Doing Business 2010: Reforming through Difficult Times

A record 131 economies around the globe reformed business regulation in 2008/09, according to the IFC–World Bank Doing Business 2010 report.

That is more than 70 percent of the 183 economies covered by the report— the largest share in any year since the annual report was first published in 2004. And this progress came against the backdrop of a global economic crisis.

Doing Business 2010: Reforming through Difficult Times recorded 287 reforms between June 2008 and May 2009, up 20 percent from the previous year. Reformers around the world focused on making it easier to start and operate businesses, strengthening property rights, and improving commercial dispute resolution and bankruptcy procedures.

Reforms measured by Doing Business can play an important role in enabling countries to recover from the economic crisis. The financial and economic crisis has become a jobs crisis in developing countries, and SME growth offers the best prospects for job creation.

“The quality of business regulation helps determine how easy it is to reorganize troubled firms to help them survive difficult times, to rebuild when demand rebounds, and to get new businesses started,” says Penelope Brook, Acting Vice President for Financial and Private Sector Development for the World Bank Group.

Developing Economies Set a Fast Pace—with Rwanda in the Lead

Three-quarters of low- and lower-middle-income economies reformed, accounting for two-thirds of reforms recorded by Doing Business 2010 (figure 1.2).

Among these, Rwanda is the star and the world’s top reformer of business regulation, making it easier to start businesses, register property, protect investors, trade across borders, and access credit. It marks the first time a Sub-Saharan African economy is the top reformer.

This year, there were four newcomers among the global top ten reformers: Liberia, the United Arab Emirates, Tajikistan and Moldova. Others, aside from Rwanda, are Egypt, Belarus, the Former Yugoslav Republic of Macedonia, the Kyrgyz Republic, and Colombia. Colombia and Egypt have been top global reformers in four of the past seven years.

Regional Pace Setters

Eastern Europe and Central Asia is the fastest-reforming region for the sixth year in a row. Despite being severely affected by the global crisis, all but one of the region’s 27 economies reformed business regulation over the past year. Five of the ten top global reformers are from the region. In the past two years reforms have been moving eastward from the European Union accession countries. Albania, Belarus and the Kyrgyz Republic implemented reforms in several areas for the third year in row. Inspired by their neighbors, Kazakhstan, Montenegro and Tajikistan continued reforms this past year.

The Middle East and North Africa has had the largest surge in reforms. Seventeen of the region’s 19 economies made reforms in 2008/09. Egypt, Jordan, Saudi Arabia, and the United Arab Emirates are leading global and regional reformers. (figure 1.1)

What Consistent Reformers Do

Doing Business analyzes regulations affecting the life cycle of a domestic, small to medium-size firm: from business start-up and operations, to trading across borders, paying taxes, and closure. The ease of doing business index ranks economies from one to 183. Singapore, a consistent reformer, ranks top on the ease of doing business, a position it has kept for the fourth year running. New Zealand is runner-up.

As Doing Business has tracked regulatory reforms over the past six years, some common features among successful reformers have started to emerge:

• They follow a longer-term agenda aimed at increasing the competitiveness of their firms and economy. Colombia, Egypt, Malaysia and Rwanda are all examples of economies incorporating business regulation reforms into a broader competitiveness agenda.
• They stay proactive. Singapore and Hong Kong (China) rank among the top economies on the ease of doing business and are also some of the most consistent reformers.
• They implement broad-based reforms. Over the past five years Colombia, Egypt, Georgia, the FYR Macedonia, Mauritius and Rwanda each implemented at least nineteen reforms, covering eight or more of the ten areas measured by Doing Business.
• They are inclusive. They involve all relevant public agencies and private sector representatives and institutionalize reform at the highest level. Colombia and Rwanda have formed regulatory reform committees reporting directly to the president or prime minister. More than 20 other economies, including Burkina Faso, India, Liberia, FYR Macedonia, Syrian and Vietnam, have formed committees at the ministerial level. Reforms in Egypt involved 32 government agencies supported by the parliament.
• They stay focused thanks to a long-term vision supported by specific goals

Heavy, costly regulatory burdens can push firms—and employment—into the informal sector, where firms are not registered and do not pay taxes and where workers have limited access to formal credit, institutions or protections. The global crisis is expected to further increase informal activity. According to the OECD, almost two-thirds of the world’s workers are already estimated to be employed in the informal sector. Most are in low- and lower-middle-income economies. And a disproportionate share is from already vulnerable groups, such as youth and women. Doing Business can give policymakers insights to a part of the solution - how to reform business regulation.