1. 1 Managing for Development Results Second International Roundtable Marrakech, February 4, 2004 Seminar IV: Infrastructure, Private Sector Development and Governance: What Can We Measure? Private Sector Development – Doing Business 2004 Neil Roger Director, Investment Climate Department, World Bank Group

2. 2 Growth achieves more than redistribution Source: World Bank WDI Database (2002).

3. 3 — Catch-up is possible — Time to double income: Pre-industrial: 350 years Britain (1780-1830) 175 years Britain in 19th century 65 years Fast growers since WWII (Japan, China, Thailand, 10 years Botswana, Ireland, Chile….) or less Market-friendly growth – The hope for poverty reduction POSSIBLE “CATCH-UP”

4. 4 Factor accumulation accounts for only a fraction of income differences (in percent) Source: Calculations based on Hendricks (2002).

5. 5 Transition to policy and institutions that foster growth l Benchmark institutional performance (Doing Business helps) l Identify weaknesses and bottlenecks (Doing Business helps) l Study international good practices (Doing Business helps) l Overcome vested interests l Start with partial reforms, which may lead to a virtuous reform cycle l Successful reforms are sometimes heterodox (China, Korea, Vietnam, …) l Continuous reform

6. 6 Aims of Doing Business l To document business regulation by law and in practice l Comparable data across over 130 countries l Replicability by other scholars, over time l Coverage of specific topics l Description and analysis of policy reform

7. 7 Doing Business Indicators • Regulation of Entry • Labor Regulations • Contract Enforcement • Credit Markets • Credit information • Collateral • Bankruptcy • Bureaucratic Hassle • Business licenses • Inspections •Corporate Governance • Property titling • Taxation • Customs • Protection of Property • Law and Order 2004 2005 2006 Products: Report, academic papers, country profiles, website database http://rru.worldbank.org/doingbusiness

8. 8 Example of the methodology: Starting a business Case Study l Limited liability company l Domestic SME l Largest city l General commercial activity l Capital = 10 x GNI per capita l Turnover = 10 x capital l How to enter? Indicators l Procedures l Time l Cost (% GNI per capita)

9. 9 Benchmarking: Pakistan (Jan. 1, 2002) Time, days Procedure Cost, % of per capita income

10. 10 Tracking reform: Pakistan (Jan. 1, 2003) Procedure Cost, % of per capita income Time, days

11. 11 Days to Start a Business

12. 12 Employment Regulation Index

13. 13 Number of Procedures to Enforce a Contract

14. 14 Years to go through Insolvency

15. 15 Main Findings l Developing countries have more regulations than do developed countries. Reform is continuous in most developed countries, not so in developing ones. l Burdensome regulation frequently results in inferior economic and social outcomes l Many reforms that are undertaken in developed countries can be implemented in developing countries too.

16. 16 Finding #1 Poor countries regulate business the most l checks and balances in government are the weakest  the possibility of using regulation to harass entrepreneurs and extract bribes is the highest

17. 17 Countries that regulate business the most l Bolivia l Burkina Faso l Chad l Costa Rica l Guatemala l Mali l Mozambique l Paraguay l The Philippines l Venezuela

18. 18 Countries that regulate business the least l Australia l Canada l Denmark l Hong Kong (China) l Jamaica l The Netherlands l New Zealand l Singapore l Sweden l United Kingdom

19. 19 Who Regulates More?

20. 20 Finding #2 Heavier regulation generally brings bad economic and social outcomes l Longer delays and higher cost of public services; more unemployed people, higher corruption, less productivity and investment l Not better quality of private or public goods l Disadvantaged groups suffer the most

21. 21 More procedures, less productivity

22. 22 Who loses? The poor and the disadvantaged Corruption Procedures to Start a Business ALB DZA ARG ARM AUS AUT AZE BGD BLR BEL BOL BIH BWA BRA BGR BFA CMR CAN CHL CHN COL CRI CIV HRV CZE DNK DOM ECU EGY ETH FIN FRA GEO DEU GHA GRC GTM HND HKG HUN IND IDN IRN IRL ISR ITA JAM JPN JOR KAZ KEN KOR KGZ LVA LBN LTU MDG MWI MYS MLI MEX MDA MNG MAR MOZ NPL NLD NZL NIC NER NGA NOR PAK PAN PER PHL POL PRT ROM RUS SAU SEN SER SGP SVK SVN ZAF ESP LKA SWE CHE SYR TWA TZA THA TUN TUR UGA UKR ARE GBR USA URY UZB VEN VNM YEM ZMB ZWE Informal Employment Procedures to Start a Business ALB DZA ARG ARM AUS AUT AZE BGD BLR BEL BEN BOL BIH BWA BRA BGR BFA CMR CAN CHL CHN COL CRI CIV HRV CZE DNK DOM ECU EGY ETH FIN FRA GEO DEU GHA GRC GTM HND HKG HUN IND IDN IRN IRL ISR ITA JAM JPN JOR KAZ KEN KOR KGZ LVA LBN LTU MDG MWI MYS MLI MEX MDA MNG MAR MOZ NPL NLD NZL NIC NER NGA NOR PAK PAN PER PHL POL PRT ROM RUS SAU SEN SER SGP SVK SVN ZAF ESP LKA SWE CHE SYR TWA TZA THA TUN TURUGA UKR ARE GBR USA URY UZB VEN VNM YEM ZMB ZWE More CorruptionA Larger Informal Sector Note: Partial scatterplots controlling for income per capita. Relationships are statistically significant at 5% level.

23. 23 One example: Female unemployment Note: Partial scatterplots controlling for income per capita. Relationships are statistically significant at 5% level.

24. 24 Small firms in poor countries benefit the most from good regulation Impact of Credit Information Bureaus on Firm’s Access to Finance Note: Figure shows the impact of information sharing on the percent of firm finance from formal sources, controlling for income, rule of law, firm ownership, age, sector and size. The effect of information sharing is significant at the 1% level in each case, and the effect of small firms in poor countries is significantly different from the full sample.

25. 25 Finding #3 One size often fits all – in the manner of business regulation l Good practices can be transferred from one country to another l Good practices exist in poor countries

26. 26 A lesson for everyone: Don’t use notaries in company registration

27. 27 Some Patterns l Latin American countries regulate more l China versus India l East Asian countries regulate less l Nordic countries l Reform fatigue?

28. 28 How to Use the Report l Motivate reforms through benchmarking: from Serbia to Sweden l Identify good practices to follow l What to export through bilateral aid programs? l Linking aid to performance

29. 29 Some reforms in business registration l Single registration forms and single registration number, e.g. France, Finland, Slovak Republic, Turkey l Eliminating court and notary involvement, e.g. Honduras, Italy, Nicaragua

30. 30 Some reforms in labor regulation l Different minimum wage criteria for new entrants and workers with experience, e.g., Chile, Colombia l Flexibility in peak vs slow periods, e.g., Czech Republic

31. 31 Some reforms in contract enforcement l Simplify court procedures, for example: l Introducing oral procedures, e.g. Paraguay, Italy, Mexico l Reducing notifications, e.g., Bulgaria, Estonia l Not suspending enforcement upon appeal, e.g., Tanzania l Specialized courts, e.g. Netherlands, Tanzania, or specialized judges within general courts, e.g.Uganda

32. 32 Some reforms in credit market institutions l Establish credit information registries. Public credit registries can work in poor countries, e.g., Mozambique, Malaysia l Private out of court enforcement of collateral agreements, e.g. Albania, USA, and summary proceedings, e.g. Moldova

33. 33 Some reforms in insolvency systems l Creditor involvement in appointment, replacement and work of bankruptcy administrator, e.g. Papua New Guinea l Mandatory continued education for bankruptcy practitioners, e.g., Germany l Focus on out of court collateral enforcement

34. 34 What Next?

35. 35 Registering Property l What are the steps, time and cost to register property? l How well do property laws and registers protect property rights of business? l What is the interaction between property rights laws and efficient property registers?

36. 36 Dealing with Licenses and Inspections l I have registered, now what? Steps time and cost to obtain licenses and permits to operate: the case of construction l How do countries enforce regulations? Labor and Tax inspections l Which countries enforce the most? In what areas? With what results? Which countries have the most discretion in enforcement?

37. 37 Protecting Investors l A private limited liability company l Structure and organization l Disclosure of ownership l Duties of officers, director, and shareholders l Challenging board resolutions l Assignment of litigation costs l Evidence in court proceedings l Related party transactions l Loans or guarantees to related parties