 and the time to comply with Bahamas, The 58 Belarus 798 them by 148 hours. And these economies Luxembourg 59 Venezuela, RB 864 continue work to further reduce the ad- Oman 62 Nigeria 938 ministrative burden for firms. Switzerland 63 Vietnam 941 Economies in East Asia and the Pa- Ireland 76 Bolivia 1,080 Seychelles 76 Brazil 2,600 cific have reduced compliance time since 2004 by about 8 business days, the most Total tax rate (% of profit) after Eastern Europe and Central Asia. Lowest Highest Most recently, Lao PDR consolidated Timor-Leste 0.2 Eritrea 84.5 the filings for business turnover tax and Vanuatu 8.4 Tajikistan 86.0 excise tax as well as personal income tax Maldives 9.3 Uzbekistan 95.6 Namibia 9.6 Argentina 108.2 withholding in a single tax return. Busi- Macedonia, FYR 10.6 Burundi 153.4 nesses now spend 25 fewer days a year Qatar 11.3 Central African Republic 203.8 complying with tax laws. China unified United Arab Emirates 14.1 Comoros 217.9 accounting methods and expanded the Saudi Arabia 14.5 Sierra Leone 235.6 use of electronic tax filing and payment Bahrain 15.0 Gambia, The 292.3 systems in 2007, saving firms 368 hours Georgia 15.3 Congo, Dem. Rep. 339.7 and 26 payments a year. In 2008 and Note: The indicator on payments is adjusted for the possibility of electronic or joint filing and payment when used by the majority of firms 2009 China unified criteria for corporate in an economy. See Data notes for more details. Source: Doing Business database. income tax deduction and shifted from a production-oriented value added system Firms in OECD high-income econ- In the Middle East and North Africa to a consumption-oriented one, saving omies have the lowest administrative businesses must comply with only 22 firms another 106 hours a year. Brunei burden. Businesses in these economies payments a year on average, the second Darussalam, Malaysia, Taiwan (China) spend on average 25 days a year com- lowest among regions. Yet there is great and Thailand introduced or enhanced plying with 14 tax payments. All but 2, variation, with up to 44 payments in electronic systems in the past 6 years. the Slovak Republic and Switzerland, the Republic of Yemen and as few as 3 In South Asia payments and com- have fully implemented electronic filing payments in Qatar. In 2009/10 only 2 tax pliance time changed little overall. In and payment for firms. Between 2006 reforms were recorded, in Jordan and 2009/10 Doing Business recorded only and 2009 the Czech Republic, Finland, Tunisia. 1 tax reform--in India, which abolished Greece, the Netherlands, Poland and In Latin America and the Caribbean fringe benefit tax and enhanced elec- Spain mandated or enhanced electronic firms continue to spend substantial time tronic filing. filing or simplified the process of paying paying taxes--385 hours a year on aver- taxes, reducing compliance time by 13 age. They have to make an average of 33 days (101 hours) on average. payments a year (figure 8.4). Thankfully, 58 DOING BUSINESS 2011 FIGURE 8.4 for most economies is between 30% and Paying taxes easier in East Asia and the Pacific Regional averages in paying taxes DB2011 DB2006 50% of profit. Payments (number per year) Economies in Eastern Europe and 2009 OECD high income 14 17 global Central Asia have implemented the most average reforms affecting the paying taxes indica- Middle East & North Africa 22 24 East Asia & Pacific 25 28 tors since 2004, with 23 of the region's 25 South Asia 31 31 economies implementing 58 such reforms. Latin America & Caribbean 33 40 The most popular feature in the past 6 Sub-Saharan Africa 37 38 years was lowering profit tax rates (done Eastern Europe & Central Asia 42 50 by 19 economies). The changes reduced 30 the average total tax rate in the region by Time (hours per year) 13.1 percentage points (figure 8.5). OECD high income 199 237 In the past year economies in Sub- Middle East & North Africa 194 223 Saharan Africa implemented almost a East Asia & Pacific 218 291 quarter of all reforms affecting the pay- South Asia 283 305 ing taxes indicators, a record for the Latin America & Caribbean 385 411 region compared with previous years. Sub-Saharan Africa 315 343 In the past 6 years the most popular Eastern Europe & Central Asia 314 431 feature in the region was reducing profit 282 tax rates (28 reforms). The reductions Note: The data sample for DB2006 (2004) includes 174 economies. The sample for DB2011 (2009) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. lowered the average total tax rate for Source: Doing Business database. the region by 2.7 percentage points. But profit tax, just one of many taxes for busi- TOTAL TAX RATES BECOMING LOWER mandatory contributions add up to more nesses in Africa, accounts for only a third When considering the burden of taxes than 100% of assumed profit, ranging of the total tax paid. Firms in the region on business, it is important to look at all from 108.2% to 339.7%. Doing Business still face the highest average total tax rate the taxes that companies pay. These may assumes that the standard firm in its tax in the world, 68% of profit. include labor taxes and mandatory contri- case study has a fixed gross profit margin Firms in OECD high-income econo- butions paid by employers, sales tax, prop- of 20%. Where the indicator shows that mies pay 43.0% of profit in taxes on aver- erty tax and other smaller taxes such as taxes exceed profit, the company has to age. Nineteen of these economies low- property transfer tax, dividend tax, capital earn a gross profit margin in excess of ered profit tax rates in the past 6 years. gains tax, financial transactions tax, waste 20% to pay its taxes. Corporate income tax And more changes are on the horizon. collection tax and vehicle and road tax. In is only one of many taxes with which the Australia, Finland and the United King- 7 economies around the world, taxes and company has to comply. The total tax rate dom have announced major reforms of FIGURE 8.5 their tax systems in the next few years.11 Eastern Europe and Central Asia has biggest reduction in total tax rate The average total tax rate in the Total tax rate (% of profit) Middle East and North Africa, at 32.8% DB2011 Total tax rate of profit, is the lowest in the world-- reduction Profit tax Labor tax Other 2004­09 thanks in part to tax reforms reducing Middle East DB2006 & North Africa total tax rate it by 10.8 percentage points since 2004. East Asia Algeria, Djibouti, Egypt, Morocco, Syria, & Pacific Tunisia, West Bank and Gaza and the South Republic of Yemen have all lowered profit Asia Eastern Europe tax rates, abolished taxes or replaced & Central Asia cascading taxes. OECD The average total tax rate for Latin high income Latin America America and the Caribbean is the sec- & Caribbean ond highest, amounting to 48% of profit. Sub-Saharan Seven economies, including Mexico, Africa Paraguay and Uruguay, reduced tax rates 0 10 20 30 40 50 60 70 in the past 6 years, lowering the region's Note: The data sample for DB2006 (2004) includes 174 economies. The sample for DB2011 (2009) also includes The Bahamas, Bahrain, total tax rate by 2.3 percentage points. Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. Source: Doing Business database. The total tax rate in East Asia and PAYING TAXES 59 the Pacific is relatively low. At 35.4% of TABLE 8.4 Good practices around the world in making it easy to pay taxes profit, it is the second lowest after that in the Middle East and North Africa. Practice Economiesa Examples Still, 13 economies in the region reduced Allowing self-assessment 136 Botswana, Georgia, India, Malaysia, Oman, profit tax rates in the past 6 years, in- Peru, United Kingdom cluding China, Indonesia, Malaysia, the Allowing electronic filing and payment 61 Australia, Dominican Republic, India, Lithu- ania, Singapore, South Africa, Tunisia Philippines, Thailand and Vietnam. Few economies in South Asia have Having one tax per tax base 50 Afghanistan, Hong Kong SAR (China), FYR Macedonia, Morocco, Namibia, Paraguay, made changes affecting the paying taxes Sweden indicators since 2004. Afghanistan, Ban- a. Among 183 economies surveyed. gladesh, India and Pakistan reduced Source: Doing Business database. profit tax rates, but the reductions had little effect on the region's average total KEEPING IT SIMPLE: ONE TAX BASE, tario. The Canadian province harmo- ONE TAX tax rate. nized its corporate income tax base with Multiple taxation--where the same tax the federal one. And the Canada Revenue WHAT HAS WORKED? base is subject to more than one tax Agency now administers Ontario's cor- treatment--makes efficient tax manage- porate capital tax and corporate mini- Worldwide, economies that make paying ment challenging. It increases firms' cost mum tax. Starting with the 2009 tax taxes easy for domestic firms typically offer of doing business as well as the govern- year, Ontario businesses have been able electronic systems for tax filing and pay- ment's cost of revenue administration to make combined payments and file a ment, have one tax per tax base and use and risks damaging investor confidence. single corporate tax return. a filing system based on self-assessment Fifty economies have one tax per tax Brazil also aims to simplify a sys- (table 8.4). They also focus on lower tax base. Having more types of taxes requires tem that requires businesses to interact rates accompanied by wider tax bases. more interaction between businesses and with 3 levels of government. In 2010 it tax agencies. In Nigeria corporate in- introduced a new system of digital book- OFFERING AN ELECTRONIC OPTION come tax, education tax and information keeping (Sistema Público de Escrituração Electronic filing and payment of taxes technology tax are all levied on a com- Digitalor, or SPED) to integrate federal, eliminates excessive paperwork and in- pany's taxable income. In New York City state and municipal tax agencies. The teraction with tax officers. Offered by 61 taxes are levied at the municipal, state successful implementation of SPED will economies, this option can reduce the and federal levels. Each is calculated on a ease the administrative burden of com- time businesses spend in complying with different tax base, so businesses must do plying with taxes in Brazil by reducing tax laws, increase tax compliance and 3 different calculations. the number of tax payments and possibly reduce the cost of revenue administration. This is no longer the case in On- the time for compliance. But this is possible only with effective TABLE 8.5 implementation. Simple processes and Major cuts in corporate income tax rates in 2009/10 high-quality security systems are needed. Region Reduction in corporate income tax rate (%) Year effective In Tunisia, thanks to a now fully Sub-Saharan Africa Burkina Faso from 30 to 27.5 2010 implemented electronic filing and pay- Republic of Congo from 38 to 36 2010 ment system, businesses spend 37% less Madagascar from 25 to 23 2010 time complying with corporate income Niger from 35 to 30 2010 tax and value added tax. Azerbaijan in- São Tomé and Principe from 30 to 25 2009 troduced electronic systems and online Seychelles from progressive 0­40 to 25­33 2010 payment for value added tax in 2007 Zimbabwe from 30 to 25 2010 and expanded them to property and Eastern Europe & Central Asia Azerbaijan from 22 to 20 2010 land taxes in 2009. Belarus enhanced Lithuania from 20 to 15 2010 electronic filing and payment systems, FYR Macedonia from 10 to 0 (for undistributed profits) 2009 reducing the compliance time for value Tajikistan from 25 to 15 2009 added tax, corporate income tax and East Asia & Pacific Brunei Darussalam from 23.5 to 22 2010 labor taxes by 14 days. The reverse hap- Indonesia from 28 to 25 2009 pened in Uganda. There, compliance time Taiwan (China) from 25 to 17 2010 has increased despite the introduction of Tonga from progressive 15­30 to 25 2009 an electronic system. Online forms were Latin America & Caribbean Panama from 30 to 25 2010 simply too complex. Source: Doing Business database. 60 DOING BUSINESS 2011 TABLE 8.6 Who made paying taxes easier and lowered the tax burden in 2009/10--and what did they do? Feature Economies Some highlights Easing Merged or eliminated taxes Belarus, Bosnia and Herzegovina, Burkina Faso, Cape Verde eliminated all stamp duties. compliance other than profit tax Cape Verde, Hong Kong SAR (China), Hungary, India, Jordan, Montenegro, Slovenia, República Bo- livariana de Venezuela Simplified tax compliance Azerbaijan, Belarus, Canada, China, Czech Republic, The Netherlands made value added tax filings process FYR Macedonia, Montenegro, Netherlands, Sierra and payments quarterly and eased profit tax Leone, Taiwan (China), Ukraine, Zimbabwe calculations. Belarus changed from monthly to quarterly payments for several taxes. Introduced or enhanced Albania, Azerbaijan, Belarus, Brunei Darussalam, A big increase in online filing in Azerbaijan reduced electronic systems India, Jordan, Tunisia, Ukraine the time for filing and the number of payments. Reducing Reduced profit tax rate by 2 per- Azerbaijan, Brunei Darussalam, Burkina Faso, Burkina Faso reduced the profit tax rate from tax rates centage points or more Republic of Congo, Indonesia, Lithuania, FYR 30% to 27.5% and merged 3 taxes. Niger lowered Macedonia, Madagascar, Niger, Panama, São Tomé the rate from 35% to 30%. Lithuania reversed an and Principe, Seychelles, Taiwan (China), Tajikistan, increase (from 15% to 20%) made the previous Thailand, Tonga, Zimbabwe year. Reduced labor taxes and Albania, Bosnia and Herzegovina, Bulgaria, Canada, Hungary reduced employers' social security con- mandatory contributions Hungary, Moldova, Portugal tribution rate from 29% of gross salaries to 26%. Introducing Introduced new or substantially Azerbaijan, Belarus, Hungary, Jordan, Panama, Jordan's new tax law abolished certain taxes and new systems revised tax law Portugal, São Tomé and Principe reduced rates. Introduced change Burundi, Lao PDR, Sierra Leone Burundi introduced a value added tax in place of in cascading sales tax its transactions tax. Source: Doing Business database. TRUSTING THE TAXPAYER WHAT ARE SOME RESULTS? moved exemptions and industry-specific Voluntary compliance and self-assessment allowances, such as its investment allow- have become a popular way to efficiently Franklin D. Roosevelt once said, "Taxes, ance and tax holidays for manufacturing. administer a country's tax system. Tax- after all, are the dues that we pay for the Authorities aimed to increase revenue by payers are expected and trusted to deter- privileges of membership in an orga- combining a low tax rate, a transparent mine their own liability under the law and nized society."15 There is no doubt about system, a reinforced tax administration pay the correct amount. With high rates the need for and benefits of taxation. But and efficient collection--and they did. In of voluntary compliance, administrative how economies approach taxation for the 2007/08 fiscal year corporate income costs are much lower and so is the burden small and medium-size businesses varies tax revenue grew by 27%, and in 2008/09 of compliance actions.12 Self-assessment substantially. More than 119 economies it increased by 65%. systems also reduce the discretionary made their business tax systems more ef- FYR Macedonia has implemented powers of tax officials and opportunities ficient and effective in the past 6 years-- major tax reforms for the past several for corruption.13 To be effective, however, and have seen concrete results. years in a row. In 2007 it introduced a self-assessment needs to be properly in- troduced and implemented, with trans- EASIER PROCESS, MORE REVENUE FIGURE 8.6 parent rules, penalties for noncompliance Colombia introduced a new electronic Size of informal sector is associated with ease of paying taxes and established audit processes. system, PILA, that unified in one on- Informal sector share of GDP Of the 183 economies covered by line payment all contributions to so- Doing Business, 74% allow firms to cial security, the welfare security sys- High calculate their own tax bills and file the tem and labor risk insurance. Its use returns. These include all economies in became mandatory for all companies in Eastern Europe and Central Asia and 2007. By 2008 the number of companies almost two-thirds in East Asia and the registered to pay contributions through Pacific, the Middle East and North Af- PILA had increased by 55%. The social Low rica and South Asia. Both taxpayers and security contributions collected that year revenue authorities can benefit. Malaysia from small and medium-size companies Least Most difficult difficult shifted to a self-assessment system for rose by 42%, to 550 billion pesos. Economies ranked by ease businesses in stages starting in 2001. Mauritius implemented a major tax of paying taxes, quintiles Taxpayer compliance increased, and so reform in 2006. It reduced the corporate Note: Relationships are significant at the 1% level and remain significant when controlling for income per capita. did revenue collection.14 income tax rate from 25% to 15% and re- Source: Doing Business database; Schneider and Buehn (2009). PAYING TAXES 61 new electronic tax service. In 2008 it accounts for as much as half of GDP, amended the tax law to cut the profit tax can significantly affect the tax revenue rate from 15% to 10%. In 2009 it imple- collected as a percentage of GDP.17 But 1. Days refer to working days, calculated by assuming 8 working hours a day. mented a new, clearer Law on Contribu- the reverse is also true: the structure of Months are calculated by assuming 20 tions for Mandatory Social Security-- the tax system and the perception of the working days a month. and imposed the corporate income tax quality of government services can affect 2. Ellis, Manuel and Blackden (2006). only on distributed profits. Despite the the size of the informal sector in a coun- 3. World Bank (2010b). global downturn, the number of com- try. Larger informal sectors as well as 4. Globally, companies ranked tax rates 4th panies registered as taxpayers in FYR greater corruption are found where the among 16 obstacles to business in World Macedonia increased by 16% between majority of firms perceive taxes as not Bank Enterprise Surveys in 2006­09 2008 and 2009. "worth paying" because of low-quality (http://www.enterprisesurveys.org). In an effort to stimulate economic public goods and poor infrastructure. 5. Canada, as part of a plan to stimulate growth and restore confidence, reduced growth and create a more business- This view is supported by a recent survey the general corporate tax rate to 19% friendly environment, Korea reduced the of business and law students in Guate- as of January 1, 2009. In Germany a corporate income tax rate from 25% to mala. Most participants believed that tax stimulus package adopted in Novem- 22% in 2009 and plans to reduce it even evasion was ethical where tax systems ber 2008 introduced declining balance depreciation at 25% for movable assets further in future years. The revenue col- are unfair or corrupt and where govern- for 2 years and temporarily expanded lected by the government in 2009 did ment commits human rights abuses.18 special depreciation allowances for small not fall. Instead, the number of com- Doing Business data show that econo- and medium-size enterprises. A second panies registered for corporate income mies where it is more difficult and costly stimulus package, approved in February 2009, provided further tax cuts. In Janu- tax increased by 7%--and the corporate to pay taxes have larger shares of infor- ary 2009 Singapore's Ministry of Finance income tax revenue by 11%. mal sector activity (figure 8.6). announced a $15 billion "resilience Sensitivity to tax reforms is affected package" to help businesses and workers WHAT FIRMS VALUE by firm size. Large firms are usually more and reduced the corporate income tax rate from 18% to 17%. These results illustrate some of the ben- directly affected by changes. But small 6. International Tax Dialogue (2007). efits of more effective tax systems and firms have a higher tendency to be un- 7. Djankov and others (2010). appropriate tax rates. Recent research registered if tax rates are high, and tend has found that in developing economies, to underreport income and size if higher 8. The company has 60 employees and start-up capital of 102 times income per where many firms are likely to be small incomes and bigger firms are taxed at capita. and heavily involved in informal activity, a higher rate.19 In Côte d'Ivoire, where 9. This year's report records all reforms reducing profit tax rates helps reduce firms must pay 44% of profit and make with an impact on the paying taxes indi- informality and raise tax compliance, more than 64 payments a year to comply cators between June 2009 and May 2010. increasing growth and revenue.16 with 14 different taxes, a recent study Because the case study underlying the paying taxes indicators refers to the fi- The size of the informal sector, finds that firms avoid growing in order nancial year ending December 31, 2009, which in many developing economies to pay less tax.20 reforms on the paying taxes indicators FIGURE 8.7 implemented between January 2010 and Total tax rates between 30% and 50% are most common May 2010 are recorded in this year's re- port, but the impact will be reflected in Number of economies by income group the data in next year's report. 50 10. The comparison of global averages refers to the 174 economies included in Doing Low and lower middle 40 income Business 2006. Additional economies were added in subsequent years. Upper middle and high income 11. Australia intends to reduce the corporate 30 income tax rate from 30% to 29% from July 1, 2013, and then to 28% from July 1, 2014. In Finland an initial proposal 20 includes reducing the corporate income tax rate from 26% to 22% and increas- 10 ing the standard value added tax rate of 22% by 2 percentage points. In the United Kingdom the emergency budget 0 for 2010­11 calls for reducing the cor- <10 10s 20s 30s 40s 50s 60s 70s 80s 90s 100+ poration tax rate to 27% for the 2011 fi- nancial year and then, through cuts over Total tax rate (% of profit) the next 4 years, to 24%. It also calls for Source: Doing Business database. 62 DOING BUSINESS 2011 reducing the small company tax rate to 20% and increasing the standard value added tax rate from 17.5% to 20%. 12. Ricard (2008). 13. Imam and Davina (2007). 14. bin Haji Ridzuan (2006). 15. Address delivered at Worcester, Mass., October 21, 1936. John T. Woolley and Gerhard Peters, The American Presidency Project, http://www.presidency.ucsb .edu/. 16. Hibbs and Piculescu (2010). 17. Gordon and Li (2009). 18. McGee and Lingle (2008). 19. OECD (2008). 20. Klapper and Richmond (2010). 63 Starting a business FIGURE 9.1 Dealing with construction permits Traders in Peru benefit from risk-based inspections and electronic systems Who improved the most Registering property 24 in trading across borders? Getting credit Days 21 1. Peru 2009 ­7 days Protecting investors 2. Grenada Paying taxes ­9 days 3. Armenia 17 Trading across 2010 4. 5. Montenegro Nicaragua borders 12 6. 7. 8. Rwanda Cambodia Egypt, Arab Rep. Enforcing contracts 9. Spain Closing a business 10. Philippines Time to Time to export import Source: Doing Business database. Traders at the Chirundu crossing between important for business. Bedi Limited, one study shows that during the recent Zambia and Zimbabwe have long dealt a garment producer in Nakuru, Kenya, slump in global demand, making trade with congestion and delays at the busy spent 18 months pursuing a trial order easier helped to mitigate the drop in an border post. Procedures duplicated on for school items from Tesco, one of the economy's exports by promoting stron- each side of the border and involving up United Kingdom's largest retail chains. ger links between suppliers and buyers. to 15 government agencies often require Bedi landed the order and the delivery By contrast, an extra day's delay led to a wait of 2­3 days to clear goods. This is date was set for early July, in time for about an additional 0.5% fall in exports starting to change, thanks to a one-stop the August back-to-school promotions. to the United States.4 border post that was recently established. Bedi's goods arrived in Kenya's port city While trade recovered in 2010 and Trucking companies will save, because of Mombasa at the end of June, ready for fears of a surge in protectionism have delays "cost each truck $140 per day in shipment. But they were delayed at the largely subsided, burdensome documen- fixed costs and driver's time," notes Juma port due to congestion and didn't arrive tation requirements, time-consuming Mwapachu, the secretary general of the in the United Kingdom until August. customs procedures, inefficient port op- East African Community. "The potential Bedi missed Tesco's school promotions-- erations and inadequate transport infra- cost saving is about $486 million per and lost out on the chance to become structure still lead to unnecessary costs year, which accrues to our economies part of its global supply chain.2 and delays for traders. Poor performance and competitiveness."1 The ability of firms and economies in just 1 or 2 of these areas can have seri- In a globalized world, making trade to compete in global markets has been ous repercussions for an economy's over- between countries easier is increasingly put to the test in the past 2 years of eco- all trade competitiveness, as shown by nomic turmoil. In 2009 world trade re- the World Bank's Logistics Performance TABLE 9.1 Where is trading across borders easy-- corded its largest decline in more than 70 Index.5 By removing these obstacles, and where not? years. No region was left untouched.3 But governments can create an environment Easiest RANK Most difficult RANK FIGURE 9.2 Singapore 1 Niger 174 How much time, how many documents and what cost to export and import across borders by ocean transport? Hong Kong SAR, 2 Burkina Faso 175 China Burundi 176 United Arab 3 Azerbaijan 177 TIME TIME Emirates Tajikistan 178 COST COST Estonia 4 Iraq 179 To export To import Finland 5 Congo, Rep. 180 DOCUMENTS DOCUMENTS Denmark 6 Kazakhstan 181 Full, 20-foot container Sweden 7 Central African 182 Korea, Rep. 8 Republic Import Norway 9 Afghanistan 183 Israel 10 Note: Rankings are the average of the economy's rankings on the documents, time and cost required to export and import. See Data Export notes for details. Port and terminal Customs and Inland Source: Doing Business database. handling border agencies transport 64 DOING BUSINESS 2011 TABLE 9.2 Who made trading across borders easier in 2009/10--and what did they do? Feature Economies Some highlights Introduced or improved electronic Bahrain, Belarus, Brunei Darussalam, Arab Republic of Egypt, Israel, Latvia and Lithuania improved their electronic data interchange system Kazakhstan, Latvia, Lithuania, Nicaragua, Pakistan, Peru, Philippines, declaration systems to comply with EU require- Swaziland, Tunisia, United Arab Emirates, Zambia ments on paperless customs that entered into force in 2009. Improved customs administration Armenia, Arab Republic of Egypt, Ethiopia, Fiji, Grenada, Mali, Peru, Traders in Grenada are benefiting from the West Bank and Gaza modernization of the customs administration, in the context of a World Bank Technical As- sistance Project. Improved procedures at ports Angola, Bahrain, Kenya, Nicaragua, Pakistan, Saudi Arabia Containers can now move more easily through the Port of Luanda in Angola thanks to the completion of 2 dry ports and new equipment. Reduced number of trade documents Burkina Faso, Cambodia, Kazakhstan, Montenegro, Rwanda, Spain Imports and exports in Cambodia no longer require preshipment inspection. Introduced or improved risk-based Armenia, Guyana, Kazakhstan, Peru Improved risk profiling along with the use of inspections new equipment reduced the time for inspec- tions at Armenia's border posts. Introduced or improved single window Indonesia, Israel, Madagascar An integrated electronic national single win- dow service system became operational in 2010 at several of Indonesia's main seaports. Implemented border cooperation Rwanda, Zambia Better cooperation between the agencies agreements involved in customs clearance at the border be- tween Zambia and Zimbabwe reduced waiting time for traders. Source: Doing Business database. that encourages entrepreneurs to look change systems was the most popular WHAT ARE THE TRENDS? beyond their own borders for business change, followed by improving customs opportunities (table 9.1). administration and port performance Trading across borders as measured by Doing Business measures the time (table 9.2). Doing Business has become faster and and cost (excluding tariffs) associated Peru improved the ease of trading easier over the years. From the conclu- with exporting and importing by ocean across borders the most. A new web- sion of a contractual agreement between transport, and the number of documents based electronic data interchange sys- the exporter and importer to the mo- necessary to complete the transaction tem is helping to speed up document ment goods are shipped or received (ex- (figure 9.2). The indicators cover proce- submission as well as clearance time. cluding maritime transport) takes 23.1 dural requirements such as documen- Fewer physical inspections of cargo are days on average for exporting and 25.8 tation requirements and procedures at now needed at customs offices thanks for importing. In 2006 it took 26.4 days customs and other regulatory agencies as to further implementation of risk-based on average to export and 30.9 to import. well as at the port. They also cover trade inspections, though there remains room Traders in OECD high-income econo- logistics, including the time and cost of for improvement. The introduction of mies have it easiest: to export or import inland transport to the largest business payment deferrals for import duties and takes about 11 days and fewer than 5 city. These are key dimensions of the taxes has also reduced import time, since documents on average. Traders in Sub- ease of trading--the more time consum- cargo no longer needs to sit at the port Saharan Africa, where trade is slowest ing and costly it is to export or import, until tariffs and tax payments are settled. and most expensive, typically face delays the more difficult it is for traders to be Rwanda further improved its trade logis- 3 times as long, with the time to export competitive and to reach international tics environment by reducing the num- averaging 32 days and the time to import markets. ber of trade documents required and 38 (figure 9.3). In 2009/10, 33 economies made it continuing its efforts toward establishing Disparities among regions have easier to trade. Sub-Saharan Africa ac- joint border management procedures changed little over the years. Exporting counted for the most improvements in with Uganda and other neighbors. The and importing remain least expensive in trading across borders, followed by the improvements build on earlier efforts in East Asia and the Pacific. Inland trans- Middle East and North Africa and East- Rwanda to implement electronic submis- port is a challenge for many economies ern Europe and Central Asia. Introduc- sion of customs declarations and increase of Eastern Europe and Central Asia be- ing or enhancing electronic data inter- acceptance points for submission. cause of their distance from ports. And TRADING ACROSS BORDERS 65 FIGURE 9.3 DB2011 DB2007 Trade becoming faster around the world--with biggest gains in the Middle East and North Africa Regional averages in trading across borders 2010 Documents to export (number) Time to export (days) global average OECD high income 4.4 4.5 OECD high income 11 11 East Asia & Pacific 6.4 6.8 East Asia & Pacific 23 24 Latin America & Caribbean 6.6 6.6 Latin America & Caribbean 18 22 Middle East & North Africa 6.4 7.5 Middle East & North Africa 20 25 Eastern Europe & Central Asia 6.4 7.1 Eastern Europe & Central Asia 27 32 Sub-Saharan Africa 7.7 8.3 Sub-Saharan Africa 32 37 South Asia 8.4 8.5 South Asia 32 35 6.5 23.1 Documents to import (number) Time to import (days) OECD high income 4.9 5.2 OECD high income 11 12 East Asia & Pacific 6.9 7.5 East Asia & Pacific 24 26 Latin America & Caribbean 7.1 7.3 Latin America & Caribbean 20 27 Middle East & North Africa 7.5 8.6 Middle East & North Africa 24 32 Eastern Europe & Central Asia 7.6 8.5 Eastern Europe & Central Asia 28 34 Sub-Saharan Africa 8.7 9.3 Sub-Saharan Africa 38 45 South Asia 9.0 9.4 South Asia 33 38 7.3 25.8 Note: The data sample for DB2007 (2006) includes 178 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Cyprus, Kosovo and Qatar, for a total of 183 economies. Source: Doing Business database. economies in South Asia require the and Peru.6 Efforts in several Eastern ports, were common in the Middle East. largest number of trade-related docu- European economies to ease trade were These were motivated by years of record- ments on average. Nevertheless, thanks motivated by the need to comply with EU high oil prices coupled with integration to efforts at global, regional and national trade regulations or by the conditions for with global markets, as seen in Dubai, levels, the global trade environment has accession to EU membership. for example. improved. Trade facilitation has become The time to trade has fallen in all an important part of governments' strate- regions, for a number of reasons. In Sub- OVERCOMING GEOGRAPHIC BARRIERS gies to increase national competitiveness Saharan Africa much of the drop in the and diversify exports, often supported time for exporting and importing was The geographic characteristics of econo- by multilateral organizations--including achieved by introducing electronic data mies can also influence their approach the World Trade Organization, the World interchange systems--as in Madagascar, to trade reforms. For small island states, Customs Organization and the World Mali and Tanzania--and by reducing trade is often critical. Some, such as Bank--and bilateral donors. delays at ports and customs through in- Singapore, have used their reliance on frastructure improvements--as in Benin sea transport to their advantage and CUTTING RED TAPE and Eritrea. Sometimes simply extend- become trade hubs for their region. The Trade agreements and customs unions ing office hours--as in Kenya, Rwanda close proximity of the largest business have spurred reforms around the world and Senegal--made processes faster. city to the port and the small volume of making it easier to trade across bor- OECD high-income economies have cargo can mean speedy inland transport ders. Cargo can move more easily within advanced the most in the use of elec- and customs clearance. But many islands trade blocs such as the Southern Afri- tronic customs declarations. Economies are isolated--container vessels call at can Customs Union thanks to a com- now achieve customs clearance times the port only every 35­40 days in São mon transit document that can be used of hours or even minutes, as in France, Tomé and Principe, for example--and in all member nations. The Association Korea and New Zealand. In the European lack economies of scale. of Southeast Asian Nations (ASEAN) Union paperless electronic declaration By contrast, many landlocked econ- has been working on an ASEAN-wide became mandatory in January 2010. omies face high inland transport costs to single window since 2004. Negotiations Elimination of unnecessary docu- reach ports and delays at border posts. on free trade agreements with the United mentation was popular in Latin America Not surprisingly, traders in landlocked States have often been a driving force and the Caribbean. The Dominican Re- economies face a higher average time and for improvements in trade facilitation public, Ecuador and Honduras elimi- cost to export and import than traders in Latin America and the Caribbean, as nated notarization requirements. Large elsewhere. But geography is not destiny. in Colombia, the Dominican Republic investments in infrastructure, including Border cooperation agreements can en- 66 DOING BUSINESS 2011 TABLE 9.3 disputes. In addition, users will ben- Good practices around the world in making it easy to trade across borders efit only if they have received adequate Practice Economiesa Examples training and if systems are user friendly Using electronic data interchange 116 b Chile, Malaysia, Slovenia, United Arab Emirates and easy to install. In many economies Using risk-based inspections 112 Arab Republic of Egypt, Estonia, Kenya, Thailand that have electronic systems, such as Bo- Providing a single window 40 Colombia, Israel, Senegal, Singapore tswana, The Gambia and St. Vincent and the Grenadines, customs authorities still a. Among 149 economies surveyed. b. Twenty-eight have a full electronic data interchange system, 88 a partial one. require traders to submit hard copies. Source: Doing Business database. This neutralizes potential benefits and may even generate extra work for users. able cargo to move freely--without being but so do developing economies such as stopped for customs--until it reaches Mauritius, Panama and Thailand. OPENING A SINGLE WINDOW its destination. A trader in Vienna, in Some economies go a step further by landlocked Austria, needs only 2 days to LINKING UP ELECTRONICALLY linking not only traders and customs arrange for and complete the transport Electronic data interchange systems have but all agencies involved in trade. An of cargo to the German port of Hamburg become common around the world: electronic single-window system allows despite the distance of 900 kilometers. 78% of the 149 surveyed economies users to submit their export or import This is similar to the distance that cargo allow traders to submit at least some of information in a virtual location that in Ouagadougou, in landlocked Burkina their export and import declarations, communicates with all the relevant au- Faso, must travel to reach a port in neigh- manifests and other trade-related docu- thorities for obtaining documents and boring Ghana or Togo. Yet transporting ments to customs authorities electroni- approvals. Traders no longer need to visit a container between Ouagadougou and cally (table 9.3). Traders can submit all different physical locations. The most Tema (in Ghana) or Lomé (in Togo) can trade documents electronically in half advanced systems, such as the electronic take a week or considerably longer. The of OECD high-income economies but trade portal in Korea, also connect pri- difference is due in part to inadequate only in less than 5% of economies in vate sector participants such as banks, infrastructure. But it also results from Sub-Saharan Africa and Eastern Europe customs brokers, insurance companies additional controls and waiting time at and Central Asia. The newest systems are and freight forwarders. border posts. web-based, allowing traders to submit Single-window systems are most To ensure speed while address- their documents from anywhere and at prevalent among OECD high-income ing security concerns, some develop- any time. This saves precious time and economies. Given the cost and complex- ing economies are introducing fast-track money (not to mention paper). And ity of setting up such systems, this is systems for traders with a good track fewer interactions with officials mean not surprising. But Colombia and Sen- record--"compliant trader" or "gold card fewer opportunities for corruption. egal have also successfully implemented trader" programs. The European Union Electronic data interchange systems single-window systems. and OECD high-income economies such can support regional integration. In Cen- as the United States have developed a tral America the International Goods in FACTORING IN RISK more sophisticated but complex certi- Transit (TIM) system harmonizes previ- Requiring imports and exports to un- fication system that authorizes certain ously cumbersome procedures in a single dergo several types of inspections--for businesses to move faster through the electronic document for managing the tax, security, environmental, border con- logistics of importing and exporting. movement of goods across 9 economies. trol and health and safety reasons--is a At some border locations this has re- normal thing. But how these inspections WHAT HAS WORKED? duced clearance times for goods in tran- are carried out is critical. Done with a sit by up to 90%.7 heavy hand, they can be a serious ob- The economies with the most efficient But simply having an electronic sys- stacle to efficient and transparent trade. trade share common features. They allow tem in place is not enough. Other fac- Over the years customs administra- traders to exchange information with tors have to be considered. To function tions around the world have developed customs and other control agencies elec- properly, electronic data interchange sys- systems for establishing risk profiles that tronically. And they use risk-based as- tems require basic infrastructure such as allow them to limit physical inspections to sessments to limit physical inspections adequate electricity supply and reliable only the riskiest consignments. The use of to only a small percentage of shipments, internet connections--a challenge for scanners in conjunction with risk-based reducing customs clearance times. Many many low-income economies. Electronic profiling eliminates the need to open cargo, OECD high-income economies rank high signature and transaction laws must be contributing to the efficiency of inspec- on the ease of trading across borders, in place to ensure legal validity and avoid tions. Traders in landlocked Kazakhstan TRADING ACROSS BORDERS 67 face shorter customs clearance delays at FIGURE 9.4 Sub-Saharan Africa continues to lead in trade reforms the border with China thanks to the instal- Number of Doing Business reforms making it easier to trade across borders by Doing Business report year lation and implementation of a TC-SCAN DB2007 DB2008 DB2009 DB2010 DB2011 system in recent years. Albania, Cameroon, Sub-Saharan the Islamic Republic of Iran, FYR Macedo- Africa 45 (46 economies) nia, Nigeria and the Philippines are other examples of economies that use scanners. Latin America & Caribbean 28 But in some cases, such as in Zambia, the (32 economies) use of scanners alone has made delays Eastern Europe worse--because customs authorities scan & Central Asia 22 (25 economies) all consignments that pass through the border rather than using risk management Middle East & North Africa 22 to select just the risky ones for scanning. (18 economies) Risk-based inspections are the norm East Asia in OECD high-income economies. They & Pacific 16 (24 economies) are also becoming increasingly common elsewhere. In Eastern Europe and Cen- OECD high income 8 tral Asia 86% of surveyed economies (30 economies) have adopted risk-based inspections. South Asia 7 (8 economies) WHAT ARE SOME RESULTS? Note: A Doing Business reform is counted as 1 reform per reforming economy per year. The data sample for DB2007 (2006) includes 178 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Cyprus, Kosovo and Qatar, for a total of 183 economies. Implementing new services to ease trade Source: Doing Business database. matters only if they provide real benefits to both users and providers. In the best global economy, improving the trade fa- truck. In 2006, with about 139,000 truck cases they can lead to economy-wide cilitation environment can help give busi- crossings, this translated into estimated gains. More than 100 economies im- nesses a competitive edge. This is often a annual savings of $40 million. Two years proved trade procedures in the past 5 major impetus for government action. Yet later the number of truck crossings had years and are reaping the benefits of support from the private sector cannot be grown to more than 600,000 annually-- more efficient systems (figure 9.4). taken for granted. When Kenya introduced and the annual savings by an additional its electronic customs system, Simba, in $133 million.9 COMPETITIVE EDGE FOR BUSINESSES 2005, the Kenya International Freight and Ahmet Baslikaya, a Turkish exporter of Warehousing Association initiated a court GREATER INTEGRATION industrial equipment, reports that cus- action. Members felt that Simba imposed Easing trade can also open opportunities toms reforms have reduced his clearance unfair and costly requirements, such as for domestic firms to be part of global costs by 10­15%. "I can send all docu- the need for computerization and train- production networks. Firms in develop- ments by e-mail to the customs authori- ing.8 Traders in the Dominican Republic ing economies often miss out on global ties. Apart from the savings in time, we make similar complaints, claiming that production links because of unfavorable are also saving on labor costs. I used to the country's electronic system creates trade facilitation environments that cre- employ a courier to deliver these docu- more obstacles than benefits. They report ate delays--like those encountered by ments on my behalf to customs, paying technical glitches and feel that the system Bedi. him $400 a month. This is now savings was developed without getting input from Traders in Korea need not worry to my company." Rasheed, an exporter in users or adequately preparing them for about such delays. Korea Customs Ser- the United Arab Emirates, tells a similar the change. vice estimates that predictable cargo story. "Formerly we were employing 2 Transitions are challenging. But processing times and rapid cargo turn- people working full time; each one was policy makers can avoid bigger problems over by ports and warehouses provide a paid a salary of $500 a month. Now we down the road by involving stakeholders benefit to the Korean economy of some need only one person, and even that one throughout the process. Implemented $2 billion annually.10 Indeed, for Korean- person needs to work for only about 5­6 correctly, trade facilitation reforms can based companies such as Samsung and hours a day for the customs clearance yield big cost savings. Such reforms in LG, global leaders in the electronics in- tasks and spends the rest of the time Georgia reduced the customs clearance dustry, the rapid and predictable turn- doing other data entry work." time for a commercial truck by a day. around times are an important part of In an increasingly competitive That saves a day's operating cost, $288 per their competitiveness strategies. 68 DOING BUSINESS 2011 TABLE 9.4 Where is exporting easy--and where not? Where is importing easy--and where not? Documents (number) Documents (number) Fewest Most Fewest Most France 2 Burkina Faso 10 France 2 Burkina Faso 10 Armenia 3 Cambodia 10 Denmark 3 Afghanistan 11 Canada 3 Kazakhstan 10 Korea, Rep. 3 Bhutan 11 Estonia 3 Angola 11 Sweden 3 Mauritania 11 Korea, Rep. 3 Cameroon 11 Thailand 3 Cameroon 12 Micronesia, Fed. Sts. 3 Congo, Rep. 11 Estonia 4 Kazakhstan 12 Panama 3 Malawi 11 Hong Kong SAR, China 4 Eritrea 13 Sweden 3 Mauritania 11 Norway 4 Russian Federation 13 Finland 4 Namibia 11 Panama 4 Azerbaijan 14 Hong Kong SAR, China 4 Afghanistan 12 Singapore 4 Central African Republic 17 Time (days) Time (days) Fastest Slowest Fastest Slowest Denmark 5 Zimbabwe 53 Singapore 4 Kazakhstan 67 Estonia 5 Central African Republic 54 Cyprus 5 Burundi 71 Singapore 5 Niger 59 Denmark 5 Venezuela, RB 71 Hong Kong SAR, China 6 Kyrgyz Republic 63 Estonia 5 Kyrgyz Republic 72 Luxembourg 6 Uzbekistan 71 Hong Kong SAR, China 5 Zimbabwe 73 Netherlands 6 Afghanistan 74 United States 5 Afghanistan 77 United States 6 Chad 75 Luxembourg 6 Iraq 83 Cyprus 7 Iraq 80 Netherlands 6 Tajikistan 83 Germany 7 Kazakhstan 81 Sweden 6 Uzbekistan 92 Norway 7 Tajikistan 82 United Kingdom 6 Chad 101 Cost (US$ per container) Cost (US$ per container) Least Most Least Most Malaysia 450 Rwanda 3,275 Singapore 439 Afghanistan 3,830 Singapore 456 Zimbabwe 3,280 Malaysia 450 Burkina Faso 4,030 China 500 Tajikistan 3,350 United Arab Emirates 542 Burundi 4,285 United Arab Emirates 521 Congo, Dem. Rep. 3,505 China 545 Tajikistan 4,550 Finland 540 Niger 3,545 São Tomé and Principe 577 Uzbekistan 4,650 Vietnam 555 Iraq 3,550 Hong Kong SAR, China 600 Rwanda 4,990 Saudi Arabia 580 Congo, Rep. 3,818 Israel 605 Zimbabwe 5,101 Latvia 600 Afghanistan 3,865 Finland 620 Central African Republic 5,554 Pakistan 611 Central African Republic 5,491 Fiji 630 Congo, Rep. 7,709 Egypt, Arab Rep. 613 Chad 5,902 Vietnam 645 Chad 8,150 Source: Doing Business database. GAINS FOR GOVERNMENTS border) between 2005 and 2009. Ghana together more than 35 border agencies, Businesses are not the only ones to ben- saw customs revenue grow by 49% in estimates that for every $1 earned in efit. Making it easier to trade across the first 18 months after implementing customs revenue it spends only 1 cent-- borders can lead to significant benefits GCNet, its electronic data interchange a profit margin of 9,900%.12 Such gains for the government by boosting cus- system for customs procedures.11 have allowed it to pass on the benefits to toms revenue. In Angola between 2001 Making it easier to trade across traders. In 1988, under the manual sys- and 2008, customs revenue increased by borders also assists government opera- tem, traders were charged a processing more than 1,600%, though from a low tions. Rwanda's consistent reforms easing and transmission fee of S$10. Today the base. Not all governments experience trade have led to increased productiv- fee is only S$1.80. such big surges in revenue, but steady ity of customs officials (figure 9.5). The While electronic systems can yield increases add up. In Georgia improve- implementation of single windows in big gains, initial investments and op- ments in customs clearance procedures, Korea and Singapore also led to big gains erations can be costly. Korea Customs coupled with greater trade, contributed in productivity. Singapore, which estab- Service estimates that it spends some to a 92% increase in value added tax rev- lished the world's first national single $38 million annually on its information enue (60­65% of which is collected at the window (TradeNet) in 1989 by bringing technology infrastructure, $9 million of TRADING ACROSS BORDERS 69 FIGURE 9.5 BEYOND ANECDOTES Improvements in customs administration boost efficiency in Rwanda The case for trade facilitation reforms goes beyond anecdotal evidence. It is well 1. Statement during the official launch of 611 the Chirundu one-stop border post, De- 2009 grounded in the economics literature. A cember 5, 2009. 39% increase study in Sub-Saharan Africa finds that 2. Bedi (2009). a 10% reduction in exporting costs in- 2006 3. WTO (2010). 440 creases exports by 4.7%, a greater impact 4. Dennis (2010). than would come from further reductions 5. World Bank, Logistics Performance in tariffs by richer economies.13 Accord- Index, 2007 and 2010 (http://www ing to another study, African economies' .worldbank.org/lpi). limited participation in global supply 6. The United States­Colombia Trade 63 chains for textiles and garments--both Promotion Agreement was signed on time-sensitive products--can be attrib- November 22, 2006, but is awaiting ap- Customs transactions cleared proval by the U.S. Congress before it can per customs official per year uted to delays at customs.14 enter into force. A study focusing on Asia-Pacific Source: Government of Rwanda. 7. Sarmiento, Lucenti and Garcia (2010). Economic Cooperation (APEC) econo- 8. BIZCLIR (2007). mies shows that cutting the days to clear 9. Beruashvili and McGill (2010). which is for the single-window system. exports by half could enable a small to 10. Korea Customs Service (2010). But the estimated benefits, $2­3.3 bil- medium-size enterprise to increase its 11. De Wulf and Sokol (2004). lion a year according to the agency, far share of exports in total sales from 1.6% outweigh the costs. For economies with to 4.5%.15 Another study on APEC econ- 12. Singapore Customs Service (2007). basic computer systems, however, the omies finds that eliminating layers of 13. Hoekman and Nicita (2009). cost of implementing automated systems trade regulation and improving institu- 14. Yoshino (2008). can be significant. tions would cut information and compli- 15. Li and Wilson (2009). Moreover, automated systems can ance costs for businesses--and lead to an 16. Helble, Shepherd and Wilson (2009). speed up customs procedures only if estimated 7.5% increase in intraregional 17. Bhattacharya and Wolde (2010). customs officials and private sector users trade and $406 billion in global welfare 18. Cuñat and Melitz (2007), Depken and are adequately trained to use the new gains.16 Transport constraints can play Sonora (2005), Levchenko (2007) and Ranjan and Lee (2007). technology. Inadequate infrastructure an important part in trade competitive- can also be a constraint, such as when ness, according to a recent study. In the customs officials are forced to stop work- Middle East and North Africa, reducing ing every time an unreliable electricity transport constraints to the world aver- supply disrupts internet connections. age could increase exports by about 10% Nevertheless, many economies continue and imports by more than 11%.17 to learn from Singapore's experience. But trade facilitation alone is not Ghana, Madagascar, Mauritius, Panama enough. Other factors in the business and Saudi Arabia are all using adapted environment, some of which are con- versions of TradeNet. sidered elsewhere in this report, play a complementary part in boosting trade. Recent studies point to the importance of such factors as the depth of credit in- formation, enforcement of contracts and flexibility of labor markets.18 70 DOING BUSINESS 2011 Starting a business FIGURE 10.1 cesses for dispute resolution are needed Dealing with construction permits Higher ceiling for claims made enforcing now more than ever (table 10.1). Registering property contracts faster and cheaper in Malawi Time (days) For some economies growing case- 2009 Getting credit 400 loads have offered an opportunity to Cost cut from Protecting investors 142% of the claim come up with new solutions to improve to 94% Paying taxes the working of their courts. Dubai re- 300 Trading across borders Time 2010 sponded to pressures on its legal system cut by Enforcing 200 120 days by creating specialized courts. While the volume of cases has continued to grow, contracts 100 the courts in Dubai can now handle a greater number--resolving 58% more Closing a business cases in 2009 than in the previous year.8 0 Improving court functions remains es- Filing and Trial and Enforcement sential to sustaining a healthy, stable service judgment Source: Doing Business database. economy, especially during a credit crunch. A recent study found that effi- Businesses worldwide continue to face of cases. In the past 5 years foreclosure cient contract enforcement is associated challenges as a result of the global fi- cases in the state doubled while contract with greater access to credit for firms.9 nancial crisis--and are more concerned disputes increased by 23%.4 Thirteen economies made it faster, than ever about recovering losses fast. In China in 2009 the number of con- cheaper or less cumbersome to enforce In the past 2 years more disputes in- tract disputes was up by 8.6% from the a contract through the courts in 2009/10 volving property, supply contracts and year before.5 In Montenegro the commer- (table 10.2). Malawi improved the ease banking transactions ended up in court, cial court of Podgorica had a nearly 300% of enforcing contracts the most by rais- increasing caseloads and backlogs. Ire- jump in cases in 2009.6 In Serbia the 17 ing the ceiling for commercial claims land's commercial court had a record commercial courts saw incoming cases that small magistrates courts can hear number of cases listed in 2009.1 In the grow from 135,497 in 2008 to 165,013 in (figure 10.1). first 6 months of the year it had 192 cases 2009, an increase of 22%--more than 3 Doing Business measures the time, entered, compared with 76 in the same times the 7% increase in 2007 and 2008.7 cost and procedural complexity of re- period of 2007.2 In Denmark caseloads in The Belgrade commercial court experi- solving a commercial lawsuit between 2 enforcement courts increased by 38% in enced an even larger increase: about 40% domestic businesses. The dispute involves 2009 compared with 2007.3 In the United more cases were brought in 2009 than in the breach of a sales contract worth twice States, New York State courts finished the the year before. the income per capita of the economy. The year with the highest ever annual tally Reflecting the effects of the global case study assumes that the court hears crisis, most cases were filed by large an expert on the quality of the goods in TABLE 10.1 creditors, such as utility companies and dispute. This distinguishes the case from Where is enforcing contracts easy--and mobile phone providers trying to collect where not? simple debt enforcement (figure 10.2). from defaulting debtors. Efficient pro- Easiest RANK Most difficult RANK Luxembourg 1 Central African 174 Republic FIGURE 10.2 Hong Kong SAR, 2 China Honduras 175 What are the time, cost and number of procedures to resolve a commercial Iceland 3 Syrian Arab 176 dispute through the courts? Norway 4 Republic Korea, Rep. 5 Benin 177 Court Germany 6 Suriname 178 France 7 Bangladesh 179 Time United States 8 São Tomé and 180 Cost Austria 9 Principe Number of procedures New Zealand 10 Angola 181 Company A Company B COMMERCIAL DISPUTE India 182 (seller & plaintiff) (buyer & defendant) Timor-Leste 183 Note: Rankings are the average of the economy's rankings on the Filing of Trial & procedures, time and cost to resolve a commercial dispute through court case judgment Enforcement the courts. See Data notes for details. Source: Doing Business database. ENFORCING CONTRAC TS 71 TABLE 10.2 Who made enforcing contracts easier in 2009/10--and what did they do? Feature Economies Some highlights Increased procedural efficiency at Burkina Faso, Canada, Hong Kong SAR In Hong Kong SAR (China) civil justice reforms improved case manage- main trial court (China), Malawi, Mauritius, New Zealand, ment, imposed limits on certain applications and appeals, limited the time Timor-Leste, Uganda for witness examination and oral submissions and extended discovery procedures. Introduced or expanded computerized Canada, Hong Kong SAR (China), United Zambia is moving to electronic forms, real-time court reporting, electronic case management system Kingdom, Zambia storage and computer searches of registry files. Records of court proceed- ings are immediately available to litigants and court officials--as well as to the public, through computer terminals in the courts. Introduced or expanded specialized Burkina Faso, Guinea-Bissau In Guinea-Bissau the new commercial court was set up, and judges as well commercial court as clerks and other support personnel received training. Made enforcement of judgment more Georgia In Georgia private enforcement officers were introduced alongside state efficient enforcement agents, increasing enforcement capacity. And debtors can now pay creditors the outstanding debt before the closing of an auction to avoid the sale of their assets. Reviewed rules on modes of service Islamic Republic of Iran The Islamic Republic of Iran is introducing electronic filing, allowing par- and notification ties to file petitions electronically with certain courts. Several courts have also implemented text message notification. An electronic case manage- ment system has been implemented in branches of Tehran's court of first instance. Source: Doing Business database. WHAT ARE THE TRENDS? nological innovations include systems to forcement of judgments to the private electronically store court documents on sector. In 2003, inspired by the French Economies in all regions have imple- microfilm (as in Germany) and the use model, Lithuania introduced private mented reforms easing contract enforce- of electronic communication through enforcement officers. In 2006 Bulgaria ment in the past 7 years (figure 10.3). A data mailboxes to serve process (as in and FYR Macedonia followed suit, re- judiciary can be improved in different the Czech Republic). In Norway a com- placing state enforcement officers with ways. Higher-income economies tend puter system that tracks deadlines and self-employed private bailiffs.10 Georgia to look for ways to enhance efficiency requires judges to justify postponements, combined the state and private mod- by introducing new technology. Lower- together with new procedural rules since els, introducing private bailiffs in 2008 income economies often work on re- 2008, helped reduce the time for trial by alongside the state bailiffs to increase en- ducing backlogs by introducing periodic a month. The United Kingdom recently forcement capacity. Since 2009 the Geor- reviews to clear inactive cases from the introduced an electronic system in its gian Ministry of Justice has issued 38 docket and by making procedures faster. commercial court that allows filings 24 licenses to private enforcement agents. hours a day, so litigants can now initiate Kazakhstan has a draft law aimed at in- MORE AUTOMATION IN OECD lawsuits outside normal court hours. troducing private enforcement agents by HIGH-INCOME ECONOMIES 2011. Armenia studied the introduction OECD high-income economies lead in MORE SPEED IN EASTERN EUROPE of private bailiffs but decided to focus for AND CENTRAL ASIA the ease of enforcing contracts, with now on improving the performance of court processes that are the cheapest Courts in Eastern Europe and Central state enforcement agencies. and among the fastest for commercial Asia are the fastest globally, resolving litigants. For a plaintiff to go from filing commercial disputes in 402 days on av- INCREASED EFFICIENCY IN SUB-SAHARAN AFRICA a claim to collecting the proceeds from erage. Thanks to consistent efforts to the sale of movable assets costs 19% streamline courts, they have also acceler- Court reforms in Sub-Saharan Africa of the claim value and takes about 518 ated the process the most since 2003--by have had the second greatest impact in days on average. nearly 7 weeks on average. Many in the speeding up the enforcement of con- What has driven the advances region focused on the enforcement of tracts. New case management systems, made? Investing in automation. Half of judgments after the trial, reducing the commercial courts and measures to re- OECD high-income economies have set time it takes by an average of 15 days duce backlogs have cut the time it takes up electronic processes for filing claims since 2003. to resolve a commercial dispute by an in commercial disputes, far more than A trend that started in Estonia in average of nearly 4 weeks since 2005. But in any other region (table 10.3). Tech- 2001 and Latvia in 2002 is to move en- resolving a commercial dispute still costs 72 DOING BUSINESS 2011 businesses 50% of the claim value on TABLE 10.3 Good practices around the world in making it easy to enforce contracts average. The main reason: high lawyers' fees relative to the value of the claim. Practice Economiesa Examples One solution being explored by Using active case management 100b Armenia, Ghana, Japan, Jordan, Malaysia, Puerto some African countries is to introduce Rico, Sri Lanka small claims courts or small claims pro- Maintaining specialized commercial 85 El Salvador, Germany, Malaysia, Maldives, Mauri- cedures. These offer simplified processes court, division or judge tius, Russian Federation, Tunisia that take less time. Parties can often rep- Allowing electronic filing 19 Australia, Czech Republic, Estonia, Singapore, Tur- of complaints key, United Arab Emirates, United States resent themselves, saving fees that they a. Among 183 economies surveyed, unless otherwise specified. would normally spend on lawyers. In b. Among 164 economies surveyed. addition, filing fees are lower, and judges Source: Doing Business database. issue decisions more quickly.11 Particu- larly for female entrepreneurs, who typi- FEW COURT REFORMS IN SOUTH ASIA recorded no major court reforms in the cally own small businesses, small claims In some parts of the world slow courts region in the past 2 years. To avoid courts can be a preferable forum for still risk delaying commercial justice. lengthy court trials, the private sector has resolving simple disputes. In Zimbabwe South Asia has the longest court de- introduced systems of alternative dispute the small claims court takes cases up lays. The process of deciding a standard resolution as a way to bypass the courts to $250, and no lawyers are allowed. In commercial dispute and enforcing the in such countries as Bangladesh, India neighboring Zambia a new small claims judgment takes on average more than and Pakistan. court for cases up to about $5,000 started 1,000 days, or nearly 3 years--almost operating in 2009. One limitation is that twice as much time as the average for BUT A PICKUP IN PACE IN 2 REGIONS a company cannot file a claim in the other regions, 585 days (figure 10.4). Efforts to reduce delays in the judicial court but can appear only to respond to Contributing to the delays are the inade- system have also been slow to get off the a claim filed against it by an individual. quate number of judges; the lack of strict ground in the Middle East and North Kampala, Uganda, is piloting a small deadlines, which encourages constant Africa and in Latin America and the Ca- claims procedure with magistrates dedi- adjournments; and the large caseloads ribbean. But the pace has recently picked cated to hearing simple cases. and backlogs. up. Doing Business recorded 5 major South Asian economies have been reforms to improve court efficiency in LESS COMPLEXITY IN EAST ASIA AND slow to make changes. Doing Business the Middle East and North Africa in the THE PACIFIC In East Asia and the Pacific changes to FIGURE 10.3 civil procedure laws have been aimed Pace of reform in enforcing contracts picks up in Sub-Saharan Africa Number of Doing Business reforms making it easier to enforce contracts by Doing Business report year at reducing procedural complexity. In 2009/10 Hong Kong SAR (China) intro- DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 Sub-Saharan duced wide-ranging civil justice reforms, Africa 26 including procedural deadlines, case (46 economies) DB2005 management, limits on appeals, flexible OECD settlement arrangements and an em- high income 25 (30 economies) phasis on alternative dispute resolution. Eastern Europe The previous year Malaysia introduced & Central Asia 21 stricter enforcement of procedural dead- (25 economies) lines to process documents and created Latin America & Caribbean 14 a separate "fast track" for disposing of (32 economies) interlocutory matters. Among the Pacific East Asia islands, Papua New Guinea introduced & Pacific 11 (24 economies) a specialized commercial division in its national court in 2007, now fully op- Middle East & North Africa 5 erational. Tonga set up court-referred (18 economies) mediation in 2008. The Solomon Islands South Asia is scheduled to launch it in 2010. (8 economies) 1 Note: A Doing Business reform is counted as 1 reform per reforming economy per year. The data sample for DB2005 (2004) includes 155 economies. Twenty-eight more were added in subsequent years. Source: Doing Business database. ENFORCING CONTRAC TS 73 FIGURE 10 .4 change. In the past year, thanks to previ- Fastest courts in Eastern Europe and Central Asia Regional averages in enforcing contracts ous years' reforms to improve efficiency, DB2011 DB2006 Botswana, Mali, Rwanda and West Bank Time (days) and Gaza reduced the time to file and try a 389 2010 Eastern Europe & Central Asia 402 global case by 40 days on average (table 10.4). average OECD high income 518 533 South Asia 1,047 1,053 SPECIALIZING FOR SPEED East Asia & Pacific 532 557 Introducing specialized courts has been Middle East & North Africa 664 683 a popular improvement. A specialized Sub-Saharan Africa 639 665 commercial procedure can be estab- Latin America & Caribbean 707 726 lished by setting up a dedicated stand- 605 alone court, a specialized commercial Procedures (number of steps) section within existing courts or special- OECD high income 31 32 ized judges within a general civil court. Eastern Europe & Central Asia 36 37 44 44 Economies with stand-alone commercial South Asia 36 37 courts include Sierra Leone, Sri Lanka East Asia & Pacific Middle East & North Africa 44 44 and Tanzania. Those with commercial Sub-Saharan Africa 39 39 divisions within high courts include Ire- Latin America & Caribbean 39 40 land, Kenya, Nigeria, Uganda and the 38 United Kingdom. In some economies Cost (% of claim) the specialized commercial courts decide 19.3 OECD high income 19.2 only cases relating to bankruptcy, securi- Eastern Europe & Central Asia 24.8 26.7 ties, maritime transport or intellectual South Asia 27.0 38.9 property while general commercial cases East Asia & Pacific 48.5 48.7 remain with the ordinary courts. This is Middle East & North Africa 23.6 24.6 49.4 the case in such economies as Algeria, Sub-Saharan Africa 50.0 Indonesia, the Slovak Republic, Thailand Latin America & Caribbean 31.2 32.0 and Uruguay. Specialized courts, besides 34.7 offering the benefits of specialization, Note: The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. also generally resolve commercial dis- Source: Doing Business database. putes faster. Several economies have recently in- past 2 years. Some solutions involved limited recourse to interlocutory ap- troduced reforms increasing court spe- introducing computer-aided case man- peals, eliminated the need for a separate cialization. Jordan set up commercial di- agement systems. Jordan and West Bank enforcement procedure and introduced visions in its courts of first instance and and Gaza introduced software featur- electronic filing of certain documents its conciliation courts in 2008, assigning ing online access to court records and in court. Brazil's superior court has judges to hear solely commercial cases. automated notification and case track- scanned 231,000 paper proceedings In Mauritius a specialized commercial ing. Algeria and Saudi Arabia are also since 2007, saving 108 million sheets division in the supreme court began developing automated case management of paper. This spares 1,836 hectares of hearing cases in 2009. Burkina Faso and systems. Saudi Arabia's will allow elec- forest--covering the equivalent of more Guinea-Bissau established dedicated tronic filing and automatic assignment than 300 soccer fields--annually.12 commercial courts the same year. Syria of court dates as well as keep a log of all plans to follow suit. If creating special- proceedings. WHAT HAS WORKED? ized courts yields satisfied users, it can In Latin America and the Carib- embolden governments to try broader bean improvements have speeded up In the past 7 years Doing Business re- judicial reforms. contract enforcement by an average of corded 103 reforms to improve court ef- 3 weeks since 2004. In the past several ficiency. Few have been successful, and INTRODUCING TECHNOLOGY years such economies as Brazil, Colom- many have been slow to show impact. Using technology to track court pro- bia and Peru have aimed to increase Court reform takes time to show results. cesses can make managing cases easier procedural efficiency and reduce back- As the courts and users become accus- while increasing transparency and limit- logs. Brazil has been pioneering change tomed to the new system, efficiency can ing opportunities for corruption in the at the federal level. Since 2006 it has continue to improve for years after the judiciary. Automated court processes 74 DOING BUSINESS 2011 BOX 10.1 pointed and trained a master to improve Civil conflict and the courts case management in the high court. In War and civil strife in a country disrupt the judicial system by destroying court buildings and the country's magistrates' courts case records and driving qualified professionals out of the country. Uncertainty about the legiti- management reportedly reduced the macy of the courts often discourages their use. Fragile states commonly face broad strikes backlog of cases from 5 months to 2.5.18 in the judiciary. Chad and Zimbabwe have contended with judges' strikes for higher salaries Case management includes the pos- in recent years. Burundi had to overcome a lawyers' strike in 2006. In West Bank and Gaza sibility for a judge to conduct prepara- increased security threats against judges triggered a strike by all courts in 2005. tory hearings to help the parties narrow the issues in dispute, to encourage them During a conflict, informal economic activity increases. Once the conflict ends, a key issue is to settle and to fix procedural timelines how to efficiently resolve disputes over property.1 Rebuilding the judiciary can take years, and and monitor compliance. In Norway pre- legal professionals may be in short supply. Chad has only about 150 practicing lawyers, and in paratory meetings held in civil cases at 2009 it had only 6 new law graduates. Liberia has only about 300 practicing lawyers for a popu- the Midhordland district court led to lation of 3.4 million, and some have little legal training. But judges are being trained, courts settlement in more than 80% of cases.19 equipped with new resources and legal academies given the support they need. In the Slovak Republic the Bratislava Despite the challenges, postconflict economies are revitalizing their judiciaries. Burundi and district court keeps cases moving by al- Rwanda have enacted new civil procedure codes and reorganized their judiciaries since 2004. lowing adjournments only when there is Before the new commercial courts were established in Kigali, Rwanda had to change its law a compelling reason.20 In Israel in 2009 to allow the hiring of non-Rwandese expatriate judges. In May 2008, 2 Mauritian judges were the chief justice of the supreme court is- sworn in to help local judges run the new courts during the first 3 years of operation.2 Sierra sued an official instruction requiring the Leone is creating a new division of its high court for commercial cases, expected to start courts to refuse adjournments and pre- operating by the end of 2010, and is also working toward launching a fast-track commercial vent delay tactics in all but the most seri- court. Liberia is creating a new commercial court. Timor-Leste is improving the internal ous situations. In Ireland the Dublin com- organization of the district court of Dili, including by training and recruiting new judges. mercial court has the power to strike out 1. Samuels (2006). cases or order fines for failure to follow 2. Hertveldt (2008). the court's directions and timelines.21 can also prevent the loss, destruction distribution.14 In 2008 Moldova comput- MEASURING PERFORMANCE or concealment of court records.13 And erized its courts and introduced web- Measuring the performance of courts and allowing litigants to file complaints elec- sites and audio recording equipment. individual judges can increase efficiency. tronically in commercial cases, as the Court administrators reported that the Assessments of a court's performance United Kingdom recently did, makes changes made the courts' work faster, can help its personnel set concrete tar- initiating a lawsuit faster. In Armenia the easier and more efficient.15 Bulgaria's gets and aid in evaluating the court's introduction of electronic case manage- supreme courts computerized their court progress toward its goals, in setting bud- ment has increased transparency. Public records system in 2006, enabling litigants gets and in motivating staff to improve kiosks with touch screens located in to access court documents and track a performance.22 What gets measured can court buildings make case information case to its completion.16 All judgments of range from user satisfaction to costs, available to the public. But simply intro- the supreme courts have been accessible timeliness and clearance rates.23 Econo- ducing information technology does not online since October 2008. mies such as Australia, Singapore and solve underlying procedural inefficiency. the United States have been using tools to A thorough overhaul of court processes MANAGING CASES measure performance in the judicial sec- is also necessary. Judicial case management has proved to tor since the late 1990s.24 Others started Electronic systems also improve be effective in reducing procedural de- more recently. efficiency within the courts, making lays. It also helps in monitoring perfor- In 2005 the Netherlands introduced the work of judges and staff easier. In mance. Croatia is adopting an automated an innovative system that ties court Egypt employees in the Alexandria and case management system that it expects performance to budget allocation. The El Mansûra courts of first instance used will not only improve efficiency but also new system measures the output of the to transcribe judges' handwritten de- produce better statistical data for moni- courts--the number of cases resolved cisions on typewriters. But thanks to toring the performance of judges.17 in each case category--and the Minis- court modernization efforts, now they Botswana introduced case manage- try of Justice then allocates a budget to can transcribe decisions directly into ment in its high court rules in 2008. The each court on that basis. Any operating an electronic system, to be archived and average duration of trials has since fallen surplus can be added to a court's future promptly produced for docketing and from 912 days to 550. In 2006 Fiji ap- budget, giving the court an incentive to ENFORCING CONTRAC TS 75 TABLE 10.4 WHAT ARE SOME RESULTS? Who makes enforcing contracts easy--and who does not? Procedures (number of steps) Well-functioning courts help businesses Fewest Most expand their networks and markets. Ireland 20 Guinea 50 Without effective contract enforcement, Singapore 21 Kuwait 50 people might well do business only with Hong Kong SAR, China 24 Belize 51 family, friends and others with whom Rwanda 24 Iraq 51 they have established relationships. Austria 25 Oman 51 Successful court reforms increase Belgium 26 Timor-Leste 51 efficiency and save time. That's the case Luxembourg 26 Kosovo 53 Netherlands 26 Sudan 53 in Rwanda. The commercial courts inau- Czech Republic 27 Syrian Arab Republic 55 gurated in Kigali in May 2008 have com- Iceland 27 Brunei Darussalam 58 pleted more than 81.5% of the cases re- Time (days) ceived. Because half the 6,806 cases that the Kigali commercial courts received Fastest Slowest and resolved in 2008­09 had been trans- Singapore 150 Timor-Leste 1,285 ferred from other courts, that means Uzbekistan 195 Slovenia 1,290 a big reduction in the case backlog.27 New Zealand 216 Sri Lanka 1,318 Belarus 225 Trinidad and Tobago 1,340 The improved infrastructure of the new Bhutan 225 Colombia 1,346 commercial courts also reduced delays Korea, Rep. 230 India 1,420 in commercial dispute resolution. The Rwanda 230 Bangladesh 1,442 registry, having mastered the new case Azerbaijan 237 Guatemala 1,459 registration system, now enters cases Kyrgyz Republic 260 Afghanistan 1,642 into the system swiftly. And time for ser- Namibia 270 Suriname 1,715 vice by bailiffs has decreased. Since 2008 Cost (% of claim) the average time to resolve a commercial Least Most dispute has declined by nearly 3 months, Bhutan 0.1 Comoros 89.4 from 310 days to 230. Iceland 8.2 Malawi 94.1 In 2002 Pakistan implemented the Luxembourg 9.7 Cambodia 102.7 Access to Justice Program to reduce de- Norway 9.9 Papua New Guinea 110.3 lays in a number of pilot courts. The Korea, Rep. 10.3 Zimbabwe 113.1 improvements cost $350 million and fo- China 11.1 Indonesia 122.7 cused on providing more training, such Poland 12.0 Mozambique 142.5 as in case management techniques. Re- Thailand 12.3 Sierra Leone 149.5 Slovenia 12.7 Congo, Dem. Rep. 151.8 search analyzing court data for 2001­03 Portugal 13.0 Timor-Leste 163.2 shows that after the court reform, 25% Source: Doing Business database. more cases were decided in the affected districts.28 In 1993 India introduced debt improve its efficiency. Besides output, of decisions, the treatment of the par- recovery tribunals, an expedited enforce- the Dutch system also evaluates judicial ties, the promptness of the proceedings, ment mechanism that bypasses normal quality, which includes the quality of the competence of the judge and the court procedures. Research drawing on judicial decisions, the timeliness of pro- organization and management of adju- data for 2000­03 finds that introducing ceedings, the degree to which court of- dication.26 Malaysia introduced a per- the tribunals reduced nonpayment of ficials treat the parties in a case with due formance index for judges in 2009. The debt by 3­11% and made loans 1.4­2 respect and the expertise, independence index, fixed by the judges themselves, percentage points cheaper.29 and impartiality of judges.25 is aimed at allowing them to assess and Extending the use of information Finland introduced quality bench- monitor their performance. The result: and communication technology can re- marks in a number of courts in 2006. case disposal rates in Malaysian courts duce costs. In Austria a "data highway" These are used to measure the opera- are already improving. for the courts that allows documents to tional performance of courts, the quality be sent electronically has produced huge savings. In 2009 there were about 3.4 million electronic exchanges of docu- ments related to summary proceedings 76 DOING BUSINESS 2011 FIGURE 10.5 14. U.S. Agency for International Develop- Information technology in Austrian courts ment, "Egypt--Before & After: Modern- saved more than 11 million over 3 years 1. Dearbhail McDonald, "Disputes before ization Raises Court's Efficiency," http:// the Commercial Court Soar to Record www.usaid.gov/stories/. 11.2 Level," Irish Independent, July 6, 2009, 15. Millennium Partners, "The Moldova http://www.independent.ie/. Governance Threshold Country Program Total 8.8 4.4 (MCC)/USAID," http://www 2. Dearbhail McDonald, "Business and Debt Lawsuits Double in Wake of Down- .millenniumpartners.org. See also 2009 3.4 turn," Irish Independent, July 24, 2009, USAID (2010). http://www.independent.ie/. 16. See Pepys (2003) and Supreme Adminis- 3.6 trative Court of the Republic of Bulgaria, 2008 3.1 3. Courts of Denmark, "Statistics," http:// www.domstol.dk/. http://www.sac.government.bg/. 3.2 4. Lippman (2010) and William Glaberson 17. Botero and others (2003). 2007 2.3 "The Recession Begins Flooding into the 18. AusAID (2005, p. 51). Courts," New York Times, December 28, 19. CEPEJ (2006). Documents Savings 2009. submitted in postage 20. CEPEJ (2006). electronically ( millions) 5. Zhu Zhe and Yang Wanli, "Court Cases (millions) 21. CEPEJ (2006). Reach Record High in 2009," Source: Austrian Judicial System, http://www.justiz.gv.at. China Daily, March 12, 2010, http:// 22. See National Center for State Courts www.chinadaily.com.cn. (2005a). 6. Commercial Court of Podgorica (2009). 23. National Center for State Courts (2005a, (figure 10.5). The savings in postage 2005b). 7. Commercial Courts of Serbia, http:// alone amounted to 4.4 million. In Tur- www.portal.sud.rs. 24. For the United States, see the official key the use of text messaging for legal website of the National Center for State 8. Awad Mustafa, "Specialised Courts notifications--such as to communicate Courts (http://www.ncsconline.org/) and Tackle 51% Increase in Cases," The Na- North Carolina Court System, "Court the dates of court hearings--has allowed tional (Dubai), April 18, 2010, http:// Performance Management System," savings in postage of up to 7 million www.thenational.ae/. http://www.nccourts.org/. Turkish liras (about 3.3 million) a year. 9. Bae and Goyal (2009, p. 823) show that 25. Albers (2009). "banks respond to poor enforceability By early 2010 nearly 2,000 lawyers and of contracts by reducing loan amounts, 26. See Finland Judiciary (2006). 80,000 citizens in Turkey were using the shortening loan maturities, and increas- 27. Interview by the Business Times (Kigali) system, and the numbers were growing ing loan spreads." with the vice president of the commer- by 500 a day.30 10. See EBRD (2006). cial high court, Benoit Gatete, January 12, 2010, http://allafrica.com/. 11. World Bank (2010b, p. 34), citing Zucker and Herr (2003). 28. Chemin (2009). 12. Electronic Proceedings Project (2010). 29. Visaria (2009). 13. See Pepys (2003). 30. European Commission (2010). 77 Starting a business FIGURE 11.1 Dealing with construction permits Insolvency act starts to pay off in the Czech Republic Who improved the most Registering property in closing a business? Getting credit 55.9 1. Czech Republic Protecting investors 2. Serbia Paying taxes 3. Latvia Trading across borders 4. United Kingdom Enforcing contracts 5. Belgium 17.0 6. Japan Closing a 2009 6.5 14.5 20.9 7. 8. Spain Korea, Rep. business 2010 3.2 9. 10. Lithuania Hungary Time Cost Recovery rate (years) (% of estate (cents on value) the dollar) Source: Doing Business database. When Jan checked into Starý zámek, Historically, crises have been used as an out-of-court debt restructuring. In Hong a business hotel in downtown Prague, opportunity to improve insolvency laws. Kong SAR (China), following an increase he found everything just as expected: a As anticipated in Doing Business 2010, in bankruptcy petitions from 10,918 in polite greeting from the reception staff, a several legislative changes in 2009/10 2007 to 15,784 in 2009,1 a new "corporate comfortable room, neatly arranged tow- were inspired by the recent global fi- rescue" reorganization procedure was els. Imagine his surprise when a waiter nancial and economic crisis. Germany under consideration in June 2010. serving him breakfast in the café the next extended until 2013 its suspension of Keeping viable businesses operating morning mentioned that the hotel could the obligation to file for insolvency for is one of the important goals of bank- close any day--because the company overindebted companies whose business ruptcy systems.2 A firm suffering from running it had been badly hit by the cri- would be likely to continue. The suspen- bad management choices or a temporary sis. Jan, an attorney, checked the online sion, made in 2008 and initially sched- economic downturn may still be capable insolvency register. He was relieved to uled to run only until the end of 2010, of being turned around. In most cases find documents showing that the com- is aimed at keeping courts from being keeping the business alive is the most pany was being reorganized. So the hotel overwhelmed by the many filings result- efficient outcome. Creditors get a chance was likely to continue operating well ing from the crisis. to recover a larger part of their credit, beyond his planned 3-week stay. Other changes addressed increases more employees keep their jobs, and Saving viable businesses becomes es- in insolvency cases. Latvia introduced the network of suppliers and customers pecially important in times of recession. a new out-of-court procedure in 2009. is preserved. But not all businesses that Romania established special preinsol- become insolvent are viable. A good TABLE 11.1 vency procedures in 2010 for distressed bankruptcy system weeds out the bad Where is closing a business easy-- and where not? companies trying to avoid bankruptcy. from the good. RECOVERY RECOVERY In another response to the crisis, Spain Many recent reforms of bankruptcy Easiest RATE Most difficult RATE passed a new law in 2009 introducing laws have been aimed at promoting reor- Japan 92.7 Liberia 8.4 FIGURE 11.2 Singapore 91.3 Sierra Leone 8.4 What are the time, cost and outcome of the insolvency proceedings against a local company? Canada 91.2 Ukraine 7.9 Norway 90.9 Haiti 6.7 Denmark 89.4 Venezuela, RB 5.9 Court Finland 89.4 Philippines 4.5 United 88.6 Micronesia, Fed. Sts. 3.2 Outcome Kingdom Time Congo, Dem. 1.1 Cost Belgium 87.6 Rep. Recovery rate Ireland 87.4 Zimbabwe 0.2 Taiwan, China 82.2 Central African 0.0 Secured INSOLVENCY Republic creditor Insolvent Unsecured (bank) company creditors Note: Rankings are based on the recovery rate: how many cents on the dollar creditors recover from an insolvent firm. See Data notes for details. SECURED OTHER Source: Doing Business database. LOAN CLAIMS 78 DOING BUSINESS 2011 ganization as the most intuitively effec- FIGURE 11.3 Rapid pace of bankruptcy reforms in OECD high-income economies and tive way for viable businesses to survive. Eastern Europe and Central Asia The new bankruptcy law that went into Number of Doing Business reforms making it easier to close a business by Doing Business report year effect in Brazil in 2005 is one example. DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 Estonia passed a special reorganization OECD act in 2008. In 2009 Japan made it easier high income 29 (30 economies) to transfer necessary business permits to the new companies created as a result of Eastern Europe & Central Asia 24 reorganization. In June 2010 new legisla- (25 economies) tion focusing on the reorganization of East Asia small and medium-size enterprises was & Pacific 8 (24 economies) being discussed in India. The Czech Republic adopted a new Latin America & Caribbean 8 insolvency act in 2006 to help more viable (32 economies) businesses survive. Under the previous Sub-Saharan law, adopted in 1991, insolvency always Africa 7 (46 economies) resulted in liquidation. Debt could be Middle East & restructured, but only through informal North Africa 3 means, outside the official bankruptcy (18 economies) procedures. By June 2010 more than 50 South Asia 1 filings for reorganization had been re- (8 economies) corded and 31 reorganizations approved Note: A Doing Business reform is counted as 1 reform per reforming economy per year. The data sample for DB2006 (2005) includes 174 under the new law.3 The full benefits of economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. the new law will take time to material- Source: Doing Business database. ize. Insolvency proceedings in the Czech Republic can still take more than 3 years, banca rupta, referring to the practice of of the value of the estate. and the number of approved reorganiza- breaking a moneylender's bench, some- In 22 of the 30 OECD high-income tions remains low, with 6 in 2008, 16 in times over his head. Today the stigma of economies, businesses have a chance to 2009 and 9 in the first 6 months of 2010.4 bankruptcy continues to be among the survive as a going concern following in- Doing Business studies the time, reasons that debtors in many economies solvency proceedings. In the past 20 years cost and outcome of insolvency proceed- in the Caribbean, Central America, the many OECD high-income economies ings involving domestic entities (figure Middle East and North Africa and Sub- introduced or strengthened insolvency 11.2).5 Speed, low costs and continua- Saharan Africa do not easily resort to regimes along the principles of the U.S. tion of viable businesses characterize insolvency procedures. Older laws take chapter 11 process. Sweden reformed in- the top-performing economies. Doing a much more punitive approach than solvency regulations in 1996, Belgium in Business does not measure insolvency newer ones. Modern bankruptcy laws 1997, Germany in 1999, France and Italy proceedings of individuals and financial focus on the survival of viable businesses in 2006 and Finland in 2007, among oth- institutions.6 and the creation of solid reorganization ers.7 A parallel trend was to improve the procedures. infrastructure of bankruptcy systems. In WHAT ARE THE TRENDS? 2006 the Czech Republic increased trans- EVER-GREATER EFFICIENCY IN OECD parency by introducing an online register Bankruptcy regulation continues to vary HIGH-INCOME ECONOMIES for documents produced in the course of across regions, and so does the pace of Bankruptcy processes tend to be more proceedings. In 2009 the United Kingdom bankruptcy reform (figure 11.3). And efficient in OECD high-income econo- allowed court documents to be signed and while some economies have made con- mies (figure 11.4). This is reflected in filed electronically as part of the courts' tinual efforts to improve their insolvency their average recovery rate of 69.1 cents greater use of information technology. laws, implementing the new legal provi- on the dollar, the highest rate globally. In June 2010 Poland was in the early sions and supporting them with adequate These economies also have the fastest stages of implementing a comprehensive infrastructure remain crucial. proceedings, taking an average of 1.7 training program for insolvency judges. A declaration of bankruptcy origi- years (down from 2.0 in 2004). And The country plans to position its training nally carried great stigma. This is clear they have the cheapest proceedings after institutions as international leaders. from the word's origins in the Italian South Asia's, costing an average of 9.1% CLOSING A BUSINESS 79 FIGURE 11.4 vency administrators. In May 2009, 10 Big increase in recovery rate in Eastern Europe and Central Asia Regional averages in closing a business economies signed a joint declaration on intended reforms of their insolvency re- Recovery rate (cents on the dollar) gimes. The legislative changes in Egypt, OECD high income 67.0 69.1 Jordan and the other economies were East Asia & Pacific 33.0 34.4 still being discussed in June 2010. Eastern Europe & Central Asia 26.5 32.6 DB2011 DB2006 Insolvency proceedings in the Mid- Latin America & Caribbean 29.7 32.8 dle East and North Africa are the lon- Sub-Saharan Africa 19.1 23.2 28.3 33.0 2010 gest after South Asia's. The number of Middle East & North Africa global 28.0 28.7 average cases that go through court remains low. South Asia 37.7 Creditors and debtors rarely resort to Time (years) collective procedures. OECD high income 1.7 2.0 East Asia & Pacific 2.7 2.8 NEW LAWS AND INCENTIVES IN LATIN Eastern Europe & Central Asia 2.9 3.1 AMERICA Latin America & Caribbean 3.3 3.5 Several economies in Latin America and Sub-Saharan Africa 3.4 3.4 the Caribbean have recently introduced Middle East & North Africa 3.4 3.6 or are contemplating changes to the reg- South Asia 4.5 5.0 ulation of insolvency administrators. In 2.9 2005 Chile linked the calculation of ad- Cost (% of estate) ministrators' fees to the amounts realized OECD high income 9.1 9.1 from the sale of distressed companies' East Asia & Pacific 23.2 24.2 assets. This was done to encourage quick Eastern Europe & Central Asia 13.4 13.5 15.9 16.3 and efficient sales. Similarly, in 2009 Latin America & Caribbean 19.9 20.7 Colombia introduced monetary incen- Sub-Saharan Africa 13.3 13.6 tives for speedy resolution of bankruptcy Middle East & North Africa South Asia 6.5 6.5 processes by insolvency representatives, 15.6 along with additional rules on their qual- ifications and training. In June 2010 Peru Note: The data sample for DB2006 (2005) includes 174 economies. The sample for DB2011 (2010) also includes The Bahamas, Bahrain, Brunei Darussalam, Cyprus, Kosovo, Liberia, Luxembourg, Montenegro and Qatar, for a total of 183 economies. was considering a reform of its regula- Source: Doing Business database. tion of insolvency administrators. A regional trend in the past 3 years A MIXED STORY IN EAST ASIA AND THE PACIFIC mon. Reorganization rarely happens. was to focus on improving reorganiza- Recent changes include a new company tion procedures. Colombia and Mexico Bankruptcy systems in East Asia and the law and a receivership law that went into passed reorganization laws in 2007. Uru- Pacific show a mixed story. The average effect in Samoa in 2008. In June 2010 guay did the same in 2008. recovery rate in Hong Kong SAR (China), new insolvency legislation, modeled on Singapore and Taiwan (China) is 84.9 the New Zealand system, was pending BROAD PROGRESS IN EASTERN cents on the dollar, while the region- in Tonga. EUROPE AND CENTRAL ASIA wide average is 34.4. The average cost of In Eastern Europe and Central Asia most insolvency proceedings in the region is BANKRUPTCY REFORMS RARE IN THE of the economies have postsocialist legal the highest in the world, at 23.2% of the MIDDLE EAST AND NORTH AFRICA systems. Bankruptcy was virtually nonex- value of the debtor's estate. On the other The average recovery rate in the Middle istent there 20 years ago. This is no longer hand, proceedings take 2.7 years on aver- East and North Africa is low, at 33.0 cents the case regionwide, with Albania, Azer- age, making the region the second fastest on the dollar. And changes to improve in- baijan and Tajikistan among the few ex- after the OECD high-income economies. solvency regulations are rare. In the past ceptions. Improvements have been made Many of the region's economies are year Saudi Arabia established additional in a range of areas, from regulation of in- small island nations where bankruptcy committees for amicable settlement of solvency administrators (Belarus, Estonia, proceedings are naturally rare because insolvencies. Egypt consulted interna- Lithuania and Russia) and out-of-court creditors and debtors tend to resolve tional experts and insolvency judges on settlements (Latvia, Romania and Serbia) insolvency situations through informal a new bill, to be aligned with its recently to the prevention of fraud and abuse in means. Among the formal mechanisms created commercial courts. Jordan is insolvency proceedings (Romania, Russia to address defaults, foreclosure is com- contemplating new regulations on insol- and Serbia; table 11.2). 80 DOING BUSINESS 2011 TABLE 11.2 Who made closing a business easier in 2009/10--and what did they do? Feature Economies Some highlights Established or promoted reorganiza- Belgium, Czech Republic, Hungary, Japan, Korea granted superpriority to postfiling financings in reorganiza- tion procedures or prepackaged Republic of Korea, Latvia, Romania, tions. reorganizations Russian Federation, Saudi Arabia, Serbia, Spain Eliminated formalities or introduced or Estonia, Georgia, Latvia, Saudi Arabia, Serbia, Spain, Serbia passed a new bankruptcy law aimed at, among other as- tightened time limits United Kingdom pects, reducing the length of insolvency procedures. Regulated the profession of insolvency Belarus, Estonia, Lithuania, Russian Federation, The United Kingdom improved the calculation of insolvency ad- administrators United Kingdom ministrators' fees. Took steps to prevent abuse Romania, Russian Federation, Serbia Russia enhanced the voidable transactions regime. Modified obligation for management Czech Republic, Russian Federation The Czech Republic suspended management's obligation to file for to file for insolvency insolvency in certain circumstances. Promoted specialized courts Romania Special insolvency departments were created within Romanian courts. Source: Doing Business database. Despite improvements, the average enforcement, judges have little or no expe- WHAT HAS WORKED? recovery rate in Eastern Europe and Cen- rience in handling bankruptcy cases, and tral Asia remains low, at 32.6 cents on the costs are prohibitive. Indeed, only East Many features can enhance a bankruptcy dollar, mainly because of the weak insti- Asia and the Pacific has more expensive system. Key are the mechanisms for cred- tutional framework. The implementa- insolvency proceedings on average, and itor coordination, qualified insolvency tion of insolvency laws and professional only South Asia and the Middle East and administrators and a framework that en- standards for administrators is lagging North Africa have longer ones. To close ables parties to negotiate out of court. An behind the rapid pace of reform in bank- a business in Sub-Saharan Africa costs efficient judicial process is also critical. ruptcy regimes. 20.7% of the value of the debtor's estate and takes 3.4 years on average. EMPOWERING CREDITORS NEW INSOLVENCY REGULATIONS Only a small number of economies Creditors' committees ensure control for EXPECTED IN SOUTH ASIA in the region have improved their insol- the creditors over bankruptcy proceed- In South Asia outdated laws based on vency systems in recent years. Mauritius ings. They supervise the operation of a the British "winding-up" model are still and Rwanda implemented new insol- business by a debtor-in-possession and binding in several economies. Insolvency vency acts in 2009. In June 2010 Malawi sometimes participate in the preparation proceedings in the region are the longest was working on a new insolvency act, of a reorganization plan. In Finland credi- in the world, taking 4.5 years on average. and South Africa was contemplating a tors' committees play a significant role in But the cost of proceedings is the lowest reform of its regulation of insolvency ad- reorganization proceedings. globally, averaging 6.5% of the value of ministrators. Meanwhile, the 16 member More than half the 183 economies the debtor's estate. states of the Organization for the Harmo- covered by Doing Business recognize In June 2010 bankruptcy reforms nization of Business Law in Africa were creditors' committees (table 11.3). Almost were being discussed in at least 3 econo- discussing an amendment of the uniform all insolvency laws in Eastern Europe mies. Afghanistan was working with in- act on insolvency. and Central Asia, OECD high-income ternational insolvency experts on ways to improve its insolvency framework. India and Pakistan were considering passing TABLE 11.3 Good practices around the world in making it easy to close a business laws on restructuring. Practice Economiesa Examples LITTLE PRACTICE IN AFRICA Allowing creditors' committees a 100 Colombia, Finland, Singapore Sub-Saharan Africa has the largest share say in relevant decisions of economies with little or no insolvency Requiring professional or academic 62b Botswana, Hong Kong SAR (China), Mexico practice. Twelve of the region's 46 econ- qualifications for insolvency admin- istrators by law omies--more than a quarter--have had Providing a legal framework for 45 Cyprus, Italy, Puerto Rico fewer than 5 insolvency cases annually in out-of-court workouts recent years. In these economies the law a. Among 149 economies surveyed, unless otherwise specified. still contemplates imprisonment (con- b. Among 147 economies surveyed. Source: Doing Business database. trainte par corps) as a method of debt CLOSING A BUSINESS 81 economies and South Asia acknowledge lished specific professional or academic mies surveyed by Doing Business legally a creditors' committee as a participant requirements to ensure that the person requires professional qualifications for in bankruptcy proceedings. In the Mid- replacing management has the knowl- administrators. In the Middle East and dle East and North Africa, by contrast, edge and skills to do so. Most of the sur- North Africa only 3 economies do. creditors' committees are not popular. In veyed economies in Eastern Europe and Mandatory qualification require- Sub-Saharan Africa 69% of the surveyed Central Asia and the OECD high-income ments are based on the notion that where economies allow creditors' committees a group have done so. But approaches dif- qualified insolvency professionals are in- say in insolvency proceedings, while 65% fer. Germany's insolvency act only has a volved, viable businesses should have do in East Asia and the Pacific. general requirement that an administra- higher chances of survival and nonviable tor be qualified for the case and experi- ones should generate higher proceeds INSISTING ON QUALIFICATIONS enced in business. By contrast, in Canada in liquidation. Where the law has no re- Professional insolvency administrators trustees in bankruptcy are licensed by quirements, the insolvency administra- assist and sometimes replace the man- the Office of the Superintendent of Bank- tor is generally a trusted representative agement of an insolvent company. Their ruptcy. The Canadian Association of In- of the creditors or a person deemed by a tasks normally include registering all the solvency and Restructuring Professionals court to be up to the job. creditors' claims, assessing and admin- administers the official qualification pro- istering the company's assets (on their cess for individuals seeking to become li- PROMOTING OUT-OF-COURT WORKOUTS own or with the debtor's management or censed trustees and establishes the rules creditors' committee), recovering assets of professional conduct and standards of The global financial crisis caused a surge disposed of shortly before the insolvency professional practice for the members. in insolvency filings, especially in East- and liquidating a bankrupt estate. Na- The insolvency laws of most of the ern Europe and Central Asia and OECD tional laws vary in their approaches to surveyed economies in East Asia and the high-income economies. In Hungary the determining whether insolvency admin- Pacific, Latin America and the Carib- number of bankruptcy filings increased istrators are qualified for these tasks. bean and Sub-Saharan Africa contain no by 29% in 2009 compared with 2008.8 In Only 42% of the economies sur- requirements for insolvency administra- England and Wales the number of com- veyed by Doing Business have estab- tors. In South Asia none of the econo- pany liquidations rose by 22.8% in 2009 TABLE 11.4 compared with the previous year.9 Who makes closing a business easy--and who does not? One way to ease the burden on courts is to limit their involvement to Time (years) cases where parties cannot agree on their Fastest Slowest own. Yet only about 45 economies in a sample of 149 have a framework for Ireland 0.4 Ecuador 5.3 Japan 0.6 Micronesia, Fed. Sts. 5.3 out-of-court workouts that allows credi- Canada 0.8 Indonesia 5.5 tors and debtors to bring to a court a Singapore 0.8 Haiti 5.7 prenegotiated reorganization plan. The Belgium 0.9 Philippines 5.7 restructuring framework that the Bank Finland 0.9 Belarus 5.8 of England began to develop after the Norway 0.9 Angola 6.2 recession of the mid-1970s in the United Australia 1.0 Maldives 6.7 Kingdom, known as the "London ap- Belize 1.0 India 7.0 Iceland 1.0 Mauritania 8.0 proach," ensured the survival of many companies in later crises. And it inspired Cost (% of estate) similar sets of rules in other economies, Least Most including Indonesia, Korea, Malaysia, Colombia 1.0 Micronesia, Fed. Sts. 38.0 Thailand and Turkey.10 Kuwait 1.0 Philippines 38.0 Out-of-court workouts are most Norway 1.0 Samoa 38.0 common in OECD high-income econo- Singapore 1.0 Solomon Islands 38.0 mies. In Sub-Saharan Africa only 22% Bahamas, The 3.5 Vanuatu 38.0 Belgium 3.5 Venezuela, RB 38.0 of the surveyed economies have rules on Brunei Darussalam 3.5 Sierra Leone 42.0 out-of-court settlement for bankruptcy. Canada 3.5 Ukraine 42.0 Where there are no explicit rules, credi- Finland 3.5 Liberia 42.5 tors and debtors can usually negotiate Georgia 3.5 Central African Republic 76.0 the restructuring of debt by using the Source: Doing Business database. generally applicable laws on contracts 82 DOING BUSINESS 2011 FIGURE 11.5 Thus to avoid abuse of well-in- A reform of bankruptcy laws can Big jump in reorganization filings after a new law in the Republic of Korea tended provisions, the law should al- lead to important time and cost savings. ways include a system of checks and In 1999 Colombia limited the duration 600 Reorganization balances--such as liability for frivolous of a reorganization procedure by setting filings 500 Debtor Rehabilitation filings or robust practices for bringing a maximum of 8 months for negotia- and Bankruptcy Act assets tunneled out of a debtor's business tions. If no agreement is reached within 400 takes effect in April 2006 back into the estate. 8 months, liquidation becomes manda- 300 tory. According to a study of Colombian WHAT ARE SOME RESULTS? firms that filed for insolvency between 200 Liquidation 1995/96 and 2003/04, the duration and filings 100 A well-balanced bankruptcy system cost of the reorganization process fell. functions as a filter, separating compa- Moreover, the selection of viable firms 0 nies that are financially distressed but into reorganization improved.16 In 2009 2006 2007 2008 2009 economically viable from inefficient Spain raised the ceiling for its expedited Source: Supreme Court of Korea. companies that should be liquidated.11 bankruptcy procedure from a debt value By giving efficient companies a chance of 1 million to 10 million. As a result, and obligations. The disadvantage of such at a fresh start, bankruptcy law helps about 70% of bankruptcy proceedings in agreements is that they are not opposable maintain a higher overall level of entre- Spain are now eligible for the expedited to any of the creditors who did not par- preneurship in an economy.12 And by procedure. This procedure is less costly ticipate in the settlement negotiations or letting inefficient companies go, it fosters than the regular one because it requires become party to the ultimate agreement. an efficient reallocation of resources. appointing only 1 insolvency adminis- Well-functioning insolvency re- trator (rather than 3). The changes are KEEPING ABUSE IN CHECK gimes can facilitate access to finance, expected to reduce the backlog in insol- Debtors filing for reorganization often do especially for small and medium-size vency courts, which may also result in so because once a court accepts the case, enterprises, and thereby improve growth shorter proceedings. it usually puts the enforcement of claims in the economy overall.13 A study of the A study of the 2000 bankruptcy of individual creditors on hold. This al- 2005 bankruptcy reform in Brazil finds reform in Mexico also shows clear gains. lows management and shareholders to that it led to an average reduction of 22% Looking at a sample of 78 bankruptcy gain time, often for legitimate reasons in the cost of debt for Brazilian compa- cases in 1991­2005, the study finds that but sometimes to tunnel valuable assets nies, a 39% increase in overall credit and the average time to go through bank- out of the company. Moreover, debtors a 79% increase in long-term credit in the ruptcy fell from 7.8 years to 2.3 years, may threaten to file for reorganization economy.14 Improvements in protection thus increasing the amounts recovered and use this threat as leverage in restruc- for creditors led them to expect that by creditors.17 In 2008 Lithuania elimi- turing negotiations with creditors. more assets would be available to them nated a statutory prefiling waiting period Creditors too can use the threat to in insolvency. Since the risks for credi- of 3 months. Creditors could give debtors file for bankruptcy, to force their terms tors were reduced, the costs for debtors 1 month's notice of their intention to file on debtors. In many economies banks were reduced as well.15 for bankruptcy, and insolvency proceed- and companies prefer to avoid doing The efficiency of bankruptcy systems ings could commence 2 months earlier business with a bankrupt firm, so a can be tested only if they are used. Cam- than before. debtor will go to great lengths to try to bodia passed an insolvency law in 2007, avoid bankruptcy. Where the law estab- but by the end of 2009 not a single case lishes criminal liability of managers and had been filed under the new law. While shareholders for the company's simple Mexico introduced a framework for out- 1. Official Receiver's Office of the govern- ment of Hong Kong SAR (China), http:// failure to repay regular commercial debt, of-court workouts in 2007, this option has www.oro.gov.hk. this often leads to abuse by creditors. not been widely used. Korea had a differ- 2. See Djankov, Hart, McLiesh and Shleifer This happens in some Sub-Saharan Af- ent experience after it adopted the 2006 (2008). rican economies and in the Middle East Debtor Rehabilitation and Bankruptcy 3. Ministry of Justice of the Czech and North Africa. A more reasonable Act introducing debtor-in-possession re- Republic, http://portal.justice.cz. option is for the law to establish manag- organization and allowing management 4. Ministry of Justice of the Czech ers' personal liability for failure to file to remain onboard to administer the Republic, http://portal.justice.cz. for insolvency when mandated by law company's turnaround. The number of 5. Outcome refers to whether the hotel or criminal liability only for engaging in reorganization filings jumped from 76 in business in the Doing Business case study emerges from the proceedings as a going fraudulent transactions. 2006 to 670 in 2009 (figure 11.5). CLOSING A BUSINESS 83 concern or whether the company's assets are sold piecemeal (see Data notes). 6. See Djankov (2009a). 7. See Dewaelheyns and Van Hulle (2009a). 8. Hungarian Association of Insolvency Practitioners, http://www.foe.hu. 9. Insolvency Service of the United Kingdom, http://www.insolvency.gov.uk. 10. See Lieberman and others (2005) and Mako (2005). 11. See Dewaelheyns and Van Hulle (2009b). 12. See Armour and Cumming (2008). 13. See Uttamchandani and Menezes (2010). 14. See Funchal (2008). 15. See Funchal (2008). 16. See Giné and Love (2006). 17. See Gamboa-Cavazos and Schneider (2007). 84 DOING BUSINESS 2011 Annex: FIGURE 12.1 Getting Electricity measures the connection process at the level of distribution utilities pilot indicators on getting GENERATION TRANSMISSION electricity DISTRIBUTION New connections Network operation and maintenance Metering and billing CUSTOMER A young entrepreneur who manufactures warehouse in Berlin-Westhafen. His ware- providing reliable and affordable elec- home furnishings in Moscow is working house is hooked up to electricity in less tricity to businesses. hard to expand her business by setting than 3 weeks. The process involves just 3 Whether electricity is reliably avail- up a new warehouse. She negotiated interactions with the utility and costs only able or not, the first step for a customer is financing with the bank, spent weeks half the country's income per capita. always to gain access by obtaining a con- getting building and operating permits World Bank Enterprise Surveys in nection. It is this first and key step that and invested in new machinery as well as 108 economies show that firms consider Doing Business aims to measure through a new building. She has employees lined electricity to be among the biggest con- a new set of indicators. Introduced in up and is ready to get started. But the straints to their business.2 Poor electric- Doing Business 2010 with data for an young entrepreneur will have to wait. She ity supply has adverse effects on firms' initial 140 economies, these indicators needs to obtain a new electricity connec- productivity and the investments they measure the procedures, time and cost tion for the warehouse, and in Moscow make in their productive capacity.3 To for obtaining a new electricity connec- that requires many interactions with the counter weak electricity supply, many tion. The Getting Electricity data set cov- utility, takes more than 10 months on firms in developing economies have to ers only a small part of electricity service average and costs more than 40 times the rely on self-supply through a generator.4 (figure 12.1). Yet it provides information income per capita.1 The cost of self-supply is often prohibi- on a number of issues for which data Compare the experience of a similar tively high, especially for small firms,5 previously did not exist for such a large entrepreneur in Germany, constructing a underlining the importance of utilities' number of economies. FIGURE 12.2 Procedures to obtain an electricity connection in Azerbaijan add up to an 8-month process Time (days) 241 days 1. Application and technical 240 conditions 2. External inspection by utility 3. Technical design 180 4. Design approval from utility 5. Excavation permit 120 6. External connection works 7. External inspection by Ministry of Emergency Situations 60 8. External and internal inspection by Energy Inspectorate 9. Supply contract 0 1 2 3 4 5 6 7 8 9 Procedures Source: Getting Electricity database. ANNEX · GE T TING ELEC TRICIT Y 85 In 2009/10 Doing Business dissemi- TABLE 12.1 Who makes getting electricity easy--and who does not? nated a report with more detailed find- ings among regulators and academics to Procedures (number) solicit feedback on the Getting Electricity Fewest Most methodology and increased the sample Germany 3 Armenia 8 of economies surveyed to 176.6 As a re- Japan 3 Kyrgyz Republic 8 sult of the additional research and feed- Mauritius 3 Mongolia 8 back, minor changes were made to the Micronesia, Fed. Sts. 3 Nigeria 8 Qatar 3 Sierra Leone 8 methodology to clarify the underlying St. Vincent and the Grenadines 3 Azerbaijan 9 case study (for details on the methodol- Sweden 3 Russian Federation 9 ogy, see Data notes). Switzerland 3 Tajikistan 9 Timor-Leste 3 Uzbekistan 9 WHERE ARE CONNECTION Iceland 4 Ukraine 11 PROCESSES LONG AND CUMBERSOME--AND WHY? Time (days) Fastest Slowest In Baku, Azerbaijan, to get connected Germany 17 Vanuatu 257 to electricity by the local distribution St. Kitts and Nevis 18 Nigeria 260 utility requires 9 procedures, including Iceland 22 Pakistan 266 undergoing multiple inspections by the Austria 23 Czech Republic 279 utility and 2 outside agencies and getting Samoa 23 Russian Federation 302 a permit from the Ministry of Transport Taiwan, China 23 Ukraine 309 (figure 12.2). The cumbersome process St. Lucia 25 Kyrgyz Republic 337 takes 241 days and costs $31,848, or Rwanda 30 Madagascar 419 Chile 31 Guinea-Bissau 455 658% of income per capita. Puerto Rico 32 Liberia 586 Among the 176 economies sur- Source: Getting Electricity database. veyed, Azerbaijan ranks among the 10 with the most procedures. Economies thorities, including the telecommuni- burden to customers is not the only op- such as Germany, Japan, Mauritius and cations authority, sewerage authority, tion. Successful utilities engage actively the Federated States of Micronesia make public works department, municipality, with other service providers to ensure it much easier for businesses to connect archaeological department and fire bri- that working relationships are clear and to electricity (table 12.1). gade. This clearance process alone takes function smoothly. Take recent efforts The economies where the connec- 3­6 months. Meanwhile, the work to in Hong Kong SAR (China). In March tion process involves relatively few pro- install the connection must wait. 2010 the utility established a working cedures are also those where customers Where delays occur because other group with the police force and highway get connected faster. Where businesses public agencies are excessively slow and and transport departments to work out have to go through 3­5 procedures to bureaucratic, utilities may be tempted performance pledges that would allow get connected, the process takes 99 days to shift the administrative hassle to their quicker turnaround of approvals for ex- on average. But in economies with 6­11 customers.7 Among the procedures most cavation permits. procedures, it takes 138 days on average. commonly transferred to customers is And in the 10 economies with the most, applying to the municipality or the de- DIFFERENT WAYS TO DEAL WITH SAFETY CONCERNS it takes 233. partment of roads or transport for an ex- Why are particular procedures cavation permit or right of way so that the According to a survey by the Vietnam needed, and how can utilities minimize utility can lay the cables or extend wires Standards and Consumer Protection As- their effect in delaying connections? for the connection. Customers seeking a sociation, 83% of electrical wiring in connection undertake such procedures Ho Chi Minh City fails to meet quality MISSED OPPORTUNITIES FOR in 39 economies. Wait times range from standards.8 In the United States during STREAMLINING 1 day in Algeria to 60 in Madagascar, a typical year, home electrical problems Connection delays increase significantly Mongolia and República Bolivariana de account for 67,800 fires, 485 deaths and where utilities and other public agencies Venezuela. In Egypt customers have to $868 million in property losses. In urban miss opportunities to streamline approv- contact 2 agencies to obtain an excava- areas faulty wiring accounts for 33% of als. Take Cyprus. Before the utility can tion permit: the district office and the residential electrical fires.9 issue an estimate to a new customer, it Greater Cairo Utility Data Center. The safety of internal wiring instal- must contact several government au- But relegating the administrative lations is a concern not only for those 86 DOING BUSINESS 2011 FIGURE 12.3 Who is responsible for enforcing safety standards? Economies by type of safety certification for internal wiring (%) 100 No regulations for internal wiring safety Electrical contractor Combination of checks Utility or other agency 0 Eastern Europe OECD South Asia Latin America East Asia Sub-Saharan Middle East & & Central Asia high income & Caribbean & Pacific Africa North Africa Source: Getting Electricity database. using a building but also for utilities. One evant professional bodies. The customer suance of compliance certificates and customer's faulty internal wiring can lead is not involved. introducing nonmandatory inspections to power outages affecting other custom- But where professional standards by a new independent authority. The ers connected to the same distribution are poorly established or qualified elec- government is also working to reduce line. Because the quality of the internal trical professionals are in short supply, the shortage of skilled electricians in the installation matters to utilities and the utilities or designated agencies may be country. public alike, in most economies custom- better placed to carry out inspections While different approaches to deal- ers seeking a connection for their busi- that ensure the safety of customers, even ing with the safety of internal wiring ness need to go through some procedure if this leads to connection delays. In 15 installations can make sense in different to ensure that quality. of the 31 economies surveyed in Latin environments, some cases emerging from The approach taken to address safety America and the Caribbean, custom- the Getting Electricity data clearly suggest issues varies. Some economies regulate ers are required to contact an outside room for immediate improvement. Be- the electrical profession by establishing agency--often a regulatory agency, mu- cause electrical safety is a public concern, clear liability arrangements for electrical nicipality or fire department--to inspect governments that require no checks of contractors. Others regulate the connec- the internal wiring. electrical installations may fail to provide tion process by requiring customers to Economies seeking to shift from reg- an important public good. Twenty-nine obtain additional inspections and certifi- ulating the connection process to regulat- economies, many of them in the Middle cations from the utility or outside agen- ing the electrical profession have to be East and North Africa and Sub-Saharan cies before a new connection is granted careful not to transfer responsibility to Africa, fall into this category. At the other (figure 12.3). private professionals too early. Take the extreme are governments that require Getting Electricity data suggest that experience in South Africa.10 In 1992, multiple checks, imposing an excessive economies that regulate the electrical in an attempt to free utilities from the burden on customers seeking to get con- profession rather than the connection burden of inspecting internal wiring, the nected. Twenty-two economies, many process itself not only lessen the burden government made private electricians li- of them in Eastern Europe and Central on customers but also have shorter av- able for the quality of their wiring instal- Asia, are in this category. erage connection delays. In economies lations. But the shortage of qualified elec- such as Denmark, Germany and Japan trical professionals, and the ambiguity of MATERIAL SHORTAGES the quality of the internal wiring is the the regulations in assigning responsibili- Connecting a new customer to an elec- responsibility of the electrical contractor ties, led to an increase in customer com- tricity network requires materials and who did the installation. The utility sim- plaints about substandard wiring. After equipment. If the new connection is ply requests certification by the electrical 8 years of heated debate the government through an overhead line, wires must contractor that the internal wiring was introduced new internal wiring regula- be extended; if it is through an under- done in accordance with the prevailing tions in May 2009, clarifying standards ground connection, cables must be laid. standards, usually established by the rel- for electrical installations and the is- Often the utility will also have to install ANNEX · GE T TING ELEC TRICIT Y 87 FIGURE 12.4 Just buying the materials sometimes where the installed electrical capacity Lack of materials causes delays for utilities in 56% of low-income economies is not enough. Where utilities shift this tends to be more constrained--driving Share of economies where lack of materials responsibility to customers, they have to up absolute connection costs for new delays new electricity connections (%) ensure that the customers buy the right customers. The 10 economies with the 56 materials. This can mean additional pro- lowest costs are all high income except cedures. Customers in such economies as the Marshall Islands and Panama. The 10 Côte d'Ivoire, Guyana, Kosovo, Madagas- with the highest costs are all low income car, Nepal and Sierra Leone have to prove except Djibouti (table 12.2). Yet connec- to the utility that the materials they tion costs are not just a function of the purchased comply with the standards. general infrastructure in an economy. Sometimes they must even present the They vary significantly among econo- 24 materials for testing at the utility. mies within income groups, suggesting room to reduce the cost regardless of 14 WHAT DOES IT COST TO GET existing infrastructure (figure 12.5). CONNECTED? 2 TRANSPARENCY AND Low Lower Upper High ACCOUNTABILITY MATTER The same electricity need can require income middle middle income income income different connection works, depending As utilities allocate the costs for new Source: Getting Electricity database. on how constrained installed capacity connections between existing and pro- is. In some economies the Getting Elec- spective customers, they have to balance meters, new electricity poles and heavy tricity customer requesting a not trivial considerations of economic efficiency equipment such as distribution trans- but still relatively modest 140-kilovolt- and fairness. In practice, it is often diffi- formers. Requirements for materials not ampere (kVA) connection would simply cult to distinguish between capital works only translate into costs; they also can receive an overhead line or underground needed to connect specific customers lead to longer wait times. cable connection.11 But in many oth- and those needed to accommodate pro- Utilities, especially those in low- and ers the capacity of the existing network jected growth or to improve the safety lower-middle-income economies, often is constrained, and 140-kVA electricity or reliability of the distribution network. have to delay new connections because therefore requires a more complicated This leaves room to make new custom- they lack the materials needed (figure connection effectively leading to an ex- ers pay for investments in the network 12.4). In 39 economies survey respon- pansion of the distribution network. Such that will benefit other customers as well. dents reported additional wait times-- connections require significant capital Connection costs should therefore be as up to 180 days in Vanuatu--because investments (such as the installation of transparent as possible, to allow custom- in more than 50% of cases where new distribution transformers), often covered ers to contest them when they feel they connections were requested, the utility by the new customer. are paying more than they should. did not have such critical materials as Accommodating the demand of the But connection costs in many of the meters or distribution transformers in Getting Electricity customer is naturally economies surveyed are not fully trans- stock and had to order them specially. more likely to require additional capital parent. Utilities far too often present cus- This suggests that the utility faces either investment in low-income economies, tomers with individual budgets rather financial or inventory and procurement TABLE 12.2 management constraints. Who makes getting electricity least costly--and who most costly? In 16 economies the utility com- Cost (% of income per capita) pleting the external connection works asked customers to provide such materi- Least Most als as poles, meter boxes or transformers Japan 0.0 Madagascar 8,268.0 because it did not have them in stock. Hong Kong SAR, China 1.9 Djibouti 10,008.1 Requiring individual customers to pur- Trinidad and Tobago 2.5 Malawi 11,703.7 Qatar 5.1 Guinea 13,275.4 chase materials is not a cost-effective Marshall Islands 6.5 Central African Republic 13,298.3 way to maintain a distribution network. Iceland 6.6 Chad 14,719.8 But customers are often happy to com- Norway 7.3 Burkina Faso 14,901.3 ply. In Malawi customers purchasing the Australia 9.5 Benin 15,452.0 materials themselves reduced the time Panama 9.9 Congo, Dem. Rep. 27,089.4 required for obtaining a connection from Israel 12.6 Burundi 36,696.7 2­3 years to 8 months on average. Source: Getting Electricity database. 88 DOING BUSINESS 2011 FIGURE 12.5 121% of income per capita--and being Connection costs vary by type of connection and among $437,000 prevented from putting the money to a economies within income groups US$ thousands more productive use. Connection involving an extension and installation of a distribution transformer Not surprisingly, where court sys- 150 tems are inefficient and contracts can Connection involving only an extension be enforced only with significant delays, of an overhead line or underground cable 120 utilities are more likely to request a secu- Highest cost rity deposit (figure 12.7). Where utilities feel that they have 90 to rely on security deposits, they should at least consider lessening the financial 60 burden for customers. In 20 economies utilities do so by allowing customers to Average cost settle the security deposit with a bank 30 guarantee or bond rather than deposit Lowest the entire amount with the utility. The 0 cost service cost for such bank guarantees Low Lower Upper High Low Lower Upper High usually amounts to less than the interest middle middle middle middle Income group Income group that customers lose on the deposit. More Source: Getting Electricity database. important, bank guarantees both allow customers to keep control of their finan- than follow clearly regulated capital con- material and inspections required.12 cial assets and improve their cash flow. tribution policies aimed at spreading the The fixed connection fee represents Where credit reports are widely fixed costs of expanding the network a far bigger share of the total cost in available, utilities can be more selective, over several customers. To illustrate, Get- high-income economies than in low- and asking only customers with a weak credit ting Electricity divides costs into 2 main middle-income economies (figure 12.6). history to put up a security deposit. This categories: a fixed connection fee based And where the share of those fixed costs is done in Australia and Austria. Where on a clear formula (often linked to the is higher, connection costs also tend to be credit reports are hard to come by, own- peak electricity demand of the customer lower. This suggests a potential for lower- ership can also be used as a screening to be connected), which is usually pub- ing connection costs by improving the device. In Argentina and El Salvador only licly available; and the variable costs for transparency of the costs and strength- customers that do not own the property the connection, accounting for the labor, ening the accountability of utilities. being connected must put up a deposit. FIGURE 12.6 BURDENSOME SECURITY DEPOSITS FIGURE 12.7 Variable fees a big share of the cost in Security deposits are one cost item worth Utilities more likely to require security low- and middle-income economies highlighting. Utilities in 82 of the 176 deposits where courts are inefficient Share of total connection cost (%) #1 economies surveyed charge customers economy 100 security deposits as a guarantee against nonpayment of future electricity bills.13 80 Variable Security deposits are particularly com- Economies connection where utilities fees mon in Latin America and the Caribbean charge no deposit 72 60 and in Sub-Saharan Africa. While they average $9,988, they can run as high as $55,609, as in Dominica.14 Economies 113 40 where utilities Because most utilities hold the de- charge a deposit Fixed posit until the end of the contract and connection 20 fees repay it without interest, this require- ment can impose a substantial finan- 0 cial burden on small and medium-size Average ranking on businesses, especially those facing credit ease of enforcing contracts Low Lower Upper High (1­183) income middle middle income constraints. In Ethiopia a medium-size income income Note: Relationships are significant at the 1% level and remain company is effectively granting the util- significant when controlling for income per capita. Source: Getting Electricity database. ity an interest-free credit equivalent to Source: Getting Electricity database; Doing Business database. ANNEX · GE T TING ELEC TRICIT Y 89 WHO MADE GETTING veloped by the working group it formed WHAT'S NEXT? ELECTRICITY EASIER IN 2009/10? are expected to reduce the time for the utility to obtain an excavation permit This annex presents findings on the Reforms making it easier to get an elec- from 2 months to 23 days. kinds of constraints entrepreneurs in tricity connection are complex--often Changes to the system for checking 176 economies face in getting access involving such stakeholders as regula- internal wiring can also cut connection to electricity and illustrates patterns in tory agencies and other public service delays. Moldova eliminated duplication connection processes. By measuring the providers--and take time to implement. in inspections. Before, both the util- procedures, time and cost for obtaining a Connection processes were reformed in 8 ity and the State Energy Inspectorate new electricity connection, Getting Elec- economies in 2009/10. inspected internal wiring installations, tricity allows an objective comparison Mexico had the most radical reform effectively doing the same job twice. from the perspective of businesses (table in getting electricity. The government Now only the State Energy Inspectorate 12.3). And it provides insights into the liquidated the state-owned electrical util- inspects the installations. efficiency of distribution utilities and ity company that served Mexico City Trinidad and Tobago clarified con- the environment in which they operate. because severe structural problems had nection costs through a new capital Feedback from governments and utili- made the company financially nonviable. contribution policy that took effect in ties on the Getting Electricity indicators The distribution concession for the city August 2009. Before, connection costs and the findings presented in this report was transferred to Mexico's largest state were calculated case by case, making it is welcome and will be used to further power company. In less than a year the difficult for customers to assess whether refine the methodology. new concessionaire was able to substan- they were charged too much or not. Now Electricity connections are provided tially shorten connection delays. Before, the utility bears the connection costs, by distribution utilities that retain mo- customers in Mexico City had to be then distributes them across all custom- nopolistic positions even in otherwise prepared to wait 10 months to get a new ers through clearly regulated consump- liberalized electricity markets. Busi- electricity connection, the longest wait in tion tariffs. This reduced the connection nesses and other customers are therefore Latin America and the Caribbean. Now cost for the Getting Electricity customer captive to the utility. By providing data the average wait is 4 months. in Port of Spain by 52% of income per for benchmarking, Getting Electricity can Several other utilities also cut con- capita. More important, the new policy benefit these distribution utilities and nection times by streamlining internal increased the transparency of connec- their customers. With more economies procedures. Changing procurement prac- tion costs for customers. included next year and more years of tices for materials and making applica- Important improvements substan- data, Getting Electricity can help identify tion procedures faster cut wait times at tially increased the electricity supply in 2 good practices that can inform future the utility in Tanzania by 9 months. postconflict economies, Afghanistan and efforts to improve interactions between In Suriname the utility introduced an Sierra Leone. Customers that would have utility service providers and businesses. improved customer service policy in the had no choice before but to buy their second quarter of 2009 that reduced the own generator can now obtain a con- wait for inspections and external connec- nection to the local electricity network. tion works. Other efforts under way are In Afghanistan a new transmission line expected to further streamline internal is bringing electricity from neighboring procedures. In Bosnia and Herzegovina Uzbekistan to Kabul. In Sierra Leone a a new law shifted responsibility for ex- long-awaited hydroelectric power project ternal connection works from the client started generating electricity, bringing to the utility. This cut 2 procedures for more power to Freetown. An entrepre- the customer. In Uganda the utility began neur running an internet café in western outsourcing external connection works Freetown reports that 1 month's electric- to registered construction firms, cutting ity supply now costs him what he used connection times by 60 days. to spend for 4 days of power from a gen- Serving customers faster by improv- erator. But, he says, there is room for im- ing working relationships with other provement.16 Connection costs went up, public agencies was the aim of the ini- and wait times remain long as utilities in tiative by the utility in Hong Kong SAR both countries work through a backlog of (China).15 The performance pledges de- connection applications. 90 DOING BUSINESS 2011 TABLE 12.3 Getting electricity data Cost Cost Procedures Time (% of income Procedures Time (% of income Economy (number) (days) per capita) Economy (number) (days) per capita) Afghanistan 4 191 5,768.2 France 5 123 39.6 Albania 5 162 614.9 Gabon 6 160 316.8 Algeria 6 119 1,430.4 Gambia, The 4 178 6,526.3 Angola 8 48 1,278.5 Georgia 5 97 759.4 Antigua and Barbuda 4 42 132.2 Germany 3 17 51.9 Argentina 6 74 25.2 Ghana 4 78 2,423.5 Armenia 8 242 787.0 Greece 6 77 57.5 Australia 5 81 9.5 Grenada 5 49 370.2 Austria 5 23 113.0 Guatemala 4 39 655.5 Azerbaijan 9 241 658.0 Guinea 5 69 13,275.4 Bahamas, The 7 101 101.5 Guinea-Bissau 7 455 2,133.5 Bahrain 5 90 67.0 Guyana 7 109 568.5 Bangladesh 7 109 2,762.0 Haiti 4 66 3,345.3 Belarus 7 254 1,383.0 Honduras 8 33 1,109.9 Belgium 6 88 96.7 Hong Kong SAR, China 4 93 1.9 Belize 5 66 369.4 Hungary 5 252 126.5 Benin 4 172 15,452.0 Iceland 4 22 6.6 Bhutan 5 225 1,493.9 India 7 67 400.6 Bolivia 8 42 1,297.3 Indonesia 7 108 1,350.0 Bosnia and Herzegovina 8 125 535.6 Iran, Islamic Rep. 7 140 1,108.4 Botswana 5 121 495.3 Ireland 5 205 86.6 Brazil 6 59 150.5 Israel 6 132 12.6 Brunei Darussalam 5 86 46.7 Italy 5 192 332.9 Bulgaria 6 137 381.5 Jamaica 6 86 222.5 Burkina Faso 4 158 14,901.3 Japan 3 105 0.0 Burundi 4 188 36,696.7 Jordan 5 43 323.8 Cambodia 4 183 3,581.5 Kazakhstan 6 88 111.3 Cameroon 4 67 1,846.0 Kenya 4 163 1,449.6 Canada 8 168 152.3 Kiribati 6 142 4,297.0 Cape Verde 5 58 1,217.5 Kosovo 7 60 910.1 Central African Republic 6 210 13,298.3 Kuwait 7 36 63.4 Chad 5 66.5 14,719.8 Kyrgyz Republic 8 337 2,111.1 Chile 6 31 82.8 Lao PDR 5 134 2,734.3 China 5 132 755.2 Latvia 6 198 405.2 Colombia 5 165 1,182.7 Lebanon 5 75 23.9 Congo, Dem. Rep. 6 58 27,089.4 Lesotho 5 140 2,664.0 Congo, Rep. 5 55 7,647.2 Liberia 4 586 5,294.1 Costa Rica 5 62 316.7 Lithuania 4 98 46.0 Côte d'Ivoire 5 44 4,137.0 Luxembourg 5 120 66.1 Croatia 5 70 327.5 Macedonia, FYR 5 151 34.5 Cyprus 5 247 88.9 Madagascar 6 419 8,268.0 Czech Republic 6 279 187.2 Malawi 5 244 11,703.7 Denmark 4 38 128.2 Malaysia 6 51 55.8 Djibouti 4 180 10,008.1 Maldives 6 101 761.6 Dominica 5 73 1,187.7 Mali 4 120 3,877.9 Dominican Republic 7 87 405.3 Marshall Islands 5 172 6.5 Ecuador 6 89 899.4 Mauritania 5 80 7,591.9 Egypt, Arab Rep. 7 54 499.9 Mauritius 3 59 212.7 El Salvador 7 78 522.2 Mexico 7 114 436.0 Eritrea 5 59 4,156.7 Micronesia, Fed. Sts. 3 75 519.9 Estonia 4 111 229.1 Moldova 7 140 796.0 Ethiopia 4 75 3,734.8 Mongolia 8 156 1,261.7 Fiji 6 57 1,209.2 Montenegro 5 71 458.0 Finland 5 53 33.9 Morocco 5 71 2,725.5 ANNEX · GE T TING ELEC TRICIT Y 91 TABLE 12.3 Getting electricity data Cost Cost Procedures Time (% of income Procedures Time (% of income Economy (number) (days) per capita) Economy (number) (days) per capita) Mozambique 7 87 2,523.9 South Africa 4 214 1,780.4 Namibia 7 55 576.6 Spain 4 101 229.8 Nepal 5 74 2,370.7 Sri Lanka 4 132 1,381.6 Netherlands 5 143 29.5 St. Kitts and Nevis 5 18 377.1 New Zealand 5 47 66.8 St. Lucia 4 25 212.6 Nicaragua 6 70 1,768.4 St. Vincent and the Grenadines 3 52 280.7 Niger 4 120 4,419.9 Suriname 5 58 795.3 Nigeria 8 260 1,180.3 Swaziland 6 137 1,472.2 Norway 4 66 7.3 Sweden 3 52 21.8 Oman 6 62 66.3 Switzerland 3 39 70.7 Pakistan 6 266 1,829.2 Syrian Arab Republic 5 71 1,045.9 Palau 5 125 132.7 Taiwan, China 4 23 56.8 Panama 5 35 9.9 Tajikistan 9 224 1,240.9 Papua New Guinea 4 66 2,230.3 Tanzania 4 109 265.3 Paraguay 4 53 287.5 Thailand 4 35 86.3 Peru 5 100 500.0 Timor-Leste 3 39 7,389.0 Philippines 5 63 479.2 Togo 4 89 6,020.7 Poland 4 143 303.4 Tonga 5 50 115.1 Portugal 5 64 57.3 Trinidad and Tobago 5 61 2.5 Puerto Rico 5 32 428.6 Tunisia 4 65 1,062.8 Qatar 3 90 5.1 Turkey 5 70 714.3 Romania 7 244 544.7 Uganda 5 91 5,793.4 Russian Federation 9 302 4,671.7 Ukraine 11 309 275.6 Rwanda 4 30 5,513.6 United Arab Emirates 4 55 18.6 Samoa 5 23 881.9 United Kingdom 5 111 43.3 Saudi Arabia 4 71 21.3 United States 4 68 16.9 Senegal 7 125 6,018.5 Uzbekistan 9 117 2,070.8 Serbia 4 131 574.7 Vanuatu 5 257 1,200.1 Seychelles 6 147 565.6 Venezuela, RB 6 125 1,461.3 Sierra Leone 8 137 2,914.1 Vietnam 5 142 1,536.0 Singapore 4 36 33.9 West Bank and Gaza 5 63 1,560.6 Slovak Republic 5 177 197.5 Yemen, Rep. 4 35 4,973.4 Slovenia 5 38 122.9 Zambia 5 117 1,250.5 Solomon Islands 4 39 2,244.6 Zimbabwe 6 125 6,511.9 Source: Getting Electricity database. 92 DOING BUSINESS 2011 8. Th. H. (translated by Cong Dung), "83% of Electrical Wiring Fails to Meet Qual- 1. World Bank (2009c), comparing the ease ity Standards," Saigon-GP Daily, May 19, of doing business across 10 cities in Rus- 2010, http://www.saigon-gpdaily.com.vn. sia, shows that dealing with construction 9. U.S. Fire Administration (2008). permits is more complex in Moscow 10. Srinivasan and Turlakova (2010). than in the other cities in part because 11. By comparison, the demand of a resi- of differences in the number of proce- dential connection is about 20 kVA. dures required to obtain an electricity hookup. 12. Detailed information on cost compo- nents for each economy can be found on 2. According to the survey data, which the Doing Business website (http://www cover the years 2006­09, 15.2% of .doingbusiness.org). managers consider electricity the most serious constraint, while 15.68% con- 13. The number of economies where utili- sider access to finance the most serious ties charge security deposits does not (http://www.enterprisesurveys.org). include those where security deposits are rolled over into consumption bills 3. See, for example, Calderon and Servén for the first 3 months (Malaysia and the (2003), Dollar, Hallward-Driemeier and United States). Mengistae (2005), Reinikka and Svens- son (1999) and Eifert (2007). Using 14. Although Getting Electricity records only firm-level data, Iimi (2008) finds that in the present value of the interest lost on Eastern Europe and Central Asia elimi- the security deposit, even those amounts nating electricity outages could increase can be high--in Haiti, as high as GDP by 0.5­6%. $11,421. On average, the present value of the interest lost on the security deposit 4. Foster and Steinbuks (2009). accounts for 13% of the entire connec- 5. Lee, Anas and Oh (1996). tion cost for the customer. 6. The report is available for further com- 15. GovHK, "Process Review: Application ments on the Doing Business website for Excavation Permit," http://www.gov (http://www.doingbusiness.org). A final .hk/. draft of the methodology paper is under 16. Fid Thompson, "Sierra Leone's Hydro- preparation. Power Dam Lighting Up Freetown," VOA 7. Geginat and Ramalho (2010) find that News, February 10, 2010, http://www1 connecting a new customer to electricity .voanews.com/. takes more than twice as long on average in low-income economies as in high- income ones. They find that the dif- ferences can be explained in part by the overall level of bureaucracy in an economy, especially where utilities are majority state owned. 93 Annex: employing workers Before the global economic crisis Slove- 60,000 poor people around the world ployed in the informal sector.8 Workers nia was among the fastest-growing econ- how they thought they might escape in the informal sector are twice as likely omies in Europe, with an unemployment poverty, the majority of men and women to become unemployed as those in the rate hovering near 4% at its 2008 low. But pinned their hopes above all on income formal sector.9 the country, with an export-focused econ- from their own business or wages earned Creating productive jobs in the for- omy, was hit hard by the crisis. By early in employment.2 Smart employment reg- mal sector is key. So is shielding work- 2010 the unemployment rate had risen to ulation, which enhances job security and ers from abusive or arbitrary treatment. 6.3%. The government responded with 2 improves productivity through employer- Where labor rules do not exist, or where new laws. Under the Partial Reimburse- worker cooperation, means that both the rules are too flexible and fail to ment of Payment Compensation Act, a workers and firms benefit.3 offer sufficient protection, workers are at temporary measure expiring in 2011, Good labor regulation promotes risk of abusive work conditions--such as the government reimburses employers new businesses and can help shift work- working long hours without rest periods. for education expenses and wages paid ers to the formal sector, where they will When employers are hit by difficult times to employees put on temporary leave benefit the most from worker protection and economic redundancy becomes in- because of work shortages. This helps and where higher productivity boosts evitable, lack of sufficient severance pay employers stay in business while keep- economic growth.4 By contrast, labor or unemployment benefits can also leave ing workers on the payroll. And workers market restrictions can be an obstacle to workers in precarious conditions. In use their time off to receive training that the development of businesses, which is Latin American countries, for example, can help them and their employers in consistently apparent in surveys of en- workers dismissed from a job often turn the future. Another provisional measure trepreneurs in more than 80 countries.5 to the informal sector because the lack enables employers facing work shortages Moreover, strict labor rules and policies of unemployment benefits prevents a to reduce their employees' workweek that increase the cost of formality are proper search for another formal sector from 40 hours to 32. The employer pays considered one of the main contribu- job.10 only for the 32 hours worked, and the tors to the persistence and growth of the Evidence suggests that unemploy- government makes up the difference. informal sector in low-income econo- ment benefits can have a strong effect This way workers still receive their full mies, where it accounts for an estimated in reducing poverty.11 Lack of access to wages, while struggling employers face 30­70% of the workforce.6 Workers often insurance among poor rural households lower costs. become caught in the "informality trap": pushes them to take up low-risk ac- Maintaining and creating produc- those who do not leave the informal sec- tivities with lower returns. This reduces tive jobs and businesses is a priority for tor soon enough may find themselves their income potential--by 25% in rural economies recovering from the crisis. remaining there for a long time.7 As a Tanzania and by 50% in a sample of rural As the International Labour Organiza- result, in developing economies exces- villages in India, according to a recent tion's (ILO) Decent Work Agenda ac- sively rigid employment rules can end study.12 Mauritius took such consider- knowledges, work plays a central part in up providing a relatively high standard of ations into account when it implemented people's lives,1 providing economic and protection to a few workers in the formal a new labor law in 2008 aimed at balanc- social opportunities. When the World sector--but minimal protection or none ing flexibility and worker protection. As Bank study Voices of the Poor asked at all for the majority of workers, em- part of the unemployment protection 94 DOING BUSINESS 2011 FIGURE 13.1 Further changes have been made to The change in the worker's tenure Most economies balance flexibility and take into account the need for a balance affects the measurements of annual protection in the length of the workweek between worker protection and flexibil- leave, notice period and severance pay. Share of economies (%) 79.8% ity in employment regulation that favors Before, all these related to a worker with job creation. Over the past year a consul- 20 years of tenure. Now they relate to the Rigidity tative group--including labor lawyers, average for a worker with 1 year of ten- Balance between employer and employee representatives ure, a worker with 5 years and a worker flexibility and protection and experts from the ILO, the OECD, with 10 years (see Data notes for a full Excessive flexibilitya civil society and the private sector--has description). been meeting to review the methodol- For working days per week, for ogy as well as to suggest future areas of example, the new methodology is in research. Because this consultation is not accord with ILO Convention 14, which yet complete, this year's report does not states that every worker "shall enjoy in 6.6% 7.6% 6.0% rank economies on the employing work- every period of seven days a period of ers indicators or include the indicators rest comprising at least twenty-four con- 5 5½ 6 7 in the aggregate ranking on the ease of secutive hours." Under the new meth- Working days per week in manufacturing doing business. odology economies requiring less than (maximum allowed) The consultative process has in- 1 day (24 hours) of rest time a week re- a. Accords with ILO Convention 14. Source: Doing Business database. formed several changes in the methodol- ceive a lower score, indicating excessive ogy for the employing workers indicators, flexibility. Economies achieve the high- scheme, the law introduced a recycling some of which have been implemented est score by striking a balance between fee--a lump sum payment from a na- in this year's report. New thresholds have flexibility and worker protection (figure tional savings fund account to which been introduced to recognize minimum 13.1). For a discussion of the results of employers contribute over time--rather levels of protection in line with relevant some of the other changes in methodol- than severance pay in the case of justi- ILO conventions. This provides a frame- ogy, see the section in this chapter on fied economic redundancies. Economies work for balancing worker protection emerging patterns. achieve this balance in different ways, against employment restrictions in the depending in part on their organiza- areas measured by the indicators. WHO REFORMED LABOR tional and financial means. Some estab- Four main aspects are affected by the REGULATIONS IN 2009/10? lish a centralized system of government changes in methodology: the minimum payments. Others mandate direct pay- wage, paid annual leave, the maximum Governments have continued to respond ments from employers. number of working days per week and the to the global economic crisis with short- tenure of the worker in the case study. term, emergency legislation aimed at CHANGES IN METHODOLOGY For the minimum wage, an economy mitigating its adverse effects. Some have would receive a score indicating excessive focused on combating unemployment by Doing Business, in its indicators on em- flexibility if it has no minimum wage attempting to help businesses adjust and ploying workers, measures flexibility in at all, if the law provides a regulatory recover, others on increasing assistance the regulation of hiring, working hours mechanism for the minimum wage that for those already unemployed. Spain now and redundancy in a manner consistent is not enforced in practice, if there is only exempts a portion of severance payments with the ILO conventions. Changes in a customary minimum wage or if the from taxation. Romania exempts em- the methodology for these indicators minimum wage applies only to the pub- ployers that hire previously unemployed have been made in the past 3 years so as lic sector. For paid annual leave there is workers from paying the workers' social to ensure consistency with relevant ILO now a minimum threshold of 15 working insurance contributions for 6 months. conventions and to avoid scoring that days below which scoring would indicate Poland and Serbia have adopted legis- rewards economies for flexibility that excessive flexibility. For paid annual leave lative measures allowing employers to comes at the cost of a basic level of social above 26 working days, scoring would in- respond to a decline in work volume by protection (including unemployment dicate excessive rigidity. For paid annual reducing their workers' hours or plac- protection). In Doing Business 2010, for leave between 22 and 26 working days, ing workers on temporary leave with example, the indicators started taking an intermediate score would be assigned reduced pay. Eleven economies made into account the existence of unemploy- indicating semirigidity. For the number changes to their labor regulations in ment protection schemes in cases of of working days per week there is now 2009/10 that affect the employing work- redundancy dismissal where workers re- a maximum of 6 above which scoring ers indicators. ceive less than 8 weeks of severance pay. would reflect excessive flexibility. Australia passed the Fair Work Act ANNEX · EMPLOYING WORKERS 95 in 2009 and National Employment Stan- fixed-term contracts, introduced a limit panded over the years. The following ad- dards in 2010. These led to significant of 24 months. The Slovak Republic re- ditional data are presented in this year's changes, including the introduction of a duced its limit from 36 months to 24. report or on the Doing Business website: severance pay requirement when before Spain passed a royal decree-law to the generally applicable minimum wage there had been none. Now workers in urgently implement several changes. One as well as any minimum wage applying to manufacturing are entitled to up to 12 measure reduced the notice period for a 19-year-old worker, or an apprentice, in weeks of severance pay, depending on redundancy dismissal for workers with the manufacturing sector; the maximum the length of their tenure. In addition, an all lengths of tenure from 30 calendar duration for a single fixed-term con- employer must look into the feasibility of days to 15. tract; and provisions relating to the work reassigning an employee to another posi- Syria passed a new labor law in schedule, such as the length of a standard tion before considering redundancy. An- 2010 to replace its 1959 law. Among workday, the limit on overtime both nual leave requirements changed from other changes, the new law increases in normal and in exceptional circum- 20 working days (4 weeks for a worker notice periods to 2 months, introduces stances, the minimum number of rest with a 5-day workweek) to 4 weeks for a new restrictions on weekly holiday work hours between working days required nonshift worker and 5 for a shift worker. and slightly increases annual leave--now by law and premiums for overtime work, Bhutan set a minimum for paid 14­30 working days a year, depending on night work and weekly holiday work. annual leave, having previously required a worker's tenure. Doing Business also gathered new none. Under the 2009 Leave Regulation Zimbabwe lowered its severance information on regulations according to most workers are entitled to a minimum pay requirements. When the country length of job tenure (9 months, 1 year, of 18 days of leave a year. The regulation converted its wages into U.S. dollars 5 years and 10 years). Some aspects was one in a series Bhutan adopted in in response to hyperinflation, it also measured by the employing workers 2009 to further implement aspects of its converted severance pay amounts. As indicators--such as paid annual leave, 2007 Labor and Employment Act. a result, common law practices shifted. notice period and severance payment-- Estonia adopted a new Employ- Retrenchment boards now grant 2­4 can vary with different tenures. And ment Contracts Act in 2009. Under the months' wages as severance rather than while the indicators previously consid- new law there are no priority rules for 4­6 months' wages. ered a worker with 20 years of tenure, rehiring. Collective dismissals meeting this length of tenure may not be typical threshold numbers trigger requirements WHAT PATTERNS ARE EMERGING? for small and medium-size businesses in for notification of and consultation with many economies. employee representatives and govern- Since its inception Doing Business has The data Doing Business has gath- ment authorities. Notice periods were re- been collecting increasingly detailed in- ered on employment and labor laws and duced to a range of 15­90 calendar days, formation on labor regulation as a basis regulations point to global and regional depending on an employee's seniority, for the employing workers indicators.13 patterns in how the 183 economies it and severance payments to 1 month's The employing workers data set has ex- covers regulate the conditions on which wages. But now an unemployment insur- FIGURE 13.2 ance fund disburses an additional 1­3 Almost half of economies balance flexibility and protection in annual leave months' wages, a solution that balances Share of economies (%) flexibility and worker protection. Kuwait increased its notice period Excessive flexibility (24.6%) for dismissal from 15 calendar days to 3 10 Balance between flexibility months. It expanded minimum require- and protection (45.4%) ments for annual leave from 14 or 21 Semirigidity (24.0%) calendar days, depending on a worker's Excessive rigidity (6.0%) tenure, to 26 working days for all. 5 Malaysia changed its restrictions on redundancy dismissals. Before, an em- ployer had to notify the Department of Labor in writing of all redundancy dis- missals. A 2009 circular now limits that 0 0 10 20 30 requirement to the redundancy dismissal Average annual leave required of 5 or more employees. (working days) Poland, which previously had no Note: The designation excessive flexibility accords with ILO Convention 132. Annual leave is the average for 1, 5 and 10 years of tenure. restriction on the maximum duration of Source: Doing Business database. 96 DOING BUSINESS 2011 FIGURE 13.3 worker's tenure. Cape Verde, where the considered to have semirigid regulations, The most common premium for work done on the weekly holiday is 100% severance payment is 1 month's wages with average paid annual leave of be- Share of economies (%) for each year of work, is an example. tween 22 and 26 working days. The 11 40.4 In other economies the notice period economies in the last group have the is fixed but the severance payment is most rigid regulations, requiring more 35.5 proportionally higher at the beginning than 26 working days of paid annual of the worker's tenure. In Thailand, for leave for workers. example, a worker with 5 years of tenure is given 180 days of severance pay while a VARYING PREMIUMS FOR WEEKLY 18.6 worker with 20 years is given 300. HOLIDAY WORK In 18 economies governments adopt Economies also vary in the premium yet another approach, which results in they require for work performed on the 5.5 redundancy costs being proportionally weekly holiday, with 74 economies re- higher toward the end of service. This is quiring no premium. The most common None <50 50­99 100+ the case in Paraguay, where workers with holiday work premium is 100% of the Premium for work on weekly holiday 5 years of tenure are granted 75 calendar hourly pay, while the highest observed (% of normal hourly wage) days of severance pay while those with 20 premium is 150% of the hourly pay Source: Doing Business database. years receive 600. (figure 13.3). firms employ workers. These data can High-income economies have lower also be used to assess how regulation BALANCING PROTECTION AND premiums on average than low- and balances worker protection and employ- FLEXIBILITY IN ANNUAL LEAVE middle-income economies. But there is ment flexibility. Previously, the employing workers indi- a significant difference within this group, cators scored economies on the basis of with non-OECD high-income economies FIXED OR PROPORTIONAL excessive rigidity in the number of days having a lower average premium than REDUNDANCY COSTS of annual leave. Now the data also high- OECD high-income economies. Among In cases of redundancy dismissal, how light excessive flexibility--a change that regions, Latin America and the Carib- do severance pay and notice period re- reflects input from the consultative pro- bean has the highest average premium, quirements vary for workers with differ- cess. To illustrate, economies are divided and South Asia the lowest (figure 13.4). ent tenures? Eleven economies require into 4 groups based on average manda- no severance payment or notice period, tory paid annual leave (figure 13.2). The LOOKING FORWARD which together make up the redundancy first group consists of 43 economies that cost (expressed in weeks of wages). on the basis of ILO Convention 132 can The employing workers indicators are Among the rest, economies take 2 broad be considered to have excessive flexibil- changing to reflect a balance between approaches: they set the same require- ity, with average paid annual leave of less worker protection and flexibility in em- ments for workers with different tenures, than 15 working days. The second group, ployment regulation that favors job cre- or they set requirements proportional to 85 economies, shows a balance between ation. The changes are being driven by a worker's tenure. flexibility and worker protection, with the useful engagement with experts and Thirty-one economies take a fixed- average paid annual leave of between 15 stakeholders through the ongoing con- cost approach. In Montenegro, for ex- and 21 working days. The third group sultative process. Initial analysis of the ample, the redundancy cost is 28.1 weeks is formed of 44 economies that can be impact of the changes to the indicators il- of wages whether the worker has 1, 5, 10 FIGURE 13.4 or 20 years of service. Six economies fol- Where are premiums for working on the weekly holiday highest? low a proportional approach. One is the Average premium for work on weekly holiday (% of normal hourly wage) Islamic Republic of Iran, where workers are granted severance pay equal to 1 East Asia & Pacific 45.0 month's salary for each year worked. Eastern Europe & Central Asia 58.2 The majority, 117 economies, fall Latin America & Caribbean 67.2 between these 2 approaches. In these Middle East & North Africa 49.4 economies the redundancy cost is pro- OECD high income 39.0 portionally higher at the beginning of South Asia 37.5 the worker's service. In most, this is because of a fixed notice period and a Sub-Saharan Africa 40.1 severance payment proportional to the Source: Doing Business database. ANNEX · EMPLOYING WORKERS 97 lustrates how economies tend to regulate the employment of workers and which regulations are excessively rigid, exces- 1. ILO, "Decent Work FAQ: Making Decent Work a Global Goal," accessed June 23, sively flexible or balanced between them. 2010, http://www.ilo.org/. Further analysis of the data collected will 2. Narayan and others (2000). provide a deeper understanding of labor 3. Pierre and Scarpetta (2007). regulation and the patterns that emerge 4. La Porta and Shleifer (2008). globally. 5. World Business Environment Surveys Following is some of the informa- and Investment Climate Surveys, con- tion collected for the employing workers ducted in more than 80 countries by the data set across 183 economies. The com- World Bank in 1999­2000. plete data set is available on the Doing 6. Bosch and Esteban-Pretel (2009). Business website. 7. Masatlioglu and Rigolini (2008). 8. Pierre and Scarpetta (2007). 9. Duryea and others (2006). 10. Pierre and Scarpetta (2007). 11. Vodopivec (2009). 12. Pierre and Scarpetta (2007) citing Rosenzweig and Binswanger (1993). 13. Detailed data are available for 183 economies on the Doing Business website (http://www.doingbusiness.org). Redundancy Difficulty of hiring index Rigidity of hours index Difficulty of redundancy index cost Minimum wage for a 19-year-old Fixed-term contracts prohibited Maximum length of fixed-term Severance pay for redundancy 50-hour workweek allowed? c Notice period for redundancy Retraining or reassignment? f Dismissal due to redundancy Premium for work on weekly dismissal (weeks of salary) e dismissal (weeks of salary) e rest day (% of hourly pay) d Ratio of minimum wage to if 9 workers are dismissed? if 9 workers are dismissed? if 1 worker is dismissed? if 1 worker is dismissed? Maximum working days worker or an apprentice Premium for night work value added per worker Third-party notification Third-party notification weekly holiday work? d for permanent tasks? Major restrictions on Major restrictions on Third-party approval Third-party approval contracts (months) a for reemployment? (% of hourly pay) d (US$ per month) b for redundancies? Paid annual leave (working days) e allowed by law? night work? d Priority rules Priority rules per week Afghanistan No NO LIMIT 0.0 0.00 Yes 5.6 25 50 No No 20.0 Yes Yes No Yes Yes No No Yes 4.3 17.3 Albania Yes NO LIMIT 201.3 0.41 Yes 6.0 50 25 Yes No 20.0 Yes No No No No No No Yes 11.6 10.7 Algeria Yes NO LIMIT 228.1 0.42 No 6.0 0 0 No No 22.0 Yes Yes No Yes No Yes Yes No 4.3 13.0 Angola Yes 12 122.0 0.22 Yes 6.0 25 100 Yes Yes 22.0 Yes Yes Yes Yes Yes No Yes Yes 4.3 10.7 Antigua and Barbuda No NO LIMIT 576.5 0.36 Yes 6.0 0 0 No No 12.0 Yes No No No No Yes Yes No 3.4 12.8 Argentina Yes 60 447.6 0.45 Yes 6.0 13 50 No No 18.0 Yes No No No No No No No 7.2 23.1 Armenia Yes 60 88.3 0.23 Yes 6.0 150 100 No No 20.0 Yes No No No No Yes No No 8.7 4.3 Australia No NO LIMIT 1,291.1 0.24 Yes 7.0 0 0 No No 20.0 Yes No No No No Yes No No 4.0 8.7 Austria No NO LIMIT 716.3 0.12 Yes 5.5 17 100 No No 25.0 Yes Yes No Yes No No Yes Yes 2.0 0.0 Azerbaijan No 60 98.6 0.17 Yes 6.0 40 150 Yes No 17.0 Yes No No No No No Yes No 8.7 13.0 Bahamas, The No NO LIMIT 693.3 0.24 Yes 5.5 0 0 No No 11.7 Yes Yes No Yes No No Yes Yes 0.0 10.7 Bahrain No NO LIMIT 0.0 0.00 Yes 6.0 50 0 No No 18.3 Yes No No No No No No No 4.3 0.0 Bangladesh Yes NO LIMIT 23.2 0.30 Yes 6.0 0 0 No No 17.0 Yes Yes No Yes No No Yes Yes 4.3 26.7 Belarus No NO LIMIT 102.7 0.16 Yes 6.0 20 100 No No 18.0 Yes No No No No Yes Yes No 8.7 13.0 Belgium No NO LIMIT 1,746.7 0.30 Yes 6.0 4 100 No Yes 20.0 Yes No No No No No No No 6.0 0.0 Belize No NO LIMIT 291.7 0.50 Yes 6.0 0 50 No No 10.0 Yes No No No No No No No 3.3 5.0 Benin No 48 67.7 0.58 Yes 6.0 0 0 No No 24.0 Yes Yes No Yes No No Yes Yes 4.3 7.3 Bhutan No NO LIMIT 33.0 0.13 Yes 6.0 0 0 No No 15.0 Yes Yes No Yes No No No No 8.3 0.0 Bolivia g Yes 24 88.8 0.38 Yes 6.0 30 100 No No 21.7 No n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Bosnia and Herzegovina No 24 529.6 0.95 Yes 6.0 30 20 No No 18.0 Yes No No Yes No Yes No Yes 2.0 7.2 Botswana No NO LIMIT 110.5 0.13 Yes 6.0 0 100 No No 15.0 Yes Yes No Yes No No Yes Yes 4.9 16.8 Brazil Yes 24 279.3 0.28 Yes 6.0 20 100 Yes No 26.0 Yes No No No No No No No 4.3 8.9 Brunei DOING BUSINESS 2011 Darussalam No NO LIMIT 0.0 0.00 Yes 6.0 0 50 No No 13.3 Yes No No No No No No No 3.0 0.0 Bulgaria No 36 166.2 0.24 Yes 6.0 10 0 Yes No 20.0 Yes No No No No No No No 4.3 3.2 Burkina Faso No NO LIMIT 65.1 0.79 Yes 6.0 0 0 No No 22.0 Yes No No Yes No No Yes Yes 4.3 6.1 Burundi No NO LIMIT 3.0 0.14 Yes 6.0 30 0 No Yes 21.0 Yes No No Yes No No Yes Yes 8.7 7.2 Cambodia No 24 41.0 0.47 Yes 6.0 30 100 No No 19.3 Yes No No Yes No No Yes Yes 7.9 10.7 Cameroon No 48 63.3 0.36 Yes 6.0 50 0 No No 26.0 Yes Yes Yes Yes Yes No Yes Yes 6.5 8.1 98 99 Redundancy Difficulty of hiring index Rigidity of hours index Difficulty of redundancy index cost ANNEX · EMPLOYING WORKERS Minimum wage for a 19-year-old Fixed-term contracts prohibited Maximum length of fixed-term Severance pay for redundancy 50-hour workweek allowed? c Notice period for redundancy Retraining or reassignment? f Dismissal due to redundancy Premium for work on weekly dismissal (weeks of salary) e dismissal (weeks of salary) e rest day (% of hourly pay) d Ratio of minimum wage to if 9 workers are dismissed? if 9 workers are dismissed? if 1 worker is dismissed? if 1 worker is dismissed? Maximum working days worker or an apprentice Premium for night work value added per worker Third-party notification Third-party notification weekly holiday work? d for permanent tasks? Major restrictions on Major restrictions on Third-party approval Third-party approval contracts (months) a for reemployment? (% of hourly pay) d (US$ per month) b for redundancies? Paid annual leave (working days) e allowed by law? night work? d Priority rules Priority rules per week Canada No NO LIMIT 1,703.7 0.34 Yes 6.0 0 0 No No 10.0 Yes No No No No No No No 7.0 5.0 Cape Verde Yes 60 0.0 0.00 Yes 6.0 25 100 No No 22.0 Yes Yes Yes Yes Yes Yes Yes No 6.4 23.1 Central African Yes 48 39.8 0.59 Yes 5.0 0 50 No Yes 25.3 Yes Yes No Yes Yes No Yes Yes 4.3 17.3 Republic Chad No 48 71.9 0.71 Yes 6.0 0 100 No No 24.7 Yes Yes No Yes No No Yes Yes 7.2 5.8 Chile No 24 0.0 0.00 Yes 6.0 0 0 No No 15.0 Yes Yes No Yes No No No No 4.3 12.0 China No NO LIMIT 159.9 0.38 Yes 6.0 39 100 No No 6.7 Yes Yes No Yes No Yes Yes Yes 4.3 23.1 Colombia No NO LIMIT 244.2 0.39 Yes 6.0 35 75 No No 15.0 Yes No No No No No No No 0.0 19.0 Comoros No 36 64.8 0.52 Yes 6.0 0 0 No Yes 22.0 Yes Yes No Yes No No Yes Yes 13.0 23.1 Congo, Dem. Rep. Yes 48 65.0 2.46 Yes 5.0 25 0 No No 13.0 Yes Yes Yes Yes Yes No Yes Yes 10.3 0.0 Congo, Rep. Yes 24 119.7 0.44 Yes 6.0 0 50 No Yes 29.0 Yes Yes Yes Yes Yes No Yes Yes 4.3 6.5 Costa Rica Yes 12 334.5 0.43 Yes 6.0 0 100 Yes No 12.0 Yes No No No No No No No 4.3 14.4 Côte d'Ivoire No 24 0.0 0.00 No 6.0 38 0 No No 27.4 Yes No No Yes No No No Yes 5.8 7.3 Croatia Yes 36 534.3 0.31 Yes 6.0 10 35 No Yes 20.0 Yes Yes No Yes No Yes Yes Yes 7.9 7.2 Cyprus No 30 0.0 0.00 Yes 6.0 0 0 No No 20.0 Yes Yes No Yes No Yes No Yes 5.7 0.0 Czech Republic No 24 427.8 0.21 Yes 6.0 10 10 No No 20.0 Yes No No No No No No No 8.7 13.0 Denmark No NO LIMIT 0.0 0.00 Yes 6.0 0 0 No No 25.0 Yes No No No No No No No 0.0 0.0 Djibouti Yes 24 0.0 0.00 Yes 6.0 0 0 No No 30.0 Yes Yes No Yes No No No Yes 4.3 0.0 Dominica No NO LIMIT 257.2 0.40 Yes 6.0 0 100 No No 15.0 Yes No No No No No Yes Yes 5.8 9.3 Dominican Republic Yes NO LIMIT 226.0 0.37 Yes 6.0 0 100 No Yes 14.0 Yes No No No No No No No 4.0 22.2 Ecuador No 24 229.7 0.43 Yes 5.0 25 100 No No 12.3 Yes No No Yes Yes No Yes Yes 4.3 31.8 Egypt, Arab Rep. No NO LIMIT 31.4 0.11 Yes 6.0 0 0 No No 24.0 Yes Yes Yes Yes Yes No Yes No 10.1 26.7 El Salvador Yes NO LIMIT 80.1 0.17 Yes 6.0 25 100 Yes Yes 11.0 Yes No No No No No No No 0.0 22.9 Equatorial Guinea Yes 24 291.4 0.16 Yes 6.0 25 50 Yes Yes 22.0 Yes Yes Yes Yes Yes No Yes Yes 4.3 34.3 Eritrea Yes NO LIMIT 0.0 0.00 Yes 6.0 0 0 No No 19.0 Yes No No Yes Yes No No No 3.1 12.3 Estonia Yes 120 393.0 0.23 Yes 5.0 25 0 Yes No 24.0 Yes No No No No Yes Yes No 8.6 4.3 Ethiopia Yes NO LIMIT 0.0 0.00 Yes 6.0 0 0 No No 18.3 Yes No No Yes No Yes Yes No 10.1 10.5 Fiji No NO LIMIT 290.8 0.56 Yes 6.0 6 100 No No 10.0 Yes Yes No Yes No No No No 4.3 5.3 Redundancy Difficulty of hiring index Rigidity of hours index Difficulty of redundancy index cost Minimum wage for a 19-year-old Fixed-term contracts prohibited Maximum length of fixed-term Severance pay for redundancy 50-hour workweek allowed? c Notice period for redundancy Retraining or reassignment? f Dismissal due to redundancy Premium for work on weekly dismissal (weeks of salary) e dismissal (weeks of salary) e rest day (% of hourly pay) d Ratio of minimum wage to if 9 workers are dismissed? if 9 workers are dismissed? if 1 worker is dismissed? if 1 worker is dismissed? Maximum working days worker or an apprentice Premium for night work value added per worker Third-party notification Third-party notification weekly holiday work? d for permanent tasks? Major restrictions on Major restrictions on Third-party approval Third-party approval contracts (months) a for reemployment? (% of hourly pay) d (US$ per month) b for redundancies? Paid annual leave (working days) e allowed by law? night work? d Priority rules Priority rules per week Finland Yes 60 2,063.9 0.36 Yes 6.0 8 100 No No 30.0 Yes Yes No Yes No Yes Yes Yes 10.1 0.0 France Yes 18 788.2 0.14 No 6.0 0 0 No Yes 30.0 Yes No No Yes No Yes Yes Yes 7.2 4.6 Gabon No 48 48.2 0.05 Yes 6.0 50 100 No No 24.0 Yes Yes Yes Yes Yes No Yes Yes 10.4 4.3 Gambia, The No NO LIMIT 0.0 0.00 Yes 5.0 0 0 No No 21.0 Yes Yes No Yes No No Yes Yes 26.0 0.0 Georgia No NO LIMIT 25.1 0.08 Yes 7.0 0 0 No No 24.0 Yes No No No No No No No 0.0 4.3 Germany No 24 1,139.6 0.21 Yes 6.0 13 100 No No 24.0 Yes Yes No Yes No Yes Yes No 10.0 11.6 Ghana No NO LIMIT 25.8 0.26 Yes 5.0 0 0 No No 15.0 Yes Yes Yes Yes Yes No No No 3.6 46.2 Greece Yes NO LIMIT 1,015.8 0.29 Yes 5.0 25 75 No Yes 23.3 Yes No No Yes Yes Yes Yes No 0.0 24.0 Grenada Yes NO LIMIT 225.3 0.31 Yes 6.0 0 0 No No 13.3 Yes No No No No No No No 7.2 5.3 Guatemala Yes NO LIMIT 169.8 0.41 Yes 6.0 0 50 Yes Yes 15.0 Yes No No No No No No No 0.0 27.0 Guinea No 24 0.0 0.00 Yes 6.0 20 45 No Yes 30.0 Yes Yes No Yes Yes No Yes Yes 2.1 5.8 Guinea-Bissau Yes 12 0.0 0.00 Yes 6.0 25 50 No No 21.0 Yes Yes Yes Yes Yes No Yes Yes 0.0 26.0 Guyana No NO LIMIT 145.0 0.45 Yes 7.0 0 100 No No 12.0 Yes Yes No Yes No No No No 4.3 12.3 Haiti No NO LIMIT 43.2 0.41 Yes 6.0 50 50 No No 13.0 Yes No No No No No No No 10.1 0.0 Honduras Yes 24 259.2 0.99 Yes 6.0 25 100 Yes No 16.7 Yes Yes Yes Yes Yes No No No 7.2 23.1 Hong Kong SAR, China No NO LIMIT 0.0 0.00 Yes 6.0 0 0 No No 11.3 Yes No No No No No No No 4.3 1.5 Hungary No 60 390.0 0.25 Yes 5.0 40 100 No No 21.3 Yes No No No No No No No 6.2 7.2 Iceland No 24 1,707.7 0.32 Yes 6.0 80 80 No No 24.0 Yes No No No No No No No 10.1 0.0 India No NO LIMIT 24.1 0.16 Yes 6.0 0 0 No No 15.0 Yes Yes Yes Yes Yes No Yes Yes 4.3 11.4 Indonesia Yes 36 105.9 0.38 Yes 6.0 0 0 No No 12.0 Yes Yes Yes Yes Yes Yes No No 0.0 34.7 Iran, Islamic Rep. No NO LIMIT 309.1 0.58 Yes 6.0 23 40 No No 24.0 Yes Yes Yes Yes Yes No No No 0.0 23.1 Iraq Yes NO LIMIT 115.5 0.35 Yes 5.0 100 50 No No 22.0 Yes Yes No Yes No No No No 0.0 0.0 DOING BUSINESS 2011 Ireland No NO LIMIT 1,793.9 0.33 Yes 6.0 0 0 No No 20.0 Yes Yes No Yes No No No No 4.0 2.8 Israel No NO LIMIT 985.7 0.29 Yes 5.5 0 50 No Yes 18.0 Yes No No No No No No No 4.3 23.1 Italy Yes NO LIMIT 1,582.7 0.36 Yes 6.0 30 50 Yes No 20.3 Yes No No Yes No Yes Yes Yes 8.7 0.0 Jamaica No NO LIMIT 207.3 0.31 Yes 7.0 0 0 No No 11.3 Yes No No No No No No No 4.0 10.0 Japan No NO LIMIT 1,361.4 0.28 Yes 6.0 25 35 No No 15.3 Yes Yes No Yes No Yes No No 4.3 0.0 Jordan No NO LIMIT 201.0 0.40 Yes 6.0 0 150 No No 18.7 Yes Yes Yes Yes Yes No No Yes 4.3 0.0 100 Kazakhstan No NO LIMIT 111.6 0.14 Yes 6.0 50 100 No No 18.0 Yes Yes No Yes No Yes No No 4.3 4.3 101 Redundancy Difficulty of hiring index Rigidity of hours index Difficulty of redundancy index cost ANNEX · EMPLOYING WORKERS Minimum wage for a 19-year-old Fixed-term contracts prohibited Maximum length of fixed-term Severance pay for redundancy 50-hour workweek allowed? c Notice period for redundancy Retraining or reassignment? f Dismissal due to redundancy Premium for work on weekly dismissal (weeks of salary) e dismissal (weeks of salary) e rest day (% of hourly pay) d Ratio of minimum wage to if 9 workers are dismissed? if 9 workers are dismissed? if 1 worker is dismissed? if 1 worker is dismissed? Maximum working days worker or an apprentice Premium for night work value added per worker Third-party notification Third-party notification weekly holiday work? d for permanent tasks? Major restrictions on Major restrictions on Third-party approval Third-party approval contracts (months) a for reemployment? (% of hourly pay) d (US$ per month) b for redundancies? Paid annual leave (working days) e allowed by law? night work? d Priority rules Priority rules per week Kenya No NO LIMIT 67.4 0.57 Yes 6.0 0 0 No No 21.0 Yes Yes No Yes No No Yes No 4.3 11.4 Kiribati No NO LIMIT 0.0 0.00 Yes 7.0 0 0 No No 0.0 Yes Yes Yes Yes Yes No No No 4.3 0.0 Korea, Rep. No 24 579.9 0.25 Yes 6.0 50 50 Yes No 17.0 Yes Yes No Yes No No No Yes 4.3 23.1 Kosovo No NO LIMIT 0.0 0.00 Yes 6.0 20 0 No No 16.0 Yes No No No No Yes Yes Yes 13.0 7.2 Kuwait No NO LIMIT 0.0 0.00 Yes 6.0 0 50 No No 26.0 Yes No No No No No No No 13.0 15.1 Kyrgyz Republic Yes 60 12.2 0.11 Yes 6.0 50 100 No No 20.0 Yes No No No No No No No 4.3 13.0 Lao PDR No NO LIMIT 63.9 0.51 Yes 6.0 15 150 No No 15.0 Yes Yes Yes Yes Yes No No No 6.4 40.7 Latvia Yes 36 354.4 0.24 Yes 5.5 50 0 Yes No 20.0 Yes Yes No Yes No Yes Yes No 1.0 8.7 Lebanon No 24 317.3 0.32 Yes 6.0 0 50 No No 15.0 Yes No No Yes No No Yes Yes 8.7 0.0 Lesotho No NO LIMIT 93.8 0.62 Yes 6.0 0 100 Yes No 12.0 Yes No No No No Yes No No 4.3 10.7 Liberia No NO LIMIT 52.0 2.11 Yes 6.0 0 50 No No 16.0 Yes Yes No Yes No No Yes Yes 4.3 21.3 Lithuania Yes 60 329.7 0.24 No 5.5 50 50 No No 20.0 Yes No No No No Yes Yes No 8.7 15.9 Luxembourg Yes 24 2,407.2 0.26 No 5.5 15 70 No Yes 25.0 Yes Yes No Yes No No No Yes 17.3 4.3 Macedonia, FYR No 60 169.0 0.32 Yes 6.0 35 50 Yes No 20.0 Yes No No Yes No No No No 4.3 8.7 Madagascar Yes 24 34.0 0.47 Yes 6.0 30 40 No No 24.0 Yes No No Yes Yes No Yes Yes 3.4 8.9 Malawi Yes NO LIMIT 22.6 0.49 Yes 6.0 0 100 No No 15.0 Yes Yes No Yes No No No No 4.3 14.0 Malaysia No NO LIMIT 0.0 0.00 Yes 6.0 0 0 No No 13.3 Yes No No Yes No No No No 6.7 17.2 Maldives No 24 0.0 0.00 Yes 6.0 0 50 No No 30.0 Yes No No No No No No No 5.8 0.0 Mali Yes 72 14.8 0.14 Yes 6.0 0 0 No No 22.0 Yes Yes No Yes No No Yes Yes 4.3 9.3 Marshall Islands No NO LIMIT 0.0 0.00 Yes 7.0 0 0 No No 0.0 Yes No No No No No No No 0.0 0.0 Mauritania No 24 83.1 0.60 Yes 6.0 100 50 Yes No 18.0 Yes Yes No Yes No No Yes Yes 4.3 6.1 Mauritius No NO LIMIT 156.5 0.18 Yes 6.0 0 100 No No 22.0 Yes Yes No Yes No No No No 4.3 6.3 Mexico Yes NO LIMIT 123.6 0.11 Yes 6.0 0 25 Yes No 12.0 Yes Yes Yes Yes Yes No Yes Yes 0.0 22.0 Micronesia, Fed. Sts. No NO LIMIT 212.7 0.68 Yes 7.0 0 0 No No 0.0 Yes No No No No No No No 0.0 0.0 Moldova Yes NO LIMIT 96.6 0.52 Yes 6.0 50 100 Yes Yes 20.0 Yes Yes No Yes No Yes Yes No 8.7 13.9 Mongolia No NO LIMIT 82.4 0.42 Yes 5.0 0 0 No No 17.7 Yes No No No No No No No 4.3 4.3 Montenegro No NO LIMIT 76.4 0.09 Yes 6.0 40 0 No No 19.0 Yes No No No No Yes Yes No 2.1 26.0 Morocco Yes 12 254.1 0.72 Yes 6.0 0 0 No Yes 19.5 Yes No No Yes Yes Yes Yes Yes 7.2 13.5 Redundancy Difficulty of hiring index Rigidity of hours index Difficulty of redundancy index cost Minimum wage for a 19-year-old Fixed-term contracts prohibited Maximum length of fixed-term Severance pay for redundancy 50-hour workweek allowed? c Notice period for redundancy Retraining or reassignment? f Dismissal due to redundancy Premium for work on weekly dismissal (weeks of salary) e dismissal (weeks of salary) e rest day (% of hourly pay) d Ratio of minimum wage to if 9 workers are dismissed? if 9 workers are dismissed? if 1 worker is dismissed? if 1 worker is dismissed? Maximum working days worker or an apprentice Premium for night work value added per worker Third-party notification Third-party notification weekly holiday work? d for permanent tasks? Major restrictions on Major restrictions on Third-party approval Third-party approval contracts (months) a for reemployment? (% of hourly pay) d (US$ per month) b for redundancies? Paid annual leave (working days) e allowed by law? night work? d Priority rules Priority rules per week Mozambique Yes 72 87.9 1.26 Yes 6.0 0 100 No Yes 21.3 Yes Yes No Yes No No No No 4.3 36.8 Namibia No NO LIMIT 0.0 0.00 Yes 6.0 6 100 No Yes 20.0 Yes Yes No Yes No No No No 4.3 5.3 Nepal Yes NO LIMIT 60.8 0.97 Yes 6.0 0 50 No No 0.0 Yes Yes Yes Yes Yes No Yes Yes 4.3 22.9 Netherlands No 36 1,062.7 0.17 Yes 5.5 0 0 Yes Yes 20.0 Yes Yes Yes Yes Yes Yes Yes No 8.7 0.0 New Zealand No NO LIMIT 1,552.3 0.45 Yes 7.0 0 0 No No 20.0 Yes No No No No Yes No No 0.0 0.0 Nicaragua No NO LIMIT 121.5 0.86 Yes 6.0 0 100 Yes Yes 30.0 Yes No No No No No No No 0.0 14.9 Niger Yes 24 59.1 1.01 No 6.0 38 0 No No 22.0 Yes Yes No Yes No Yes Yes Yes 4.3 5.8 Nigeria No NO LIMIT 0.0 0.00 Yes 6.0 0 0 No No 20.0 Yes No No Yes No No Yes No 4.0 12.2 Norway Yes 48 3,647.4 0.34 Yes 6.0 0 0 Yes Yes 21.0 Yes No No No No Yes Yes Yes 8.7 0.0 Oman No NO LIMIT 363.6 0.15 Yes 6.0 50 100 No No 18.3 Yes No No No No No No No 4.3 0.0 Pakistan Yes 9 44.8 0.31 Yes 6.0 0 100 No Yes 14.0 Yes No No No No Yes Yes Yes 4.3 22.9 Palau No NO LIMIT 450.6 0.38 Yes 7.0 0 0 No No 0.0 Yes No No No No No No No 0.0 0.0 Panama Yes 12 370.3 0.42 Yes 6.0 0 50 Yes Yes 22.0 Yes Yes Yes Yes Yes No Yes No 0.0 19.0 Papua New Guinea No NO LIMIT 119.8 0.70 Yes 6.0 0 0 No No 11.0 Yes No No No No No No No 3.3 9.2 Paraguay Yes NO LIMIT 168.6 0.54 Yes 6.0 30 100 Yes No 20.0 Yes Yes Yes Yes Yes No No Yes 7.5 18.6 Peru Yes 60 185.8 0.34 Yes 6.0 35 100 No No 13.0 Yes Yes Yes Yes Yes No No Yes 0.0 11.4 Philippines Yes NO LIMIT 173.2 0.72 Yes 6.0 10 30 No No 5.0 Yes Yes No Yes No No Yes No 4.3 23.1 Poland No 24 379.4 0.27 Yes 6.0 20 100 No No 26.0 Yes No No No No Yes Yes Yes 10.1 0.0 Portugal Yes 72 677.9 0.26 Yes 6.0 25 100 No Yes 22.0 Yes Yes No Yes No Yes Yes Yes 7.9 26.0 Puerto Rico No NO LIMIT 1,256.7 0.64 Yes 7.0 0 100 No No 15.0 Yes No No No No No Yes Yes 0.0 0.0 Qatar No NO LIMIT 0.0 0.00 Yes 6.0 0 0 No No 22.0 Yes Yes No Yes No No No No 7.2 16.0 Romania Yes 24 214.5 0.22 Yes 5.0 25 100 No No 21.0 Yes No No No No Yes Yes Yes 4.0 4.3 Russian Federation Yes 60 150.8 0.14 Yes 6.0 20 100 No No 22.0 Yes Yes No Yes No Yes Yes No 8.7 8.7 DOING BUSINESS 2011 Rwanda No NO LIMIT 17.6 0.25 Yes 6.0 0 0 No No 19.3 Yes No No No No No Yes No 4.3 8.7 Samoa No NO LIMIT 128.7 0.30 Yes 6.0 0 100 No No 10.0 Yes No No No No No No No 5.8 0.0 São Tomé and Principe Yes 36 0.0 0.00 No 6.0 25 0 No Yes 26.0 Yes Yes Yes Yes Yes No No Yes 4.3 26.0 Saudi Arabia No NO LIMIT 0.0 0.00 Yes 6.0 0 0 No No 20.7 Yes No No No No No No No 4.3 15.2 Senegal Yes 48 77.3 0.48 Yes 6.0 38 0 No Yes 24.3 Yes Yes No Yes No Yes Yes Yes 3.2 10.5 102 103 Redundancy Difficulty of hiring index Rigidity of hours index Difficulty of redundancy index cost ANNEX · EMPLOYING WORKERS Minimum wage for a 19-year-old Fixed-term contracts prohibited Maximum length of fixed-term Severance pay for redundancy 50-hour workweek allowed? c Notice period for redundancy Retraining or reassignment? f Dismissal due to redundancy Premium for work on weekly dismissal (weeks of salary) e dismissal (weeks of salary) e rest day (% of hourly pay) d Ratio of minimum wage to if 9 workers are dismissed? if 9 workers are dismissed? if 1 worker is dismissed? if 1 worker is dismissed? Maximum working days worker or an apprentice Premium for night work value added per worker Third-party notification Third-party notification weekly holiday work? d for permanent tasks? Major restrictions on Major restrictions on Third-party approval Third-party approval contracts (months) a for reemployment? (% of hourly pay) d (US$ per month) b for redundancies? Paid annual leave (working days) e allowed by law? night work? d Priority rules Priority rules per week Serbia Yes 12 186.8 0.25 Yes 6.0 26 26 No No 20.0 Yes No No No No Yes Yes Yes 0.0 7.7 Seychelles Yes NO LIMIT 287.0 0.26 Yes 6.0 0 100 No No 21.0 Yes Yes Yes Yes Yes No No No 4.3 9.1 Sierra Leone Yes NO LIMIT 12.7 0.25 Yes 5.0 15 0 No No 21.7 Yes Yes No Yes No Yes Yes Yes 8.7 34.8 Singapore No NO LIMIT 0.0 0.00 Yes 6.0 0 100 No No 10.7 Yes No No No No No No No 3.0 0.0 Slovak Republic No 24 441.2 0.24 Yes 6.0 20 0 No No 25.0 Yes Yes No Yes No Yes No No 11.6 11.6 Slovenia Yes 24 1,036.7 0.37 Yes 6.0 30 50 No Yes 21.0 Yes No No No No Yes Yes Yes 5.7 5.7 Solomon Islands No NO LIMIT 96.3 0.73 Yes 6.0 0 0 No No 15.0 Yes Yes No Yes No No No No 4.3 10.7 South Africa Yes NO LIMIT 516.4 0.70 Yes 6.0 0 100 Yes No 15.0 Yes Yes No Yes No Yes No No 4.0 5.3 Spain Yes 12 1,059.4 0.27 Yes 5.5 25 0 No Yes 22.0 Yes Yes No Yes No No No No 2.1 15.2 Sri Lanka No NO LIMIT 35.6 0.15 Yes 5.5 0 50 No Yes 14.0 Yes Yes Yes Yes Yes No Yes No 4.3 54.2 St. Kitts and Nevis No NO LIMIT 505.1 0.38 Yes 7.0 0 0 No No 14.0 Yes No No No No No No Yes 8.7 0.0 St. Lucia No NO LIMIT 0.0 0.00 Yes 6.0 0 150 No No 21.0 Yes No No No No No No No 3.7 9.7 St. Vincent and the Grenadines No NO LIMIT 176.0 0.27 Yes 6.0 0 0 No No 19.3 Yes No No Yes No No No Yes 4.0 10.0 Sudan No 48 90.6 0.50 Yes 6.0 0 0 No No 23.3 Yes Yes Yes Yes Yes No No No 4.3 21.7 Suriname No NO LIMIT 0.0 0.00 Yes 6.0 0 100 No No 16.0 Yes Yes Yes Yes Yes No No No 0.0 8.8 Swaziland No NO LIMIT 85.5 0.25 Yes 5.5 0 0 No No 11.0 Yes No No Yes No No Yes No 5.9 8.7 Sweden No 24 0.0 0.00 Yes 5.5 0 0 No Yes 25.0 Yes No No Yes No Yes Yes Yes 14.4 0.0 Switzerland No 120 0.0 0.00 Yes 6.0 0 0 No No 20.0 Yes No No No No No No No 10.1 0.0 Syrian Arab Republic No 60 133.7 0.41 Yes 6.0 0 100 No Yes 19.3 Yes Yes Yes Yes Yes No No No 8.7 0.0 Taiwan, China Yes 12 525.2 0.26 Yes 6.0 0 100 No No 12.0 Yes Yes No Yes No Yes No Yes 4.3 18.8 Tajikistan Yes NO LIMIT 14.3 0.14 No 6.0 0 100 Yes No 23.3 Yes Yes No Yes No Yes Yes No 8.7 6.9 Tanzania Yes 0 60.0 0.75 Yes 6.0 5 100 No No 20.0 Yes Yes Yes Yes Yes No No No 4.0 5.3 Thailand Yes NO LIMIT 78.9 0.18 Yes 6.0 0 0 No No 6.0 Yes No No No No No No No 4.3 31.7 Timor-Leste Yes NO LIMIT 0.0 0.00 Yes 6.0 0 100 No No 12.0 Yes Yes Yes Yes Yes No No No 4.3 0.0 Togo Yes 48 60.0 0.92 Yes 6.0 38 60 No No 30.0 Yes Yes No Yes No No Yes Yes 4.3 7.3 Tonga No NO LIMIT 0.0 0.00 Yes 6.0 0 0 No Yes 0.0 Yes No No No No No No No 0.0 0.0 Trinidad and Tobago No NO LIMIT 0.0 0.00 Yes 6.0 0 100 No No 10.0 Yes No No Yes No No Yes No 6.4 14.1 Redundancy Difficulty of hiring index Rigidity of hours index Difficulty of redundancy index cost Minimum wage for a 19-year-old Fixed-term contracts prohibited Maximum length of fixed-term Severance pay for redundancy 50-hour workweek allowed? c Notice period for redundancy Retraining or reassignment? f Dismissal due to redundancy Premium for work on weekly dismissal (weeks of salary) e dismissal (weeks of salary) e rest day (% of hourly pay) d Ratio of minimum wage to if 9 workers are dismissed? if 9 workers are dismissed? if 1 worker is dismissed? if 1 worker is dismissed? Maximum working days worker or an apprentice Premium for night work value added per worker Third-party notification Third-party notification weekly holiday work? d for permanent tasks? Major restrictions on Major restrictions on Third-party approval Third-party approval contracts (months) a for reemployment? (% of hourly pay) d (US$ per month) b for redundancies? Paid annual leave (working days) e allowed by law? night work? d Priority rules Priority rules per week Tunisia No 48 120.5 0.27 Yes 6.0 0 0 No No 13.0 Yes Yes Yes Yes Yes Yes Yes Yes 4.3 7.8 Turkey Yes NO LIMIT 505.4 0.47 Yes 6.0 0 100 Yes No 18.0 Yes No No No No Yes No Yes 6.7 23.1 Uganda No NO LIMIT 3.1 0.04 Yes 6.0 0 0 No No 21.0 Yes No No No No No No No 8.7 0.0 Ukraine Yes NO LIMIT 125.1 0.38 No 5.5 20 100 No No 18.0 Yes Yes No Yes No Yes Yes Yes 8.7 4.3 United Arab Emirates No NO LIMIT 0.0 0.00 Yes 6.0 0 50 No Yes 26.0 Yes No No No No No No No 4.3 18.1 United Kingdom No NO LIMIT 1,805.0 0.35 Yes 6.0 0 0 No No 28.0 Yes No No No No No No No 5.3 2.6 United States No NO LIMIT 1,252.9 0.21 Yes 6.0 0 0 No No 0.0 Yes No No No No No No No 0.0 0.0 Uruguay Yes NO LIMIT 235.2 0.19 Yes 6.0 0 100 No No 21.0 Yes No No No No No No No 0.0 20.8 Uzbekistan Yes 60 23.9 0.17 Yes 6.0 50 100 Yes