Critical Success Factors for undertaking Doing Business reforms

The World Bank Group

Cemile Hacibeyoglu
May 29, 2012 Mbabane, Swaziland

Doing Business identifies opportunities for reform

Annual publication measuring business regulations in 10 key areas Focus on regulations relevant to the life cycle of a small to mediumsized domestic business. Covers 183 economies worldwide Updated each year, tracks and measures reforms Identifies best practices globally

Doing BusinessMeasuring 10 areas of business regulation

Top 10 economies for the ease of doing business in 2010/11

Global top 10
1. Singapore 2. Hong Kong SAR, China 3. New Zealand 4. United States 5. Denmark

Sub-Saharan Africa top 10

1. Mauritius 2. South Africa 3. Rwanda 4. Botswana 5. Ghana

6. Norway
7. United Kingdom 8. Korea, Rep.

6. Namibia
7. Zambia 8. Seychelles

9. Iceland
10. Ireland 124. Swaziland
4
4

9. Kenya
10. Ethiopia 13. Swaziland

4 of the economies improving the most in the ease of doing business in 2010/11 are from Sub-Saharan Africa
Change in Dealing with ranking DB11 Starting a construction Getting Registering Getting Protecting Paying Business electricity property credit investors taxes to DB12 permits
Trading across borders Enforcing Resolving contracts insolvency

Morocco Moldova

11594 (-21) 9981 (-18)

Macedonia, FYR 3422 (-12) So Tom and Principe Latvia

174163 (-11) 3121 (-10) 129119 (-10) 150141 (-9) 177169 (-8) 8174 (-7) 158 (-7) 6155 (-6) 4742 (-5)

Cape Verde
Sierra Leone Burundi Solomon islands Korea, Rep. Armenia Colombia

East and Southern African economies rank on average higher than the regional average on the ease of doing business
East African Community:
Burundi, Kenya, Rwanda, Tanzania, Uganda

OECD high income

30

Southern African Development Community:

Eastern Europe & Central East Asia & Pacific Middle East & North Africa Latin America & Caribbean 77 87 93 95 112 114
Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe

Economic community of West African States:

Benin, Burkina Faso, Cape Verde, Cte dIvoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo

South Asia 117 Sub-Saharan Africa 137

151 170

Economic Community of Central African States:

Angola, Burundi, Cameroon, Central African Republic, Chad, the Democratic Republic of Congo, the Republic of Congo, Equatorial Guinea, Gabon, So Tom and Prncipe

Most Sub-Saharan African countries have a high degree of variability among the different areas of regulation
Average Rank Across DB Topics
180 160 140 120 100

80
60 40 20 Seychelles Rwanda Madagascar Swaziland Sierra Leone Malawi South Africa Kenya Mauritania Namibia Zambia Eritrea Cape Verde Equatorial Nigeria Botswana Gambia, the Ethiopia Senegal Liberia Burundi Comoros Tanzania Mozambique Cameroon Sudan So Tom Ghana Cte d'Ivoire Uganda Lesotho Togo Angola Chad Congo, Rep. Burkina Guinea- Zimbabwe Mauritius Central Niger Gabon Congo, Guinea Mali Benin 0

The average rank in 10 areas of business regulation in South Africa is 63, but in fact performance varies significantly across indicators

South Africa TOP 3 rankings Getting credit: 1 Protecting investors: 10 Dealing with construction permits: 31 South Africa BOTTOM 3 rankings: Enforcing contracts: 81 Getting electricity: 124 Trading across borders: 144

Swazilands performance on the ease of Doing Business

Ease of Doing Business ranking (1-183)
Easiest Most difficult 171 133 139 178

Swazilands overall ranking in DB12: 124

124 127

109 54 35 63

Swazilands performance varies across topics

Indicator Dealing with construction permits Getting credit Paying taxes Resolving insolvency Protecting investors Registering property Trading across borders Getting electricity Starting a business Enforcing contracts
9

Regions best performer South Africa South Africa Mauritius Botswana South Africa Ghana Mauritius Mauritius Rwanda Tanzania

Swaziland 47 48 60 69 122 128 148 158 161 171

Swazilands recent reforms reflected in Doing Business reports

DB 2012 Registering property Swaziland made transferring property quicker by streamlining the process at the land registry. DB 2011 Protecting investors Swaziland strengthened investor protections by requiring greater corporate disclosure, higher standards of accountability for company directors and greater access to corporate information for minority investors. Trading across borders Swaziland reduced the time to import by implementing an electronic data interchange system for customs at its border posts. Resolving insolvency In April 2010, the new companies act of Swaziland entered into force. It establishes a more streamlined winding up procedure. The effect of the new law has not been felt in practice yet.
10

A record number of economies in Sub-Saharan Africa reformed business regulations in 2010/11

36 out of 46 governments in the region improved their economys regulatory environment for domestic businesses in 2010/11

11

Since Doing Business 2005 Sub-Saharan African countries have implemented 373 reforms 76 in DB 2012
100 90 80 70 60

Number of reforms DB2005-DB2011 15 7 7 7 4 5 6 1 6 17 1 Number of reforms DB2012

50
40 30 20 10 0

12

South Africa improves steadily and remains the closest to the frontier, but numerous African economies are catching up through sustained reforms
South Africa and the 5 economies in Sub-Saharan Africa most closing the gap to the frontier
2005
0
Narrowing the Distance to the Frontier from 2005 to 2011 (percentage points)

2006

2007

2008

2009

2010

2011

0.1

DB reforms Rwanda

0.2

25
Burkina Faso Mali Madagasca r Ghana South Africa

0.3

20 15 13 12

0.4

0.5

0.6

0.7

0.8

In 2010/11, South Africa made improvements in 3 areas of business regulations for the first time in DB

Starting a business
The Companies Act 2008 (Act No 71 of 2008) came into force on May 01, 2011. The requirement to reserve a company name was removed. The new Act introduces fewer statutory forms to incorporate a company. The costs of incorporation have been reduced to a flat fee of only R175 and there is no longer the need to obtain a Certificate to commence a business.

Registering property
On April 4, 2011, South Africa implemented a new law on Transfer duty. The e-filing system for submission of Transfer Duty declarations and payments is now operational and it is mandatory to file for Transfer Duty electronically. A new sliding scale was introduced for the Transfer Duty rate. Previously, a company selling a property was taxed a fixed rate of 8% of the declared property value.

Resolving insolvency
South Africa amended its Companies Act in May 2011. The amendments introduced a new reorganization regime (business rescue) to facilitate the rehabilitation of a company that is financially distressed and have entrusted this procedure to a new category of professionals - the business rescue specialists. Reorganization proceedings may be initiated by the management of the company, creditors and employees.

Impact: -1 procedure, -3 days, overall cost cut from 6% to 0.3% of GNI per capita 14

Impact: -1 day, cost of transfer duty tax dropped by 8% to 4.6% of property price

Through the years, Rwanda has adopted a broad approach to make regulations more business-friendly
REFORMS implemented in DB 12:

Starting a business: Reduction of the business registration fees from FRW 25,000 to FRW 15,000. Paying taxes: Reduction of the number of required VAT filings from monthly to quarterly. Getting credit: the private credit bureau started to collect and distribute information from utility companies and also started to distribute more than 2 years of historical information, improving the credit information system

The Doing Business Report is a catalyst for regulatory reforms

More than 80 countries have requested technical assistance to improve the business environment in the areas measured by Doing Business

16

Why investment climate reforms matter? Business entry: Key findings from the literature

Quasi-experimental evaluations: positive impact of entry simplification.

One stop shop in Mexico
One stop shop in Colombia

5% increase in registered firms, 2.8% employment

5.2% increase in firms registered 6% increase in firms registered

Reduction of entry procedures in India

Cross-country studies confirm positive impact of simplification.

Reduction of entry cost from 24.5% to 0.7% of income per capita 10-11% increase in firms registered

Reforms in several areas for bigger impact.

Entry reforms in Indian states with more flexible labor regulations. 17.8% increase in output gains, larger than in states with less flexible regulations

17

Trade: Key findings from the literature

Reduced time to export associated with greater trade and productivity.

Reduction of time (through simplification of documents /processes & automation, and a reduction of fees by at least 10%)
Increased Exports Over 6% export increase in subSaharan Africa (1.8% in OECD countries) 1 additional day in transit time is equivalent to a 70km increase in distance between trading partners Increased Productivity Reducing customs clearance time by 1 day generated over 7% increase in productivity (value added per worker) for consumer goods production (China)

18

Insolvency: Key findings from the literature

Bankruptcy reforms associated with increased repayment rate and reduced cost of debt Increased the probability of timely Improved repayments by 28% insolvency Reduced cost of debt regimes Increased the aggregate level of credit by 39% (Brazil) New mechanisms for Reduce by 8.4% the failure rates of debt restructuring small and medium enterprises and reorganization Reduce duration of reorganizations

from 34 to 12 months

Bankruptcy reforms associated with increased household credit Reforms to individual bankruptcy laws in high income countries
19

Increased household credit by as much as 12%

Strategy for successful reform

Key aspects of success in the reform process
Long-term vision and clear objectives Leadership at the highest political level Appropriate structure (steering committee, technical taskforce) Clear definition of responsibilities among implementing agencies Broad but realistic program of improvement of the business environment Coherent reform efforts, year after year: start small and build on demonstrable effects Follow-up, communication strategy and training

20

Good practices to reform the Starting a business Process

21

Why does formal business registration matter?

For the economy
Simpler start-up procedures are associated with a greater number of legally registered companies

For the company

Legal entities can outlive their founders.

Simpler business registration associated with greater employment opportunities in the formal sector (e.g. Masatlioglu and Rigolini, 2008)

- Formally registered companies have access to services and institutions from courts to banks as well as to new markets.

Lower costs for business registration encourage entrepreneurship and enhance firm productivity (e.g. Klapper, Laeven and Rajan, 2006; Klapper and Love 2011; Barseghyan 2008)

- Employees can also benefit from protections provided by the law.

The Case Study Assumptions

Company type: SME in countrys largest business city Legal form: Limited Liability Company 100% domestically owned Has a start- up capital of 10 times income per capita Does not qualify for investment incentives Has at least 10 and up to 50 workers Performs general industrial or commercial activities.

23

What Starting a Business measures

What are the time, cost, paid-in minimum capital and number of procedures to get a local limited liability company up and running?

Number of reforms easing start-up since DB2005 (by region)

0 20 40 60 80 100

Sub-Saharan Africa Eastern Europe & Central Asia OECD high income Latin America & Caribbean Middle East & North Africa East Asia & Pacific South Asia

80
72 55 51 41 38 12

DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012

Sub-Saharan Africa, Eastern Europe & Central Asia most active in start-up reforms
25

Change in procedures, time, cost, and paid- in minimum capital to start-up by region between DB2006 and DB2012

What are the trends since DB2006

Starting a business has become easier across all regions of the world Incorporation fees tend to be lower in economies where fee schedules are easily accessible Globally, the average time to start a business fell from 50 days to 31, and the average cost from 89% of income per capita to 36%. Over the past 8 years Doing Business recorded 349 business registration reforms in 146 economies In 2010/11, 53 economies made it easier to start a business, with streamlining registration formalities the most common feature Entrepreneurs in Sub-Saharan Africa continue to face the highest cost and highest paid-in minimum capital

Where is starting a business easy? What do many have in common?

Top 10 Performers
Global good practices New Zealand

Australia
Canada Singapore Hong Kong SAR, China Macedonia FYR Georgia Rwanda

Standardized forms
No courts involved Fixed registration fee

No publication in legal journal required

3 procedures, 5 days, start-up fees 2.2% GNI pc ( on average)

Belarus
Armenia

28
28

Company start-up is lengthy and cumbersome in Swaziland

It takes 12 procedures, 56 days, costs 29.2% of income per capita and requires paid-in minimum capital of 0.5% of income per capita to start a business in Swaziland.

Requesting trading license takes 30 days

Registration with the company registrar takes 21 days

29

How does business start-up process in Swaziland compare to regional and global best practices?

Time (calendar days)

56

Procedures (number)
12 8 5

37

13 1 3
OECD average Regional Swaziland average : Sub-Saharan Africa

1
Global best performer: Canada

Global best Regional performer: best New Zealand performer: Rwanda

Regional best performer: Rwanda

OECD average

Regional Swaziland average: Sub-Saharan Africa

Cost to open a company in Swaziland is 29.2% of income per capita, below the regional average of 81.2%, but above the OECD average of 4.7%.
30

Starting a business: successful reform examples

Reducing or eliminating the minimum capital requirement (82 economies including Kenya, Madagascar, Portugal, Rwanda, United Arab Emirates, United Kingdom); Putting reservation of company names and registration procedures online (110 countries, including over 40, which offer full electronic registration (Mauritius, New Zealand);

Introducing single company/taxpayer identification number (Ghana, India, Mali, Singapore);

Unifying all company registration procedures at a virtual or physical single access point to include registration for income tax, VAT and personal income tax by linking various databases and creating a single form that satisfies requirements of all agencies involved in company registration ( 83 countries worldwide have one-stop shops including Liberia, Malaysia, Saudi Arabia, Taiwan, China; Thailand); Making access to forms and fee schedules easy (cost to start a business averages 18% of income per capita in economies where schedules are accessible, and 66% in economies where they are not).

Best practices to reform the Trading across Borders Process

32

Why does facilitating trading across borders matter?

Competitiveness: in a globalised world, making the ability to compete in the global markets, and to become a part of global supply chains is important Outdated regulations, inefficient customs administration, excessive document requirements, inadequate infrastructure, cumbersome port procedures, lack of coordination at border posts all hinder a firms ability to trade with the world Grounded in economics literature: More effective than tariff reduction - 10% reduction in exporting costs increases exports by 4.7% (study on sub-Saharan Africa) Good for SMEs cutting the days to clear exports by half could enable its share of exports in total sales to increase from 1.6% to 4.5% (study on APEC)
33

What trading across borders measures: documents, time and cost

34

Four major steps in the trading process

EXPORTING
Document preparation Customs and other border agency Ports and terminal handling

Transportation

Letter of Credit Other documents (customs declaration forms, etc)

Arranging for transport

Transport Loading and unloading goods

Customs Inspections Technical/health Security

Waiting for vessel to berth/depart Loading and unloading the container Terminal handling

Document preparation

Transportation

Customs and other border agency

Ports and terminal handling

35

IMPORTING

The Case Study Assumptions

Exporting and importing from the most populous city in the country to/from the countrys largest overseas trade partner via ocean transport using the primary seaport used for that city in a dry cargo 20-ft full container load (FCL), weighs 10 tons and is valued at US$20,000. Product is one of the countrys leading export and import products, and is o o o o not hazardous not include military items not require refrigeration or any other special environment not require special phytosanitary or environmental safety standards

Payment is through a Letter of Credit Company does not operate within an export processing zone or other special export/import privileges.

36

On average, document requirements and delays are highest in South Asia and Sub-Saharan Africa

Consistent pace of reforms in the area of trading across borders has reduced delays in Sub-Saharan Africa
- The 46 economies of the Sub-Saharan Africa area implemented a total of 52 trade reforms since 2005 - In areas such as: Electronic systems for customs Single windows for trade Border cooperation agreements Risk-based inspections

Traders in Swaziland face high costs and delays

Cost (USD per container)

Export Import
1,855 2,030

Time (days)
Export Import
18 27

1,032 1,085 450 435 690 577 5 4 11

13 11 11

Global best Regional best performer: performer Malaysia Sub-Saharan Africa: Sao Tome and Principe

OECD average

Swaziland Global best performer: Singapore/ Hong Kong

Regional best performer Sub- OECD Saharan Africa : average Mauritius/Seneg al

Swaziland

39

Where is it easiest to trade? What do they have in common?

Top 10 Performers Singapore Hong Kong SAR, China Estonia Korea, Rep. United Arab Emirates Finland Denmark Sweden Norway Israel
40

Global good practices Paper-free electronic data

interchange (EDI) system.

Pre-arrival submission of customs declaration and manifest.

Less than 10% of containers are physically controlled, using risk based inspection systems. Single Window for obtaining trade documents and approvals Efficient ports and transportation infrastructure

Trading across borders: successful reform examples

Streamlined documents for exporting and importing (Angola; China; Djibouti; Mali; United Arab Emirates); Transparent inventory of all fee schedules in the trading process (Israel); Mapping exercise of the import and export procedures at the port to identify bottlenecks (Zambia, Malawi, Kenya, Sao Tome and Principe); Electronic submission and processing of all trade documents (130 economies including Chile; Estonia; Turkey); Single window system for trade-related transactions (49 economies including Colombia; Ghana; Korea; Singapore); Improved procedures at ports (Djibouti; Senegal; Vanuatu).

41

Thank you!

Thank you for your attention!

Contact: Ms. Cemile Hacibeyoglu chacibeyoglu@worldbank.org

42

Annex

43

Economies in Sub-Saharan Africa on average have weaker legal institutions and more expensive regulatory processes than other regions

44