Spurred by the need to create jobs and boost economic growth, many governments are making it easier for foreign companies to do business in their countries by reducing the time, cost and hassle they need to endure complying with legal and administrative requirements, according to a report produced by the World Bank and its private sector arm, the International Finance Corp. For example, in 2005 and 2004, Africa trailed all other regions in the pace at which it made business-friendly changes, but in 2006, ranked third behind only Eastern Europe-Central Asia and the high-income industrialized countries, the report says.
Titled “Doing Business 2007: How to Reform,” the fourth annual report divides the world’s countries into seven groups. It identifies top reformers of business regulations and describes best practices in how to reform. It measures quantitative indicators on business regulations and compares their enforcement across 175 economies.
Two-thirds of African countries made at least one significant reform in 2006 and Tanzania and Ghana ranked among the top 10 reformers, the report says. “Such progress is sorely needed,” says Michael Klein, the IFC’s chief economist. “African countries still have the most complex business regulations. They would greatly benefit from new enterprises and jobs.”
The most popular reform in 2005–2006 was easing the regulations for starting businesses. Forty-three countries simplified procedures to reduce costs and delays. The second most popular change, implemented in 31 countries, was to reduce tax rates and the administrative hassle of paying taxes. “It is easy to understand why those reforms top the list. Elections can be won on the more jobs, lower taxes platform,” the report says.
Singapore, which in September hosted the annual meetings of the World Bank and its sister institution, the International Monetary Fund, is the most business-friendly country, the report says, followed by New Zealand and the United States. Several countries, including Bolivia, Eritrea, Hungary, East Timor, Uzbekistan, Venezuela and Zimbabwe, went backward. Venezuela, for example, made it more difficult for businesses to register property, get credit and trade across borders.
The methodology of the report has limitations in that it covers only regulations on doing business. It does not account for a country’s proximity to large markets, the quality of its infrastructure services, the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the un-derlying strength of institutions. As a result, “While Namibia ranks close to Portugal on the ease of doing business, this does not mean businesses are just as eager to set up in Windhoek as they are in Lisbon,” the report says.
Distance from large markets and poor infrastructure, issues not studied in “Doing Business 2007,” make Namibia a less attractive destination for investors.
The report says the top 10 reformers are Georgia, Romania, Mexico, China, Peru, France, Croatia, Guatemala, Ghana and Tanzania. Mexico, an emerging economic power, loosened its regulations on business entry, protection of investors and payment of taxes, the report said. Other reforms included reducing the time to start a business in Mexico City from 58 days to 27 and cutting corporate taxes from 33 percent in 2004 to 29 percent in 2006.