The World Bank’s Doing Business project is one of the most important innovations in international development in the last two decades. Launched in 2002, the project examines indicators across 189 countries to determine what obstacles stand between entrepreneurs and starting a new business and reveals where governments are falling short of encouraging new businesses to participate in the country’s economy. The indicators explore how difficult, expensive, and time-consuming it is for a new business to open and operate in the local economic environment.
The first Doing Business report, published in 2003, has faced both criticism and praise for revealing exactly what reforms are necessary to foster the growth of new business. While the Doing Business report is unique in its presentation, it builds on the methodology of other indicators and reports, such as the U.S. Agency for International Development (USAID) “Investor Roadmap.” The Bush Administration provided critical political cover and some financial resources to get Doing Business started, and the Obama Administration has continued to support the project. Many countries around the world have supported the Doing Business project including New Zealand, Australia and the United Kingdom. The Doing Business report gets more press attention and policymaker focus than any other World Bank product, and each year that popularity grows. Last year, the report’s launch generated 1700 media hits within the first 48 hours. This year, there were over three thousand reactions, responses, and shares within that same timeframe.
The methodology of the report has changed slightly over the years to better assess modern challenges, from electricity access to construction permits and land registration. The Doing Business report looks at best practices internationally – in New Zealand, for example, it takes half a day to clear the regulatory hurdles required to start a new business, while India takes 29 – and compares each country’s “distance to the frontier” (DTF). The concrete ranking system that the DTF metric provides, as well as other Doing Business indicators, encourages changes that objectively reduce obstacles to new enterprise.
These indicators monitor the formal business sector, not unregulated or informal industries. Time spent waiting for approval on contracts with local governments, registering property, and handling construction permits all deter new business owners from following legal channels. International investors want as much of a country’s economy as possible to participate in the formal sector – formal businesses follow local employment and environmental laws, pay taxes, hire local people to reduce unemployment, and have the potential to access capital through bank loans and capital markets. Informal companies do not follow these laws, are more vulnerable to corruption, do not pay taxes, and do not have access to bank loans. Encouraging participation in the formal economy prevents some corruption in the regulatory process as well as increasing tax revenue and quality of goods overall.
In summary, rankings do matter. They encourage countries to compete with each other—especially among neighbors and geopolitical rivals. A better ranking on the World Bank’s Doing Business publication provides investors and policymakers with a proxy for other improvements, such as better governance practices, improved political will, and greater investment opportunities. The 2016 report shows improvements in the ease of doing business in most of the 189 countries surveyed; of the ten countries that exhibited the largest improvement in the last year, half are in Africa. Rather than offering abstract goals for improvement, the Doing Business indicators compare countries to their neighbors, encouraging competition that reduces barriers to economic participation for entrepreneurs all over the world.
Despite the trend of convergence and the overall improvements in the past decade, there is still a lot of work to be done. No country has a perfect score on the DTF metric; however, most countries saw significant improvement since the Doing Business project started measuring their progress. Following the international best practices would reduce not only the time to start new businesses but also the cost of starting a new business. In the 86 countries examined in both the World Bank’s Entrepreneurship Database and the Doing Business project, 57.8 million days were wasted where local governments did not follow best practices.
The Doing Business indicators – and the related work of improving the investment climate through technical assistance – are examples of “big bang for the buck” projects that do not cost billions of dollars but help spur real progress. That progress has already begun to take form in countries like Pakistan and Kazakhstan. Both countries are making measurable steps toward healthier markets and more robust investment, all of which is tracked by the Doing Business indicators.
Article Published in Forbes.com on November 10, 2015.