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A World Bank Group Flagship Report 13th edition

Doing Business 2016


Measuring Regulatory Quality and Efficiency

Doing Business 2016 is the 13th in a series of annual reports investigating the
regulations that enhance business activity and those that constrain it. The

Doing Business 2016


report provides quantitative indicators covering 11 areas of the business
environment in 189 economies. The goal of the Doing Business series is to
provide objective data for use by governments in designing sound business
regulatory policies and to encourage research on the important dimensions
of the regulatory environment for firms.

www.doingbusiness.org

Comparing Business Regulation for domestic firms in 189 Economies

ISBN 978-1-4648-0667-4

sku 210667
2016 International Bank for Reconstruction and Development / The World Bank
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AttributionPlease cite the work as follows: World Bank. 2016. Doing Business 2016: Measuring Regulatory Quality and
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ISBN (paper): 978-1-4648-0667-4


ISBN (electronic): 978-1-4648-0668-1
DOI: 10.1596/978-1-4648-0667-4
ISSN: 1729-2638

Cover design: Corporate Visions, Inc.


13th edition

Doing Business 2016


Measuring Regulatory Quality and Efficiency

Comparing Business Regulation for domestic firms in 189 Economies


A World Bank Group Flagship Report
Doing Business 2016

Resources on the
Doing Business website

Current features Historical data


News on the Doing Business project Customized data sets since DB2004
http://www.doingbusiness.org http://www.doingbusiness.org/custom-query

Rankings Law library


How economies rankfrom 1 to 189 Online collection of business laws and
http://www.doingbusiness.org/rankings regulations relating to business
http://www.doingbusiness.org/law-library
Data
All the data for 189 economiestopic Contributors
rankings, indicator values, lists of More than 11,400 specialists in
regulatory procedures and details 189 economies who participate
underlying indicators in Doing Business
http://www.doingbusiness.org/data http://www.doingbusiness.org
/contributors/doing-business
Reports
Access to Doing Business reports as Entrepreneurship data
well as subnational and regional reports, Data on new business density (number
case studies and customized economy of newly registered companies per 1,000
and regional profiles working-age people) for 136 economies
http://www.doingbusiness.org/reports http://www.doingbusiness.org/data
/exploretopics/entrepreneurship
Methodology
The methodologies and research Distance to frontier
papers underlying Doing Business Data benchmarking 189 economies to
http://www.doingbusiness.org/methodology the frontier in regulatory practice and a
distance to frontier calculator
Research http://www.doingbusiness.org/data
Abstracts of papers on Doing Business /distance-to-frontier
topics and related policy issues
http://www.doingbusiness.org/research Information on good
practices
Doing Business reforms Showing where the many good
Short summaries of DB2016 business practices identified by Doing Business
regulation reforms and lists of reforms have been adopted
since DB2008 http://www.doingbusiness.org/data
http://www.doingbusiness.org/reforms /good-practice
Doing Business 2016

Contents

iv Foreword

1 Overview

19 About Doing Business

27 What is changing in Doing Business?

34 Reforming the business environment in 2014/15

Case studies
54 Starting a business
Third-party involvement in company formation

62 Dealing with construction permits


Assessing quality control and safety mechanisms
Doing Business 2016 is the 13th in a series of
70 Getting electricity annual reports investigating the regulations
Measuring reliability, prices and transparency that enhance business activity and those
that constrain it. Doing Business presents
78 Registering property
quantitative indicators on business regulation
The paths of digitization
and the protection of property rights that can
83 Trading across borders be compared across 189 economiesfrom
A new approach to measuring trade processes Afghanistan to Zimbabweand over time.

91 Enforcing contracts Doing Business measures aspects of regulation


Measuring good practices in the judiciary affecting 11 areas of the life of a business.
Ten of these areas are included in this years
99 Resolving insolvency
ranking on the ease of doing business: starting
New funding and business survival
a business, dealing with construction permits,
getting electricity, registering property, getting
105 Legal research findings on business regulation and the law credit, protecting minority investors, paying
taxes, trading across borders, enforcing
113 References
contracts and resolving insolvency. Doing
119 Data notes Business also measures features of labor
market regulation, which is not included in this
163 Distance to frontier and ease of doing business ranking
years ranking.
169 Summaries of Doing Business reforms in 2014/15
Data in Doing Business 2016 are current as
183 Country tables of June 1, 2015. The indicators are used to
analyze economic outcomes and identify what
247 Labor market regulation data
reforms of business regulation have worked,
268 Acknowledgments where and why.
Doing Business 2016

Foreword

O
ver the 13 years since its incep-
tion the Doing Business report EVOLUTION OF THE
has become one of the worlds METHODOLOGY
most influential policy publications. It is
an annual report on the state of health of Given the importance of Doing Business
economies based on detailed diagnostics and the responsibility that comes with it,
not of the relatively more visible features and also in the light of the 2013 report of
(such as growth) and various macroeco- the Independent Panel on Doing Business,
nomic parameters (such as the public chaired by Trevor Manuel, it was decided
debt) but of underlying and embedded that we would use two years to revise and
characteristicssuch as the regulatory improve the measurement of the ease of
system, the efficacy of the bureaucracy doing business in different economies.
and the nature of business governance. This is the second and last year of this
An economys scores on Doing Business major revision exercise and that gives this
indicators are somewhat akin to a mea- years report a special significance.
sure of concentrations of various proteins
and minerals in the human blood. They The research on which regulatory con-
may not seem important to the lay straints are most important for firms and
observer, but they have huge long-run how to best measure them continues
implications for an economys health, to evolve. Since the first Doing Business
performance and growth. report was published in 2003, the team
has implemented a number of method-
Since 2003 Doing Business has been ological improvements, expanding the
publishing annual quantitative data on coverage of regulatory areas measured
the main regulatory constraints affecting and enhancing the relevance and the
domestic small and medium-size enter- depth of the indicators. While initially the
prises throughout their life cycle. This report was focused largely on measuring
years report presents data for 189 econ- efficiency and the costs of compliance
omies and aggregates information from with business regulations, over the past
10 areas of business regulationstarting two years there has been a systematic
a business, dealing with construction effort to capture different dimensions of
permits, getting electricity, register- quality in most indicator sets. This years
ing property, getting credit, protecting report introduces new measures of
minority investors, paying taxes, trading regulatory quality in the indicator sets
across borders, enforcing contracts and on dealing with construction permits,
resolving insolvencyto develop an getting electricity, registering property
overall ease of doing business ranking. and enforcing contracts. It also presents
Data are also collected on the regulation a significantly expanded data set for the
of labor markets but these are not part of labor market regulation indicators to
the overall ranking. cover certain dimensions of job quality,
Foreword v

such as the availability of paid sick leave, standardized case scenarios with well- Business as a starting point for identifying
on-the-job training and unemployment specified assumptions. The report not necessary reforms but should by no means
insurance for workers. In addition, the only highlights the extent of regulatory stop at what is measured by the report.
methodology for the trading across obstacles to firms through the compilation
borders indicators has been revamped to of quantitative data for more than 40 sub- There is indeed a risk in this, which is
increase their relevance. indicators but also identifies the source of important to acknowledge. When we
business environment constraints. This measure certain dimensions of the perfor-
Studies show that creating a regula- helps governments identify well-defined mance of an agent, such as a government,
tory milieu that enables private enterprises, areas of action and design reform agendas. that has to perform multiple tasks, there is a
especially small firms, to function and be In addition, the majority of Doing Business risk of diverting a disproportionate amount
creative has a large positive impact on indicators are based on a reading of the of effort to the tasks that are measured
job creation and is therefore good for the law, which makes the indicators action- while ignoring others that may be equally
economy. Yet the growth and efficiency of ableas the law is well within the sphere important. There is an important literature
small firms have been constrained by many of influence of policy makers and is thus in economics that, while not dealing
factors, including access to finance, lack of amenable to change. directly with this, formalizes and draws
managerial and technological capacities our attention to this problem.1 We can see
and, importantly for this report, the quality While this method has the advantage of this problem arise in other domains, such
of the regulatory environment. transparency, it has one inevitable short- as when teachers salaries are indexed by
coming. It is not feasible to design a case student evaluation scores; there is a risk
Demographic projections of the ris- study that will be an equally good fit for all that this will dampen the incentive for cre-
ing number of working-age people in the worlds economies. Because the report ativity, which is harder to measure. Ranking
low-income and some middle-income aims to have a global coverage, the choice universities often leads them to try to game
economies have given rise to both hope of indicators is partly constrained by the the system and move resources and effort
and concern. The latter takes the form of data that can realistically be collected in away from some important but unmeasur-
alarming accounts of how, because of this some of the least developed economies of able dimensions to the narrower tasks that
demographic dividend, we will have to the world. are tracked and measured.
create new jobs for all the new working-
age youngsters. What is often forgotten Furthermore, Doing Business covers a This is a risk that we have to contend with
is that there is no reason to presume that limited number of regulatory constraints. whenever we make an effort to rank agents
they will all be supplying their labor. If we And it does not measure many aspects of who perform multiple tasks, or more tasks
can provide a good regulatory environ- the business environment that matter to than can be measured. The hope is that
ment and some entrepreneurial training, firms, investors and the overall economy. governments, like individual agents, are
many of them will be on the other side For example, the report does not attempt inspired by more than narrowly focused
of the market, demanding instead of to capture a number of dimensions of optimization.2 They can then treat these
supplying labor. In other words, the same macroeconomic stability, the prevalence scores not as targets that ought to be
new working-age population can create of corruption, antitrust policies or the skills maximized to the exclusion of all else, but
new jobs and supply new labor. Hence, of the workforce, important as all these as indicative of how they are performing
at this juncture the World Bank Groups factors are for establishing a foundation for on an important dimension of economic
Doing Business report can be viewed as a sustainable economic development. Even lifeto wit, business governanceand
small but serious intellectual contribution within the relatively small set of indica- use them to do better in ways that may or
to this challenge. tors included in Doing Business the focus may not be possible to measure but that
is deliberately narrow. The trading across lead to better lives for their citizens.
borders indicators, for example, capture the
A WORD OF CAUTION time and cost for document preparation
and compliance with border procedures to WHAT DO THE DOING
When using this report, it is important to export and import goods; they do not mea- BUSINESS DATA SHOW?
understand its strengths and limitations. sure the costs associated with international
A major advantage of Doing Business transport or tariff and nontariff barriers. A quick look at the list of economies at the
is the comparability of data across the Therefore, policy makers wishing to imple- top of the ease of doing business ranking
worlds economies thanks to the use of ment regulatory reforms can use Doing reveals that the best 30 performers are

1. See Holmstrom and Milgrom (1991); and Laffont and Martimort (2009, ch. 5).
2. This is discussed in the context of economic governance in Bowles (2004, ch. 14).
vi Doing Business 2016

not those with little regulation but those that implemented at least one reform and areas measured by the report. Doing
with good rules that allow efficient and accounts for 3 of the 10 top improvers. Business has been praised by some and
transparent functioning of businesses and criticized by others. Indeed, there is no
markets while protecting the public inter- Analysis of the Doing Business data for the unique way to measure one of the most
est. Data in this years report also show past 12 years shows encouraging signs complex dimensions of the economy:
that economies that have efficient regu- of convergence toward best practices, as the regulatory burden for firms. To
latory processes as measured by Doing lower-income economies have improved ensure transparency, Doing Business
Business have high regulatory quality. In more in the areas measured by the report publishes the methodology used for the
addition, the economies that rank high on than high-income economies that started development of each indicator and the
Doing Business indicators tend to perform with a fairly strong regulatory framework disaggregated data online. This allows
well in other international data sets, such when Doing Business was first launched in users to apply their own judgment on
as the Global Competitiveness Index and 2003. Among the areas measured by the how to best analyze the data, including
Transparency Internationals Corruption report, starting a business has seen the by constructing alternative rankings
Perceptions Index. most improvements. In 2003 it took an using a different set of weights for the
average of 51 days worldwide to start a individual indicators.
OECD high-income economies have the business; by 2015 this number had been
best scores on average, yet there are more than halved, to 20 days. As we continue our work on improving
good practices in business regulation in the reports methodology, we welcome
every region. In 2014/15, 122 economies Since its launch in 2003 the Doing your ideas on how to strengthen the
implemented at least one reform in the Business report has inspired hundreds diagnostics of business environment
areas measured by Doing Businessfor a of regulatory reforms worldwide. In the constraints and make Doing Business a
total of 231 reforms. Europe and Central past 12 years more than 2,600 reforms more effective tool to promote better
Asia has the largest share of economies have been recorded globally in the regulatory practices.

Kaushik Basu
Senior Vice President and
Chief Economist
The World Bank
Washington, DC
Doing Business 2016

Overview

S
ocieties need regulationand others. Take the example of a business This years Doing Business report
businesses, as part of society, that becomes insolvent. Without regula- continues a two-year process of
are no exception. Without the tion, creditors each have an incentive to introducing improvements in 8 of
rules that underpin their establishment, grab as much of the insolvent firms assets 10 Doing Business indicator setsto
operation and dissolution, modern busi- as they can, even if it is in their collective complement the emphasis on the
nesses cannot exist. And where markets interest to see the firm restructured. efficiency of regulation with a greater
left to themselves would produce poor focus on its quality.
outcomes, well-designed regulation can Doing Business focuses on regulations New data show that efficiency and
ensure outcomes that are socially optimal and regulatory processes involved in quality go hand in hand. Economies
and likely to leave everyone better off. setting up and operating a business. It that have a faster and less costly
analyzes those that address asymmetries process for connecting to the electrical
Regulation can lead to fairer outcomes in information (such as credit market grid also tend to have a more reliable
by correcting for imbalances in power regulations), those that balance asym- electricity supply. Property transfers
between different players. For example, metries in bargaining power (such as are faster and less costly in economies
an unregulated labor market is unlikely labor market regulations) and those that with a good land administration
to produce socially optimal outcomes enable the provision of public goods or system. Commercial disputes are
for both employers and employees; bal- services (such as business or property resolved more efficiently by courts
anced regulation can allow flexibility for registration). using internationally recognized good
practices. And economies where the
employers while providing protections
formalities to build a warehouse can
for workers. Regulation can also address Countless transactions are required to
be completed more simply, quickly
asymmetries in informationsuch as set up and operate a business. When
and inexpensively have on average
those in the credit market, where borrow- starting a new business, entrepreneurs
better-quality building regulation.
ers are likely to have more information need to establish a legal entity separate
about their ability to repay a loan than from themselves to limit their liability Information technology is part of
lenders do. and to allow the business to live beyond good business regulation. In the past
the life of its ownersa process requir- year alone Doing Business recorded
In addition, regulation can enable the ing commercial registration. To operate 50 reforms establishing or improving
online tools for regulatory processes.
provision of public goods that markets their business, entrepreneurs may need
cannot provide and without which a simple way to export and import; they Overall in the past year, 122 economies
markets cannot operate. For example, may need to obtain a building permit or implemented at least one regulatory
a well-designed land administration acquire property to expand their business; reform in the areas measured by Doing
system, by providing reliable information they may need to resolve a commercial Business231 reforms in total.
on the ownership of property, makes it dispute through the courts; and they are Economies in all regions and income
possible for the property market to exist very likely to need an inflow of funds groups have improved the quality
and to operate. It is no surprise that land through credit or new equity. Regulation and efficiency of business regulation.
markets barely function in countries with is at the heart of all these transactions. But lower-income economies
no property registry, such as Libya and If well designed, regulation can facilitate have improved more in the areas
Timor-Leste. these transactions and allow businesses measured by Doing Business than
to operate effectively; if badly designed, it high-income economies havethere is
And regulation can induce market players can make completing these transactions convergence.
to consider the impact of their actions on difficult.
2 Doing Business 2016

Indeed, regulation can overburden busi- There are different ways to assess the building regulations; instead, it gauges
nesses, making it virtually impossible for quality of regulation. One way is to evalu- whether an economy has the kind of
them to operate. Consider business reg- ate the process leading to the creation building regulations and quality controls
istration. If the process is too complex of new regulations, by looking at such that enable well-constructed buildings.
as in Equatorial Guinea, where complet- aspects as whether consultations take
ing the formalities to start a business place with stakeholders or whether Doing Business continues to focus on
takes 18 procedures and 135 daysit regulatory impact assessments are regulation that affects domestic small
can deter entrepreneurs from even carried out. Another is to analyze the and medium-size enterprises, operat-
starting a new business. And if resolv- perceptions of citizens or experts about a ing in the largest business city of an
ing a commercial dispute takes too governments ability to formulate sound economy, across 11 areas.1 Ten of these
much timesuch as the 1,402 days in policies and regulations and implement areasstarting a business, dealing with
Guatemalait can reduce the number of them in a predictable fashion. construction permits, getting electric-
potential clients and suppliers for a com- ity, registering property, getting credit,
pany. Where courts are inefficient, firms Doing Business uses a different approach protecting minority investors, paying
are more likely to do business only with to measuring the quality of regulation. taxes, trading across borders, enforcing
people they know. How regulations and It focuses on whether an economy has contracts and resolving insolvencyare
regulatory processes are designed makes in place the rules and processes that included in the distance to frontier score
all the difference. can lead to good outcomes, linked in and ease of doing business ranking. The
each case to Doing Business measures distance to frontier score captures the
By expanding the scope of the indicators of efficiency. In the area of dealing with gap between an economys performance
a process started in last years report construction permits, for example, Doing and a measure of best practice across the
and continued in this yearsDoing Business now measures the quality of entire sample of 36 indicators, where 100
Business provides further clarity on the building regulations and the qualification is the frontier and 0 is the furthest from
differences between well-designed and requirements for the people reviewing the frontier. Doing Business also analyzes
badly designed regulation. New data on building plans as well as the efficiency labor market regulation, which is not
the quality of regulation make it easier (as measured by time and cost) of the included in the distance to frontier score
to identify where regulation is enabling process for completing all the formali- or ease of doing business ranking.2
businesses to thrive and where it is ties to build a warehouse. Doing Business
enabling rent seeking. does not assess the process for designing

FIGURE 1.1 What Doing Business continues to cover and what it is adding and
WHAT DOES DOING changing
BUSINESS MEASUREAND
HOW IS IT CHANGING? Procedures, time, cost and paid-in minimum capital to start a business
Procedures, time and cost to complete all formalities to build a warehouse
Measuring the quality of regulation is not Procedures, time and cost to get connected to the electrical grid
new for Doing Business; some indicator Procedures, time and cost to transfer a property
What Doing Movable collateral laws and credit information systems
sets have always addressed aspects Business Minority shareholders rights in related-party transactions and in corporate
of regulatory quality, such as those on continues governance
to cover Payments, time and total tax rate for a firm to comply with all tax
getting credit and protecting minority regulations
investors. But the improvements being Time and cost to resolve a commercial dispute
introduced in Doing Business indicators Time, cost, outcome and recovery rate for a commercial insolvency and
strength of the legal framework for insolvency
are increasing the emphasis on the
quality of regulation as a complement
to the initial emphasis on its efficiency. Additions
Quality of building regulation and its implementation
Last years report expanded the indicator Reliability of electricity supply, transparency of tariffs and price of
sets for three topics to capture aspects What this electricity
years report Quality of the land administration system
of quality; this years report introduces adds and Quality of judicial processes
changes in the indicator sets for five changes
Changes
others, in most cases also by expanding Time and cost to export the product of comparative advantage and import
them to measure quality as well as effi- auto parts
ciency (figure 1.1).
Overview 3

While Doing Business has always mea- the land administration system is of high the indicators measuring the time and
sured some aspects of regulatory quality, quality. cost to export focus on the product that
its original indicators have focused mainly is most relevant for each economy. For
on measuring regulatory efficiency, such In Saudi Arabia transferring a commercial the import process Doing Business now
as by recording the procedures, time and property from one company to another analyzes the import of auto parts by each
cost to start a business or to register a takes less than a week and costs noth- economy from its largest trading partner
property transfer. These are important ing in fees. But new data collected by for that producta change based in part
aspects to measure. Different research Doing Business this year on the quality of on the premise that while economies
papers have shown the importance of land administration systems show that export only products in which they have
these measures for economic outcomes.3 the Saudi system lacks transparency comparative advantage, every economy
According to one study, for example, and the mechanisms for resolving land imports a little bit of everything. Auto
a reform that simplified business disputes are complex. Information either parts were chosen for the import process
registration in Mexican municipalities is not accessible to everyone or can be because they are a commonly traded
increased registration by 5% and wage obtained only in person. And resolving a product that normally requires no special
employment by 2.2%and, as a result land dispute over tenure rights between inspections or licensesand therefore
of increased competition, reduced the two local businesses in Riyadh takes are typical of manufactured products.
income of incumbent businesses by 3%.4 more than three years. Another important change is that the
Other studies have analyzed the impor- mode of transport is no longer restricted
tance of trade logistics costs. Research France has the opposite situation. Doing to sea transport. Instead, the most com-
using World Bank Enterprise Survey data Business data show that the property mon mode of transport for the product
shows that reductions over time in the transfer process is long and costly: trans- and partner is used.
cost of importing lead to an increase in ferring a commercial property takes 49
the share of firms material inputs that days on average and costs 6.1% of the The expectation is that the new Doing
are of foreign origin.5 property value. But the new data col- Business indicators will provide useful
lected by Doing Business show that the information for researchers and policy
Other research papers show the impor- land administration system has strong makers, just as the older indicators have
tance of well-designed credit market standards of transparency and effec- done. According to one observer, the
regulations and well-functioning court tive mechanisms for dispute resolution. main achievement of the Doing Business
systems for debt recovery. For example, Thanks to fully digital records at the project has been to shed light and create
mandatory credit reporting systems mapping agency (cadastre), anyone can a more informed debate on a range of
improve financial intermediation and consult maps and verify boundaries. differences in laws and regulations across
access, particularly when used in con- Information about documents and fees countries in areas where little was known
junction with credit information systems.6 for property transfers can be found online on a systematic basis before the project
In India the establishment of debt recov- and on public boards. And resolving a began.9
ery tribunals reduced nonperforming land dispute over tenure rights between
loans by 28% and lowered interest rates two local businesses in Paris takes While the changes being introduced
on larger loans, suggesting that faster between one and two years. this year are substantive, there is a
processing of debt recovery cases cut strong correlation at the aggregate level
the cost of credit.7 Research also shows Besides expanding the scope of indicator between this years data under the old
that a badly designed tax system can sets to measure aspects of regulatory methodology and the same data under
be a big deterrent for businesses. After quality, this year Doing Business is chang- the new one (figure 1.2). This is not sur-
a tax reform in Brazil, business licensing ing the methodology for the trading across prising, since the changes are additions
among retail firms rose by 13%.8 borders indicators to increase their policy or modifications within existing indicator
relevance. The case study now reflects sets and there is a positive correlation
But measuring quality in the same areas different assumptions about the traded between the old and new measures in
where Doing Business previously mea- product. For the export process Doing Doing Business. But even with a high cor-
sured only efficiency is also important. Business now focuses on the product of relation there can still be relatively large
To see why, we can compare data for the comparative advantage for each econo- shifts in ranking in some cases. This is
registering property indicators for two my and its natural trading partner for that particularly likely for economies in the
countries: Saudi Arabia, where the prop- product. This allows consideration of a middle of the distribution, in part because
erty transfer process is fast but opaque, large range of products while before only they are more closely bunched and small
and France, where the process is slow but six were possible. It also ensures that shifts in their distance to frontier scores
4 Doing Business 2016

not those with no regulation but those


FIGURE 1.2 Distance to frontier scores remain similar under the new methodology
whose governments have managed to
Distance to frontier score under create rules that facilitate interactions
old methodology (0100) in the marketplace without needlessly
100 hindering the development of the private
sector. Moreover, even outside the top
90
20 economies there is a strong associa-
80 tion between performance in the ease of
doing business ranking and performance
70
on measures of competitiveness and of
60
quality of government and governance.
Economies that rank well on the ease of
50 doing business also score well on such
measures as the Global Competitiveness
40
Index and Transparency Internationals
30 Corruption Perceptions Index.10
30 40 50 60 70 80 90 100
Distance to frontier score under new methodology (0100)
The distance to frontier scores underly-
Source: Doing Business database. ing the ease of doing business rankings
Note: The figure compares distance to frontier scores based on this years data computed using the old (Doing reveal some regional patterns. OECD
Business 2015) methodology with scores based on the same data computed using the new methodology. The
differences between the two series are in dealing with construction permits, getting electricity, registering property, high-income economies have the highest
protecting minority investors, trading across borders and enforcing contracts. The 45-degree line shows where the
scores under the old and new methodologies are equal. The correlation between the two scores is 0.97.
distance to frontier scores on average,
indicating that this regional group has the
most business-friendly regulation overall
will therefore tend to have a greater list, while 2 entered this year (Lithuania (figure 1.3). But good practices in busi-
impact on their positions relative to other and the former Yugoslav Republic of ness regulation can be found in almost
economies. Macedonia) and 2 were nudged out all regions. In six of the seven regions the
(Georgia and Switzerland). Economies highest distance to frontier score is above
The Doing Business website presents in the top 20 continued to improve their 70. The difference between the best and
comparable data for this year and last, business regulatory environment in the worst scores in a region can be substan-
making it possible to assess the extent past year. For example, Hong Kong SAR, tial, however, especially in Sub-Saharan
to which there has been an improvement China, made four regulatory reforms in Africa, the Middle East and North Africa
in business regulation in any economy. the areas measured by Doing Business. and East Asia and the Pacific.
Moreover, because most of the changes One was implemented at the Companies
in methodology involve adding new mea- Registry, which also serves as the main
sures of quality within existing indicator collateral registry for movable property. WHAT IS THE
sets rather than revising existing mea- The registry launched a full-scale elec- RELATIONSHIP BETWEEN
sures of efficiency, data for two-thirds of tronic filing service on March 3, 2015, and EFFICIENCY AND QUALITY?
the current indicators (24 of 36) remain now security interests can be registered,
comparable over time. The full series are amended, renewed and canceled online. While measuring aspects of the quality of
available on the website. New Zealand provides another example: regulation is not new for Doing Business,
Vector, the electricity distribution util- the two-year process of introducing
ity, cut six days from the time needed improvements that was launched in last
WHERE IS REGULATION to provide external connection works to years report represents a systematic
MORE BUSINESS-FRIENDLY? customers. effort to include measures of quality in
most of the indicator sets. This years
Singapore continues to be the economy The 20 economies at the top of the ease report introduces new measures of
with the most business-friendly regula- of doing business ranking perform well regulatory quality in four indicator sets:
tion (table 1.1). And while there was not only on the Doing Business indicators dealing with construction permits, get-
some reordering of economies within but also in international data sets captur- ting electricity, registering property and
the top 20 in the ease of doing business ing other dimensions of competitiveness. enforcing contracts. Last years report
ranking, the list remains very similar to The economies performing best in the added a measure of regulatory quality to
last years: 18 economies stayed on the Doing Business rankings therefore are the indicator set for resolving insolvency
Overview 5

TABLE 1.1 Ease of doing business ranking


Rank Economy DTF score Rank Economy DTF score Rank Economy DTF score
1 Singapore 87.34 64 Jamaica 67.27 127 Cambodia 55.22
2 New Zealand 86.79 65 Bahrain 66.81 128 Maldives 55.04
3 Denmark 84.40 66 Kosovo 66.22 129 West Bank and Gaza 54.83
4 Korea, Rep. 83.88 67 Kyrgyz Republic 66.01 130 India 54.68
5 Hong Kong SAR, China 83.67 68 Qatar 65.97 131 Egypt, Arab Rep. 54.43
6 United Kingdom 82.46 69 Panama 65.74 132 Tajikistan 54.19
7 United States 82.15 70 Oman 65.40 133 Mozambique 53.98
8 Sweden 81.72 71 Bhutan 65.21 134 Lao PDR 53.77
9 Norway 81.61 72 Botswana 64.98 135 Grenada 53.46
10 Finland 81.05 73 South Africa 64.89 136 Palau 53.43
11 Taiwan, China 80.55 74 Tunisia 64.88 137 Guyana 51.83
12 Macedonia, FYR 80.18 75 Morocco 64.51 138 Pakistan 51.69
13 Australia 80.08 76 San Marino 64.21 139 Tanzania 51.62
14 Canada 80.07 77 St. Lucia 64.20 140 Marshall Islands 51.58
15 Germany 79.87 78 Tonga 64.13 141 Malawi 51.03
16 Estonia 79.49 79 Bosnia and Herzegovina 63.71 142 Cte dIvoire 50.93
17 Ireland 79.15 80 Malta 63.70 143 Burkina Faso 50.81
18 Malaysia 79.13 81 Guatemala 63.49 143 Mali 50.81
19 Iceland 78.93 82 Saudi Arabia 63.17 145 Papua New Guinea 50.74
20 Lithuania 78.88 83 Ukraine 63.04 146 Ethiopia 49.73
21 Austria 78.38 84 Brunei Darussalam 62.93 147 Sierra Leone 49.69
22 Latvia 78.06 84 China 62.93 148 Micronesia, Fed. Sts. 49.67
23 Portugal 77.57 86 El Salvador 62.76 149 Kiribati 49.50
24 Georgia 77.45 87 Uzbekistan 62.60 150 Togo 49.03
25 Poland 76.45 88 Fiji 62.58 151 Gambia, The 48.99
26 Switzerland 76.04 88 Trinidad and Tobago 62.58 152 Burundi 48.82
27 France 75.96 90 Vietnam 62.10 153 Senegal 48.57
28 Netherlands 75.94 91 Dominica 61.44 154 Comoros 48.22
29 Slovak Republic 75.62 92 Uruguay 61.21 155 Zimbabwe 48.17
29 Slovenia 75.62 93 Dominican Republic 61.16 156 Suriname 47.69
31 United Arab Emirates 75.10 94 Vanuatu 61.08 157 Bolivia 47.47
32 Mauritius 75.05 95 Seychelles 61.05 158 Benin 47.15
33 Spain 74.86 96 Samoa 60.70 159 Sudan 46.97
34 Japan 74.72 97 Albania 60.50 160 Niger 46.37
35 Armenia 74.22 97 Zambia 60.50 161 Iraq 46.06
36 Czech Republic 73.95 99 Nepal 60.41 162 Gabon 45.99
37 Romania 73.78 100 Paraguay 60.19 163 Algeria 45.72
38 Bulgaria 73.72 101 Kuwait 60.17 164 Madagascar 45.68
38 Mexico 73.72 101 Namibia 60.17 165 Guinea 45.54
40 Croatia 72.71 103 Philippines 60.07 166 So Tom and Prncipe 45.50
41 Kazakhstan 72.68 104 Antigua and Barbuda 59.70 167 Myanmar 45.27
42 Hungary 72.57 105 Swaziland 59.10 168 Mauritania 44.74
43 Belgium 72.50 106 Bahamas, The 59.00 169 Nigeria 44.69
44 Belarus 72.33 107 Sri Lanka 58.96 170 Yemen, Rep. 44.54
45 Italy 72.07 108 Kenya 58.24 171 Djibouti 44.25
46 Montenegro 71.85 109 Indonesia 58.12 172 Cameroon 44.11
47 Cyprus 71.78 110 Honduras 58.06 173 Timor-Leste 44.02
48 Chile 71.49 111 St. Vincent and the Grenadines 57.91 174 Bangladesh 43.10
49 Thailand 71.42 112 Solomon Islands 57.86 175 Syrian Arab Republic 42.56
50 Peru 71.33 113 Jordan 57.84 176 Congo, Rep. 41.88
51 Russian Federation 70.99 114 Ghana 57.69 177 Afghanistan 40.58
52 Moldova 70.97 114 Lesotho 57.69 178 Guinea-Bissau 40.56
53 Israel 70.56 116 Brazil 57.67 179 Liberia 40.19
54 Colombia 70.43 117 Ecuador 57.47 180 Equatorial Guinea 40.03
55 Turkey 69.16 118 Iran, Islamic Rep. 57.44 181 Angola 39.64
56 Mongolia 68.83 119 Barbados 56.85 182 Haiti 39.56
57 Puerto Rico (U.S.) 68.73 120 Belize 56.83 183 Chad 38.22
58 Costa Rica 68.55 121 Argentina 56.78 184 Congo, Dem. Rep. 38.14
59 Serbia 68.41 122 Uganda 56.64 185 Central African Republic 36.26
60 Greece 68.38 123 Lebanon 56.39 186 Venezuela, RB 35.51
61 Luxembourg 68.31 124 St. Kitts and Nevis 55.83 187 South Sudan 34.78
62 Rwanda 68.12 125 Nicaragua 55.78 188 Libya 31.77
63 Azerbaijan 67.80 126 Cabo Verde 55.54 189 Eritrea 27.61
Source: Doing Business database.
Note: The rankings are benchmarked to June 2015 and based on the average of each economys distance to frontier (DTF) scores for the 10 topics included in this years
aggregate ranking. For the economies for which the data cover two cities, scores are a population-weighted average for the two cities. An arrow indicates an improvement in
the score between 2014 and 2015 (and therefore an improvement in the overall business environment as measured by Doing Business), while the absence of one indicates
either no improvement or a deterioration in the score. The score for both years is based on the new methodology.
6 Doing Business 2016

Average number of
reforms per economy
in a virtuous cycle. The countrys state-
Figure 1.3 Big gaps between the highest and lowest distance to frontier scores in
of-the-art land registry provides both
some regions
efficient registration of property transfers
Distance to frontier score and valuable property titles, thanks to its
100 transparent, accurate information and
complete geographic coverage. Because
80
the registration is so efficient (requiring
60
only three procedures and four days),
people are more likely to register property
40 transfershelping to maintain the accu-
racy of the registrys data and the quality
20 of land administration. And because the
registry is therefore so reliable, the pro-
0
OECD high Europe & East Asia Latin America Middle East South Asia Sub-Saharan cess of registering a property transfer can
income Central Asia & Pacific & Caribbean & North Africa Africa
be kept simple, fast and inexpensive.
Worst score Best score Average score
By contrast, Greece exhibits a vicious
Source: Doing Business database.
cycle in its land administration system.
To transfer property, a local buyer has
and expanded those in the indicator sets have good regulatory quality (figure 1.4). to complete 10 different proceduresa
for getting credit and protecting minority Economies can be broadly divided into process that takes 20 days and costs
investors. four groups: 4.9% of the property value. Beyond the
Economies able to achieve both efficiency issues, there are also quality
Doing Business measures the quality of efficiency and quality in business issues. For example, there are no official
regulation by analyzing whether the regulation. cadastral maps for the municipality of
regulatory infrastructure needed for Economies where both efficiency and Athens, and very little of the privately
a transaction to be successfully com- quality are far from idealwith regula- owned land across the country is mapped
pleted is in place. Doing Business does tory transactions that are complex and in the cadastre. Transparency is poor,
not measure the quality of the outcome expensive and that in the end do not with no separate mechanism for filing a
related to that regulation. For example, accomplish their objectives. In these complaint at the property registry and no
Doing Business measures the quality of economies regulation is seen as a rent- up-to-date statistics about the number
building regulations and controls by seeking activity rather than as some- of land transactions in Athens. And there
assessing whether building plans are thing that provides a useful service to is no specific compensation mechanism
approved by staff with the right quali- citizens and the business community. to cover for losses incurred by someone
fications and whether the necessary Economies where regulatory pro- who engaged in good faith in a property
inspections take place. It does not cesses are fast and inexpensive but transaction based on erroneous informa-
assess whether the warehouse that lack quality. These are likely to be tion from the registry.
gets constructed in the end is of good economies that started out in the sec-
quality. The following discussion looks ond group and then improved regula- So the advantages of using the registry
at the relationship between efficiency tory efficiency but have yet to improve are low and the costs (in both time and
and quality through the lens of Doing regulatory quality. Most economies money) are higha big deterrent to
Business data. Doing Business focuses are in this group and the first one. formally registering property transfers.
on specific case studies and measures Economies where the quality of And lack of formal registration reinforces
particular aspects of business regula- regulation is high but the processes the poor quality of the information main-
tion. The results should be interpreted for implementing it remain complex. tained at the registry, making it difficult
with that framework in mind. Very few economies are currently in to complete property transfers simply,
this group; those with low regulatory quickly and inexpensively. But there are
Efficiency and quality linked at efficiency tend to also have low regu- prospects for breaking the vicious cycle:
the aggregate level latory quality. cadastral maps are being developed
Analysis shows that efficiency and by the National Cadastre and Mapping
quality go hand in hand: economies that An example from Denmark illustrates Agency and should cover Athens
have efficient regulatory processes as how regulatory efficiency and quality go by 2020. These may strengthen the
measured by Doing Business also tend to together and in fact reinforce each other
Overview 7

points and the difference between the


FIGURE 1.4 Regulatory efficiency and regulatory quality go hand in hand
two measures is as large as 39 points for
Distance to frontier score Iraq and 30 for the Republic of Yemen
for regulatory quality (figure 1.5). This evidence that regulatory
100 High quality, High quality, quality lags behind regulatory efficiency
low efficiency high efficiency
90 is importantbecause both a higher level
80 of regulatory efficiency and a higher level
70
of regulatory quality are associated sepa-
rately with a lower level of corruption.11
60
50
Patterns across indicator sets
40 While the efficiency and quality of regu-
30 lation go hand in hand at the aggregate
20 level, analyzing the data for individual
10 Low quality, Low quality, Doing Business topics reveals clearer pat-
0
low efficiency high efficiency terns. Three case studies in this years
0 10 20 30 40 50 60 70 80 90 100 report (on dealing with construction
Distance to frontier score for regulatory efficiency
permits, getting electricity and enforcing
Source: Doing Business database. contracts) and two in last years report
Note: The distance to frontier score for regulatory efficiency is the aggregate score for the procedures (where (on registering property and resolving
applicable), time and cost indicators from the following indicator sets: starting a business (also including the
minimum capital requirement indicator), dealing with construction permits, getting electricity, registering property, insolvency) discuss in detail the link
paying taxes, trading across borders, enforcing contracts and resolving insolvency. The distance to frontier score between efficiency and quality in mixed
for regulatory quality is the aggregate score for getting credit and protecting minority investors as well as
the regulatory quality indices from the indicator sets on dealing with construction permits, getting electricity, indicator setsthose including both effi-
registering property, enforcing contracts and resolving insolvency. The correlation between the two scores is 0.82.
ciency measures and quality measures.

certainty of property rights, benefiting to considerable delays. The improvement In getting electricity the main pattern is
investors and citizens alike. in quality has yet to show results in mea- clear: economies with a simpler, faster
sures of efficiency. and less costly process for connecting to
Registering property is not the only area the electrical grid also tend to have a more
where Greece lags; enforcing contracts is Greece faces similar challenges in resolv- reliable electricity supply. The Republic of
another. Resolving a commercial dispute ing insolvency, where the efficiency of Korea, for example, has the simplest and
through the courts takes longer in Greece regulation has yet to catch up with the fastest process worldwide for getting a
than in any other European country quality. Greece receives 12 of 16 pos- new electricity connection, and it is one
about 1,580 days, or more than four years, sible points on the strength of insolvency of the few economies with the highest
through the Athens First-Instance Single- framework index, indicating that its possible score on the new reliability of
Member Court. Worldwide, only three insolvency law complies with most inter- supply and transparency of tariffs index.
economies have a longer process: Guinea- nationally recognized good practices. Businesses in Seoul typically have less
Bissau, Suriname and Afghanistan. In Nevertheless, creditors can expect to than an hour of power outages a year, and
Greece litigants spend much of that time recover only 34.9% of the estate value of they can receive compensation if power
simply waiting for the first hearing. In an insolvent firm, and the process takes isnt restored within a certain amount of
fact, a case filed before the competent three and half years. time. The utility uses automated systems
court in October 2015 would not be for monitoring outages and restoring
heard by a judge until 2018. Yet there has On average, economies perform bet- service. And an independent regulator
been an effort to improve the quality of ter on measures of efficiency than on oversees the sector and makes sure that
judicial processes (such as by introducing measures of quality. Less than 10% of changes in electricity tariffs are commu-
electronic filing, as reported in last years the economies covered have a lower nicated ahead of time.
report). Indeed, new data show that case distance to frontier score for efficiency
management techniques are widely used than for quality. Most of these economies At the opposite end of the spectrum is
in Greece; the country receives 4.5 of 6 are in Europe and Central Asia, which Liberia, which has the longest process for
possible points on the case management has the smallest average gap between getting a new connection. Once connect-
index, one of the components of the new efficiency and quality. The largest gaps ed, customers in Liberia typically experi-
quality of judicial processes index. But are in the Middle East and North Africa, ence more than an hour of power outages
adjournments remain common, leading where the average gap is more than 20 each week. In addition, the utility still uses
8 Doing Business 2016

the legal framework reflects good prac-


Figure 1.5 The biggest gaps between regulatory efficiency and regulatory quality are
tices for preventing and resolving land
in the Middle East and North Africa
disputes. For example, the law requires
Average distance to frontier score verification of the identity of the parties
100 to a property transaction, and there is a
national database that can be used for
80 this purpose. The law also requires a
review of the documents for a property
60
transaction to verify that they are legally
valid.
40

20 At the other extreme are land adminis-


tration systems in which low efficiency
0
OECD high Europe & East Asia & Middle East Latin America & South Asia Sub-Saharan
is coupled with low quality. In Haiti, for
income Central Asia Pacific & North Africa Caribbean Africa example, completing a property transfer
Regulatory efficiency Regulatory quality from one local entrepreneur to another
takes more than 10 months and costs
Source: Doing Business database.
7.1% of the property value. While proj-
Note: The distance to frontier score for regulatory efficiency is the aggregate score for the procedures (where
applicable), time and cost indicators from the following indicator sets: starting a business (also including the ects are under way to modernize the land
minimum capital requirement indicator), dealing with construction permits, getting electricity, registering property,
paying taxes, trading across borders, enforcing contracts and resolving insolvency. The distance to frontier score
administration system, the country still
for regulatory quality is the aggregate score for getting credit and protecting minority investors as well as lacks a geographic information system
the regulatory quality indices from the indicator sets on dealing with construction permits, getting electricity,
registering property, enforcing contracts and resolving insolvency. and a database to check for encum-
brances. Databases on land ownership
and maps are not linked, and there are
manual systems to monitor outages and annual income per capita as the monthly no unique identifying numbers used for
restore service, there is no independent bill for the case study warehouse). land plots. Most of the information at
regulatory body, electricity tariffs are not Indeed, Liberias electricity price is the the land registrysuch as on service
published online, and there is no financial highest in Sub-Saharan Africa and among standards and the fees and documents
incentive for the utility to minimize power the highest in the world. required in property transactionsis not
cuts. As a result, Liberia receives 0 of 8 publicly available or must be requested
possible points on the reliability of supply For the registering property topic, the in person. Haiti lacks a national database
and transparency of tariffs index. data show that economies with simpler, to verify the identity of the parties to a
faster and less costly processes for land transaction. It also lacks a specific
Another aspect is revealed by data on the property transfers also have on average compensation mechanism to cover any
price of electricity for commercial users the highest-quality land administration losses incurred in a property transaction
new data collected by Doing Business this systems. Along with Denmark, Lithuania because of errors by the property registry.
year but not included in the distance to is among those that combine high
frontier score or the ease of doing busi- efficiency and high quality. A property For the enforcing contracts topic, data
ness ranking. Electricity tariffs for com- transfer from one local entrepreneur to show that court systems that are efficient
mercial customers typically range from 10 another can be completed in less than are also likely to have high-quality judicial
to 30 cents per kilowatt-hour, but prices three days at a cost of 0.8% of the prop- processes. For example, resolving a com-
in some economies are much higher. erty value. Supporting this efficiency is a mercial dispute through the Singapore
Tariffs need to strike a balanceremain- high-quality land administration system. District Court takes just 150 days, the
ing affordable to customers while still Property records are fully digital and pro- shortest time recorded worldwide, and
enabling the utility to recover costs and vide complete coverage of private land costs 25.8% of the value of the claim.
make a profit. The data show that Korea in Lithuania. Entrepreneurs interested in Efficient dispute resolution is paired with
has a relatively low electricity price, at 10 buying a property can use the electronic good institutions (such as specialized
cents per kilowatt-hour (or 10% of annual database to check for encumbrances and courts), effective case management and
income per capita as the monthly bill for the geographic information system to sophisticated court automation tools.
the case study warehouse).12 In Liberia, verify the boundaries. They can also get And litigants can submit their claim
by contrast, electricity supply is not only information online about land ownership, online, pay court fees online and serve the
unreliable; it is also very expensive fees for property transactions and statis- initial summons electronically. Singapore
at 56 cents per kilowatt-hour (37 times tics about land transactions. In addition, receives the highest score worldwide
Overview 9

on the new quality of judicial processes debtors estate and is most likely to end a warehouse takes only 74 days. The
index, 15.5 of 18 possible points. with the company being sold piecemeal. country also has robust quality control
The insolvency law lacks important good and safety mechanisms, earning it 14 of
There are also examples of slow and practices: there are no judicial reorgani- 15 possible points on the building quality
costly dispute resolution paired with low- zation proceedings, the legal framework control index. All documents required in
quality judicial processes. Myanmar is does not establish the availability or construction permitting are specified and
one such example. A local business trying priority of post-commencement finance, accessible onlinealong with the list of
to enforce a contract through the courts in and creditors cannot participate in the agencies to visit, the fees to pay and the
Myanmar would spend more than three appointment of the insolvency represen- preapprovals to obtain. A certified archi-
years doing so, and pay fees amounting tative or the approval of asset sales. tect reviews and approves building permit
to more than half the value in dispute. applications, and mandatory inspections
Moreover, the countrys court system For dealing with construction permits, are carried out both during and after
has no case management, no court auto- data show the same pattern as for construction. And clearly defined liability
mation and no specialized commercial the other topics. Economies with a regimes and insurance requirements are
courts or small claims courtsall aspects more efficient construction permitting in place.
reflected in Myanmars low score on the system also have better quality control
quality of judicial processes index (3). and safety mechanisms. Conversely, in
But alternative dispute resolution is being some economies poor regulatory quality BUSINESS REGULATION
developed: arbitration and mediation accompanies poor regulatory efficiency. AND THE INTERNET
are both recognized ways of resolving a One example is Gabon, which receives
commercial dispute, and arbitration in only 5 of 15 possible points on the new The proliferation of information and com-
Myanmar is regulated through a dedi- building quality control index. Its building munication technologies has transformed
cated law. regulations are not easily accessible, and how businesses operate and how they
they stipulate only the list of documents are regulated in every region of the world.
In resolving insolvency, quality and required for a building permit, not the The internet provides a new platform
efficiency are again linked: where there fees or preapprovals needed. The country for delivering government information
is a good legal framework for insolvency, has adequate mechanisms for quality and servicesand new opportunities for
creditors recover a larger share of their control before construction but not for enhancing the efficiency and transpar-
credit at the end of the insolvency quality control during and after construc- ency of public administration. Indeed, the
process. Finland is a good illustration. tion. While building permit applications internet is a tool that governments can
Resolving insolvency there takes 11 are reviewed by a qualified architect use to support businesses at every stage
months on average and costs 4% of or engineer, no inspections are legally in their life cycle, whether applying for
the debtors estate, and the most likely required during constructionand final a business permit, registering property,
outcome is that the company will be sold inspections, while required, do not occur paying taxes or trading internationally.
as a going concern. The average recovery in practice. Moreover, none of the parties
rate for creditors is 90.1 cents on the dol- involved in a construction project are held The potential of online
lar. This high recovery rate is paired with legally liable for structural problems that regulatory solutions
a high score on the strength of insolvency come to light once the building is occu- By simplifying regulatory processes such
framework index. The Finnish insolvency pied, nor is anyone required to obtain as business incorporation, web-based
law includes a range of good practices. insurance to cover potential problems. resources can promote private sec-
For example, it allows debtors to avoid Data also show that Gabon has an inef- tor development. Cross-country data
preferential and undervalued transac- ficient construction permitting process: analysis shows a strong positive asso-
tions; it permits post-commencement completing all the formalities to build a ciation between new firm density and
finance and grants such finance priority warehouse takes 329 days. the availability of electronic platforms for
only over ordinary unsecured creditors; incorporation.13
and it allows all creditors to vote in judi- Some economies manage to achieve
cial reorganization proceedings. the best of both worlds, designing and Beyond starting a business, the internet
implementing a construction permitting offers many opportunities for efficiency
In So Tom and Prncipe, however, system that is both efficient and good gains in other areas of business regula-
insolvent companies and their creditors quality. One of them is FYR Macedonia. tion measured by Doing Business. Among
confront both poor efficiency and low Its administrative procedures for dealing the 189 economies covered by Doing
quality. The insolvency process takes with construction permits are very effi- Business, more than 80% (152 in total)
6.2 years on average, costs 22% of the cient: completing the formalities to build use web-based applications to process
10 Doing Business 2016

export and import documents. Banks systems to streamline cross-border in Europe and Central Asia. Sub-Saharan
in more than 75% of economies with a trade, and another 11 encouraged elec- Africa remains the region with the small-
credit registry or bureau use online plat- tronic business registration. In addition, est share of economies using electronic
forms to access credit information. And 6 economies established or improved filing or payment (figure 1.7). Worldwide,
in more than 40% of economies the tax online tools for registering property, and less than 15 economies introduced or
authorities allow businesses to file taxes 2 did the same for enforcing contracts. enhanced electronic systems for filing
onlineand the majority of businesses or paying taxes between 2008 and 2011.
actually do it. Many governments use the internet for But an average of 15 economies a year
tax collection and paymentwith the have introduced such changes since
These uses of the internet make a differ- aim of reducing the scope for bureau- 2012with 19 doing so in 2013.
ence for businesses. Where electronic cratic discretion and even corruption
platforms are widely used in regulatory and increasing the tax systems transpar- Introducing or enhancing web-based sys-
processes, entrepreneurs spend less time ency, efficiency and cost-effectiveness. tems was a common feature of reforms
on compliance. For example, there is a Electronic tax collection also helps making it easier to start a business in
strong negative correlation between the simplify tax compliance.15 After Rwanda 2014/15. Uganda introduced an online
time it takes to transfer property and the made the use of its electronic filing and system for obtaining a trading license.
availability of online access to land infor- payment system compulsory in 2014/15, Belarus improved online services and
mation.14 With the changes in methodol- the time required for a business to pre- expanded the geographic coverage of
ogy introduced this year, the internet has pare, file and pay taxes fell by 10 hours, online registration.
become a more integral part of the good from 119 hours a year to 109. Among
practices measured by Doing Business. other economies introducing or enhanc- Several economies digitized procedures for
ing electronic systems in 2014/15, trading across borders in 2014/15. Suriname
But use of the internet to streamline Costa Rica facilitated online payment of implemented an automated customs data
business regulation remains largely corporate income tax and Malaysia made management systemfully operational
confined to more developed economies. electronic filing compulsory for contribu- by July 2015that allows the electronic
Data for nine Doing Business topics show tions to the Employees Provident Fund by submission of customs declarations and
that OECD high-income economies and employers with 50 or more employees. supporting documents for exports and
Europe and Central Asia make the great- imports. Other economies also introduced
est use of online systems in regulatory Since 2006 the use of electronic tax fil- or improved systems allowing electronic
processes (figure 1.6). In Sub-Saharan ing and payment systems has increased submission and processing of trade-related
Africa, by contrast, very few economies substantially in several regions of the documents (for exports, imports or both),
use electronic platforms in business world, with the most remarkable progress including The Bahamas, Benin, Brazil, Cte
regulation. Of the nine possible regula-
tory transactions included in the analysis, Figure 1.6 OECD high-income economies and Europe and Central Asia make the
Australia, Denmark and Estonia enable greatest use of online systems in regulatory processes
entrepreneurs to complete eight or more
Average score for use of online
online. The Central African Republic, the systems (09)
Republic of Congo and Equatorial Guinea
6
are among the few economies where
none of these transactions can be com- 5
pleted online.
4

Continued growth in electronic 3


services 2
Given the potential economic opportuni-
ties from the use of electronic services, it 1

is no surprise that many of the reforms 0


OECD high Europe & East Asia & Latin America Middle East South Asia Sub-Saharan
captured by Doing Business in 2014/15 income Central Asia Pacific & Caribbean & North Africa Africa
focused on introducing or enhancing
electronic platforms and services. In the Source: Doing Business database.
Note: The score shows the average number of areas in which online systems are in use, out of a possible total of
past year 18 economies established or nine areas: online business registration, online submission of construction plans, online submission of applications
improved online tax payment systems, for an electricity connection, online information on land, online access to credit information for banks, electronic
movable collateral registries, online tax payment, electronic submission of trade documents and electronic filing of
13 introduced or enhanced web-based court cases.
Overview 11

of economies implementing at least


Figure 1.7 Economies in Europe and Central Asia show the most progress in
one reformand it accounts for 3 of
adopting electronic tax filing and payment
the 10 top improvers. The region with
Share of economies using online tax the second largest share of economies
filing or payment systems (%)
with at least one reform has typically
100
been Sub-Saharan Africa. But in the past
90
year, for the first time, it was South Asia.
80
Nevertheless, Sub-Saharan Africa is
70
still home to 5 of the 10 top improvers.
60
These 10the economies showing the
50
most notable improvement in perfor-
40
mance on the Doing Business indicators
30
in 2014/15are Costa Rica, Uganda,
20
Kenya, Cyprus, Mauritania, Uzbekistan,
10
Kazakhstan, Jamaica, Senegal and Benin.
0
2006 2007 2008 2009 2010 2011 2012 2013 2014
OECD high income Middle East & North Africa The new data on the quality of regula-
Europe & Central Asia South Asia tion make it possible to analyze whether
Latin America & Caribbean Sub-Saharan Africa the regulatory reforms implemented in
East Asia & Pacific
the past year are more likely to improve
Source: Doing Business database. regulatory efficiency, regulatory qual-
ity or both (table 1.2). Analysis shows
that in the areas where Doing Business
dIvoire, Ghana, Guatemala, Madagascar, as a new platform for public disclosure indicators have traditionally measured
Mauritania, Suriname, Tajikistan, Tanzania of regulatory reforms (and for soliciting the complexity and cost of regulatory
and Togo. feedback on these reforms), the internet processes, reforms implemented in the
has also transformed the process of craft- past year continued to focus on increas-
Some economies explored the use of ing business regulations (box 1.1).16 ing efficiency. Doing Business registered
web-based resources to make registering no reform improving regulatory quality
property easier in 2014/15. Bhutan intro- Yet while the internet has the potential in the area of dealing with construction
duced a computerized land information to promote inclusiveness, reduce corrup- permits. Only 2 of 22 economies with a
system connecting each municipality tion and improve regulatory efficiency, reform in the area of registering property
to the cadastre. Georgia and Italy used its impact on the quality of domestic improved regulatory quality: Switzerland
online technology to improve contract governance is subject to political, infra- introduced a national electronic land
enforcement. Both economies introduced structural, social and economic factors. information system, while Vanuatu
an electronic filing system for commercial For example, the success of online solu- introduced a specific and separate com-
cases, making it possible for attorneys to tions depends on an enabling political plaint mechanism for customers of the
submit the initial summons online. environment that supports and protects Land Registry and Surveyors Office by
free speech. Most importantly, the vast appointing a land ombudsman. And only
A broader role in governance majority of the worlds population still 2 of 22 economies with a reform in the
Beyond the applications in regula- lacks access to the internet and is thus area of getting electricity had an improve-
tory processes, the internet serves as cut off from these tools and innovations. ment in quality: the utility in Oman
an important tool for more participa- started fully recording the duration and
tory democratic practices and inclusive frequency of outages, while Cambodia
development. The internet has made WHERE DID BUSINESS increased power generation capacity.
it easier for the general public to moni- REGULATION IMPROVE THE
tor government budgets, projects and MOST IN 2014/15? In the areas where Doing Business indica-
activities as well as to access different tors have traditionally measured the
kinds of regulatory information. It can be In 2014/15, 122 economies implemented strength of legal institutions, reforms
used to promote more direct interactions at least one regulatory reform in the were more likely to be aimed at improv-
between governments and citizens as areas measured by Doing Business231 ing regulatory quality. This was the case
well as to empower citizens to influence reforms in total (figure 1.8). Europe and for the majority of reforms making it
local governance in their community. And Central Asia again had the largest share easier to enforce contracts or resolve
12 Doing Business 2016

BOX 1.1Business regulation and transparency in rulemaking


The quality and efficiency of business regulation are linked to the level of consultation around new regulations and the extent to
which their possible impactseconomic, social and environmentalare considered before their adoption. A new global data-
base, Citizen Engagement in Rulemaking, tracks the extent to which governments publicize proposed regulations and invite input
on their scope and language from a wide range of stakeholders. The database also tracks how governments analyze possible
impacts of new regulations and whether they consider alternatives to regulation. Analysis of the data shows that greater trans-
parency during the rulemaking process and stronger consultation practices are highly and significantly associated with greater
regulatory quality and efficiency as measured by Doing Business (see figure).

Good regulatory practices go hand in hand with regulatory quality and efficiency

Distance to frontier score Distance to frontier score


for regulatory quality (0100) for regulatory efficiency (0100)
100 100

80 80

60 60

40 40

20 20
0 2 4 6 0 2 4 6
Citizen engagement in rulemaking score Citizen engagement in rulemaking score

Sources: Doing Business database; Citizen Engagement in Rulemaking database (http://rulemaking.worldbank.org), World Bank Group.
Note: The citizen engagement in rulemaking score is based on the following components: whether governments publish the text of proposed regulations publicly before
their enactment; whether policy makers allow the general public to provide comments on proposed regulation; whether policy makers report publicly on the results of
this consultation; whether governments conduct an impact assessment of proposed regulations; whether a specialized body is tasked with reviewing regulatory impact
assessments conducted by other agencies; and whether regulatory impact assessments are made public. The correlation between the citizen engagement in rulemaking
score and the distance to frontier score for regulatory quality is 0.60. The correlation between the citizen engagement in rulemaking score and the distance to frontier
score for regulatory efficiency is 0.70. Relationships are significant at the 1% level after controlling for income per capita.

The transparency of rulemaking varies across regions and income levels. In 96% of OECD high-income economies the govern-
ment publishes proposed regulations, conducts thorough consultations on the draft text and provides assessments of potential
impacts before the regulations are adopted. In Poland, for example, all proposed regulations are published on the same website
and consultations are held on the draft text. After the consultation process, rulemaking bodies provide a public report with
responses to the comments received. Regulatory agencies and ministries assess the potential impacts of proposed regulations
including the economic, social and environmental impacts. The assessment is distributed with the proposed text of regulations
and forms part of the consultation process.
By contrast, only a third of low-income economies conduct public consultations on proposed regulations, and they typically use
less technologically advanced methods to do so. In Mozambique, for example, government officials publish proposed regula-
tions in a federal journal and distribute drafts directly to specific stakeholders. In Afghanistan, Ethiopia and Niger policy makers
hold public meetings to discuss proposed regulatory changes. Very few low- or lower-middle-income economies have a dedi-
cated website for public engagement on proposed regulations, and those that do have newly implemented systems, such as in
Kenya, Myanmar and Vietnam.

Among regions, the Middle East and North Africa has the lowest average level of transparency and engagement around rule-
making, with Morocco being a notable exception. In Latin America and the Caribbean there is a clear divide between two groups:
while Caribbean and Central American economies tend to consult only targeted stakeholders, larger economies such as Brazil,
Colombia and Mexico have more open and systematic consultation processes.
Source: Citizen Engagement in Rulemaking database (http://rulemaking.worldbank.org), World Bank Group.

insolvency. In Cte dIvoire, for example, changes in alternative dispute resolution. was mandatory conciliation, regulated by
a new law that entered into force on Before the new law, the only form of a law dating to 1993. The new law made
June 20, 2014, introduced substantial alternative dispute resolution available
Overview 13

Figure 1.8 Again in the past year, Europe and Central Asia had the largest share of economies making it easier to do business

Reforms making it easier


to do business, 2014/15
0
1
2
3
4 or more*
Not in the Doing Business sample IBRD 41901
SEPTEMBER 2015

Source: Doing Business database.


* Only 12 economies implemented 4 or more reforms: Kazakhstan (7); Rwanda (6); Cyprus (5); the Russian Federation (5); Vietnam (5); Hong Kong SAR, China (4); Jamaica (4);
Kenya (4); Madagascar (4); Morocco (4); Senegal (4); and the United Arab Emirates (4).

voluntary mediation available in both In Chile a new insolvency act that came jurisdiction over insolvency cases. The
commercial and civil cases. into force on October 9, 2014, estab- new act also clarified and streamlined all
lished specialized courts with exclusive provisions related to reorganization and
liquidation. In addition, it emphasized
the reorganization of viable businesses
TABLE 1.2 More reforms recorded by Doing Business in 2014/15 were aimed at
as a preferred alternative to liquidation.
improving regulatory efficiency than regulatory quality
Beyond these changes, Chile created a
Reforms improving Reforms improving public office responsible for the general
Topic regulatory efficiency regulatory quality
administration of insolvency proceed-
Dealing with construction permits 17 0
ings. The Superintendence of Insolvency
Getting electricity 20 2 supervises all activities by insolvency
Registering property 20 2 representatives and auctioneers during
Enforcing contracts 2 9 insolvency proceedings and informs the
Resolving insolvency 2 7 creditors and the court of any irregulari-
Total 61 20
ties observed during the proceedings.

Source: Doing Business database.


Note: The analysis covers only the Doing Business topics for which there are indicators of both regulatory quality
For a full discussion of the reform pat-
and regulatory efficiency. terns and top improvers this year, see
14 Doing Business 2016

the chapter on reforming the business established a one-stop shop for con-
Figure 1.9 Lower-income economies
environment. struction permitting, reduced the fees
have made bigger improvements over
time in the quality and efficiency of for getting a new electricity connection,
business regulation eliminated notarization requirements for
HOW HAS BUSINESS registering property, improved its credit
REGULATION CHANGED Average year-on-year
improvement in distance
information system by implementing a
OVER THE PAST 12 YEARS? to frontier score new law on personal data protection,
15 introduced electronic systems for paying
Among the trends revealed by Doing taxes, modernized its dispute resolu-
Business data, one of the more encour- 12 tion system for enforcing contracts and
aging ones is the steady improvement adopted an insolvency law introducing
9
in the areas tracked by the indicators. both reorganization and liquidation
Economies in all income groups and in 6 proceedingsto name just a few of the
all regions have improved the quality important changes.
and efficiency of business regulation. But 3
lower-income economies have improved Among the most notable reforms are
more in the areas measured by Doing 0 those strengthening minority inves-
Low Lower Upper High
Business than high-income economies income middle middle income tor protections. In June 2007 Georgia
income income
havethere is convergence (figure 1.9). amended its securities law to enhance
DB2005 DB2011
DB2006 DB2012 approval and disclosure requirements
There is a similar story of convergence DB2007 DB2013 for related-party transactions. In 2009
DB2008 DB2014
among regions. OECD high-income DB2009 DB2015 it introduced provisions allowing share-
DB2010 DB2016
economies had the smallest average holders greater access to corporate
improvement in the distance to frontier Source: Doing Business database. information during a trial. Finally, in 2011
score over the past 12 years because their Note: The red line shows the average global Georgia introduced new requirements
improvement in the distance to frontier score
scores were already quite high in 2004. since 2004. The measure is normalized to range relating to the approval of related-party
Europe and Central Asia had the biggest from 0 to 100, with 100 representing the frontier. transactions. Georgia still has room to
Because of changes over the years in methodology
improvement, followed by Sub-Saharan and in the economies and indicators included, the improve, however, as it performs less well
improvements are measured year on year using pairs
Africa (figure 1.10). The Middle East of consecutive years with comparable data. on the new components of the protecting
and North Africa had the third biggest minority investors indicators (introduced
improvement. Most of the improvement in last years report) than on the older
in that region took place before 2010, because reforming a judicial system can ones.
however, while in recent years the pace be a long and complicated task.
has been fairly slow. Who improved the most in each
Who improved the most overall? region?
Some areas of business regulation Globally, Georgia improved the most in Just as Georgia stands out in Europe
measured by Doing Business saw more the areas measured by Doing Business and Central Asia for having made
improvement than others. Starting a over the past 12 years, followed closely big strides toward better and more
business clearly stands out as the area by Rwanda. During this period output efficient business regulation, at least
with the biggest improvement (figure per capita in Georgia increased by one economy stands out in every other
1.11). In the past 12 years more economies 66% and business density more than region for its improvement in the areas
implemented regulatory reforms in this tripled.17 Many factors contributed to this measured by Doing Business: Rwanda in
area than in any other measured by Doing improvement in economic outcomes, Sub-Saharan Africa; Colombia in Latin
Business. The second biggest improve- and the effort to make it easier for local America and the Caribbean; the Arab
ment was in getting credit. Reforms in entrepreneurs to do business may Republic of Egypt in the Middle East and
this area are not common, but when have been one of them. Georgia made North Africa; China in East Asia and the
they do occur they are likely to introduce improvements in all 10 areas included in Pacific; India in South Asia; and Poland
overarching changes, such as establish- the aggregate distance to frontier score, in the OECD high-income group (figure
ing a new credit registry or bureau or through 39 regulatory reforms. 1.12). Still, while reforming in the areas
developing a new secured transactions measured by Doing Business is important,
system. The smallest improvement During this 12-year period Georgia doing so is not enough to guarantee
was in the area of enforcing contracts, eliminated the paid-in minimum capital sound economic policies or to ensure
where reforms are relatively uncommon requirement for starting a business, economic growth or development. While
Overview 15

and implemented the web-based Land


Figure 1.10 Europe and Central Asia has made a substantially bigger improvement
Administration Information System for
in business regulation over time than any other region
processing land transactionsan effort
Average year-on-year that also improved the quality of land
improvement in distance
to frontier score administration.
25
Rwanda made getting credit easier by
20 improving both its credit information sys-
tem and its legal framework for secured
15 transactions. The country started reform-
ing its credit information system as early
10
as 2004. That year it made a big invest-
5
ment in information technology systems
to enable banks to transmit credit data
0 electronicallyessential so that the
Europe & Sub-Saharan Middle East East Asia & Latin America South Asia OECD
Central Asia Africa & North Africa Pacific & Caribbean high income credit information system could actu-
ally exist. In addition, the credit registry
DB2005 DB2008 DB2011 DB2014
DB2006 DB2009 DB2012 DB2015 started to include microfinance institu-
DB2007 DB2010 DB2013 DB2016 tions as a source of information. In 2010
Rwanda granted borrowers the right to
Source: Doing Business database.
Note: The red line shows the average global improvement in the distance to frontier score since 2004. The
inspect their own credit report and began
measure is normalized to range from 0 to 100, with 100 representing the frontier. Because of changes over the requiring loans of all sizes to be reported
years in methodology and in the economies and indicators included, the improvements are measured year on year
using pairs of consecutive years with comparable data. to the credit bureau and the central banks
credit registry. In 2011 the credit bureau
started to collect and distribute informa-
Doing Business reforms have many poten- time required to transfer property. Finally, tion from utility companies, and both
tial positive effects, these effectsDB2005
can be inDB2011
June 2012 Rwanda eliminated the the credit bureau and the credit registry
undermined by such factors as political
DB2006 requirement
DB2012 for a tax clearance certificate also started to distribute more than two
DB2007 DB2013
instability, macroeconomic instability
DB2008 DB2014
DB2009 DB2015
and civil conflict. Being recognized as a
DB2010 DB2016
regional top improver does not mean that Figure 1.11 Worldwide, economies have improved regulatory processes the most in
these economies have exemplary busi- the area of starting a business
ness regulation; instead, it shows that Average year-on-year
thanks to serious efforts in regulatory improvement in distance
to frontier score
reform over several years, they made the
biggest advances toward the frontier in 25

regulatory practice.
20

Rwanda made reforms in all areas 15


measured by Doing Business. Two areas
stand out: registering property and get- 10

ting credit. Rwanda made registering a


5
property transfer easier through three
important steps. In January 2008 it 0
Starting a Getting Trading Registering Paying Dealing Resolving Protecting Getting Enforcing
reduced both the cost and the time for business credit across property taxes with insolvency minority electricity contracts
the processby replacing the 6% reg- borders construction investors
permits
istration fee with a flat rate, regardless
DB2005 DB2008 DB2011 DB2014
of the property value, and by creating a DB2006 DB2009 DB2012 DB2015
centralized service in the tax authority to DB2007 DB2010 DB2013 DB2016

speed up the issuance of the certificate of Source: Doing Business database.


good standing. In August 2008 Rwanda Note: The red line shows the average global improvement in the distance to frontier score since 2004. The
made further improvements in the reg- measure is normalized to range from 0 to 100, with 100 representing the frontier. Because of changes over the
years in methodology and in the economies and indicators included, the improvements are measured year on year
istration process that again reduced the using pairs of consecutive years with comparable data.
16 Doing Business 2016

Figure 1.12 Economies in every region have made big strides in business regulation

2004 2015
37* Payments to pay taxes 9
China Hours to pay taxes
832* 261

10 Points on getting credit indices 19


Colombia 70* Payments to pay taxes 11
456* Hours to pay taxes 239

38 Days to start a business 8


Egypt, Arab Rep. Points on getting credit indices
3 10

Points on extent of conflict of interest 7.7


Georgia 4.3* regulation index

India 127 Days to start a business 29

Poland 1,000 Days to enforce a contract 685

Rwanda 370 Days to transfer property 32


2 Points on getting credit indices 19

Source: Doing Business database.


Note: The getting credit indices are the strength of legal rights and depth of credit information indices. The scores for 2004 on these indices are of a possible 16 points; those
for 2015 are of a possible 20 points.
* Data are for 2005.

years of historical information. And in the America and the Caribbean over the past by secured creditors during reorganiza-
past year the credit bureau introduced a 12 years. It has reformed in all areas mea- tion procedures and allows out-of-court
credit scoring service, further improving sured by Doing Business, most notably enforcement of collateral. Thanks to
Rwandas credit information system. in the areas of paying taxes and getting these changes, Colombia is now one
credit. The milestone reforms making it of only three economies with a perfect
Rwanda began strengthening its secured easier to pay taxes centered on making score on the strength of legal rights index.
transactions system in 2009, when it electronic filing available and more useful
introduced provisions allowing a wider to firms. In 2010, for example, Colombia In the Middle East and North Africa, Egypt
range of assets to be used as collateral, established mandatory electronic filing had the biggest increase in the distance
permitting a general description of debts and payment for some of the major taxes. to frontier score over the past 12 years,
and obligations in a security agreement, Colombia improved access to credit last though most of the gains occurred in the
allowing out-of-court enforcement of year by adopting a new secured trans- first half of that period, before 2009. The
collateral and granting secured creditors actions law that takes a functional most dramatic improvements were made
absolute priority within bankruptcy. It approach to secured transactions and by in the area of starting a business. In 2004
also created a new collateral registry. establishing a centralized, notice-based Egypt introduced computerized company
More recently, in 2013 Rwanda provided collateral registry. The law broadens contract models for use in business incor-
greater flexibility on the types of debts the range of assets that can be used as poration and created a single access point
and obligations that can be secured collateral, allows a general description of for business registration with approval in
through a collateral agreement. assets granted as collateral, establishes 24 hours. In 2007 Egypt lowered regis-
clear priority rules inside bankruptcy for tration fees, improved the process at the
Colombia made the biggest improvement secured creditors, sets out grounds for one-stop shop and reduced the minimum
in the distance to frontier score in Latin relief from a stay of enforcement actions capital requirement. In 2009 Egypt
Overview 17

further reduced the minimum capital India is the South Asian economy record- to the functioning of courts as reflected
requirement in February, then abolished ing the biggest increase in the distance in the enforcing contracts and resolving
it in April. Finally, in 2010 it reduced the to frontier score since 2004. One of the insolvency indicators. In 2007 Poland
cost to start a business. Another area of areas of greatest improvement has been improved its insolvency process by
big improvement is getting credit. The starting a business. In 2004 India cut time tightening professional requirements for
credit bureau I-score was established from the process for obtaining a perma- administrators and introducing lower
in 2007 and later improved. Borrowers nent account number (an identification limits on trustees pay. In 2009 an amend-
right to inspect their own data in the number for firms), and in 2006 it speeded ment to its bankruptcy law introduced the
credit bureau was guaranteed in 2008, up the process for obtaining a tax registra- option of a prebankruptcy reorganization
and the credit bureau added retailers to tion number. In 2010 India established an procedure for financially distressed com-
its database in 2009. online system for value added tax regis- panies. And in 2011 an amendment to its
tration and replaced the physical stamp bankruptcy and reorganization law simpli-
In East Asia and the Pacific, China stands previously required with an online version. fied court procedures and extended more
out with the biggest improvement in the And in the past year India eliminated the rights to secured creditors. Poland started
distance to frontier score over the past 12 paid-in minimum capital requirement reforms making it easier to enforce con-
years. Business tax reform contributed a and streamlined the process for starting tracts as early as 2005, by amending its
great deal to that accomplishment. In 2008 a business. More reforms are ongoingin civil procedure code. In 2007 it introduced
China made paying taxes easier and less starting a business and other areas mea- stricter rules of procedure to increase the
costly for companies by unifying the criteria sured by Doing Businessthough the full speed and efficiency of court proceedings.
and accounting methods for tax deductions effects have yet to be felt (box 1.2). Finally, in 2012 Poland further amended its
and by reducing the corporate income tax civil procedure code and appointed more
rate. And in 2009 a new corporate income Among OECD high-income economies, judges to commercial courts.
tax law unified the tax regimes for domestic Poland stands out as having made
and foreign enterprises and clarified the substantial improvements over the past
calculation of taxable income for corporate 12 years in areas measured by Doing
income tax purposes. Business. The most notable ones relate

BOX 1.2Doing business in Indiathe path toward regulatory reform


In 2014 the government of India launched an ambitious program of regulatory reform aimed at making it easier to do business.
Spanning a range of areas measured by Doing Business, the program represents a great deal of effort to create a more business-
friendly environment, particularly in Delhi and Mumbai.

One important focus is to make starting a business easier. In May 2015 the government adopted amendments to the Companies
Act that eliminated the minimum capital requirement. Now Indian entrepreneurs no longer need to deposit 100,000 Indian
rupees ($1,629)equivalent to 111% of income per capitain order to start a local limited liability company. The amendments
also ended the requirement to obtain a certificate to commence business operations, saving business founders an unnecessary
step and five days. Several other initiatives to simplify the start-up process were still ongoing on June 1, 2015, the cutoff date for
this years data collection. These include developing a single application form for new firms and introducing online registration
for tax identification numbers.

Another focus is to make the process for getting a new electricity connection simpler and faster. Toward that end the utility in Delhi
eliminated an internal wiring inspection by the Electrical Inspectorateand now instead of two inspections for the same purpose,
there is only one. The utility also combined the external connection works and the final switching on of electricity in one procedure.
The utility in Mumbai reduced the procedures and time for connecting to electricity by improving internal work processes and coor-
dination. It combined several steps into one procedurethe inspection and installation of the meter, the external connection works
and the final connection. Now companies can get connected to the grid, and get on with their business, 14 days sooner than before.

Improvements have also been initiated in other areas measured by Doing Business. To make dealing with construction permits
easier, for example, a single-window system for processing building permit applications is being started in Mumbaiwith the
promise of greatly reducing the associated bureaucratic burden once fully implemented. And online systems for filing and paying
taxes are being further improved to simplify tax compliance.

Fostering an environment more supportive of private sector activity will take time. But if the efforts are sustained over the next several
years, they could lead to substantial benefits for Indian entrepreneursalong with potential gains in economic growth and job creation.
18 Doing Business 2016

enforcing contracts case study presents 3. The papers cited here are just a few examples
of research done in the areas measured by
WHAT IS IN THIS YEARS the new data on the quality of judicial
Doing Business. Since 2003, when the Doing
REPORT? processes and discusses regional pat- Business report was first published, 2,182
terns and recent reforms in this area. research articles discussing how regulation
in the areas measured by Doing Business
This years report presents seven case
influences economic outcomes have been
studies. Five focus on legal and regulatory Beyond these five case studies covering published in peer-reviewed academic journals.
features covered by new or expanded indi- new features, a case study on starting Another 6,296 working papers have been
posted online.
cators being introduced this yearin the a business analyzes the involvement of
4. Bruhn 2011.
areas of dealing with construction permits, third parties such as lawyers and nota- 5. Amin and Islam 2014.
getting electricity, registering property, ries in company formation. It finds that 6. Giannetti and Jentzsch 2013.
7. Visaria 2009.
trading across borders and enforcing con- where third parties are involved the cost
8. Monteiro and Assuno 2012.
tracts. The other two analyze other areas is higher. A case study on resolving insol- 9. Besley 2015, p. 106.
of interest in the historical data set. vency focuses on post-commencement 10. Relationships are significant at the 1%
level after controlling for income per
financenew funds obtained by a com-
capita. The correlation between the ease
The case study on dealing with construc- pany after it enters an insolvency process, of doing business ranking and the Global
tion permits analyzes the new data for the when an inflow of funds can be crucial Competitiveness Index is 0.84. The correlation
between the ease of doing business ranking
building quality control index. The results in preserving the companys viability.
and the Corruption Perceptions Index is 0.75.
show that high-income economies have Comparing legal provisions on post-com- 11. Relationships are significant at the 1% level
on average better quality control and mencement finance around the world, the after controlling for income per capita. The
correlation between the distance to frontier
safety mechanisms. The case study also case study finds that businesses are more
score for regulatory efficiency and the
finds that economies with greater effi- likely to survive an insolvency process in Corruption Perceptions Index is 0.77. The
ciency and quality in their construction economies where post-commencement correlation between the distance to frontier
score for regulatory quality and the Corruption
permitting system tend to have a lower finance is well regulated.
Perceptions Index is 0.66.
incidence of corruption. 12. This corresponds to a monthly consumption
Finally, this years report presents a sum- of 26,880 kilowatt-hours.
13. The relationship is significant at the 1% level
The case study on getting electric- mary of some of the research recently pub-
after controlling for income per capita. New
ity focuses on both the new reliability lished in academic law journals that relates firm density is the number of newly registered
of electricity supply and transparency of to the four sets of Doing Business indicators limited liability companies per 1,000 working-
age people (ages 1564).
tariffs index and the price of electricity whose focus is essentially on the law
14. The relationship is significant at the 1% level
consumption. It finds that economies that getting credit (legal rights of borrowers after controlling for income per capita.
have a more reliable electricity supply and lenders), protecting minority investors, 15. UNPAN 2012.
16. UNPAN 2012.
also tend to have a more efficient process enforcing contracts and resolving insol-
17. According to the World Banks World
for getting a new electricity connection. vency. There are close links between these Development Indicators database, output
indicators and the literature. For example, per capita in Georgia increased from $4,346
in 2004 to $7,233 in 2014 (in constant 2011
The registering property case study ana- the literature emphasizes the importance of
international dollars) (http://data.worldbank
lyzes one of the features covered by the having effective mechanisms of alternative .org/indicator). And according to the World
new quality of land administration index: dispute resolution as a way to minimize the Bank Groups Entrepreneurship Database,
business density rose from 1.35 firms per
the digital capabilities of the land registry case backlog in courtsand this inspired
1,000 adults in 2005 to 4.86 in 2012
and cadastre. The case study shows that the expansion of the enforcing contracts (http://www.doingbusiness.org/data
property transfers have become more indicators to also cover arbitration and vol- /exploretopics/entrepreneurship).
efficient in economies that introduced untary mediation this year. Doing Business
digital systems in their land registry, their will continue to monitor the literature in
cadastre or both. both law and economics to identify good
practices and inform policy makers under-
The case study on trading across borders taking legal and regulatory reform efforts.
presents the new methodology for this
indicator set. It analyzes the trade pat-
terns captured in the indicators and dis- Notes
cusses the main patterns in the data on
the time and cost to export and import. 1. For 11 economies the data are also collected
for the second largest business city (see table
The case study finds that economies 13A.1 at the end of the data notes).
in customs unions tend to have more 2. This years report also introduces an expanded
streamlined trade processes. Finally, the methodology for the labor market regulation
indicators, as discussed in the data notes.
Doing Business 2016

About Doing Business

E
conomic activity requires sensible Doing Business was designed with two Doing Business measures aspects of
rules that encourage firm start-up main types of users in mind: policy makers business regulation affecting domestic
and growth and avoid creating and researchers.1 It is a tool that govern- small and medium-size firms in 11
distortions in the marketplace. Doing ments can use to design sound business areas across 189 economies. Ten of
Business focuses on the rules and regula- regulatory policies. Nevertheless, the these areasstarting a business,
tions that can help the private sector Doing Business data are limited in scope dealing with construction permits,
thrivebecause without a dynamic and should be complemented with other getting electricity, registering property,
private sector, no economy can provide sources of information. Doing Business getting credit, protecting minority
a good, and sustainable, standard of liv- focuses on a few specific rules relevant to investors, paying taxes, trading across
borders, enforcing contracts and
ing for people. Doing Business measures the specific case studies analyzed. These
resolving insolvencyare included
the presence of rules that establish and rules and case studies are chosen to be
in the distance to frontier score and
clarify property rights, minimize the cost illustrative of the business regulatory
ease of doing business ranking. Doing
of resolving disputes, increase the pre- environment, but they are not a compre-
Business also measures features of
dictability of economic interactions and hensive description of that environment.
labor market regulation, which is not
provide contractual partners with core Doing Business is also an important source included in these two measures.
protections against abuse. of information for researchers. It provides
a unique data set that enables analysis Doing Business does not capture other
The Doing Business data highlight the aimed at better understanding the role aspects of the business environment,
such as security, market size,
important role of the government and of business regulation in economic
macroeconomic stability and the
government policies in the day-to-day development.
prevalence of bribery and corruption.
life of domestic small and medium-size
firms. The objective is to encourage The Doing Business methodology is
regulations that are designed to be effi- WHAT DOES DOING based on standardized case scenarios
cient, accessible to all who use them and BUSINESS MEASURE? in the largest business city of each
simple in their implementation. Where economy. In addition, for 11 economies
regulation is burdensome, it diverts the Doing Business captures several impor- a second city is covered.
energies of entrepreneurs away from tant dimensions of the regulatory The subnational Doing Business studies
developing their businesses. But where environment as it applies to local firms. complement the global report by going
regulation is efficient, transparent and It provides quantitative indicators on beyond the largest business city in
implemented in a simple way, it becomes regulation for starting a business, deal- selected economies.
easier for businesses to innovate and ing with construction permits, getting Doing Business relies on four main
expandand easier for aspiring entre- electricity, registering property, getting sources of information: the relevant
preneurs to compete on an equal footing. credit, protecting minority investors, pay- laws and regulations, Doing Business
Indeed, Doing Business values good rules ing taxes, trading across borders, enforc- respondents, the governments of the
as a key to social inclusion. Enabling ing contracts and resolving insolvency economies covered and the World
growthand ensuring that all people, (table 2.1). Doing Business also measures Bank Group regional staff.
regardless of income level, can participate features of labor market regulation. This
in its benefitsrequires an environment years report does not present rankings
where new entrants with drive and good of economies on the labor market regula-
ideas can get started in business and tion indicators or include the topic in the
where good firms can invest and grow. aggregate distance to frontier score or
20 Doing Business 2016

ranking on the ease of doing business. It


TABLE 2.1 What Doing Business measures11 areas of business regulation
does present the data for these indicators.
Indicator set What is measured
Four sets of indicatorsdealing with Starting a business Procedures, time, cost and paid-in minimum capital to start a
limited liability company
construction permits, getting electric-
ity, registering property and enforcing Dealing with construction permits Procedures, time and cost to complete all formalities to build a
warehouse and the quality control and safety mechanisms in the
contractshave been expanded for this construction permitting system
years report to measure aspects of regu- Getting electricity Procedures, time and cost to get connected to the electrical grid,
latory quality. One indicator settrading the reliability of the electricity supply and the cost of electricity
consumption
across bordershas been redesigned
to increase the relevance of what is Registering property Procedures, time and cost to transfer a property and the quality of
the land administration system
measured. (For details on what is new in
Getting credit Movable collateral laws and credit information systems
these indicator sets, see the chapter on
what is changing in Doing Business.) Protecting minority investors Minority shareholders rights in related-party transactions and in
corporate governance
Paying taxes Payments, time and total tax rate for a firm to comply with all tax
How the indicators are selected regulations
The choice of the 11 sets of Doing Business Trading across borders Time and cost to export the product of comparative advantage and
indicators has been guided by economic import auto parts
research and firm-level data, particu- Enforcing contracts Time and cost to resolve a commercial dispute and the quality of
larly data from the World Bank Enterprise judicial processes
Surveys.2 These surveys provide data Resolving insolvency Time, cost, outcome and recovery rate for a commercial insolvency
and the strength of the legal framework for insolvency
highlighting the main obstacles to
business activity as reported by entre- Labor market regulation Flexibility in employment regulation and aspects of job quality
preneurs in more than 135 economies.
For example, among the factors that the
surveys have identified as important to score aids in assessing the absolute in business regulation relative to the
businesses have been access to finance level of regulatory performance and performance of other economies as mea-
and access to electricityinspiring the how it improves over time. This measure sured by Doing Business.
design of the Doing Business indicators on shows the distance of each economy to
getting credit and getting electricity. the frontier, which represents the best For each topic covered and for all topics,
performance observed on each of the Doing Business uses a simple averaging
The design of the Doing Business indica- indicators across all economies in the approach for weighting component
tors has also been informed by theoretical Doing Business sample since 2005 or the indicators, calculating rankings and
insights gleaned from extensive research third year in which data were collected determining the distance to frontier
and the literature on the role of institu- for the indicator. (For indicators calcu- score.4 Each topic covered by Doing
tions in enabling economic development. lated as scores, such as the strength of Business relates to a different aspect of
In addition, the background papers devel- the business regulatory environment.
legal rights index or the quality of land
oping the methodology for each of the
administration index, the frontier is set at The distance to frontier scores and
Doing Business indicator sets have estab-
the highest possible value.) This allows rankings of each economy vary, often
lished the importance of the rules and
users both to see the gap between a substantially, across topics, indicating
regulations that Doing Business focuses
particular economys performance and that strong performance by an economy
on for such economic outcomes as trade
the best performance at any point in time in one area of regulation can coexist with
volumes, foreign direct investment, mar-
and to assess the absolute change in the weak performance in another (figure 2.1).
ket capitalization in stock exchanges and
private credit as a percentage of GDP.3 economys regulatory environment over A quick way to assess the variability of
time as measured by Doing Business. The an economys regulatory performance is
Two aggregate measures distance to frontier is first computed for to look at its distance to frontier scores
Doing Business presents data both for each topic and then averaged across all across topics (see the country tables).
individual indicators and for two aggre- topics to compute the aggregate distance The Kyrgyz Republic, for example, has an
gate measuresthe distance to frontier to frontier score. The ranking on the ease overall distance to frontier score of 66.01,
score and the ease of doing business of doing business complements the dis- meaning that it is two-thirds of the way
rankingto provide different perspec- tance to frontier score by providing infor- from the worst to the best performance.
tives on the data. The distance to frontier mation about an economys performance Its distance to frontier score is 92.94 for
ABOUT DOING BUSINESS 21

Figure 2.1 An economys regulatory environment may be more business-friendly in some areas than in others
Distance to
frontier score Average of highest three topic scores
Average of all topic scores
100 Average of lowest three topic scores
90
80
70
60
50
40
30
20
10
0

Egypt, Arab Rep.

Nigeria
Djibouti

Liberia
Angola
Chad
Singapore

Austria

France

Spain

Mexico

Serbia

Bahrain

Lebanon

Malawi

Myanmar

Timor-Leste
Syrian Arab Republic
Afghanistan

Central African Republic


South Sudan
Eritrea
Denmark
Hong Kong SAR, China
United States
Norway
Taiwan, China
Australia
Germany
Ireland
Iceland
Portugal
Poland
Slovak Republic
United Arab Emirates
Armenia
Romania
Kazakhstan
Belgium
Italy
Cyprus
Thailand
Russian Federation
Israel
Turkey
Puerto Rico (U.S.)
Luxembourg
Azerbaijan
Kyrgyz Republic
Panama
Bhutan
South Africa
Morocco
St. Lucia
Bosnia and Herzegovina
Guatemala
Ukraine
China
Fiji
Vietnam

Albania
Nepal
Kuwait
Dominican Republic
Seychelles

Philippines
Swaziland
Sri Lanka
Indonesia
Jordan
Lesotho
St. Vincent and the Grenadines

Ecuador
Barbados
Argentina
Nicaragua
Cambodia
West Bank and Gaza
Mozambique
Grenada
Guyana
Tanzania
Burkina Faso
Papua New Guinea
Sierra Leone
Kiribati
Gambia, The
Senegal
Zimbabwe
Bolivia
Sudan
Iraq
Algeria
Guinea
Source: Doing Business database.
Note: The distance to frontier scores reflected are those for the 10 Doing Business topics included in this years aggregate distance to frontier score. The figure is illustrative only;
it does not include all 189 economies covered by this years report. See the country tables for the distance to frontier scores for each Doing Business topic for all economies.

starting a business, 90.59 for register- example, capture the time and cost and communications may add to firms
ing property and 79.98 for dealing with required for the logistical process of costs and undermine competitiveness
construction permits. At the same time, exporting and importing goods, but (except to the extent that the trading
it has a distance to frontier score of they do not measure the cost of tariffs across borders indicators indirectly
34.66 for resolving insolvency, 43.95 for or of the international transport. Thus measure the quality of ports). Similar
getting electricity and 49.49 for enforcing through these indicators Doing Business to the indicators on trading across
contracts. provides a narrow perspective on the borders, those on starting a business
infrastructure challenges that firms or protecting minority investors do not
face, particularly in the developing cover all aspects of commercial legisla-
WHAT DOES DOING world. It does not address the extent tion. And while Doing Business mea-
BUSINESS NOT MEASURE? to which inadequate roads, rail, ports sures only a few aspects within each
area that it covers, business regulation
Doing Business does not cover many TABLE 2.2 What Doing Business does reforms should not focus just on these
important policy areas, and even within not cover aspects, because those that it does not
the areas it covers its scope is narrow measure are still important.
Examples of areas not covered
(table 2.2). Doing Business does not
Macroeconomic stability Doing Business does not attempt to mea-
measure the full range of factors, policies
and institutions that affect the quality of State of the financial system sure all costs and benefits of a particular
an economys business environment or Level of training and skills of the labor force law or regulation to society as a whole.
its national competitiveness. It does not, Prevalence of bribery and corruption For example, the paying taxes indica-
for example, capture aspects of security, Market size tors measure the total tax rate, which,
market size, macroeconomic stability, the in isolation, is a cost to businesses. The
Security
state of the financial system, the preva- indicators do not measure, nor are they
Examples of aspects not included within the
lence of bribery and corruption or the level areas covered intended to measure, the benefits of the
of training and skills of the labor force. social and economic programs funded
In paying taxes, personal income tax rates
through tax revenues. Measuring qual-
In getting credit, the monetary policy stance
Even within the relatively small set of and the associated ease or tightness of credit ity and efficiency in business regulation
indicators included in Doing Business, conditions for firms provides one input into the debate on
the focus is deliberately narrow. The In trading across borders, export or import tariffs the regulatory burden associated with
trading across borders indicators, for and subsidies achieving regulatory objectives. These
22 Doing Business 2016

objectives can differ across economies.


TABLE 2.3 Advantages and limitations of the Doing Business methodology
Doing Business provides a starting point
for this discussion and should be used in Feature Advantages Limitations
conjunction with other data sources. Use of standardized Makes the data comparable across Reduces the scope of the data and
case scenarios economies and the methodology means that only regulatory reforms
transparent in the areas measured can be
systematically tracked
WHAT ARE THE STRENGTHS Focus on largest Makes the data collection manageable Reduces the representativeness of
AND LIMITATIONS OF THE business citya (cost-effective) and the data
comparable
the data for an economy if there are
significant differences across locations
METHODOLOGY?
Focus on domestic and Keeps the attention on where Fails to reflect reality for the informal
formal sector regulations are relevant and firms are sectorimportant where that is
The Doing Business methodology was most productivethe formal sector largeor for foreign firms where they
face a different set of constraints
designed to be an easily replicable way
Reliance on expert Ensures that the data reflect the Results in indicators that do not
to benchmark certain aspects of business respondents knowledge of those with the most measure the variation in experiences
regulation. It has advantages and limita- experience in conducting the types of among entrepreneurs
transactions measured
tions that should be understood when
Focus on the law Makes the indicators actionable Fails to reflect the reality that where
using the data (table 2.3). because the law is what policy makers systematic compliance with the law
can change is lacking, regulatory changes will not
achieve the full results desired
A key consideration for the Doing Business
indicators is that they should ensure com- a. In economies with a population of more than 100 million as of 2013, Doing Business covers business regulation
in both the largest business city and the second largest one.
parability of the data across a global set of
economies. The indicators are therefore
developed around standardized case Some Doing Business topics are complex, rulesan aspect that helps explain
scenarios with specific assumptions. and so it is important that the standard- differences between the de jure data
ized cases are carefully defined. For provided by Doing Business and the de
One such assumption is the location of
example, the standardized case scenario facto insights offered by World Bank
a notional businessthe subject of the
usually involves a limited liability com- Enterprise Surveys.5 In economies with
Doing Business case studyin the largest
pany or its legal equivalent. There are particularly burdensome regulation,
business city of the economy. The real-
two reasons for this assumption. First, levels of informality tend to be higher.
ity is that business regulations and their
private, limited liability companies are Compared with their formal sector
enforcement may differ within a country,
the most prevalent business form for counterparts, firms in the informal
particularly in federal states and large
firms with more than one owner in many sector typically grow more slowly, have
economies. But gathering data for every
economies around the world. Second, poorer access to credit and employ few-
relevant jurisdiction in each of the 189
this choice reflects the focus of Doing er workersand these workers remain
economies covered by Doing Business
Business on expanding opportunities for outside the protections of labor law.6
would be infeasible. Nevertheless, where
entrepreneurship: investors are encour- Firms in the informal sector are also
policy makers are interested in generating aged to venture into business when less likely to pay taxes. Doing Business
data at the local level, beyond the largest potential losses are limited to their measures one set of factors that help
business city, Doing Business has comple- capital participation. explain the occurrence of informality
mented its global indicators with subna- and give policy makers insights into
tional studies (box 2.1). And starting in last Another assumption underlying potential areas of regulatory reform.
years report, Doing Business has extended the Doing Business indicators is that
its coverage to the second largest business entrepreneurs have knowledge of and Rules and regulations fall under the
city in economies with a population of comply with applicable regulations. direct control of policy makersand
more than 100 million as of 2013. In practice, entrepreneurs may not they are often where policy makers
know what needs to be done or how start when intending to change the set
Doing Business recognizes the limitations to comply and may lose considerable of incentives under which businesses
of the standardized case scenarios and time trying to find out. Alternatively, operate. Doing Business not only shows
assumptions. But while such assump- they may deliberately avoid compli- where problems exist in the regulatory
tions come at the expense of generality, ance altogetherby not registering framework; it also points to specific
they also help ensure the comparability for social security, for example. Where regulations or regulatory procedures
of data. For this reason it is common to regulation is particularly onerous, firms that may lend themselves to reform.
see limiting assumptions of this kind in may opt for bribery and other informal And its quantitative measures enable
economic indicators. arrangements intended to bypass the research on how specific regulations
ABOUT DOING BUSINESS 23

BOX 2.1 Comparing regulation at the local level: subnational Doing Business studies
The subnational Doing Business studies expand the Doing Business analysis beyond the largest business city of an economy. They
measure variation in regulations or in the implementation of national laws across locations within an economy (as in South
Africa) or a region (as in Central America). Projects are undertaken at the request of governments.

Data collected by subnational studies over the past two years show that there can be substantial variation within an economy
(see figure). In Mexico in 2013, for example, registering a property transfer took as few as 2 days in Colima and as many as 74 in
Mexico City. Indeed, within the same economy one can find locations that perform as well as economies ranking in the top 20
on the ease of registering property and locations that perform as poorly as economies ranking in the bottom 40 on that indicator.

Different locations, different regulatory processes, same economy

Time to start a business (days)


60

50

40

30

20

10

0
Egypt, Arab Rep. Mexico Nigeria Poland South Africa

Least time Most time Average time

Time to register property (days)


250

200

150

100

50

0
Egypt, Arab Rep. Mexico Nigeria Poland South Africa

Least time Most time Average time

Source: Subnational Doing Business database.


Note: The average time shown for each economy is based on all locations covered by the data: 15 locations and governorates in the Arab Republic of Egypt in 2013,
31 states and Mexico City in Mexico in 2013, 36 cities in Nigeria in 2014, 18 cities in Poland in 2014 and 9 cities in South Africa in 2015.

The subnational Doing Business studies create disaggregated data on business regulation. But they go beyond a data collection
exercise. They have proved to be strong motivators for regulatory reform at the local level:

The data produced are comparable across locations within the economy and internationally, enabling locations to bench-
mark their results both locally and globally. Comparisons of locations that are within the same economy and therefore share
the same legal and regulatory framework can be revealing: local officials find it hard to explain why doing business is more
difficult in their jurisdiction than in a neighboring one.

(continued)
24 Doing Business 2016

BOX 2.1 Comparing regulation at the local level: subnational Doing Business studies (continued)

Pointing out good practices that exist in some locations but not others within an economy helps policy makers recognize
the potential for replicating these good practices. This can prompt discussions of regulatory reform across different levels
of government, providing opportunities for local governments and agencies to learn from one another and resulting in local
ownership and capacity building.

Since 2005 subnational reports have covered 437 locations in 65 economies, including Colombia, the Arab Republic of Egypt,
Italy, the Philippines and Serbia. Fifteen economiesincluding Indonesia, Mexico, Nigeria and the Russian Federationhave
undertaken two or more rounds of subnational data collection to measure progress over time. This year subnational studies were
completed in the Dominican Republic, Poland, South Africa, Spain and six countries in Central America. Ongoing studies include
those in Afghanistan (5 cities), Kenya (10 cities), Mexico (31 states and Mexico City) and the United Arab Emirates (3 emirates).

Subnational reports are available on the Doing Business website at http://www.doingbusiness.org/subnational.

affect firm behavior and economic management of public finances, adequate


outcomes. attention to education and training, adop- HOW ARE THE DATA
tion of the latest technologies to boost COLLECTED?
Many of the Doing Business indicators can economic productivity and the quality of
be considered actionable, measuring public services, and appropriate regard for
The Doing Business data are based on
aspects over which governments have air and water quality to safeguard peoples
a detailed reading of domestic laws
direct control. For example, governments health. Governments have to decide what
and regulations as well as administra-
can reduce (or even eliminate) the mini- set of priorities best fits the needs they
tive requirements. The data cover 189
mum capital requirement for new firms. face. To say that governments should work
economiesincluding small economies
They can invest in company and prop- toward a sensible set of rules for private
and some of the poorest economies, for
erty registries to increase the efficiency of sector activity does not suggest that they
which little or no data are available in
these public agencies. They can improve should be doing so at the expense of other
other data sets. The data are collected
the efficiency of tax administration by worthy economic and social goals.
through several rounds of interaction with
adopting the latest technologies to facili-
expert respondents (both private sector
tate the preparation, filing and payment
practitioners and government officials)
of taxes by businesses. And they can
through responses to questionnaires,
undertake court reforms to shorten delays
in the enforcement of contracts. On the
other hand, some Doing Business indica- Figure 2.2 How Doing Business collects and verifies the data
tors capture costs that involve private sec- Data sources: Steps included in the
tor participants, such as lawyers, notaries, The relevant laws and regulations data verification process:
Conference calls and
Responses to questionnaires by
architects, electricians or freight forward- private sector practitioners and
government officials The Doing Business team develops
videoconferences with private
sector practitioners and
government officials
erscosts over which governments may Governments questionnaires for each topic and
sends them to private sector Travel to selected economies
World Bank Group regional staff
have little influence in the short run. practitioners and government
officials.

While many Doing Business indicators are The Doing Business team analyzes the
relevant laws and regulations along with
actionable, this does not necessarily mean The report is published
the information in the questionnaires.
and disseminated.
that they are always action-worthy in Governments and World Bank Group
regional teams submit information on
a particular context.7 And Doing Business regulatory changes that could potentially
be included in the global count of
data do not indicate which indicators regulatory reforms.

are more action-worthy than others.


The Doing Business team shares
Business regulation reforms are one The Doing Business team analyzes the preliminary information on reforms with
data and writes the report. Comments governments (through the World Bank
element of a strategy aimed at improv- on the report and the data are received Groups Board of Executive Directors) and
from across the World Bank Group
ing competitiveness and establishing a through an internal review process.
World Bank Group regional teams for
their feedback.
solid foundation for sustainable economic
growth. There are many other impor-
tant goals to pursuesuch as effective
ABOUT DOING BUSINESS 25

conference calls, written correspondence cost component (where fee schedules transaction, such as starting a business
and visits by the team. Doing Business are lacking) are based on actual prac- or registering a building, into separate
relies on four main sources of information: tice rather than the law on the books. steps to ensure a better estimate of
the relevant laws and regulations, Doing This introduces a degree of judgment time. The time estimate for each step
Business respondents, the governments by respondents on what actual practice is given by practitioners with sig-
of the economies covered and the World looks like. When respondents disagree, nificant and routine experience in the
Bank Group regional staff (figure 2.2). the time indicators reported by Doing transaction.
For a detailed explanation of the Doing Business represent the median values
Business methodology, see the data notes. of several responses given under the Doing Business does not survey firms for
assumptions of the standardized case. two main reasons. The first relates to
Relevant laws and regulations the frequency with which firms engage
Most of the Doing Business indicators Doing Business respondents in the transactions captured by the
are based on laws and regulations. Over the past 13 years more than 33,000 indicators, which is generally low. For
Indeed, around two-thirds of the data professionals in 189 economies have example, a firm goes through the start-
embedded in the Doing Business indica- assisted in providing the data that inform up process once in its existence, while
tors are based on a reading of the law. the Doing Business indicators.9 This years an incorporation lawyer may carry out
Besides filling out written question- report draws on the inputs of more than 10 such transactions each month. The
naires, Doing Business respondents 11,400 professionals.10 Table 13.2 in the incorporation lawyers and other experts
provide references to the relevant laws, data notes lists the number of respon- providing information to Doing Business
regulations and fee schedules. The dents for each indicator set. The Doing are therefore better able to assess the
Doing Business team collects the texts Business website shows the number of process of starting a business than are
of the relevant laws and regulations respondents for each economy and each individual firms. They also have access
and checks questionnaire responses indicator set. to the latest regulations and practices,
for accuracy. For example, the team while a firm may have faced a different
will examine the commercial code to Respondents are professionals who set of rules when incorporating years
confirm the paid-in minimum capital routinely administer or advise on the before. The second reason is that the
requirement, look at the legislation to legal and regulatory requirements in the Doing Business questionnaires mostly
see whether borrowers have the right specific areas covered by Doing Business, gather legal information, which firms
to access their data at the credit bureau selected on the basis of their expertise are unlikely to be fully familiar with. For
and read the tax code to find applicable in these areas. Because of the focus on example, few firms will know about all
tax rates. (Doing Business makes these legal and regulatory arrangements, most the many legal procedures involved in
and other types of laws available on the of the respondents are legal profession- resolving a commercial dispute through
Doing Business law library website.)8 als such as lawyers, judges or notaries. the courts, even if they have gone
Because of the extensive data checking, In addition, officials of the credit bureau through the process themselves. But a
which involves an annual update of an or registry complete the credit informa- litigation lawyer should have little dif-
established database, having very large tion questionnaire. Freight forwarders, ficulty in providing the requested infor-
samples of respondents is not neces- accountants, architects, engineers mation on all the procedures.
sary for these types of questions. In and other professionals answer the
principle, the role of the contributors questionnaires related to trading across Governments and World Bank
is largely advisoryhelping the Doing borders, paying taxes and dealing with Group regional staff
Business team in finding and under- construction permits. Certain public After receiving the completed ques-
standing the laws and regulationsand officials (such as registrars from the tionnaires from the Doing Business
there are quickly diminishing returns to company or property registry) also respondents, verifying the information
an expanded number of contributors. provide information that is incorporated against the law and conducting follow-up
into the indicators. inquiries to ensure that all relevant infor-
For the rest of the data the team con- mation is captured, the Doing Business
ducts extensive consultations with The Doing Business approach has been team shares the preliminary descriptions
multiple contributors to minimize to work with legal practitioners or other of regulatory reforms with governments
measurement error. For some indica- professionals who regularly undertake (through the World Bank Groups Board
torsfor example, those on dealing the transactions involved. Following of Executive Directors) and with regional
with construction permits, enforcing the standard methodological approach staff of the World Bank Group. Through
contracts and resolving insolvency for time-and-motion studies, Doing this process government authorities
the time component and part of the Business breaks down each process or and World Bank Group staff working on
26 Doing Business 2016

most of the economies covered can alert 7. One study using Doing Business indicators
illustrates the difficulties in using highly
the team about, for example, regulatory
disaggregated indicators to identify reform
reforms not picked up by the respondents priorities (Kraay and Tawara 2013).
or additional achievements of regulatory 8. For the law library website, see http://www
.doingbusiness.org/law-library.
reforms already captured in the database.
9. The annual data collection exercise is an
In response to such feedback, the Doing update of the database. The Doing Business
Business team turns to the local private team and the contributors examine the
extent to which the regulatory framework
sector experts for further consultation
has changed in ways relevant for the features
and, as needed, corroboration. In addi- captured by the indicators. The data collection
tion, the team responds formally to the process should therefore be seen as adding
each year to an existing stock of knowledge
comments of governments or regional
reflected in the previous years report, not as
staff and provides explanations of the creating an entirely new data set.
scoring decisions. 10. While more than 11,400 contributors provided
data for this years report, many of them
completed a questionnaire for more than
Data adjustments one Doing Business indicator set. Indeed, the
Information on data corrections is pro- total number of contributions received for
this years report is more than 14,100 which
vided in the data notes and on the Doing
represents a true measure of the inputs
Business website. A transparent complaint received. The average number of contributions
procedure allows anyone to challenge the per indicator set and economy is just under
seven. For more details, see http://www
data. From November 2014 to October
.doingbusiness.org/contributors/doing
2015 the team received and responded -business.
to more than 170 queries on the data. If
changes in data are confirmed, they are
immediately reflected on the website.

notes
1. The focus of the Doing Business indicators
remains the regulatory regime faced by
domestic firms engaging in economic activity
in the largest business city of an economy.
Doing Business was not initially designed to
inform decisions by foreign investors, though
investors may in practice find the data useful
as a proxy for the quality of the national
investment climate. Analysis done in the
World Bank Groups Global Indicators Group
has shown that countries that have sensible
rules for domestic economic activity also tend
to have good rules for the activities of foreign
subsidiaries engaged in the local economy.
2. For more on the World Bank Enterprise
Surveys, see the website at http://www
.enterprisesurveys.org.
3. These papers are available on the Doing
Business website at http://www.doingbusiness
.org/methodology.
4. For getting credit, indicators are weighted
proportionally, according to their contribution
to the total score, with a weight of 60%
assigned to the strength of legal rights index
and 40% to the depth of credit information
index. In this way each point included in these
indices has the same value independent of
the component it belongs to. Indicators for all
other topics are assigned equal weights. For
more details, see the chapter on the distance
to frontier and ease of doing business ranking.
5. Hallward-Driemeier and Pritchett 2015.
6. Schneider 2005; La Porta and Shleifer 2008.
Doing Business 2016

What is changing
in DoingBusiness?

G
ood practices in business regula- the focus is being expanded to include This years report introduces
tion have evolved since the Doing additional good practices in the areas improvements in 5 of 10 Doing Business
Business indicators were first covered. In addition, some changes are indicator sets. Part of an effort begun
developed in 2003. Some changes have aimed at increasing the relevance of in last years report, the changes
come, for example, as new technologies indicators (such as the trading across have two main goals. The first is to
have transformed the ways governments borders indicators). expand the focus of indicator sets
interact with citizens and the business that primarily measure the efficiency
community. The new developments have of a transaction or service to also
created a need to expand and update the INTRODUCING NEW cover aspects of the quality of that
service. The second is to expand the
Doing Business methodology. In addition, MEASURES OF QUALITY
focus of indicator sets that already
the original Doing Business indicators are
measure some aspects of the quality
by nature limited in scope, and expanding Efficiency in regulatory transactions is
of regulation to include recent good
the methodology allows opportunities to important. Many research papers have
practices in the areas covered.
reduce the limitations. While the Doing highlighted the positive effect of effi-
Business report has introduced changes ciency improvements in areas measured This years report adds indicators
in methodology of varying degrees every by Doing Business on such economic of quality to four indicator sets:
year, this years report and last years outcomes as firm or job creation.2 But registering property, dealing with
have implemented more substantive increasing efficiency may have little construction permits, getting
electricity and enforcing contracts.
improvements. These changes reflect impact if the service provided is of poor
consultations that have taken place over quality. For example, the ability to com- In addition, the trading across
the years with World Bank Group staff, plete a property transfer quickly and borders indicators have been revised
country governments and the private sec- inexpensively is important, but if the land to increase their relevance. The
tor and are being implemented against the underlying case study now focuses
background of the findings presented in on the top export product for each
2013 by the Independent Panel on Doing TABLE 3.1 Timeline of the changes in economy, on auto parts as its import
Business.1 Doing Business product and on its largest trading
Doing Business 2015
partner for the export and import
products.
As part of these changes, 8 of 10 sets Broadening the scope of indicator sets
of Doing Business indicators are being Getting credit
improved over a two-year period (table
Protecting minority investors
3.1). The improvements are aimed at
Resolving insolvency
addressing two main concerns. First, in
indicator sets that primarily measure Doing Business 2016

the efficiency of a transaction or service Broadening the scope of indicator sets


provided by a government agency (such Registering property
as registering property), the focus is Dealing with construction permits
being expanded to also cover aspects of Getting electricity
the quality of that service. And second,
Enforcing contracts
in indicator sets that already measure
Increasing the relevance of indicator sets
some aspects of the quality of regulation
(such as protecting minority investors), Trading across borders
28 Doing Business 2016

records are unreliable or other features of


FIGURE 3.1 What is being added to registering property
the property rights regime are flawed, the
property title will have little value.
Dispute
Reliability Transparency Coverage resolution
Yet measures of the quality of business
regulation at the micro level are scarce. By
Availability Geographic Legal framework
expanding its focus on regulatory quality, Accessibility of
coverage of
of electronic information on for property
Doing Business will thus open a new area database land ownership land registry registration
for research. The aim is to help develop
greater understanding of the importance
of the quality of business regulation and Link between land Availability of fee Geographic
Mechanisms to
ownership registry schedules and prevent and
its link to regulatory efficiency and eco- and mapping complaint
coverage of
resolve land
mapping agency
nomic outcomes. system mechanisms disputes

In this years report four indicator sets are


being expanded to also measure regula-
processing information on land parcels The quality of land administration index
tory quality: registering property, dealing
and property titles. Higher scores are accounts for a quarter of the distance
with construction permits, getting elec-
given for practices that support data reli- to frontier score for registering property,
tricity, and enforcing contracts. A similar
ability, such as unifying, standardizing and and the distance to frontier scores under
expansion for the paying taxes indicator
synchronizing records across different the old and new methodologies are
set is being considered for next year. The
sources and putting in place the necessary significantly correlated (figure 3.2). For a
new indicators being introduced empha-
infrastructure to reduce the risk of errors. complete discussion of the methodology
size the importance of having the right
for the registering property indicators,
type of regulation. In general, economies
The indicator also measures the transpar- see the data notes. For an analysis of the
with less regulation or none at all will have
ency of information in land administra- data for the indicators, see the case study
a lower score on the new indicators.
tion systems around the world. New data on registering property.
record whether land-related information
Registering property is made publicly available, whether Dealing with construction
The registering property indicator set
procedures and property transactions permits
assesses the efficiency of land admin-
are transparent and whether informa- The indicator set on dealing with construc-
istration systems by measuring the
tion on fees for public services is easily tion permits measures the procedures,
procedures, time and cost to transfer a
accessible. time and cost to comply with the for-
property from one company to another.
malities to build a warehouseincluding
This years report adds a new indicator to
In addition, the indicator measures the obtaining necessary licenses and permits,
also encompass aspects of the quality of
coverage levels attained by land regis- completing required notifications and
these systems. The quality of land admin-
tration and mapping systems. A land inspections, and obtaining utility connec-
istration index measures the reliability,
administration system that does not cov- tions. A new indicator added to the set
transparency and geographic coverage
er the countrys entire territory is unable in this years reportthe building quality
of land administration systems as well
to guarantee the protection of property control indexexpands the coverage to
as aspects of dispute resolution for land
rights in areas that lack institutionalized also encompass good practices in con-
issues (figure 3.1). This new indicator is
information on land. The result is a dual struction regulation (figure 3.3). This new
included in the distance to frontier score
system, with both formal and informal indicator is part of the distance to frontier
and therefore affects the ease of doing
land markets. To be enforceable, all score and therefore affects the ease of
business ranking.
transactions need to be publicly verified doing business ranking.
and authenticated at the land registry.
Ensuring the reliability of information The building quality control index looks
on property titles is a crucial function of Finally, the indicator allows comparative at important issues facing the building
land administration systems. To measure analysis of land dispute resolution across community. One is the need for clarity
how well these systems are performing economies. It measures the accessibility in the rules, to ensure that regulation of
this function, data for the quality of land of conflict resolution mechanisms and construction can fulfill the vital function
administration index record the practices the extent of liability for the entities of helping to protect the public from
used in collecting, recording, storing and or agents recording land transactions. faulty building practices. To assess this
What is changing in Doing Business? 29

two points: whether a final inspection is


FIGURE 3.2 Comparing the distance to frontier scores for registering property under
required by law to verify that the build-
the old and new methodologies
ing was built in accordance with the
Distance to frontier score for registering approved plans and the building regula-
property under new methodology
tions; and whether the final inspection
100
required by law is actually carried out (or,
90 if not required by law, commonly occurs
80 in practice).
70
60 The professionals who conduct the
50
inspections play a vital part in ensuring
that buildings meet safety standards.
40
So it is important that these profession-
30
als be certified and that they have the
20 necessary technical qualifications. And
10 if safety violations or construction flaws
0 occur despite their efforts, it is important
0 10 20 30 40 50 60 70 80 90 100
to have a well-defined liability and insur-
Distance to frontier score for registering
property under old methodology ance structure to cover losses resulting
from any structural faults.
Source: Doing Business database.
Note: Both distance to frontier scores are based on data for 2014. The 45-degree line shows where the scores
under the old and new methodologies are equal. The correlation between the two scores is 0.96. The building quality control index covers
several points relating to these issues:
characteristic, the indicator examines of structural failures later on. The indica- what the qualification requirements are
how clearly the building code or building tor covers quality control at three stages: for the professionals responsible for
regulations specify the requirements for before, during and after construction. reviewing and approving the architec-
obtaining a building permit and how eas- tural plans and for those authorized to
ily accessible the regulations are. A measure of quality control before con- supervise or inspect the construction;
struction looks at one point: whether a which parties are held legally liable for
Beyond measuring the clarity and acces- licensed engineer or architect must verify construction flaws or problems affecting
sibility of regulations, the building quality that the architectural plans and drawings the structural safety of the building once
control index assesses the effectiveness comply with the building regulations. occupied; and which parties are required
of inspection systems. Good inspection Measures of quality control during con- by law to obtain an insurance policy to
systems are critical to ensuring public struction examine two points: what types cover possible flaws or problems affect-
safety. They can ensure that buildings of inspections (if any) are required by law ing the structural safety of the building
comply with proper safety standards, during construction; and whether inspec- once occupied.
reducing the chances of structural faults. tions required by law are actually carried
And requirements that technical experts out (or, if not required by law, commonly The new index accounts for a quarter of
review the proposed plans before con- occur in practice). Measures of quality the distance to frontier score for deal-
struction even begins can reduce the risk control after construction also examine ing with construction permits, and the
distance to frontier scores under the old
FIGURE 3.3 What is being added to dealing with construction permits and new methodologies are significantly
correlated (figure 3.4). For a complete
discussion of the methodology for the
Clarity and accessibility of regulations indicators on dealing with construction
Quality control before construction permits, see the data notes. For a fuller
Quality control during construction discussion of the new indicator and an
Quality control after construction analysis of the associated data, see the
Liability and insurance regimes
case study on dealing with construction
permits.
Professional certification requirements
30 Doing Business 2016

power outages. To do so, it uses the sys-


FIGURE 3.4 Comparing the distance to frontier scores for dealing with construction
tem average interruption duration index
permits under the old and new methodologies
(SAIDI) and the system average inter-
Distance to frontier score for dealing with ruption frequency index (SAIFI). SAIDI
construction permits under new methodology
measures the average total duration of
100
outages, and SAIFI the average number
90 of outages, experienced by a customer
80 over the course of a year. These two
70 measures are typically recorded by utility
60 companies, but collecting the data can
50
be challenging because their availability
and quality depend on the utilities ability
40
(and resources) to collect the underlying
30
information.
20
10 The SAIDI and SAIFI measures are
0 used to highlight extreme cases of
0 10 20 30 40 50 60 70 80 90 100
power outages (as measured against
Distance to frontier score for dealing with
construction permits under old methodology a threshold defined by Doing Business).
For economies where power outages are
Source: Doing Business database. not extreme, the quality of monitoring
Note: Both distance to frontier scores are based on data for 2014. The 45-degree line shows where the scores and the role of the monitoring agency
under the old and new methodologies are equal. The correlation between the two scores is 0.92.
or regulator become the crucial factors
being measured. Data for the reliability of
Getting electricity also perceived as important constraints supply and transparency of tariffs index
The indicator set on getting electricity on business activity, particularly in the record the methods used by electricity
measures the efficiency of the process developing world. To offer a more com- distribution companies to monitor power
for obtaining an electricity connection for plete view of the electricity distribution outages and restore power supply and
a standardized warehouseas reflected sector, this years report adds two new the role of the regulator in monitoring
in the procedures, time and cost required. indicators, the reliability of supply and outages. Data also record the existence
While the efficiency of the connection transparency of tariffs index and the price of financial deterrents to limit outages.
process has proved to be a useful proxy of electricity (figure 3.5). While the first
for the overall efficiency of the electric- indicator is included in the distance to Beyond a reliable electricity supply, trans-
ity sector, these measures cover only a frontier score and ease of doing business parency around tariffs is also important
small part of the sectors performance. ranking, the second one is not. for customers, to enable them to forecast
Beyond the complexity and high cost of the cost of their energy consumption and
getting an electricity connection, inad- To assess the reliability of the electric- deal effectively with future price increas-
equate or unreliable power supply and ity supply, Doing Business measures es. Thus the new index also measures the
the price of electricity consumption are both the duration and the frequency of accessibility of tariffs to customers and
the level of transparency around changes
FIGURE 3.5 What is being added to getting electricity in tariff rates.

To measure the price of electricity con-


Duration and frequency of power outages
sumption, Doing Business records the total
Tools to monitor power outages monthly electricity bill for a standardized
Tools to restore power supply warehouse that stores goods and oper-
Regulatory monitoring of utilities performance ates in the largest business city of the
Financial deterrents aimed at limiting outages economy (in 11 economies it also collects
Transparency and accessibility of tariffs data for the second largest business city).
Price of electricity consumption
The price of electricity is presented in
cents per kilowatt-hour. (The data on the
price of electricity are available on the
What is changing in Doing Business? 31

judicial efficiency that goes beyond the


FIGURE 3.6 Comparing the distance to frontier scores for getting electricity under the time and cost associated with resolving
old and new methodologies a dispute. Advances in technology and
in mechanisms for alternative dispute
Distance to frontier score for getting
electricity under new methodology resolution have changed the face of judi-
100 ciaries worldwide and led to the evolution
of new good practices. Expanding the
90
scope of the enforcing contracts indica-
80
tors to cover the use of such practices
70
ensures the continued relevance of these
60 indicators.
50
40 A new indicator, the quality of judicial
30 processes index, measures whether an
20
economy has adopted a series of good
practices across four main areas: court
10
structure and proceedings, case manage-
0
0 10 20 30 40 50 60 70 80 90 100 ment, court automation and alternative
Distance to frontier score for getting dispute resolution. For court structure
electricity under old methodology
and proceedings the indicator records
several aspects, including whether there
Source: Doing Business database.
Note: Both distance to frontier scores are based on data for 2014. The 45-degree line shows where the scores is a specialized commercial court or divi-
under the old and new methodologies are equal. The correlation between the two scores is 0.88. sion and whether a small claims court or
simplified procedure for small claims is
Doing Business website, at http://www The aim is to capture new and more available. For case management the indi-
.doingbusiness.org.) actionable aspects of the judicial system cator records, for example, whether there
in each economy, providing a picture of are regulations setting time standards for
The reliability of supply and transparency
of tariffs index accounts for a quarter of
the distance to frontier score for getting FIGURE 3.7 What is being added to enforcing contracts
electricity, and the distance to frontier
scores under the old and new meth-
Court structure and Case Court Alternative dispute
odologies are significantly correlated proceedings management automation resolution
(figure 3.6). For a detailed discussion of
Availability of Regulations
the methodology for the getting electric- a specialized setting time Ability to file Availability and
standards for key initial complaint regulation of
ity indicators, see the data notes. For a commercial court
court events electronically arbitration
or division
comprehensive presentation of the new
indicators and an analysis of the data, see Availability of a
Regulations on Ability to serve
Availability and
small claims court regulation of
the case study on getting electricity. or simplified adjournments process voluntary
procedure for and continuances electronically mediation or
small claims conciliation
Enforcing contracts
The enforcing contracts indicators have Availability
Availability of
Ability to pay
performance
focused on the efficiency of the com- of pretrial measurement court fees
attachment mechanisms electronically
mercial court system, measuring the
procedures, time and cost to resolve a Criteria used Use of pretrial Publication of
commercial dispute between two firms. to assign cases conference judgments
to judges
This years report expands the indicator
set to also cover aspects of the quality Availability of an
of judicial processes, focusing on well- electronic case
management
established good practices that promote system
quality and efficiency in the court system
(figure 3.7).
32 Doing Business 2016

key court events and whether electronic discussion of the new indicator and an To increase the relevance of the trading
case management is available. analysis of the underlying data. across borders indicators, this years report
changes the standardized case study to
For court automation the indicator covers assume different traded products for the
such aspects as whether the initial com- INCREASING THE import and export process. In the new
plaint can be filed electronically, whether RELEVANCE OF INDICATORS case study each economy imports a ship-
process can be served electronically ment of 15 metric tons of containerized
and whether the court fees can be paid Using feedback from academics, auto parts from its natural import part-
electronically. And for alternative dispute policy makers and other data users, Doing nerthe economy from which it imports
resolution the indicator records the avail- Business continually improves its indica- the largest value (price times quantity) of
ability of arbitration and voluntary media- tors with the aim of maintaining their auto parts. And each economy exports
tion or conciliation and aspects of the relevance. This years report introduces the product of its comparative advantage
regulation of these methods of dispute substantial changes to the trading across (defined by the largest export value) to its
resolution. borders indicators to increase their use- natural export partnerthe economy that
fulness for policy and research. is the largest purchaser of this product. To
The quality of judicial processes index, identify the trading partners and export
which replaces the indicator on the num- The trading across borders indicators product for each economy, Doing Business
measure the time and cost (excluding collected data on trade flows for the most
ber of procedures to enforce a contract,
tariffs) associated with exporting and recent four-year period from international
accounts for a third of the distance to
importing a shipment of goods to and databases such as the United Nations
frontier score for enforcing contracts.
from the economys main trading partner. Commodity Trade Statistics Database
Analysis shows significant correlation
In past years reports the standardized (UN Comtrade).
between the distance to frontier scores case study assumed that the goods were
under the old and new methodologies one of six preselected products. This
The new case study also reflects new
(figure 3.8). The data notes provide a represented an important shortcom-
assumptions about the mode of transport
detailed discussion of the methodology ing, especially for the export process:
used in trading across borders. In the
for the enforcing contracts indicators, while economies tend to import a bit of
previous case study, trade was assumed
while the case study on enforcing everything, they export only products of
to be conducted by sea, with the implica-
contracts provides a more complete comparative advantage.
tion that calculations of time and cost for
landlocked economies included those
associated with border processes in
FIGURE 3.8 Comparing the distance to frontier scores for enforcing contracts under transit economies. In the new case study,
the old and new methodologies natural trading partners may be neigh-
boring economies that can be accessed
Distance to frontier score for enforcing
contracts under new methodology by land. Thus trade is assumed to be con-
100 ducted by the most widely used mode of
90 transport (whether sea, land, air or some
combination of these), and any time and
80
cost attributed to an economy are those
70
incurred while the shipment is within that
60
economys geographic borders.
50
40 Because the new methodology also
30 allows for regional trade, it emphasizes
20 the importance of customs unions. One
economy receiving a better score under
10
the new methodology is Croatia, which
0
0 10 20 30 40 50 60 70 80 90 100 is part of the European Union (figure
Distance to frontier score for enforcing 3.9). In the new case study Croatia both
contracts under old methodology
exports to a fellow EU member (Austria)
and imports from one (Germany), and
Source: Doing Business database.
Note: Both distance to frontier scores are based on data for 2014. The 45-degree line shows where the scores documentary and border compliance
under the old and new methodologies are equal. The correlation between the two scores is 0.87. therefore take very little time and cost
What is changing in Doing Business? 33

returns for correctness, which may involve


FIGURE 3.9 Comparing the distance to frontier scores for trading across borders
desk audits, field audits or inspections;
under the old and new methodologies
the process and time involved in claim-
Distance to frontier score for trading ing refunds of value added taxes; and the
across borders under new methodology
Croatia administrative process and time related to
100
the first level of the tax appeal process.
90
80 For a complete discussion of the method-
70 ology for the paying taxes indicators, see
60 the data notes.
50
40
NOTES
30
20 1. For more information on the Independent
Panel on Doing Business and its work, see its
10
website at http://www.dbrpanel.org.
0 2. For more details, see the chapter in Doing
0 10 20 30 40 50 60 70 80 90 100 Business 2014 on research on the effects of
Distance to frontier score for trading business regulations.
across borders under old methodology

Source: Doing Business database.


Note: Both distance to frontier scores are based on data for 2014. The 45-degree line shows where the scores
under the old and new methodologies are equal. The correlation between the two scores is 0.56.

as measured by Doing Business. In the the trading across borders indicators, see
old case study, by contrast, Croatias the data notes. For an analysis of the data
export and import partners were outside for the indicators, see the case study on
the European Union, resulting in much trading across borders.
greater measures of the time and cost for
documentary and border compliance.
CHANGES UNDER
This years report also introduces two CONSIDERATION
other changes for the trading across
borders indicators. First, it is no longer The paying taxes indicators measure the
assumed that payment is made through taxes and mandatory contributions that
a letter of credit. And second, while data a medium-size company must pay in a
on the documents needed to export and given year as well as the administrative
import are still collected, these data are burden of paying taxes and contributions.
no longer included when calculating the The indicators now measure only the
ranking on the ease of trading across bor- administrative burden associated with
dersbecause for traders, what matters preparing, filing and paying three major
in the end is the time and cost to trade. types of taxes (profit taxes, consumption
taxes and labor taxes). But the postfiling
The time and cost for documentary and processinvolving tax audits, tax refunds
border compliance to export and import and tax appealscan also impose a
are part of the distance to frontier score substantial administrative burden on
and therefore affect the ease of doing firms. An expansion of the paying taxes
business ranking. The time and cost for indicator set to include measures of the
domestic transport to export and import postfiling process is under consideration
are not included in the distance to frontier for next years report.
score, though the data for these indica-
tors are published in this years report. For A new indicator would capture the
a fuller discussion of the methodology for process and time related to auditing tax
Doing Business 2016

Reforming the business


environment in 2014/15

E
Doing Business has recorded more than very year a growing number of Federation, for example, research found
2,600 regulatory reforms making it researchers provide new insights that streamlining licensing procedures
easier to do business since 2004. into the relationship between and reducing the number of state inspec-
In the year ending June 1, 2015, changes in domestic business regula- tions required for small businesses helped
122 economies implemented at least tion and important markers of economic these businesses increase annual sales in
one such reform in areas measured by prosperitysuch as the number of new regions with strong government institu-
Doing Business231 in total. businesses in an economy, the average tions.3 Simplifying licensing requirements
size of companies, the productivity of in these regions is associated with a 4.5
Among reforms to reduce the
those companies and average incomes percentage point increase in annual sales
complexity and cost of regulatory
processes, those in the area of starting
nationwide. growth, while reducing the number of
a business were the most common in state inspections per business led to a 12
2014/15, just as in the previous year. While there are many determinants of percentage point increase.
The next most common were reforms economic growth, there is mounting
in the areas of paying taxes, getting evidence that improving the regula- While there is clear evidence that stream-
electricity and registering property. tory environment for domestic small lining regulatory procedures can encour-
and medium-size businesses can make age business entry, business growth and
Among reforms to strengthen legal
a difference. Recent research shows rising incomes, it is just as important to
institutions in 2014/15, the largest
that moving from the lowest quartile of identify any obstacles that could prevent
number was recorded in the area of
getting credit and the smallest in the
improvement in business regulation to regulatory reform from delivering these
area of resolving insolvency. the highest one is associated with an benefits. Regulatory reform is only as
increase of around 0.8 percentage points effective as its implementation. Without
Members of the Organization for in an economys annual GDP per capita a robust and efficient judicial system,
the Harmonization of Business Law
growth rate.1 New research evidence entrepreneurs cannot trust that the rights
in Africa were particularly active: 14
also suggests that an important determi- and responsibilities articulated in new
of the 17 economies implemented
nant of firm entry is the ease of paying laws and regulations will be respected
business regulation reforms in the
taxes, regardless of the corporate tax in practice. Not surprisingly, researchers
past year29 in total. Twenty-four of
rate. A study of 118 economies over six have found that stronger legal systems
these reforms reduced the complexity
and cost of regulatory processes,
years found that a 10% reduction in the are positively correlated with greater
while the other five strengthened legal administrative burden of tax compliance creation, growth and productivity of
institutions. as measured by the number of tax pay- businesses.
ments per year and the time required to
Sub-Saharan Africa alone accounted
pay taxesled to a 3% increase in annual One way that a strong legal system
for about 30% of the regulatory
business entry rates.2 supports the creation and growth of busi-
reforms making it easier to do business
nesses is by improving contract enforce-
in 2014/15, followed closely by Europe
Clear regulations and simple bureaucratic ment. According to recent research in
and Central Asia.
processes are important in part because 38 European countries, legal systems
they mitigate risks for entrepreneurs, that resolve incoming cases quickly are
new and experienced alike. Research strongly correlated with confidence in
evidence shows that reforms intended to contract enforcement.4 Where contract
encourage new business entry also help enforcement is reliable, hiring new people
existing businesses grow. In the Russian or purchasing new equipment is less
Reforming the business environment in 2014/15 35

risky.5 In turn, acquiring new employees productive businessesand it is estimat-


and capital eases business entry and ed that the productivity gains associated WHO IMPROVED THE MOST
facilitates business growth. with moving from worst to best practice IN 2014/15?
in judicial quality would increase state
The importance of a robust legal system to GDP by as much as 8%. In the year from June 1, 2014, to June 1,
a thriving business environment is particu- 2015, Doing Business recorded 231 regula-
larly evident at the subnational level, where Of course, the judicial system is not the tory reforms making it easier to do business
varied implementation of national policies only public institution that can influ- with 122 economies implementing at
in different court jurisdictions can help ence the implementation of regulatory least one. About 71% of these reforms
identify the effect of regulatory reforms. reform for small businesses. In Russia, were aimed at reducing the complexity
For example, recent research in Spain found for example, evidence shows that regu- and cost of regulatory processes, while
that provinces with more efficient judicial latory reform to encourage business the rest were focused on strengthening
systems had larger firms as well as higher entry was most successful in regions legal institutions (table 4.1). This pattern,
rates of firm entry.6 In fact, if the least effi- with greater government transparency, similar to that in previous years, reflects
cient provincial court improved to the a more educated citizenry and greater the greater difficulty of implementing legal
level of the most efficient one, its province fiscal autonomy.9 In a region meeting reforms and the time required to change
would see a relative increase in firm size of these criteria, the probability of fully the way that legal institutions function.
0.62.8% and a relative increase in busi- implementing reforms was expected to
ness entry rate of 8.89.5%. be 8 percentage points higher, and the Sub-Saharan Africa alone accounted for
probability of meeting business entry about 30% of the regulatory reforms mak-
These findings are supported by similar targets 11 percentage points higher. ing it easier to do business in 2014/15,
research in other countries. One study Moreover, the share of new firms using followed closely by Europe and Central
focused on Italy, where resolving a illegitimate business licenses was Asia. Moreover, Europe and Central Asia
commercial dispute through the courts expected to be 52 percentage points had both the largest share of economies
in 2013 took an average of 1,210 days lower in a good-governance region. implementing at least one reform and
as measured by Doing Businessabout the largest average number of regulatory
three times as long as for a similar case Beyond high-quality government insti- reforms per economy, with 2.3 (figure 4.1).
in Germany or the United Kingdom.7 So it tutions, this body of research underlines Nine economies in the region imple-
is perhaps unsurprising that firms in Italy the importance of political will for the mented at least three reforms; Kazakhstan
are 40% smaller on average than those success of reform efforts. In Tanzania, accounted for the largest number, with
in other European countries. Research for example, the governments Property seven. Latin America and the Caribbean
found that halving the length of civil and Business Formalization Program and East Asia and the Pacific had the
proceedings in Italian courts would lead was a landmark initiative aimed at smallest shares of economies implement-
to an 812% increase in average firm size bringing street vendors into the formal ing regulatory reforms, and the OECD
in the municipalities affected. Conversely, business sector.10 Because of conflict- high-income group the smallest average
if the performance of the most efficient ing priorities, however, the program number of reforms per economy (only
municipal court declined to the level of was never implemented. Its future suc- 0.7). The Middle East and North Africa
the least efficient one, this would be likely cess will depend on renewed political was also among the regions with a small
to reduce the average firm size in that commitment. number of reforms per economy (1.1).
municipality by 23%. That said, Morocco and the United Arab
Research has revealed many potential Emirates each implemented four.
The relationship between judicial quality benefits of a business-friendly regulatory
and firm size has also been established in environment, including greater business The 10 economies showing the most
Mexico, where strong judicial systems are entry and stronger business growth notable improvement in performance on
correlated with greater firm size in terms and productivity. Studies have also the Doing Business indicators in 2014/15
of output, employment and fixed assets.8 underlined the institutional and political were Costa Rica, Uganda, Kenya, Cyprus,
Research shows that if the Mexican state obstacles that prevent promising regula- Mauritania, Uzbekistan, Kazakhstan,
with the worst judicial quality improved tory reforms from fully materializing. Jamaica, Senegal and Benin (table 4.2).
its performance to match that of the As researchers continue to probe the These countries together implemented 39
state with the best judicial quality, the relationship between regulatory reform business regulation reforms across 10 of the
average firm size in that state would and its outcomes, the Doing Business areas measured by Doing Business. Senegal
double. Perhaps unsurprisingly, Mexican indicators continue to contribute to this (with four reforms) and Benin (with three)
states with better courts also have more area of analysis. join the list of top improvers for the second
36 Doing Business 2016

Among the 10 top improvers, Costa Rica


Table 4.1 Reforms making it easier to do business in 2014/15 and in the past
made the biggest advance toward the reg-
five years
ulatory frontier, thanks to three business
Average annual Economy regulation reforms. The electricity utility in
Number of number of improving the
reforms in reforms in past most in area in Costa Rica made getting a new connection
Area of reform 2014/15 five years 2014/15 easier by reducing the time required for
Complexity and cost of regulatory processes preparing the design of the external con-
Starting a business 45 46 Myanmar nection works and for installing the meter
Dealing with construction permits 17 18 Serbia and starting the flow of electricity. In addi-
Getting electricity 22 14 Oman
tion, Costa Rica improved access to credit
by adopting a new secured transactions
Registering property 22 22 Saudi Arabia
law that establishes a functional secured
Paying taxes 40 33 Serbia
transactions system and a modern, cen-
Trading across borders 19 20 Armenia tralized, notice-based collateral registry.
Strength of legal institutions The law also broadens the range of assets
Getting creditlegal rights 10 11 Costa Rica that can be used as collateral, allows a
Getting creditcredit information 22 21 Kenya and Uganda general description of assets granted
as collateral and permits out-of-court
Protecting minority investors 14 16 Honduras
enforcement of collateral. Finally, Costa
Enforcing contracts 11 12 Italy
Rica made it easier to pay taxes by pro-
Resolving insolvency 9 16 Cyprus moting the use of its electronic filing and
Source: Doing Business database. payment system for corporate income tax
and general sales tax.
consecutive year. Senegal made starting a made property transfers less costly by
business easier by reducing the minimum lowering the property transfer tax. Senegal Overall, the 10 top improvers imple-
capital requirement. The electricity utility also made enforcing contracts easier, by mented the most regulatory reforms in
in Senegal made getting a new connection introducing a law that regulates judicial and the area of starting a business, followed
less time-consuming by streamlining the conventional voluntary mediation. Among by getting credit, getting electricity and
review of applications and the process for other changes, Benin made dealing with registering property. Among the five that
the final connection as well as by reducing construction permits less time-consuming are Sub-Saharan African economies, all
the time needed to obtain an excavation by establishing a one-stop shop and reduc- implemented reforms aimed at improving
permit. The utility also lowered the secu- ing the number of signatories required on company registration processes. Kenya
rity deposit required. In addition, Senegal building permits. reduced the time it takes to assess and
pay stamp duty. Mauritania eliminated
Figure 4.1 Europe and Central Asia had the largest share of economies making it the minimum capital requirement, while
easier to do business in 2014/15 Senegal lowered it. Uganda introduced
an online system for obtaining trading
Share of economies with at
least one reform making it Average number of licenses. Benin and Uganda both reduced
easier to do business (%) reforms per economy business incorporation fees.
100 5

These five Sub-Saharan African economies


80 4
also introduced changes in other areas.
60 3 Kenya made property transfers faster by
2.3 improving electronic document manage-
40 2 ment at the land registry and introducing
1.5
1.1 1.1 1.1 a unified form for registration. Kenya also
20 0.7 0.8 1
improved access to credit information, by
0 0
passing legislation that allows the sharing of
Europe & South Asia Sub-Saharan OECD Middle East & East Asia Latin America positive information and by expanding bor-
Central Asia Africa high income North Africa & Pacific & Caribbean
rower coverage. In Uganda the electricity
Share of economies with at least one reform Average number of reforms per economy utility reduced delays for new connections
by deploying additional customer service
Source: Doing Business database. engineers and reducing the time needed
Reforming the business environment in 2014/15 37

Table 4.2 The 10 economies improving the most across three or more areas measured by Doing Business in 2014/15
Reforms making it easier to do business
Ease of
doing Dealing with Protecting Trading
business Starting a construction Getting Registering Getting minority Paying across Enforcing Resolving
Economy rank business permits electricity property credit investors taxes borders contracts insolvency
Costa Rica 58
Uganda 122
Kenya 108
Cyprus 47
Mauritania 168
Uzbekistan 87
Kazakhstan 41
Jamaica 64
Senegal 153
Benin 158
Source: Doing Business database.
Note: Economies are selected on the basis of the number of their reforms and ranked on how much their distance to frontier score improved. First, Doing Business selects the economies
that implemented reforms making it easier to do business in 3 or more of the 10 areas included in this years aggregate distance to frontier score. Regulatory changes making it more
difficult to do business are subtracted from the number of those making it easier. Second, Doing Business ranks these economies on the increase in their distance to frontier score from the
previous year. The improvement in their score is calculated not by using the data published in 2014 but by using comparable data that capture data revisions and methodology changes.
The choice of the most improved economies is determined by the largest improvements in the distance to frontier score among those with at least three reforms.

for the inspection and meter installation. the debtors business during insolvency regulatory reform in the past year, they
By eliminating inefficiencies, the utilities in proceedings and allow creditors greater made the biggest advances toward the
Kenya and Senegal also reduced the time participation in important decisions dur- frontier in regulatory practice (figure 4.2).
required for getting new connections. ing the proceedings; and establishing a By contrast, among the three economies
public office responsible for the general worldwide that are closest to the frontier,
Besides Costa Rica, Jamaica is the only administration of insolvency proceedings. Singapore implemented no reforms
other economy in Latin America and the in 2014/15 in the areas measured by
Caribbean that made it to the list of 10 Three of the 10 top improvers reformed Doing Business while New Zealand and
top improvers. Jamaica made starting a their contract enforcement system. Denmark implemented one reform each.
business easier by launching an electronic Both Cyprus and Kazakhstan introduced Conversely, three other economies that
interface between the Companies Office fast-track simplified procedures for made substantial advances toward the
and the Tax Administration. It made small claims. In addition, Kazakhstan frontierMyanmar, Brunei Darussalam
dealing with construction permits easier streamlined the rules for enforcement and the Democratic Republic of Congo
by implementing a new workflow for proceedings. Three of the top improvers are not considered top improvers
processing building permit applications. implemented reforms aimed at improving because they implemented fewer than
Jamaica made paying taxes both easier their insolvency framework in 2014/15, three reforms making it easier to do busi-
and less costly by encouraging taxpayers up from only one in the previous year. ness, with two each.
to pay their taxes online, introducing an Mauritania and Benin are the only top
employment tax credit and increasing improvers that reformed their internation-
the depreciation rate for industrial build- al trade practices. Mauritania reduced the HIGHLIGHTS OF REFORMS
ings. At the same time, however, Jamaica time for documentary and border compli- REDUCING REGULATORY
also introduced a minimum business ance for importing, while Benin reduced COMPLEXITY AND COST
tax, raised the contribution rate for the the time for border compliance for both
national insurance scheme and increased exporting and importing by further devel- In 2014/15, 106 economies imple-
the rates for stamp duty, the property tax, oping its electronic single-window system. mented 165 reforms aimed at reducing
the property transfer tax and the educa- the complexity and cost of regulatory
tion tax. Finally, Jamaica made resolving Being recognized as top improvers does processes. Almost 30% of the reforms
insolvency easier by introducing a formal not mean that these 10 economies have were in Sub-Saharan Africa. Among the
reorganization procedure; introducing exemplary business regulation; instead, areas tracked by Doing Business indica-
provisions to facilitate the continuation of it shows that thanks to serious efforts in tors, starting a business accounted for
38 Doing Business 2016

Figure 4.2 How far have economies moved toward the frontier in regulatory practice since 2014?
Distance to frontier score

100 Regulatory frontier


Hong Kong SAR, China
New Zealand
Singapore

United Kingdom
Korea, Rep.

United States

Macedonia, FYR
Denmark

Taiwan, China

United Arab Emirates


Sweden
Norway
Finland

Germany
Australia

Slovak Republic
Canada

Malaysia

Lithuania
Estonia
Ireland

Netherlands

Czech Republic
Iceland

Austria

Switzerland
Portugal

Russian Federation
Georgia
Latvia

Mauritius
Poland

Slovenia
France

Kazakhstan

Montenegro
Armenia

Puerto Rico (U.S.)


Romania
Bulgaria
Japan
Spain

Mexico

Bosnia and Herzegovina


Hungary
Belgium
Croatia

Thailand
Belarus

Moldova

Colombia
Cyprus

Kyrgyz Republic
Luxembourg
Costa Rica
Italy

Chile

Mongolia
75

Azerbaijan
Peru

Brunei Darussalam

Trinidad and Tobago


Israel

Turkey

Dominican Republic
Rwanda

Jamaica
Greece
Serbia

South Africa
Bahrain
Kosovo

San Marino
Botswana

Saudi Arabia
Panama

Morocco

Guatemala
Bhutan
Qatar

El Salvador
Tunisia

St. Lucia
Oman

Uzbekistan
Ukraine
Tonga

Malta

Dominica
Vietnam
China

Uruguay

Vanuatu
Fiji
50

2015

2014

25
0

Source: Doing Business database.


Note: The distance to frontier score shows how far on average an economy is at a point in time from the best performance achieved by any economy on each Doing Business
indicator since 2005 or the third year in which data for the indicator were collected. The measure is normalized to range from 0 to 100, with 100 representing the frontier. The
vertical bars show the change in the distance to frontier score from 2014 to 2015; for more details, see the note to table 1.1 in the overview. The 25 economies improving the
most are highlighted in red.

the largest number of these reforms, recorded by Doing Business, is the most to do businesssuch as Azerbaijan;
followed by paying taxes, getting elec- likely to be paired with other areas. For Hong Kong SAR, China; and Kazakhstan.
tricity and registering property. The few- example, more than half the economies And still others considerably reduced
est were in trading across borders and with a reform in the area of dealing with the time required to register a company,
dealing with construction permits. The construction permits also had a reform in including the former Yugoslav Republic of
reforms in all these areas allow entre- the area of starting a business. So did more Macedonia, Mongolia and Sweden.
preneurs to save on the time and cost than half the economies that had a reform
of regulatory complianceand these in the area of getting electricity. And more Myanmar made the biggest improve-
time and cost savings translate directly than a third of economies that reformed ment in the ease of starting a business
into greater profitability for private busi- in the area of registering property also in 2014/15. Besides eliminating its mini-
nesses and greater fiscal productivity for reformed their company start-up process. mum capital requirement,it also lowered
governments. incorporation fees and abolished the
Streamlining business requirement to have separate temporary
Moreover, economies that implemented incorporation and permanent certificates of incorpora-
reforms reducing the complexity and Economies across all regions continue to tion. FYR Macedonia, another economy
cost of regulatory processes in one area streamline the formalities for registering a that notably improved the ease of start-
measured by Doing Business were also business. In 2014/15, 45 economies made ing a business, established an electronic
likely to do so in at least one other. Indeed, starting a business easier by reducing the one-stop shop for registering all new
more than 40% of these economies had procedures, time or cost associated with firms. The registration is done entirely on
reforms reducing regulatory complexity the process. Some reduced or eliminated an electronic platform through a certified
and cost in at least two areas, and more the minimum capital requirement government agent, who is authorized to
than 20% had such reforms in at least including Gabon, Guinea, Kuwait, prepare an application, draft and review
three areas. Starting a business, as the Mauritania, Myanmar, Niger and Senegal. company deeds, and convert paper docu-
area with the largest number of reforms Others stopped requiring a company seal ments into a digital format. Once all the
Reforming the business environment in 2014/15 39

St. Vincent and the Grenadines


Antigua and Barbuda
Albania

Iran, Islamic Rep.


Solomon Islands
Bahamas, The
Seychelles

West Bank and Gaza


St. Kitts and Nevis
Paraguay

Philippines
Samoa

Namibia
Zambia

Swaziland

Sri Lanka
Kuwait

Egypt, Arab Rep.


Nepal

Indonesia
Honduras

Argentina
Ecuador

Barbados
Lesotho

Cabo Verde
Kenya

Papua New Guinea

Micronesia, Fed. Sts.


Jordan
Ghana

Nicaragua

Mozambique
Brazil

Cambodia

Marshall Islands
Uganda
Lebanon

Maldives
Belize

Tajikistan

Lao PDR

So Tom and Prncipe


Burkina Faso
Cte dIvoire
Grenada
India

Sierra Leone
Tanzania
Pakistan
Guyana
Palau

Gambia, The
Malawi

Syrian Arab Republic


Ethiopia

Zimbabwe
Kiribati

Burundi
Mali

Comoros
Senegal

Suriname

Madagascar
Togo

Yemen, Rep.
Bolivia

Mauritania
Myanmar

Timor-Leste

Central African Republic


Equatorial Guinea
Benin
Sudan

Cameroon
Algeria

Bangladesh
Gabon

Guinea
Niger

Nigeria

Congo, Rep.

Guinea-Bissau

Congo, Dem. Rep.


Djibouti
Iraq

Afghanistan

Liberia

Venezuela, RB
Angola
Haiti

South Sudan
Chad

Libya
Eritrea
information is prepared, the agent digital- the capital required (figure 4.3). The take time to change (for more on this, see
ly signs the forms and submits the entire Democratic Republic of Congo reduced the case study on starting a business).
registration packet to the Central Register its minimum capital requirement from
on behalf of the company founders. The 500% of income per capita in 2014 Consolidating procedures for
new process eliminated the requirement to 11%and Burkina Faso reduced its building permits
for notary services to register a business, requirement from 308% of income per In 2014/15, 17 economies reformed
thereby reducing the number of proce- capita to 29%. their construction permitting process.
dures, time and cost required for start-up. Several of them streamlined internal
FYR Macedonia now ranks number two OHADA also recommends that national review processes for building permit
on the ease of starting a business, after governments eliminate the requirement applications, making them faster and
New Zealand. for the use of notary services in company more efficient. Benin created a one-stop
registration. The majority of member shop for building permits that began
In recent years substantial regulatory states have followed this recommenda- operating in January 2015 and reduced
reform efforts have been undertaken by tion, allowing companies to register at a the number of signatories required on
the 17 member states of the Organization one-stop shop either online or in person building permits from five to two. Sri
for the Harmonization of Business Law without resorting to the use of notary Lanka created a working group of differ-
in Africa, known by its French acronym services. But many entrepreneurs in ent agencies involved in issuing building
OHADA (box 4.1). Among other things, OHADA economies still prefer to solicit permits so that applicants no longer need
the organization has encouraged mem- notary services both out of habit and to to obtain approvals from them separately.
ber states to reduce their minimum capi- ensure that the registration process runs The United Arab Emirates combined civil
tal requirements. Four member states smoothly. As experience in other econo- defense approvals with the building per-
passed national legislation to this effect mies shows, the practice of using notary mit application process.
in 2013/14. Seven did so in 2014/15, services can be deeply rooted in the
resulting in substantial reductions in start-up process and business habits can
40 Doing Business 2016

BOX 4.1OHADA members continue to systematically improve their business environment


OHADA is a supranational entity that governs certain aspects of doing business in 17 West and Central African countries.a
Member states voluntarily sacrifice some sovereign authority in order to establish a homogeneous cross-border regulatory
regime for business. The aim is to promote investment in West and Central Africa, particularly foreign investment.b

Efforts by OHADA member states to streamline and standardize regulatory processes have helped make it easier to do business.
In 2014/15 Doing Business recorded business regulation reforms in 14 of the 17 OHADA member states29 in total. Twenty-four
of these reforms reduced the complexity and cost of regulatory processes, while the other five strengthened legal institutions.
Only Cameroon, the Central African Republic and Equatorial Guinea did not reform in any of the areas measured by Doing
Business in the past year.

Nearly a third of the business regulation reforms implemented by OHADA members in 2014/15 made it easier for entrepreneurs
to start a business. Seven OHADA members reduced their minimum capital requirementBurkina Faso, the Comoros, the
Democratic Republic of Congo, Gabon, Guinea, Niger and Senegal. Benin made starting a business less costly by reducing the
fees to file company documents at its one-stop shop. Togo reduced the fees to register with the tax authority.
At the same time, six OHADA members implemented reforms making it less costly to register a property transfer. Chad, the
Republic of Congo, Cte dIvoire, Gabon and Senegal lowered their property transfer tax rates. Guinea-Bissau lowered its proper-
ty registration tax. Three other OHADA members implemented reforms making it easier to deal with construction permits. Benin
established a one-stop shop and reduced the number of signatories required for a building permit. The Democratic Republic of
Congo halved the cost of the permit itself. Niger reduced the time required to obtain a water connection for a business.

These ongoing efforts have paid off. Since 2006 OHADA members have reduced the time to start a business by more than 60%
on average, the time to register property by 25% and the time to deal with construction permits by 26% (see figure). The overall
time to start a business, register property and deal with construction permits has fallen by 31% on average, and the overall cost
by 68%.
OHADA members have made big improvements in the average efficiency of some regulatory processes since 2006

67 93 231
days

days

days

26 70 172

Reduced the time it takes to Reduced the time it takes to Reduced the time it takes to
start a business by register property by deal with construction permits by
61% 25% 26%
Source: Doing Business database.
Other regulatory reforms implemented in OHADA members in 2014/15 made it easier to get electricity or trade across borders.
The utility in Senegal made getting an electricity connection easier by reducing the time needed to obtain an excavation permit.
The utility in Togo streamlined the process for getting a new connection through several initiativesincluding by establishing
a single window where customers can pay all fees at onceand also reduced the size of the security deposit required. Cte
dIvoire made it easier to trade across borders by streamlining the documentation required for certain imports.

Among the reforms aimed at strengthening legal institutions in 2014/15, Mali and Niger improved access to credit information
by formalizing the licensing process and role for domestic credit bureaus. Cte dIvoire and Senegal made contract enforcement
more efficient by introducing laws regulating judicial and conventional voluntary mediation.

Reforming legal institutions is not an easy undertaking and commonly takes years to yield noticeable results. But improving the
quality, efficiency and reliability of courts and legal frameworks in the OHADA member states would boost investor confidence
and thus help to accelerate growth and development.
a. The 17 members of OHADA are Benin, Burkina Faso, Cameroon, the Central African Republic, Chad, the Comoros, the Democratic Republic of Congo, the Republic of
Congo, Cte dIvoire, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, Senegal and Togo.
b. Dickerson 2005.
Reforming the business environment in 2014/15 41

Making access to electricity


Figure 4.3 Seven OHADA member states reduced their minimum capital requirement
in 2014/15 faster and more efficient
Doing Business recorded 22 reforms
Minimum capital requirement
making it easier to get electricity in
(% of income per capita)
500 2014/15. Most of the reforms reduced
the number of days required to complete
400 a certain procedure, including those in
Botswana; Cyprus; Taiwan, China; Togo;
300
and Vietnam. Togo undertook a range
of initiatives to expedite new electricity
200
connections (figure 4.5). Among other
100 changes, its electricity utility, Compagnie
Energie Electrique du Togo (CEET),
0 established a single window to process
Congo, Niger Guinea Burkina Faso Comoros Gabon Senegal
Dem. Rep. applications for commercial customers.
2014 2015 This new system fast-tracked document
processing, substantially reducing the
Source: Doing Business database.
number of days required to get an elec-
tricity connection.
Azerbaijan was among those making the one-stop shop, seven procedures were
biggest improvements in the ease of deal- consolidated into one (figure 4.4). To further reduce the time needed to get
ing with construction permits. The country a new connection, Togo introduced legal
initiated a series of changes in January Technical experts at the one-stop shop time requirements that CEET must meet
2013, when its new Urban Planning and have 30 days to examine all the appli- when processing new applications and
Construction Code came into effect. The cation materials for a building permit. providing connection estimates. To meet
new construction code consolidated pre- An application is normally reviewed the time objectives, the utility company
vious construction legislation, streamlined within 20 days. If the review turns up any hired more engineers in 2014/15. It also
procedures related to the issuance of shortcomings, the applicant is contacted improved communication with custom-
building permits and established official directly to make any necessary changes ers. For example, the utility began to pub-
time limits for certain procedures. A within 10 days. Otherwise, the building lish information online and to distribute
decree adopted in November 2014 result- permit is issued within three months. pamphlets outlining all the requirements
ed in the creation of a one-stop shop for for applying for a new connection. As a
building permits, housed at the Ministry of result, the number of incomplete and
Emergency Situations. unprocessed applications has decreased.

Before the creation of the one-stop


shop, applicants for a building permit Figure 4.4 Azerbaijans one-stop shop combined seven procedures into a single step

{
in Azerbaijan had to obtain technical in 2014/15
approval for designs from six separate
agencies.11 Now they can obtain all the Architecture and city
building approval
preapprovals required through a single
Fire safety clearance
interaction at the Ministry of Emergency
Baku City 2. Submission Sanitation and
Situations. Representatives of different Executive of request epidemiology clearance
Authority Ministry of
agencies are located at the ministry and Emergency Water and sewerage
Situations clearance
able to issue all the required clearances, one-stop shop
including ecology, sanitation and epide- Ecology and natural
3. Permit resources approval
miology, and fire and seismic safety. In
Construction safety expert
addition, the newly streamlined process ! opinion
eliminated the requirement to register 1. Preapproval Project registration with
the approved project documentation construction safety agency

with the State Supervision Agency for


Construction Safety. As a result of the
Source: Doing Business database.
42 Doing Business 2016

In Cambodia and Oman changes were


Figure 4.5 Togo reduced the time required to obtain an electricity connection by a
made to improve the reliability of power
third
supply. In January 2015 the utility in Oman
began recording the duration and frequen-
Time to get electricity (days)
cy of outages to compute the annual sys-
80
tem average interruption duration index
70
(SAIDI) and system average interruption
60
Procedure 4
frequency index (SAIFI).12 This enabled
50 eliminated and total the utility to analyze outage data, identify
time cut from
40
74 days to 51
and eliminate inefficiencies and accurately
30 assess the impact of these initiatives on
20 the distribution network.
10
0
Integrating property
Submit application,
await estimate and sign
Receive external
inspection by CEET
Receive external
connection works by CEET,
Receive meter
installation, final
registration systems
contract with CEET meter installation, final connection and flow of Twenty-two economies made register-
connection and flow of electricity (2014)
electricity (2015) ing a property transfer easier in 2014/15.
The most common improvements
Procedures
included reducing property transfer
2014 2015
taxes, combining or eliminating registra-
Source: Doing Business database.
tion procedures, integrating electronic
platforms, introducing expedited pro-
cedures and making general gains in
In addition, regulatory changes have devices, thereby eliminating redundant administrative efficiency.
reduced the number of interactions inspections. The utility in Senegal, by
required between CEET and its custom- hiring more personnel, reduced the Kazakhstan and Bhutan were among
ers when they apply for an electric- time needed to review applications and the economies that made the biggest
ity connection. Customers can now pay issue technical studies. improvements in the ease of registering
connection fees, security deposits and property in 2014/15. In December 2014
subscription contract fees all at once. In Another common feature of electricity Kazakhstan eliminated the need to obtain
addition, the external connection works reforms in the past year was improve- an updated technical passport for a prop-
and meter installation can now be com- ment in the efficiency of distribution erty transfer as well as the requirement to
pleted through a single interaction with utilities internal processes. For example, get the sellers and buyers incorporation
the utility. in December 2014 the utility in Botswana documents notarized. These measures
began to enforce service delivery time- eliminated one procedure and reduced
Elsewhere, utilities in India and Russia lines for its customer services team, the time required for a property transfer
reduced the time required to obtain an leading to a reduction in the time required by 6.5 days (figure 4.6).
electricity connection by eliminating to connect to electricity from 121 days to
redundant inspections, while utilities 77. The utility also started to maintain Bhutan launched an online land trans-
in such countries as Senegal undertook a readily available stock of distribution action system, E-Saktor, in 2014. The
commitments to process new applica- transformers. By eliminating the need new system connects the databases
tions more quickly. The utility in Delhi to wait for transformers imported from of the Thimphu Municipality and the
eliminated an inspection of internal overseas, this led to a further reduction in National Land Commission. This has
wiring by the Electrical Inspectorate, the time required. helped streamline internal procedures by
cutting out the need for additional allowing users to check information on
customer interactions with other agen- Other economies made getting an property boundaries and ownership. In
cies. Now the utility is the only agency electricity connection easier by eliminat- addition, the system allows land transac-
certifying the safety standards of the ing redundant approval requirements. tions to be submitted electronically to the
internal works. In Russia utility com- Myanmar substantially reduced the time National Land Commission for approval.
panies in Moscow and St. Petersburg for getting a new connection in Yangon Landowners can use the online platform
signed cooperation agreements with by eliminating the need for the Ministry to see whether all transactions related
electricity providers and became of Electric Power to issue national-level to their land are carried out in accor-
the sole agencies checking metering approvals for each connection request. dance with legal requirements. Thanks
Reforming the business environment in 2014/15 43

taxpayers to retrieve previous years


Figure 4.6 Kazakhstan made registering a property transfer faster and easier
VAT forms electronically and use them
Time to register property (days) to automatically populate some of the
14 fields in the current years forms. In
12
addition, Spain extended and promoted
One procedure the use of electronic invoicing beginning
10 eliminated, and
total time reduced in January 2013,13 though the majority
8 by 6.5 days of companies started using electronic
6 invoices only in fiscal 2014. Altogether,
these initiatives have made it easier to
4
comply with VAT obligations and file
2
VAT returns.
0
Obtain technical Obtain Get sale-purchase Register title at
passport for the property nonencumbrance agreement notarized the Registration In line with its intention to reduce the tax
certificate Service Committee
burden on domestic enterprises, Spain
Procedures reduced the corporate income tax rate
2014 2015 for new companies incorporated on or
after January 1, 2013.14 Subsequently,
Source: Doing Business database.
it reduced the effective rate for capital
gains tax from 24% to 8%. Spain also
to improved communication between and tax arrears. The adoption of the reduced the environmental tax rate in
the municipality and the National Land new form eliminated the requirement to 2014. These changes to the corporate tax
Commission, the land registry was able obtain three separate nonencumbrance regime reduced the total tax rate (figure
to enhance its services and reduce the certificates. 4.7). At the same time, however, other
time required to transfer property by 15 measures limited the deductibility of
days. Introducing electronic filing for certain expenses to broaden the tax base
tax compliance for corporate income tax.
Among regions, Sub-Saharan Africa Spain was among the economies
accounted for the most reforms relating that made the greatest advances in The most common feature of reforms
to the transfer of property in 2014/15. For tax payment systems in 2014/15. It in the area of paying taxes over the
example, Nigeria reduced the consent fee implemented a comprehensive tax past year was the implementation
and stamp duty paid during a property reform program in 2014 aimed at sup- or enhancement of electronic filing
transfer. Cabo Verde, Chad, the Republic porting entrepreneurs and encouraging and payment systems. Besides Spain,
of Congo, Cte dIvoire, Gabon, Guinea- investment. The objective was both to 17 other economies introduced or
Bissau, Madagascar and Senegal made streamline and simplify tax compliance enhanced systems for filing and paying
property transfers less costly by lowering and to reduce the effective tax burden taxes online (see table 4A.1 at the end of
property transfer taxes. on businesses. In the same year Spain this chapter). Taxpayers in these econo-
launched Cl@ve, an integrated online mies now file tax returns electronically,
Six economies in Europe and Central Asia platform for the entire public adminis- spending less time to prepare, file and
simplified property transfers by eliminat- trative sector. The new system made pay taxes. Beyond saving businesses
ing unnecessary procedures and reducing accessing electronic services provided time, electronic filing also helps prevent
the time required to complete separate by public agencies substantially easier. human errors in returns. And by increas-
registration formalities. For example, ing transparency, electronic filing limits
Belarus and Russia introduced effective Among other things, the new system opportunities for corruption and bribery.
time limits for the state registration of a introduced a new way of submitting tax
property transfer. Latvia introduced a new returns online and retrieving historical Four economiesThe Gambia; Hong
application form for the state registration, data electronically. It also provides Kong SAR, China; Maldives; and
eliminating the requirement to submit a individualized information on tax Vietnamtook other measures to sim-
statement of the buyers shareholders procedures. In addition, in 2014 Spain plify compliance with tax obligations.
as a separate document. Uzbekistan simplified compliance with value added For example, The Gambia improved its
introduced a new form for property tax (VAT) obligations by introducing a bookkeeping system for VAT accounts to
records, which incorporated informa- single electronic form within the Cl@ve better track the input and output records
tion on all encumbrances, restrictions system. The new system also enables required for filing VAT returns.
44 Doing Business 2016

in both So Paulo and Rio de Janeiro in


Figure 4.7 Spain has made complying with tax obligations easier for companies
2014/15. The Bureau of Foreign Trade and
Payments (number per year) Secretariat of the Federal Revenue began
Total tax rate (% of profit) Time (hours per year)
implementing the electronic system in
70 350 April 2014 to link customs, tax and admin-
60 300 istrative agencies involved in exporting. The
50 250 system now allows exporters to submit
declarations and other related documents
40 200
electronically rather than in hard copy.
30 150
Although hard copies are still accepted
20 100 during this first year of the program, most
10 50 exporters have completely converted to the
0 0
new electronic system.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Payments Total tax rate Time Yet the full potential of digitization and
Source: Doing Business database. electronic data interchange systems is not
realized immediately. Implementing the
systems takes time and involves changes
Other economies directed efforts at In most economies where the authorities in operational practices, in training and,
reducing the financial burden of taxes on have opted to reduce the tax burden on in some cases, in the work habits of
businesses and keeping tax rates at a rea- the business community, they have also staff. Benin successfully implemented an
sonable level to encourage development attempted to broaden the tax base and electronic single-window system in 2012.
of the private sector and formalization of protect government revenue. In a few cases In the past year, however, it consider-
businesses. This is particularly important in recent years, particularly in economies ably expanded the digitization of trade
for small and medium-size enterprises, where tax rates are very high, the motiva- procedures for both exports and imports
which contribute to growth and job cre- tion has been more closely linked to reduc- through the single window. The customs
ation but do not add significantly to tax ing distortions, such as high levels of tax authority is now required to accept only
revenue.15 Seventeen economies reduced evasion or a sizable informal sector. electronic supporting documents for
profit tax rates in fiscal 2014. Norway the single invoice and other documents
reduced the corporate income tax rate Unleashing international trade submitted before the customs declaration.
from 28% to 27%. Portugal made paying In the area of trading across borders, the This resulted in a substantial reduction of
taxes less costly by both lowering the reforms recorded by Doing Business in time for customs proceduresthree years
corporate income tax rate and increasing 2014/15 span a wide rangefrom build- after the launch of the online platform.
the allowable amount of the loss carried ing or improving hard or soft infrastruc-
forward. Brunei Darussalam, Greece, ture for trade to joining customs unions, Tunisia also improved international trade
Jamaica, Mozambique, the Slovak digitizing documentation and introducing practices in the past year. The country facil-
Republic and Vietnam also reduced the risk-based inspection systems. These itated trade through the port of Rades by
effective financial burden of profit taxes varied endeavors highlight the complex- increasing the efficiency of its state-owned
on companies by introducing changes to ity of international trade. They also speak port handling company and by invest-
tax depreciation rules or deductions. to changes introduced this year in the ing in port infrastructure. One important
methodology used to measure the time structural improvement at the port was the
The Bahamas, Greece, Malaysia, Russia and cost for trading across borders. extension of the dock to increase terminal
and Spain reduced taxes other than profit Under the new methodology Doing capacity. The improvements in hard and
and labor taxes. Malaysia reduced the Business also considers trade over land soft infrastructure at the port reduced
property tax rate from 12% to 10% of the between neighboring economies, adding border compliance time for both exporting
annual rental value for commercial prop- a new feature of reform: regional trade and importing, saving traders in Tunisia 48
erties for 2014. Greece made insurance facilitation agreements. hours per shipment (figure 4.8).
premiums fully tax deductible in addition
to reducing property tax rates. Finally, Brazil is among the economies investing in Guatemala and Tanzania are among econ-
some economies eliminated smaller taxes. electronic systems to facilitate trade. An omies that improved soft infrastructure for
Mexico abolished the business flat tax, and online platform has minimized bureaucracy trade by allowing electronic submission
Kosovo abandoned the practice of levying and streamlined transactions, reducing and processing of documents as well as
an annual business license fee. customs clearance time for exporters by using online platforms for the exchange
Reforming the business environment in 2014/15 45

unified, online collateral registry. This kind


Figure 4.8 Port improvements cut 48 hours from the time for importing auto parts
of reform makes it easier for creditors to
from Paris to Tunis
provide loans to small and medium-size
2014 enterprises that lack real estate and can
provide only movable assets as collateral.
Customs clearance
As a result of recent reforms, pledges over
Handling and inspections and inspections movable assets in Costa Rica, El Salvador
Paris at the port of Rades Tunis
Domestic transport: 2 hours, $104 and Hong Kong SAR, China, can now be
registered online by the contracting par-
Border compliance: 128 hours, $596 ties or their representatives. In Costa Rica
and El Salvador rights created under finan-
Documentary compliance: 27 hours, $144
cial leases, factoring agreements and sales
2015 with retention of title are also documented
in this registry.

Customs clearance In Madagascar a new law broadened


Handling and inspections and inspections
Paris at the port of Rades Tunis the range of assets that can be used as
Domestic transport: 2 hours, $104
collateral by including future assets. The
Border compliance: 80 hours, $596 new law also allows a general descrip-
tion of assets granted as collateral as
Documentary compliance: 27 hours, $144 well as a general description of debts
and obligations. Mexico and Russia also
Source: Doing Business database. introduced new legislation allowing a
general description of assets granted as
of information between agencies involved amounting to 66 reforms in total. The larg- collateral.
in international trade. On February 2014 est number of reforms was recorded in the
Guatemala launched the Customs with- area of getting credit. Of the 32 reforms Costa Rica improved the legal rights of
out Paper program to promote the elec- in this area, 14 were implemented in Sub- borrowers and lenders the most in the
tronic submission of customs documents Saharan Africa. About 64% of the reforms past year. Public officials developed a
through a web portal and to eliminate the in the area of enforcing contracts were sound legal framework to support the
submission of hard copies. Online submis- implemented in Europe and Central Asia, implementation of a modern secured
sion of customs declarations for exports along with 4 of the 9 reforms in the area transactions system. Thanks to a new law
and imports has been compulsory for of resolving insolvency. No insolvency on movable property guarantees, all types
Guatemalan traders since January 2015. reforms were recorded in the Middle East of movable assets, present and future,
The program was rolled out gradually: and North Africa or South Asia in 2014/15. may now be used as collateral to secure
it started at the Puerto Barrios customs Finally, 14 reforms were implemented in a loan.16 The law also regulates functional
office in March 2014 and was fully imple- the area of protecting minority investors. equivalents to more traditional securities,
mented in all customs offices by July 2015. such as assignments of receivables and
Tanzania implemented an online system By contrast with the reforms reducing the sales with retention of title. In addition, it
for processing trade-related documents complexity and cost of regulatory process- allows out-of-court enforcement of col-
in July 2014. The Tanzania Customs es, those strengthening legal institutions lateral, through both public auction and
Integrated System (TANCIS) links several reflect no clear pattern of pairing. Only 9 private sale (table 4.3). This means that if
agencies, eliminating the need for traders of the 53 economies that strengthened a debtor should default, a secured creditor
to visit these agencies in person. legal institutions in one area measured by can now recover the unpaid loan without
Doing Business also did so in another. going to court. The creditor can do so
through any type of asset sale, rather than
HIGHLIGHTS OF REFORMS Strengthening frameworks for being restricted to cumbersome public
STRENGTHENING LEGAL secured transactions auctions. Similar legislative changes were
INSTITUTIONS Ten economies reformed secured transac- adopted by El Salvador. By approving their
tions legislation or strengthened credi- new laws, Costa Rica and El Salvador
In 2014/15, 53 economies implemented tors rights in bankruptcy procedures in joined Colombia, Honduras and Jamaica
reforms aimed at strengthening legal insti- 2014/15. Most of these reforms were as pioneers of the modern secured
tutions and streamlining legal frameworks, aimed at developing a geographically
46 Doing Business 2016

them by adopting regulations enabling


Table 4.3 Costa Ricas previous and new legal frameworks for secured transactions
the creation of new credit bureaus. Latvia
Previous framework New framework adopted a credit bureau law with the aim
Is there a functional secured transactions system? of promoting responsible borrowing and
No. Yes. lending while protecting the rights of bor-
Is the collateral registry unified or centralized geographically for the entire economy? rowers. The law sets out a legal frame-
work for establishing, organizing and
No. Yes.
supervising credit information bureaus.
Is the collateral registry notice-based?
Namibia improved access to credit
No. Yes.
information by legally guaranteeing bor-
Does the registry have a modern online system (such as for registrations and amendments)? rowers right to inspect their own data.
No. Yes. Peru fully implemented its new law on
Can security rights in future assets be described in general terms? personal data protection, which requires
No, detailed description of the Yes, general description allowed by law. stronger safeguards in the administration
assets required by law. of borrowers personal data.
Can security rights in a combined category of assets be described in general terms?
No, detailed description of the Yes, general description allowed by law. Two member states of the Central Bank
assets required by law. of West African States (BCEAO), Mali
Can security rights in a single category of assets be described in general terms? and Niger, adopted the Uniform Law
No, detailed description of the Yes, general description allowed by law. on the Regulation of Credit Information
assets required by law. Bureausjoining Cte dIvoire and
Can parties agree to enforce the security rights out of court? Senegal, which did so in 2013/14. In addi-
No, out-of-court enforcement Yes, out-of-court enforcement tion, in January 2015 BCEAO selected
not permissible by law. of the collateral allowed. the joint venture Creditinfo VoLo as the
Source: Doing Business database. accredited company to operate the new
credit information bureau in the member
transactions system in the Southern Similarly, the credit bureau or registry in countries. The bureau is expected to be
Hemisphere. the Lao Peoples Democratic Republic, fully operational very soon.
Mauritania, Rwanda, Uganda and
Costa Rica also launched a centralized, Vietnam expanded coverage to at least Sub-Saharan Africa was the region with
web-based collateral registry in May 5% of the adult population. the largest number of reforms focused
2015. The registry allows online access on improving the availability of credit
to register movable collateral as well Afghanistan, the Comoros, Guyana, information. In Rwanda, Zambia and
as to modify, update or cancel existing Lesotho and the Seychelles all estab- Zimbabwe credit scoring was introduced
registrations. It also allows the general lished a new credit bureau or registry as a value added service to banks and
public to conduct online searches, thus in 2014/15. Afghanistans central bank other financial institutions, supporting
promoting transparency in secured lend- launched the countrys first credit reg- their ability to assess the creditworthi-
ing by alerting third parties to existing istry, which banks can consult before ness of potential borrowers.
rights in assets. issuing new loans. The new registry in the
Comoros began distributing information Elsewhere, credit bureaus in Cyprus and
Advancing credit information on bank loans and outstanding payments the Kyrgyz Republic began distribut-
systems in November 2014. The new credit ing both positive and negative credit
Twenty-two economies implemented bureaus in Guyana and Lesothothe first information on borrowersand the one
reforms improving their credit informa- for both countriesstarted full opera- in Cyprus began reporting five years of
tion system in 2014/15. Kenya and tions in May 2015. The new registry in credit history on both borrowers and
Uganda made the largest improvement the Seychelles facilitates the exchange guarantors to banks and other financial
in credit reporting by expanding borrower of credit information by distributing both institutions. In Mongolia the credit reg-
coverage. The credit reference bureau in positive and negative data on firms and istry started distributing credit data from
Kenya started to collect positive credit individuals and by providing online access retailers and utility companies. Lao PDR
information in addition to negative credit for banks and other financial institutions. began requiring loans of all sizes to be
information in 2014 and expanded its included in the credit registrys database.
borrower coverage to 14.8% of the Five economies improved their regulatory
adult population as of January 2015. framework for credit reporting, three of
Reforming the business environment in 2014/15 47

Protecting rights of minority


Figure 4.9 Honduras strengthened minority investor protections in 2014/15 for the
shareholders first time in more than 10 years
Honduras made the most noteworthy
Index score
improvement in minority investor protec-
(010)
tions in 2014/15. Five years ago sev-
10
eral pieces of legislation in Honduras were
quite old; some had not been updated 8
since 1948.17 The June 2014 Law for the
Creation of Jobs, Fostering of Private 6
Initiative, Formalization of Businesses
4
and Protection of Investor Rights there-
fore marked an important milestone in 2
reforming the business environment in
0
Honduras. The 2014 law, which amends 0
Extent of Extent of Ease of Extent of Extent of Extent of
several articles of the Honduran Code disclosure index director shareholder shareholder ownership corporate
of Commerce, directly addresses the liability index suits index rights index and control transparency
index index
approval of related-party transactions,
2014 2015
shareholders right to initiate an action
and sue directors, and their right to inspect Source: Doing Business database.
certain internal company documents
before initiating any formal legal action. corporate decisionsfor example, requir- in the previous year, the implementation of
ing shareholders approval for major sales electronic filing was a common feature of
The new law introduces several other of company assets. Lithuania adopted the reforms. Two economiesGeorgia and
improvements in minority investor pro- amendments to its Stock Company Law Italymade their courts more efficient by
tections. It stipulates that transac- that prohibit subsidiaries from acquiring introducing electronic systems. As a result,
tions representing more than 5% of a and owning shares issued by their par- litigants can now file initial complaints elec-
companys assets must be authorized ent company, resulting in greater clarity tronically. Besides expediting the filing and
by its shareholders and that interested of ownership and interests. Kazakhstan service process, electronic filing systems
directors must abstain from voting in this introduced amendments to its Joint in courts also increase transparency, limit
case. It also prohibits shareholders who Stock Company law requiring disclosure opportunities for corruption and prevent
have a self-interest contrary to that of the of information about transactions with the loss, destruction or concealment of
company from voting on related resolu- related parties within 72 hours. court records.
tions. In addition, the new law allows the
court to declare a transaction involving Elsewhere, Madagascar amended its Law Overall, however, the implementation of
a conflict of interest void if plaintiffs can on Commercial Companies to require alternative dispute resolution (ADR) mech-
show that the transaction resulted in directors with a conflict of interest to fully anisms was the most common feature of
a financial loss to the company and its disclose the nature of their interest to the reforms in contract enforcement in the past
shareholders.18 As a result of these and board of directors. Nigeria introduced new year. The availability of ADR creates a better
other amendments, Honduras improved rules requiring that related-party transac- environment for business.19 ADR processes
its score on all three indices measuring tions be subject to external review and to lower the direct and indirect costs that
the regulation of conflicts of interest approval by disinterested shareholders. businesses incur in enforcing contracts and
inside companies (figure 4.9). Rwanda updated its company law to resolving disputesand provide redress
allow holders of 10% of a companys more quickly and inexpensively than main-
Thirteen other economies also strength- share capital to call for an extraordinary stream court processes, especially where
ened minority investor protections in meeting of shareholders and to require cost is driven by formal procedures. ADR
2014/15. Among them, Albania intro- board members to disclose information can also improve the efficiency of court
duced a requirement for immediate dis- about their other directorships and their systems by reducing the backlog of disputes
closure of related-party transactions to primary employment. before the courts. Three economiesCte
the public. Spain adopted a law amend- dIvoire, Latvia and Senegalincreased the
ing its Capital Companies Act with the Introducing mechanisms of efficiency of their judiciary in 2014/15 by
aim of improving corporate governance. alternative dispute resolution introducing consolidated laws on specific
The amendment directly addresses Doing Business recorded 11 reforms making ADR mechanisms. These initiatives led to
shareholders rights and role in important it easier to enforce contracts in 2014/15. As higher scores on the new quality of judicial
48 Doing Business 2016

processes index for all three economies commercial arbitration or mediation in creditors. The filing of a proposal or of an
(figure 4.10). one source makes these mechanisms intent to submit a proposal automatically
more accessible, and increasing acces- puts on hold all other actions against the
Cte dIvoire has made reforms in the sibility may lead to broader use of ADR. debtor. Among other improvements,
judiciary a priority in recent years. By the new act follows international good
2012 Cte dIvoire had created special- Other reforms that improved the ease of practices on facilitating the continuous
ized commercial courts to deal with enforcing contracts in 2014/15 focused operation of debtors during insolvency
business disputes and appointed profes- on increasing access to justice and facili- proceedings. It also allows courts to
sional judges to work with lay judges. tating the resolution of small disputes. invalidate undervalued transactions con-
These measures reduced the time to Cyprus and Kazakhstan introduced cluded by debtors within a year before
resolve a dispute as measured by Doing simplified procedures to handle small insolvency proceedings are commenced,
Business from 770 days in 2011 to 585 claims, reducing backlog at the main permits the insolvency representative to
days in 2013. By mid-2014 Cte dIvoire trial court and contributing to procedural request new financing after the proceed-
had introduced further improvements by efficiency. These simplified procedures ings are commenced and grants priority
adopting a law regulating conventional provide a mechanism for quick and to claims of post-commencement credi-
and judicial mediation in both commer- inexpensive resolution of legal disputes tors. Adoption of the new act substan-
cial and civil cases. It also established involving small sums of money. Small tially improved Jamaicas score on the
several institutions to provide mediation claims courts and procedures usually use strength of insolvency framework index
services. informal hearings, simplified rules of evi- (table 4.4).
dence and more streamlined rules of civil
Latvia adopted a new law consolidat- procedure. They also typically allow the Most other insolvency reforms recorded
ing provisions that regulate arbitration. parties to represent themselves, keeping by Doing Business in 2014/15 also focused
Previously, arbitration had been regulated institutional litigators out of court. on introducing new reorganization
by a few provisions scattered across differ- procedures or improving the existing
ent legislative instruments and therefore Saving viable businesses reorganization framework. Chile and
was scarcely used. Latvia also adopted a through reorganization Cyprus introduced court-supervised
comprehensive new law on mediation. In 2014/15 Doing Business recorded reorganization procedures. Kazakhstan
The law introduces incentives for parties 9 reforms making it easier to resolve began allowing creditors to commence
to attempt mediation, including a partial insolvency. Caribbean economies con- reorganization proceedings, while
refund of state fees if mediation is suc- tinued to make remarkable progress. In Rwanda introduced protections for credi-
cessfully completed. Having all substan- the previous year Trinidad and Tobago tors who vote against a reorganization
tial and procedural provisions regulating and St. Kitts and Nevis had modern- plan. Romania introduced time limits on
ized their insolvency frameworks. In the reorganization process.
2014/15 Jamaica and St. Vincent and
Figure 4.10 ADR initiatives in three the Grenadines adopted new insol- Several insolvency reforms recorded in
countries helped improve their scores vency laws. A common feature of these 2014/15 were aimed at facilitating the
on the new quality of judicial processes continuation of the debtors business
reforms was the introduction of in-court
index
reorganization mechanisms as an alter- during insolvency proceedings. Cyprus
Quality of judicial processes native to liquidation, so that insolvent and Rwanda introduced provisions allow-
index (018)
companies can continue to operate. All ing the invalidation of preferential and
18
four economies have also updated their undervalued transactions concluded by
16
liquidation proceedings, bringing them the debtor before the commencement
14
into closer conformity with international of insolvency proceedings. Chile prohib-
12
good practices. ited the termination of contracts on the
10
grounds of insolvency.
8
6
The new Insolvency Act of Jamaica,
4
adopted in October 2014, serves as a The change in Chile came as part of a new
2
good illustration of the Caribbean reform insolvency law that took effect in October
0 agenda. The new act introduced the 2014. The new law streamlined all provisions
Cte Latvia Senegal
dIvoire option of reorganization for commercial related to reorganization and liquidation pro-
2014 2015 entities. A debtor or an insolvency ceedings, emphasizing the reorganization of
representative can present a reorganiza- viable businesses as a preferred alternative
Source: Doing Business database. tion proposal to all or only some of the to liquidation. Following international good
Reforming the business environment in 2014/15 49

wage regulation, labor arbitration, the


Table 4.4 Jamaicas previous and new legal frameworks for insolvency
calculation of overtime pay and grounds for
Previous framework New framework the termination of employment. It also lifted
Can a debtor initiate reorganization proceedings? prohibitions on concurrent employment.
No reorganization available. Yes. Italy adopted the Jobs Act in December
Do creditors vote on the reorganization plan? 2014, which provides an overarching
No reorganization available. Yes, and only creditors whose rights are
framework for changes in unemploy-
affected by the proposed plan vote on it. ment insurance, employment contracts,
How do creditors vote on the reorganization plan? and maternity and paternity leave. FYR
No reorganization available. Creditors are divided into classes Macedonia amended provisions governing
and the plan is approved by a simple social contributions, employment con-
majority of creditors in each class.
tracts, annual leave, overtime work, health
Can a debtor obtain credit after the commencement of insolvency proceedings? inspections and labor disputes.
No specific provisions. New financing after the commencement of
insolvency proceedings is available, and creditors
providing post-commencement finance are
granted priority over claims of existing creditors. NOTES
Can a court invalidate undervalued transactions concluded before insolvency?
1. Divanbeigi and Ramalho 2015.
No specific provisions. Yes. 2. Braunerhjelm and Eklund 2014.
Source: Doing Business database. 3. Yakovlev and Zhuravskaya 2013.
4. Ippoliti, Melcarne and Ramello 2014.
5. Dougherty 2014.
6. Garcia-Posada and Mora-Sanguinetti 2015.
practices, the new law improved creditors prohibited fixed-term contracts for 7. Giacomelli and Menon 2013.
participation in the insolvency proceedings permanent tasks, while Lao PDR capped 8. Dougherty 2014.
and introduced many new provisions on the duration of renewable fixed-term 9. Yakovlev and Zhuravskaya 2013.
10. Lyons 2013.
reorganization, including minimum stan- contracts (previously unlimited) at 36 11. The six agencies are the State Examination
dards and voting procedures. It also created months. Latvia continued to relax its Head Office, the State Fire Control Service,
a public office responsible for the general labor market regulation by increasing the the State Supervision Agency for Construction
Safety, the Engineering Geological Center, the
administration of proceedings and estab- maximum duration of a single fixed-term Ministry of Ecology and Natural Resources,
lished specialized courts with exclusive contract from 36 months to 60. and the Hygiene and Epidemiology Center at
jurisdiction over insolvency cases. the Ministry of Public Health.
12. SAIDI is the average total duration of outages
Four economies changed rules governing over the course of a year for each customer
Changing labor market dismissals. Italy adopted new legisla- served, while SAIFI is the average number
regulation tion to simplify redundancy rules and of service interruptions experienced by a
customer in a year. Doing Business records
The Doing Business indicators on labor encourage out-of-court reconciliation of these measures for the largest business city
market regulation have historically dismissals, reducing the time and cost of each economy and, in 11 economies, for the
measured the flexibility of the regula- to resolve labor disputes. Lao PDR elimi- second largest business city as well.
13. See Royal Decree 1619/2012.
tory framework as it relates to hiring, nated the requirement to seek third-party 14. The rate was reduced from the standard rate
work scheduling and redundancy. Over approval when dismissing fewer than 10 of 30% to a special rate of 15% for the first
the past two years the coverage of the employees and reduced severance pay- 300,000 and 20% thereafter.
15. Ayyagari, Demirguc-Kunt and Maksimovic
indicators has been expanded to also ments for employees with 5 and 10 years 2011; Fox and Murray 2013.
capture different aspects of job qual- of tenure. Croatia eliminated the require- 16. Ley de Garantas Mobiliarias was passed by
ity. In 2014/15 Doing Business recorded ment to retrain or reassign employees the Costa Rican Congress on May7, 2014, and
entered into force on May20, 2015.
several reforms relating to workers before they can be made redundant. And 17. World Bank 2010, p. 50.
eligibility for different benefits as well as Portugal introduced priority rules apply- 18. See articles 151, 210 and 222 of the Honduran
workplace equality and social protection. ing to individual dismissals. These regu- Code of Commerce, as amended.
19. Rozdeiczer and Alvarez de la Campa 2006.
For example, Morocco implemented an lations provide employers with several
unemployment insurance scheme, while criteria to use when making decisions on
Georgia and New Zealand increased the dismissals, with performance being the
length of paid maternity leave. most important one.

Four economies revised hiring rules in In addition, three economies made impor-
2014/15. Germany introduced a first- tant changes to their labor laws in 2014/15.
ever national minimum wage. Ecuador Belarus amended provisions relating to
50 Doing Business 2016

TABLE 4A.1 Who reduced regulatory complexity and cost or strengthened legal institutions in 2014/15and what did they do?
Feature Economies Some highlights
Making it easier to start a business
Simplified preregistration and Algeria; Angola; Azerbaijan; Belarus; Benin; Brunei Angola reduced the fees to register a company. Estonia began allowing
registration formalities (publication, Darussalam; Cambodia; Democratic Republic of minimum capital to be deposited at the time of company registration.
notarization, inspection, other Congo; Ecuador; Estonia; Germany; India; Jamaica; Kenya launched government service centers offering company
requirements) Kazakhstan; Kenya; Moldova; Mongolia; Morocco; preregistration services in major towns. Myanmar eliminated the need
Myanmar; Slovak Republic; Sweden; Togo; Ukraine for separate temporary and permanent certificates of incorporation.
Abolished or reduced minimum Burkina Faso; Comoros; Democratic Republic of India eliminated its minimum capital requirement. Kuwait reduced its
capital requirement Congo; Gabon; Guinea; India; Kuwait; Mauritania; requirement.
Myanmar; Niger; Senegal
Introduced or improved online Belarus; Denmark; Indonesia; Lithuania; FYR Uganda introduced an online system for obtaining a trading license.
procedures Macedonia; Norway; Russian Federation (Moscow); Belarus expanded the geographic coverage of online registration and
San Marino; Uganda; Ukraine; Uzbekistan improved online services.
Cut or simplified postregistration Cambodia; Hong Kong SAR, China; Indonesia Hong Kong SAR, China, eliminated the requirement for a company
procedures (tax registration, social (Jakarta); Philippines; Rwanda; Sri Lanka; seal. Rwanda eliminated the need for new companies to open a bank
security registration, licensing) Uzbekistan; Vietnam account in order to register for VAT.
Created or improved one-stop shop Benin; Cambodia; Slovak Republic; Uzbekistan Benin reduced the fees for filing documents with the one-stop shop.
Cambodia simplified company name checks at the one-stop shop.
Making it easier to deal with construction permits
Streamlined procedures Algeria; Armenia; Azerbaijan; Benin; Jamaica; Algeria eliminated the legal requirement to provide a certified
Kazakhstan; Mauritius; Niger; Sri Lanka; Turkey; copy of a property title when applying for a building permit. Sri
United Arab Emirates; West Bank and Gaza Lanka streamlined the internal review process for building permit
applications.
Reduced time for processing permit Benin; Georgia; Jamaica; Montenegro; Sri Lanka Georgia reduced the official time limit for issuing building permits from
applications 10 days to 5. Montenegro finished implementing amendments to the
Law on Spatial Planning and Construction, which established a 30-day
time limit for issuing building permits.
Adopted new building regulations Armenia; Azerbaijan; Rwanda; Serbia Rwanda adopted a new building code and new urban planning
regulations in May 2015.
Improved building quality control Armenia; Serbia Armenia exempted lower-risk projects from requirements for approval
process by an independent expert and for technical supervision of construction.
Introduced or improved one-stop Azerbaijan; Benin Azerbaijan established a one-stop shop for issuing preapprovals
shop for project documentation. Benin established a one-stop shop and
reduced the number of signatories required for a building permit.
Reduced fees Democratic Republic of Congo; Serbia The Democratic Republic of Congo halved the cost to obtain a building
permit. Serbia eliminated the land development tax for warehouses.
Making it easier to get electricity
Improved process efficiency Bhutan; Botswana; Costa Rica; Cyprus; Hong Kong The utility in Kenya reduced delays for new connections by enforcing
SAR, China; Kenya; Lithuania; Malta; Morocco; service delivery timelines and hiring contractors for meter installation.
Myanmar; New Zealand; Poland; Taiwan, China; The utility in Poland reduced delays in processing applications for new
Uganda; United Arab Emirates; Vietnam connections by increasing human resources and enforcing the legal
time limit to issue technical conditions.
Improved regulation of connection Russian Federation; Senegal The tariff setting committees for Moscow and St.Petersburg revised
processes and costs the connection fee structure, reducing the cost of getting a new
connection. In Senegal the utility reduced the security deposit by
revising the calculation formula.
Facilitated more reliable power Cambodia; Oman The utility in Oman started fully recording the duration and frequency
supply and transparency of tariffs of outages to compute annual SAIDI and SAIFI.
Streamlined approval process India; Togo In Delhi the utility eliminated the internal wiring inspection by the
Electrical Inspectorate. In Mumbai the utility improved internal work
processes and coordination, reducing the procedures and time to
connect to electricity.
Reforming the business environment in 2014/15 51

TABLE 4A.1 Who reduced regulatory complexity and cost or strengthened legal institutions in 2014/15and what did they do?
Feature Economies Some highlights
Making it easier to register property
Computerized procedures Belgium; Bhutan; Kenya; Kyrgyz Republic; Saudi Bhutan introduced a new computerized land information system
Arabia; Switzerland connecting the municipality to the cadastre. Switzerland introduced a
national database to check for encumbrances.
Reduced taxes or fees Cabo Verde; Chad; Republic of Congo; Cte The Republic of Congo lowered the property transfer tax from 15% of
dIvoire; Gabon; Guinea-Bissau; Madagascar; the property value to 7%. Senegal reduced the property transfer tax
Nigeria; Senegal from 10% of the property value to 5%.
Combined or eliminated procedures Kazakhstan; Latvia; Morocco; Uzbekistan Latvia introduced a new application form for property transfers.
Kazakhstan eliminated the requirements to obtain a technical passport
for a property transfer and to get the sellers and buyers incorporation
documents notarized. Morocco established electronic communication
links between different tax authorities.
Increased transparency Vanuatu Vanuatu introduced a specific and separate mechanism for complaints
by appointing a land ombudsman.
Introduced fast-track procedures Belarus Belarus introduced a fast-track procedure for property registration.
Set effective time limits Russian Federation Russia passed a new law setting shorter time limits for property
transfer procedures.
Making it easier to pay taxes
Introduced or enhanced electronic Costa Rica; Cyprus; Indonesia; Jamaica; Malaysia; Serbia introduced an online system for filing and paying VAT and social
systems Montenegro; Morocco; Mozambique; Peru; Poland; security contributions in 2014. Indonesia introduced an online system
Rwanda; Serbia; Slovak Republic; Spain; Tajikistan; for filing and paying social security contributions.
Uruguay; Vietnam; Zambia
Reduced profit tax rate Angola; Bangladesh; Brunei Darussalam; Finland; Norway reduced the corporate income tax rate from 28% to 27%
France; The Gambia; Guatemala; Hong Kong SAR, for 2014. Tunisia reduced the corporate income tax rate from 30% to
China; Jamaica; Norway; Portugal; Slovak Republic; 25% for the same year. Spain reduced the corporate income tax rate
Spain; Swaziland; Tunisia; United Kingdom; Vietnam for companies incorporated after January 1, 2013, from the standard
rate of 30% to 15% for the first 300,000 and 20% thereafter.
Reduced labor taxes and China (Shanghai); Colombia; France; Greece; Romania reduced the social security contribution rate paid by
mandatory contributions Indonesia; Mexico; Romania; United Kingdom employers from 20.8% to 15.8% from October 1, 2014.
Allowed more deductible expenses Brunei Darussalam; Greece; Jamaica; Mozambique; Portugal allowed 100% of loss carried forward to be deducted for the
or depreciation Portugal; Slovak Republic; Vietnam calculation of taxable profit from January 1, 2014. Brunei Darussalam
increased the initial capital allowance for industrial buildings from
20% to 40% and the annual allowance from 4% to 20% for 2014.
Reduced taxes other than profit tax The Bahamas; Greece; Malaysia; Russian Malaysia reduced the property tax rate from 12% to 10% of the
and labor taxes Federation; Spain annual rental value for commercial properties for 2014.
Merged or eliminated taxes other Brunei Darussalam; Kosovo; Mexico; Serbia Mexico abolished the business flat tax on January 1, 2014. Serbia
than profit tax abolished the urban land usage fee starting January 1, 2014.
Simplified tax compliance process The Gambia; Hong Kong SAR, China; Maldives; The Gambia improved its bookkeeping system for VAT accounts to
Vietnam better track the requisite input and output records for filing VAT
returns. Vietnam reduced the number of VAT filings for companies with
an annual turnover of 50 billion dong (about $2.3 million) or less from
monthly to quarterly.
Making it easier to trade across borders
Introduced or improved electronic The Bahamas; Benin; Brazil; Cte dIvoire; Ghana; Brazil implemented the electronic SISCOMEX Portal system, reducing
submission and processing of Guatemala; Madagascar; Mali; Mauritania; the time required for customs clearance and document preparation
documents Suriname; Tajikistan; Tanzania; Togo and submission for exports. Tajikistan made it possible to submit
customs declarations electronically for both exports and imports.
Introduced or improved risk-based Albania Albania implemented a risk-based inspection system at Port of Durres
inspections and reduced border compliance time for exports.
Strengthened transport or port Madagascar; Tunisia; Vanuatu Vanuatu invested in infrastructure at the port of Vila, increasing the
infrastructure ports efficiency for imports.
Improved port procedures Oman; Qatar Oman reduced port handling time for exports and imports by
transferring cargo operations from Sultan Qaboos Port to Sohar Port.
Entered a customs union with Armenia Armenia joined the Eurasian Economic Union, leading to reductions in
major trading partner the time and cost for document preparation, customs clearance and
inspections in trade (export and import) with Russia.
Reduced documentary burden Mauritania Mauritania eliminated requirements for two import documents.
52 Doing Business 2016

TABLE 4A.1 Who reduced regulatory complexity and cost or strengthened legal institutions in 2014/15and what did they do?
Feature Economies Some highlights
Strengthening legal rights of borrowers and lenders
Created a unified or modern Costa Rica; El Salvador; Hong Kong SAR, China; El Salvador established a registry for security interests in movable
collateral registry for movable Indonesia; Liberia; Russian Federation; Uzbekistan property as part of its registry of commerce.
property
Allowed general description of El Salvador; Kazakhstan; Mexico; Russian Mexico implemented new laws allowing a general description of assets
assets granted as collateral Federation; Uzbekistan granted as collateral.
Expanded range of movable assets El Salvador; Madagascar; Mexico; Russian Madagascar introduced a new law broadening the range of assets that
that can be used as collateral Federation; Uzbekistan can be used as collateral to secure a loan.
Introduced a functional secured Costa Rica; El Salvador Costa Rica adopted a new law establishing a modern legal framework
transactions system for secured transactions, including functional equivalents to loans
secured with movable property.
Allowed out-of-court enforcement Costa Rica; El Salvador El Salvador adopted a new law allowing secured creditors to enforce
of security their security interest out of court, through a public or private auction.
Improving the sharing of credit information
Established a new credit bureau Afghanistan; Comoros; Guyana; Lesotho; Seychelles Afghanistans central bank established a new credit registry that
or registry banks can consult to assess the creditworthiness of consumer and
commercial borrowers.
Expanded scope of information Cyprus; Kyrgyz Republic; Lao PDR; Mongolia; West In the Kyrgyz Republic the credit bureau Ishenim began distributing
collected and reported by credit Bank and Gaza information related to on-time loan repayment patterns in its credit
bureau or registry reports.
Improved regulatory framework for Latvia; Mali; Namibia; Niger; Peru Latvia adopted a credit bureau law setting out a legal framework for
credit reporting establishing, licensing and supervising credit information bureaus.
Introduced bureau or registry credit Rwanda; Zambia; Zimbabwe Rwandas credit bureau implemented a credit scoring service in May
scores as a value added service 2015.
Expanded borrower coverage by Kenya; Lao PDR; Mauritania; Rwanda; Uganda; Kenya expanded the number of borrowers listed by its credit reference
credit bureau or registry Vietnam bureau with information on their borrowing history from the past five
years to more than 5% of the adult population.
Strengthening minority investor protections
Increased disclosure requirements Albania; Azerbaijan; Honduras; Kazakhstan; Albania introduced a requirement for immediate disclosure of the
for related-party transactions Madagascar; Nigeria terms of related-party transactions as well as the nature and object
of the conflict of interest. Nigeria introduced new rules requiring
that related-party transactions be subject to external review and to
approval by disinterested shareholders.
Enhanced access to information in Honduras; Kazakhstan; Zimbabwe Kazakhstan introduced provisions making it easier for shareholders
shareholder actions to compel broad categories of documents at trial without having to
identify specific dates and titles.
Increased director liability Honduras; Ireland; FYR Macedonia Honduras introduced a new law allowing shareholders representing at
least 5% of a companys share capital to bring an action for damages
against its directors.
Expanded shareholders role in Arab Republic of Egypt; Kazakhstan; Lithuania; Spain introduced provisions requiring a general meeting of
company management Rwanda; Spain; United Arab Emirates shareholders to decide on the acquisition or disposal of assets
representing more than a quarter of a companys total assets.
Making it easier to enforce contracts
Expanded the framework for Cte dIvoire; Latvia; Senegal Cte dIvoire, Latvia and Senegal introduced laws regulating voluntary
alternative dispute resolution mediation. Latvia also passed a new arbitration law.
Expanded court automation Armenia; United Arab Emirates Armenia introduced a computerized system that randomly assigns
cases to judges in the Yerevan Court of First Instance. The United Arab
Emirates implemented an electronic notification system allowing the
initial summons to be served electronically.
Introduced a small claims court or Cyprus; Kazakhstan Cyprus and Kazakhstan both introduced a fast-track procedure for
a dedicated procedure for small small claims and allow litigants to represent themselves during this
claims procedure.
Introduced electronic filing Georgia; Italy Georgia and Italy both introduced an electronic filing system for
commercial cases, allowing attorneys to submit the initial summons
online.
Made enforcement of judgment Croatia; Romania Croatia introduced an electronic system to handle public sales.
more efficient Romania expanded the role of the bailiff and made the use of an
electronic auction registry mandatory.
Reforming the business environment in 2014/15 53

TABLE 4A.1 Who reduced regulatory complexity and cost or strengthened legal institutions in 2014/15and what did they do?
Feature Economies Some highlights
Making it easier to resolve insolvency
Improved provisions on treatment Chile; Jamaica; Romania; Rwanda; St.Vincent and Chile made continuation of the debtors business during insolvency
of contracts during insolvency the Grenadines; Vietnam proceedings easier by prohibiting termination of contracts on the
grounds of insolvency.
Improved the likelihood of Chile; Cyprus; Jamaica; Kazakhstan; Romania; Kazakhstan introduced provisions allowing debtors to apply for post-
successful reorganization St.Vincent and the Grenadines commencement finance with corresponding priority rules and allowing
creditors to initiate reorganization proceedings.
Regulated the profession of Jamaica; Moldova; St.Vincent and the Grenadines; Moldova created governing and supervisory bodies for the profession
insolvency administrators Vietnam of insolvency administrators, introduced a licensing system and stricter
admission rules and created a centralized registry of authorized
insolvency administrators.
Introduced a new restructuring Cyprus; Jamaica; St.Vincent and the Grenadines Cyprus established a reorganization procedure for insolvent but viable
procedure companies.
Streamlined and shortened time Chile; Romania; Vietnam Romania introduced shorter time frames for several stages of
frames for insolvency proceedings reorganization proceedings as well as a three-year time limit for
implementing the reorganization plan.
Strengthened creditors rights Cyprus; Jamaica; St.Vincent and the Grenadines Jamaica granted individual creditors the right to request information
from the insolvency representative on the debtors business and
financial affairs.
Changing labor legislation
Altered hiring rules Ecuador; Germany; Lao PDR; Latvia Germany introduced a minimum wage. Latvia increased the maximum
duration of a single fixed-term contract from 36 months to 60.
Altered work scheduling rules Belarus; Hungary; FYR Macedonia Hungary adopted legislation limiting the operating hours for retail
shops.
Changed redundancy cost or Croatia; Italy; Lao PDR; Portugal Lao PDR eliminated the requirement for third-party approval before
procedures an employer can dismiss one worker or a group of nine workers and
reduced the severance payment for employees with 5 and 10 years of
tenure.
Reformed legislation regulating Belarus; Italy; FYR Macedonia; Morocco Morocco implemented an unemployment insurance scheme.
worker protection and social
benefits
Source: Doing Business database.
Note: Reforms affecting the labor market regulation indicators are included here but do not affect the ranking on the ease of doing business.
Doing Business 2016

Starting a business
Third-party involvement in company formation

S
Most of the cost of starting a business tarting a business in Haiti takes 12 whose services are either required by law or
comes from the fees of third-party procedures and more than three desirable because of regulatory complexity
professionals such as lawyers and months. Formal registration of a (figure 5.1).5
notaries. company is so complicated that the pro-
Entrepreneurs use third-party services cess cannot be completed without using Even where the use of third parties is not
in business start-up mostly because the services of third partieslawyers and explicitly required, unnecessary bureau-
the process is too complex. notaries. Company statutes are often cratic steps and long delays at government
drafted by an attorney, then need to be agencies can create ample opportunities
Economies with greater third-party
certified by a notary before being submit- for corruption and briberyand provide
involvement in business incorporation
tend to have more businesses
ted for incorporation. The result is an an additional incentive for involving third
operating in the informal sector. They additional cost burden for entrepreneurs parties early in the start-up process. While
also tend to have less accessible laws trying to navigate the complex process to administrative delays at some govern-
and regulations and less efficient enter the formal sector. In New Zealand, ment agencies may reflect meticulous due
systems of civil justice. by contrast, an entrepreneur can complete diligence, research has found that entry
the entire process of company formation regulation can serve as a mechanism for
Notary services are used in business
in just a few hours through a single online rent extraction, with heavier regulation
start-up in 76 of the 189 economies
procedure. There are many reasons why correlated with greater corruption and a
covered by Doing Business.
Haiti has far fewer registered limited larger informal sector.6
Latin America and the Caribbean has liability companies relative to population
the largest share of economies where sizeonly 6 per 100,000 working-age By capturing the steps in the process
legal services are used in the start-up people in 2012, compared with 1,507 of forming a legal enterprise, the Doing
process. per 100,000 working-age people in New Business indicators on starting a business
Zealand.1 But its burdensome entry regula- shed light on the necessity for and cost of
tions are surely one of them. third-party involvement in this process. The
indicators record all procedures officially
Formalization has many benefits. Formally requiredor commonly done in practice
registered companies tend to have greater for a local entrepreneur to start a limited
profits, investments and productivity,2 while liability company, along with the time and
their employees benefit from social secu- cost to complete those procedures and the
rity and other legal protections.3 As more paid-in minimum capital requirement. Data
businesses enter the formal sector, the show that the more cumbersome the pro-
governments tax base broadens, yielding cess is, the more likely it is for third-party
additional revenue for social and economic professionals to be involved.
policy priorities. Moreover, increases in the
number of registered businesses have been
linked to greater economic growth and job THE COSTS OF INVOLVING
creation.4 Yet in many economies around THIRD PARTIES
the world, entrepreneurs continue to face
excessively burdensome entry regulations. The start-up process can vary consider-
Formalizing a business may involve multi- ably in the number and complexity of
ple interactions with government agencies procedures. Complying with the require-
and with third-party private professionals ments often necessitates third-party
Starting a Business 55

Figure 5.1 What business start-up procedures may involve third parties?

Legal Legal
Advice Represent company Advice
throughout the registration
process
Prepare company statutes
Draft articles of and registration documents
incorporation
Prepare and legalize the
companys founding
documents

Registration
Check proposed Register with tax authorities
company name Apply for incorporation
Obtain a business license
Deposit minimum Pay fees
Enroll employees in
capital in a bank account Complete other procedures social security
under the mandate of the
commercial registry
Preregistration Postregistration

Notarize the companys Witness company officers Certify and notarize state
deeds and articles of signature of the bylaws registration, legal accounting
association before Notarize the incorporation books and other
registration documents postregistration documents
Notarize founding acts

involvement, whether by law or in prac- procedures. First the company founders regulations.7 As evidenced by Doing
tice. Entrepreneurs use legal or notary must deposit the memorandum and Business data, high costs for business
services to start a business in 53% of the articles of association at the Companies incorporation, especially those incurred
189 economies covered by Doing Business. Registry. Then the registrar certifies that through third-party involvement, can
Hiring a lawyer is most common in Latin the company is incorporated. And after drive entrepreneurs to choose to operate
America and the Caribbeanwhile using that the founders must file information in the informal sector. Analysis shows
a notarys services is most common in on the directors, company secretary and a strong correlation between the cost
Sub-Saharan Africa, Latin America and the registered business office. of third-party involvement in business
the Caribbean and the Middle East and start-up and the level of informality (fig-
North Africa (figure 5.2). The need to involve third-party profes- ure 5.4). For example, there is a strong
sionals not only adds to the bureaucratic positive association between the cost
Where entrepreneurs employ third-party burden of the start-up process; it also incurred in using third-party services in
professionals to assist in start-up, they imposes a cost that can be prohibitive to start-up and both the percentage of firms
often do so for company incorporation entrepreneurship. Indeed, Doing Business competing against the informal sector
and tax registration. Doing Business data data show that professional services and the percentage identifying informal-
reveal that these formalities are the account for most of the cost to start a ity as a major constraint to their business
major bottlenecks in the start-up process, business (figure 5.3). operations. In other words, the higher
requiring more procedures than other the cost of third-party services because
formalities such as business licensing Entrepreneurs often hire lawyers or of complicated rules and regulations, the
and inspections. Company incorporation notaries simply because business reg- higher the level of informality.
alone can involve multiple procedures. In istration formalities are so complex that
Bhutan, for example, entrepreneurs want- complying with all the requirements Economies where the start-up process
ing to set up a company must first submit is almost impossible without external necessitates third-party involvement
a project proposal or business plan to help. Complex entry regulation can also also tend to do worse on indicators
the Ministry of Economic Affairs before encourage businesses to remain informal. measuring regulatory transparency
proceeding to the Office of the Registrar Studies show that informal businesses and the performance of the civil justice
for incorporation. In the Seychelles are more common in economies where system. The characteristics of good
incorporation requires several separate institutions foster complex rules and regulatory governance include clarity,
56 Doing Business 2016

Figure 5.2 Where are legal or notary services used in starting a business?

Legal services used

Notary services used

Both legal and notary services used


Legal and notary services not commonly used

Not in the Doing Business sample


IBRD 41853
SEPTEMBER 2015

Source: Doing Business database.


predictability, autonomy, accountability, can help make the process less costly, accessibility of laws and regulations and
participation and open access to infor- encouraging entrepreneurship, eco- the efficiency of the civil justice system
mation. Each of these aids in making a nomic development and growth.9 (figure 5.5). These relationships remain
regulatory system transparent in the significant even after controlling for
eyes of stakeholders, helping to attract Analysis shows a strong negative asso- income differences across economies.
investment.8 And introducing online ciation between third-party involvement It is no surprise that where laws are
solutions for regulatory compliance in business start-up and both the opaque and the justice system is inef-
ficient, entrepreneurs need to engage

Figure 5.3 Most of the cost of business start-up comes from professional services

Average cost to start a business, Average cost to start a business


by source (US$) (% of income per capita)
40
1,200

1,000
30
800

600 20

400
10
200

0 0
Legal Notary Business Licensing Publication Other No third-party Third-party
services services registration of notices involvement involvement

Source: Doing Business database.


Starting a Business 57

Figure 5.4 Economies with greater costs for third-party involvement in business start-up tend to have a higher level of informality
Share of firms competing against informal sector (%) Share of firms identifying informality as a major constraint (%)
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100
Cost of third-party services (% of income per capita) Cost of third-party services (% of income per capita)

Sources: Doing Business database; Enterprise Surveys database (http://www.enterprisesurveys.org), World Bank.
Note: The cost of third-party services is based on the fees that an entrepreneur in each economy typically pays to lawyers or notaries to start a business. The correlation between
the cost of third-party services and the share of firms competing against the informal sector is 0.31. The correlation between the cost of third-party services and the share of
firms identifying informality as a major constraint is 0.34. The relationships are significant at the 1% level after controlling for income per capita.

the services of lawyers and notaries to maintain impartiality. But while there is Entrepreneurs use notary services in
to get things donean outcome that much commonality in what notaries do in business start-up in 76 of the 189 econo-
in itself runs counter to the principles economies around the world, there is also mies covered by Doing Businessin more
of good governance and regulatory much variation in the powers they have than 40 of them, at least in part because
transparency. and in the use of notary services. Laws of legal requirements to do so. This
in some economies empower notaries to practice of using notary services appears
perform critical tasks and exercise higher to vary little with differences in income
NOTARIES AT BUSINESS levels of authority and jurisprudence. The level (figure 5.6). It differs much more by
START-UP law defining the role of notaries in Italy, region. The practice is most prevalent in
for example, grants them the sole author- Sub-Saharan Africa and Latin America
As public officers, notaries are appointed ity to authenticate property transactions and the Caribbean, where notaries play a
by governments and public agencies to as well as the authority to draft and notably crucial role in legal transactions,
certify documents and make them official. execute public deeds of incorporation, including the creation of legal entities,
Among their most fundamental roles is including company bylaws.10 the transfer of land and the verification

Figure 5.5 Greater third-party involvement in start-up is associated with less Figure 5.6 The practice of using
regulatory transparency and less efficiency in the civil justice system notary services in the start-up process
appears to follow similar patterns across
The laws are publicized Civil justice is not subject to
and accessible (score) unreasonable delays (score)
income levels
0.6 0.6 Share of economies where
notary services are used (%)
0.5 0.5 50

0.4 0.4
40
0.3 0.3
30
0.2 0.2
20
0.1 0.1

0 0 10
No third-party High third-party No third-party High third-party
involvement involvement involvement involvement
0
Low Lower Upper High
Sources: Doing Business database; World Justice Project 2014 database (http://worldjusticeproject.org). income middle middle income
Note: The third-party involvement measure is computed based on the number of interactions an entrepreneur in income income
each economy needs to have with lawyers or notaries to start a business. World Justice Project scores range from
0 to 1, with 1 being the best possible score. The relationships are significant at the 1% level after controlling for
income per capita. Source: Doing Business database.
58 Doing Business 2016

of legal documents (figure 5.7). Indeed, dIvoire a notary usually drafts the com- certificate of state registration must be
in most economies in these two regions, pany statutes and certifies the paid-in authenticated.
legal transactions can rarely be complet- capital.
ed without the involvement of a notary. Notarization not only represents an addi-
Among OECD high-income economies, tional start-up formality often required by
Practices vary among economies in Latin notarization is widely used in business regulators; it can also be a costly transac-
America. In Argentina, for example, a start-up in Italy and Poland as well as tion. Globally on average, entrepreneurs
company is not obligated to have its in the Netherlands, where a companys incur notary fees amounting to 5.6% of
bylaws notarized, but it must have the public deed of incorporation and bylaws income per capita when starting a busi-
specimen signatures of its founding part- are often executed before a notary. The ness. Average rates are highest in OECD
ners certified by a notary. In Guatemala notary profession in some high-income high-income economies, followed by
company founders must present a letter economies has seen significant advances Latin America and the Caribbean (see
from a notary to open a bank account, and thanks to reforms introducing electronic figure 5.7). In some economies, such as
the notary also draws up the deed of con- systems. In Belgium the e-notariat sys- Chad and Costa Rica, notary fees for busi-
stitution. In Sub-Saharan Africa there was tem enables notaries to file a companys ness registration are fixed by regulation.11
a noteworthy change in 2014, when the deed of incorporation electronically with In others, they represent a percentage
Council of Ministers of the Organization different institutions and obtain its enter- of the companys start-up capital or are
for the Harmonization of Business Law prise number within minutes. In Croatia negotiated on the basis of the services
in Africa (known by its French acronym notaries can use an electronic system to provided.
OHADA) adopted a revised Uniform submit documents to courts.
Act on Commercial Companies and
Economic Interest Groups. The new act Across Europe and Central Asia, 31% ATTORNEYS AT BUSINESS
made the use of notary services in busi- of economies include notary services START-UP
ness start-up optional in the 17 OHADA in business formalization. In Bosnia and
member states. Yet the practice remains Herzegovina the 2002 Law on Notary The use of legal services in the company
prevalent in OHADA countries. For requires that all documents needed for registration process also adds to the
example, in Burkina Faso, where proof of registering a company be prepared and financial burden of starting a busi-
capital deposit is required for incorpora- certified by a notary. In Turkey a com- nessand even more so than the use of
tion, a notary certifies the declaration of panys legal accounting books must be notary services. Around 17 economies
start-up capital subscriptions. In Cte certified by a notary; in Kazakhstan the covered by Doing Business have laws
mandating the use of legal services in
company registration. One of these is The
Figure 5.7 Notary services are most widely used at start-up in Sub-Saharan Africa Bahamas, where a lawyer must prepare a
and Latin America and the Caribbeanwhile the fees are highest in OECD high-income companys registration documents, such
economies as the memorandum of association.
Share of economies where Average cost of
notary services are used (%) notary services (US$) But even in economies where the use
60 1,400 of legal services is not required by law,
50 some entrepreneurs seek legal guidance
1,120
to ensure that the registration process
40
840 goes smoothlybecause the process
30 can be far too complex to navigate
560 without professional assistance. Local
20
entrepreneurs in St. Kitts and Nevis, for
280
10 example, hire lawyers to prepare com-
0 0
pany documents even though this is not
Sub-Saharan Latin America Middle East OECD Europe & East Asia required by law. Similarly, in Swaziland
Africa & Caribbean & North Africa high income Central Asia & Pacific
entrepreneurs can use the standard
Share of economies where notary services are used forms available for the memorandum and
Average cost of notary services
articles of association, but most choose
Source: Doing Business database. to hire a lawyer anyway, to facilitate the
Note: Notary services are not used in business start-up in South Asia. The measure of cost also reflects the start-up process. Worldwide, the most
frequency of interaction with notaries because it captures all costs associated with using notary services within
each economy as well as across the economies in each region. common reasons for hiring a lawyer at
Starting a Business 59

start-up are to prepare and draft articles completing the entire registration process. company incorporation amounting to
and memorandums of association, sign While drafting the articles of association around 42% of income per capita plus
company documents, prepare company takes only one day, the overall cost of 2% of the companys capital.
statutes, conduct name searches and using legal services for start-up averages
draft company deeds. about 19% of income per capita. In Sub-Saharan Africa, by contrast, legal
services are rarely used in the com-
Overall, entrepreneurs use legal services in Among regions, Latin America and the pany incorporation process. The prac-
the start-up process in 15% of the econo- Caribbean has the largest share of econ- tice is most prevalent in South Sudan,
mies covered by Doing Business, with the omies where entrepreneurs hire lawyers Swaziland and Uganda. Several other
practice being most common among for company registration (figure 5.9). countries in the region implemented
upper-middle-income and high-income It also has the highest average cost of reforms in recent years eliminating the
economies (figure 5.8). Examples from doing so, with fees ranging from roughly need to use legal services when forming
several economies illustrate the kinds of $70 in Guyana to more than $10,000 a company. For example, in 2009 Liberia
services that lawyers provide. In Repblica in Repblica Bolivariana de Venezuela. introduced standard forms for articles
Bolivariana de Venezuela lawyers are The legal services vary. In Antigua and of incorporation, making them avail-
required to provide a legal assessment Barbuda the owners of a new company able at several government offices in
as part of the process of preparing a must have a lawyer provide a declara- Monrovia. These enable entrepreneurs
companys incorporation documentsa tion attesting that they are not bankrupt, to register their business without an
procedure that takes five days and costs are mentally sound and are over 18 years attorney. In the same year, the South
more than 87% of income per capita. In old. In practice, they also have an attor- African government eliminated the need
St. Lucia entrepreneurs hire a lawyer to ney prepare all the incorporation docu- to submit documents through a legal
conduct a company name search and get ments, including the notice of address professional.12
an approval for the proposed name, which and the articles of incorporation. In
is rarely granted on the first attempt. Once Ecuador those starting a new company While the legal services used in the start-
the Commercial Registry guarantees hire a lawyer to prepare the minutes of up process are most costly on average in
the approval of the company name, an incorporation, and in Bolivia they engage Latin America and the Caribbean, they
attorney prepares incorporation docu- an attorney to prepare the articles of are also quite costly in the Middle East
ments, which takes about two days and incorporation, bylaws and constitution and North Africa. In Lebanon each newly
costs 18% of income per capita. In Iraq acts. The fee schedule established by the formed company must retain an attorney.
lawyers must draft a companys articles of Bolivian lawyers association (Colegio de The annual retainer fee, increased in 2012
association and are often responsible for Abogados) sets out a minimum fee for by the Beirut Bar Association, can be as

Figure 5.8 Entrepreneurs are most Figure 5.9 Legal services for business incorporation are most commonly usedand
likely to use legal services for business most expensivein Latin America and the Caribbean
incorporation in upper-middle-income
economies Share of economies where Average cost of
legal services are used (%) legal services (US$)

60 1,500
Share of economies where
legal services are used (%)
50
25 1,200
40
900
20
30
600
15 20

10 300
10

0 0
5 Latin America Middle East & South East Asia Europe & OECD Sub-Saharan
& Caribbean North Africa Asia & Pacific Central Asia high income Africa
0 Share of economies where legal services are used
Low Lower Upper High
income middle middle income Average cost of legal services
income income
Source: Doing Business database.
Note: The measure of cost also reflects the frequency of interaction with lawyers because it captures all costs
Source: Doing Business database. associated with using legal services within each economy as well as across the economies in each region.
60 Doing Business 2016

high as 20% of income per capita. In days to complete, while those involving A number of countries have taken steps
West Bank and Gaza a lawyer is hired to a notarys services take more than twice to do just that. Burundi enacted a law in
draft the articles of association and the as long. But in some cases the time 2011 that eliminated the need to have
company bylaws. Once these documents requirements can be more burdensome. articles of association notarized.13 This
are complete, they must be stamped by In Haiti preparation of the company alone reduced the cost to register a busi-
the Lawyers Bar Association before being statutes, which must be done by a law- ness by 21% and the time by four days.
filed at the company controller. This yer, takes 10 days. In Nepal verifying Similarly, Albania adopted a law in 2007
procedure alone costs more than $1,000. and drafting memorandums and articles that made the notarization of incorpora-
of associationa procedure for which tion documents optional.14 This led to
Europe and Central Asia has the second entrepreneurs continue to use legal cost savings of 8% at business start-up.
highest average cost of lawyers services in services even though they are no longer
company registration. In Cyprus there is a required totakes about 5 days. In Samoa a new Companies Act enacted
statutory requirement to have a lawyer pre- in 2008 created a standard model of
pare the memorandum and articles of asso- Where the start-up process entails incorporation forms and thus made the
ciation, which costs a small or medium-size complex procedures and many bureau- use of lawyers optional. By eliminating
company about $1,300. When starting a cratic hurdles, entrepreneurs are better the requirement to visit a lawyer, this
business in Hungary, the first procedure is off using professional services. Hiring reduced the cost to start a business by
to hire a lawyer to represent the company, a lawyer may be expensive, but it can 4% and the time by seven days. Hungary
create the company deed and prepare all save time and help ensure that the not only made the use of notaries
the other founding documents. The use of process goes smoothly. Better yet optional but also limited the role of attor-
a lawyer is required throughout the regis- would be a business registration pro- neys by introducing standard articles of
tration process, and while the cost varies cess designed so that the use of legal association and online incorporation. In
depending on the complexity of the case, it services is unnecessary. Entrepreneurs, most cases company documents are still
can end up close to $1,000around 7% of especially those starting a small busi- prepared by a lawyer, but the time and
income per capita. ness, should be able to complete the cost have been reduced.15
process without having to pay exorbi-
Globally on average, it costs an entrepre- tant lawyers fees. Establishing and promoting the use of
neur around 18% of income per capita to online registration platforms is a good
hire a lawyer to assist in starting a busi- practice that can reduce opportunities
ness, more than the average cost incurred REFORMS AND GOOD for bribery as well as cut costs associated
for notary services. In OECD high-income PRACTICES with third-party services. Online incorpo-
economies, by contrast, the average ration systems generally do not require
notary fees for business start-up are Using the services of third parties in busi- the involvement of lawyers or notaries as
almost four times the average legal fees. ness start-up is a common and estab- intermediaries to authenticate company
lished practice. But governments have documents and complete the registra-
While the cost of using incorporation the power to ease the burden that this tion process. Such platforms may also
lawyers is high, the upside is that once a represents, saving entrepreneurs both enable digital forms of identification,
lawyer is hired, incorporating a business time and money (box 5.1). One way to do such as electronic signatures, thereby
usually does not take long. Globally on so is by making the use of such services replacing some of the functions of nota-
average, procedures that involve the optional. ries. The Republic of Korea eliminated
use of a lawyers services take only two the requirement to have a companys

Box 5.1Indonesia eases the burden of third-party involvement in incorporation


The use of notary services throughout the business start-up process remains inevitable in Indonesia. But the country has intro-
duced changes reducing the burden of third-party involvement. In 2007 Indonesia launched online services related to business
start-up that enabled notaries to complete company name searches and reservations more quickly.a The following year it in-
troduced standard business incorporation forms. And in 2009 Indonesia reduced notary feesincluding the fees for notarizing
company deedsby amending the official fee schedule. These changes have led to time and cost savings for entrepreneurs. If
Indonesia keeps up the pace in adopting international good practices in the business start-up process, entrepreneurs starting a
simple business like the one in the Doing Business case study soon will no longer need to involve third parties.
a. The online system (Sisminbakum) was introduced on January31, 2001, by a decree of the minister of justice and human rights (decree M-01.HT.01.01 of October4, 2000).
Starting a Business 61

articles of association and meeting 12. Corporate Law Amendment 63(3) of the
Companies Act.
minutes notarized through an amend- CONCLUSION 13. Law on Public and Private Companies,
ment to its Commercial and Notary article33.
Public Acts in April 2008, then moved Local entrepreneurs seeking to formally 14. Law 9723/2007, on the National Registration
Center, of May2007.
toward online incorporation a couple of register a new business may confront
15. Amendments to the Companies Act made
years later. Portugal launched an online several bottlenecks along the way. Where the use of notaries optional by authorizing an
registration portal in 2007 and Germany the business registration process does attorney who drafts a companys corporate
documents to also authenticate specimen
did so in 2008, both after adopting the not follow good practices, the opportu-
signatures and other relevant documents.
necessary regulations to allow electronic nity costs can be high, especially for small 16. In Portugal a special system of online
incorporation.16 Germany made elec- and medium-size businessesbecause incorporation for civil and commercial
companies was created by Decree-
tronic registration compulsory in all its company founders may end up spending
Law 125/2006 of June29, 2006, and
states and allowed online publication of far too much of their scarce resources on Administrative-Rule 657-C/2006. In Germany
incorporation notices, reducing start-up third-party services. Moreover, frequent electronic registration and publication were
enabled by the Act on the Maintenance of
time by six days. use of third-party services in business
Electronic Commercial Registers, Cooperative
incorporation is associated with a higher Registers and the Companies Register,
In 2013 the Chilean government made level of informality, less regulatory trans- effective January1, 2007.
17. This change was introduced through Law
starting a business simpler by allowing parency and a less efficient civil justice
20.659.
entrepreneurs to register certain types system. Many economies have much 18. Decree 2013/279, issued May22, 2013, sets
of legal entities online free of charge.17 room for improvement in the regula- the notary fees for the formation of limited
liability companies. These fees are 120,000
This change reduced the time it takes tory environment for business entry,
CFA francs ($228) for companies with
to have company statutes registered by particularly in making compliance with start-up capital of up to 1 million CFA francs
notaries from two days to one. In the regulatory requirements less complicated ($1,900) and 3% of the share capital for
companies with start-up capital between 3
past year the former Yugoslav Republic of and in limiting the need to use third-party
million CFA francs ($5,700) and 9 million CFA
Macedonia made electronic submission services. One way to do so is by making francs ($17,100).
mandatory for registration applications the use of third-party services an option
for new limited liability companies. The rather than a requirement.
use of electronic signatures on company
documents eliminates the need to get
them notarized. NOTES

Governments can also limit the burden This case study was written by Julia Brouillard-
Soler, Baria Nabil Daye, Morgann Courtney Reeves,
of third-party services in the start-up Julie Ryan, Valentina Saltane and Evgenia Ustinova.
process by increasing the number of
1. Entrepreneurship Database (http://www
notaries available to provide services or .doingbusiness.org/data/exploretopics
by regulating the fees that notaries can /entrepreneurship), World Bank Group.
2. Sharma 2014.
charge. In the Democratic Republic of
3. Rand and Torm 2012.
Congo in 2011/12, new public notaries 4. Acs and others 2012.
were appointed in the city of Kinshasa, 5. Businesses that are complex or that operate
in medium- to high-risk sectors may
where previously only one had been
choose to seek the assistance of third-party
available. This cut the time required to professionals. But the discussion here refers
get incorporation documents notarized to a simple, low-risk business that conducts
general commercial or industrial activities, as
in half. In Cte dIvoire the government
outlined in the Doing Business case study.
issued a decree in May 2013 that low- 6. Djankov and others 2002.
ered the notary fees in forming a limited 7. Elgin and Oyvat 2013; Bruhn and McKenzie
2014; Williams 2014.
liability company by introducing a scale
8. Bertolini 2006.
based on the start-up capital.18 The 9. Vallb and Casellas 2014.
notary fees for incorporation were also 10. Law 89 of February16, 1913.
11. In Chad notary fees were fixed by Decree
reduced in Guinea, through a 2012 agree-
004/PR/PM/MJ/2010 of January5, 2010.
ment between the one-stop shop and the In Costa Rica the fee structure established
Chamber of Notaries. by Executive Order 36562-JP of January31,
2011 (section 95 a), fixes the fee for notarizing
articles of association at 150,000 colones
($288) for any corporation, though notaries
may negotiate other fees.
Doing Business 2016

Dealing with construction


permits
Assessing quality control and safety mechanisms

C
This year Doing Business introduces a onstruction regulations can help Moreover, the builders used substandard
new indicator to measure the quality protect the public from faulty construction materials (which led to an
of the construction permitting system. building practices. But to do so overload of the buildings structure exac-
The building quality control index they need to be clear as well as thor- erbated by vibrations from its genera-
assesses different dimensions of ough. Where regulations lack clarity, tors).4 Since the collapse of Rana Plaza,
quality in the regime underpinning there is a risk of confusion among both however, Bangladesh has sought the
construction permitting in 189 builders and authorities, which can lead assistance of the World Bank Group in
economies. to unnecessary delays, disputes and strengthening its construction permitting
High-income economies tend to have uncertainty.And if regulatory procedures system, a process that is ongoing.5
better quality control and safety are too complicated or costly, builders
mechanisms in placeboth in their tend to proceed without a permit.1 By In short, quality matters a great deal in
legal framework and in practice. some estimates 6080% of building the construction permitting system. Until
In 68% of economies the building projects in developing economies are this year Doing Business has measured the
regulations are available online. undertaken without the proper permits efficiency of the system, independent of
and approvals.2 its level of quality. Through the dealing
Twenty-two economies have no legal
with construction permits indicators,
requirement for inspections of any
Where informal construction is rampant, Doing Business has tracked the proce-
type during construction, and 13
the public can suffer. Take the case of dures, time and cost to comply with the
economies no legal requirement for a
final inspection.
Nigeria, which lacks an approved building formalities to build a warehouseinclud-
code setting the standards for construc- ing permits, notifications, inspections
In the majority of economies the tion. Without clear rules, enforcing and utility connections. It has not taken
architect who designed the plans or even basic standards is a daunting task, into account the existence of any qual-
the construction company will be held
and many buildings fail to comply with ity control mechanisms or rewarded
liable for any structural defects. But
proper safety standards. Structural inci- economies for having the proper safety
less than half of economies require any
dents have multiplied. According to the mechanisms in place. Nor has it directly
party to purchase insurance to cover
Nigerian Institute of Building, 84 build- assessed the quality or clarity of building
defects.
ings collapsed in the past 20 years, killing regulations.
Economies with a more efficient more than 400 people.3
construction permitting system tend to This year Doing Business continues to
have better quality control and safety The collapse of Rana Plaza in Bangladesh measure efficiency in construction per-
mechanisms in place. in April 2013, which claimed more than mitting while also adding a measure of
1,000 lives, also resulted from a lack of quality. The building quality control index
the necessary quality control mecha- assesses both quality control and safety
nisms. The building was constructed on mechanisms across 189 economies in
a pond without authorization to be on six main areas: transparency and quality
one, then converted without permission of building regulations; quality control
from commercial to industrial use, then before, during and after construction;
extended three floors beyond what was liability and insurance regimes; and pro-
specified in the original building permit. fessional certifications (figure 6.1).
Dealing With Construction Permits 63

regulations available at the relevant


Figure 6.1 What the data for the building quality control index cover
authority or distribute them through an
official gazette.
Quality
of building Data on the quality of building regulations measure the accessibility of building
regulations and the clarity of requirements for obtaining a building permit. But simply making building regulations
regulations
available is not enough if the require-
ments for obtaining a building permit are
Quality not clearly laid out in the regulations (or
control before Data on quality control before construction assess whether licensed or
technical experts are involved in approving building plans. on a website or in a pamphlet). Applicants
construction
need to have a list of the documents and
preapprovals required before applying, so
Quality as to avoid situations where the permit-
Data on quality control during construction record the types of inspections that are
control during
legally mandated during construction and whether they are carried out in practice. issuing authority can arbitrarily impose
construction
additional requirements. And applicants
need to be aware of the required fees and
how they are calculated. While almost
Quality
control after Data on quality control after construction record whether final inspections are legally all economies specify the list of required
mandated after construction and whether they are carried out in practice.
construction documents, only three-quarters make the
fee schedule accessible and even fewer
provide a list of the required preapprovals
Liability and Data on liability and insurance regimes record which parties are held legally liable or of the agencies to which documents
insurance for structural defects and which are required to obtain insurance policies to cover must be submitted.
damages caused by defects.
regimes

Azerbaijan is one economy that has taken


serious steps to make its legislation more
Professional Data on professional certifications assess the qualification requirements for the comprehensibleby adopting a new
certifications professionals who approve building plans and for those who supervise construction.
construction code that consolidates its
previous building regulations into a single
framework (box 6.1).
the amenity value of the projects that
HOW TRANSPARENT ARE are completed and therefore enhancing
BUILDING REGULATIONS? property values. WHERE ARE QUALITY
CONTROLS IN PLACE?
Beyond causing confusion about how to To measure the quality and transparency
proceed, construction regulations that of building regulations, Doing Business Beyond good regulations, an effective
are unclear and overly complicated can looks at whether the regulations are avail- inspection system is also critical in
also increase opportunities for corrup- able online, are available at the relevant protecting public safety. Without an
tion. Analysis of World Bank Enterprise permit-issuing agency free of charge, are inspection system in place, there is no
Survey data shows that the share of firms distributed through an official gazette mechanism to ensure that buildings com-
expecting to give gifts in exchange for or must be purchased. The results show ply with proper safety standards, increas-
construction approvals is correlated with that 68% of economiesranging across ing the chances of structural defects. And
the level of complexity and cost of deal- all regions and income levelshave as a first step, having technical experts
ing with construction permits.6 And while put their regulations online. Only 16 review the proposed plans before con-
Doing Business does not directly study economies require that the regulations struction even begins can reduce the risk
urban planning systems across econo- be purchasedBarbados, Belarus, Fiji, of structural failures later on.
mies, research studies have highlighted Ghana, Grenada, Honduras, Moldova,
the importance of good regulations in the Samoa, Sierra Leone, St. Kitts and Quality control before
area of urban planning and construction, Nevis, St. Vincent and the Grenadines, construction
finding that regulations that restrict land Swaziland, the Syrian Arab Republic, In almost all economies (178 of 189) a
use lead to higher housing costs.7 These Trinidad and Tobago, the United States government agency is required to verify
higher housing costs reduce access to (Los Angeles) and Vanuatu. And in 18 that the building plans are in compliance
housing, though the same regulations economies the regulations are not easily with the building regulationsand in 19 of
that increase costs may also be improving accessible. The rest make their building these economies plans must be reviewed
64 Doing Business 2016

Box 6.1A new building code in Azerbaijan


In September 2012 the government of Azerbaijan adopted a new Urban Planning and Construction Code. Most of the codes
provisions came into effect on January 1, 2013, and a series of implementing laws and regulations have followed. The new code
consolidates construction regulations into a single framework covering everything from the issuance of building permits to
inspections of construction, qualification requirements for construction professionals and the issuance of occupancy permits.
Among the noteworthy features introduced by the code: a simplified administrative procedure for small projects, time limits and
a list of required documents for the construction authorization process, and a registry for certified professionals along with a list
of the functions they should perform. The code also classifies construction projects into four categories based on their risk and
complexity, eliminating the need to obtain a building permit for low-risk projects. Finally, the code serves as the foundation for
the new one-stop shop for building permits at the Ministry of Emergency Situations.

both by a government agency and by Instead, the plans are simply reviewed by a Quality control during
either the national association of architects civil servant who may not have the neces- construction
or an independent expert (a firm or an sary technical qualifications or expertise. Quality control during construction is
individual). In 9 economies plans may be vital to ensuring the safety of a building. It
reviewed by the national association of While low-income economies rely almost also helps in identifying possible defects
architects or an independent expert alone solely on government agencies for the as they occur. Economies use different
without the involvement of a government review, high-income economies tend types of inspection systems. Forty-six
agency. Ukraine is the only economy to involve independent experts in the economies do not involve a government
where construction plans do not need to process (figure 6.2). And 13 economies, agency at all but instead allow a supervis-
be reviewed before a building permit is all of them upper middle or high income, ing engineer or firm to take responsibility
issued. For projects like the warehouse in require that plans be reviewed by both a for ensuring the safety of the building.
the Doing Business case study, the builder government agency and an independent Twenty-three of them allow the building
simply needs to submit a declaration of the expertAustralia; Bosnia and Herzegovina; company to rely on an in-house engineer
commencement of construction works.8 Bulgaria; France; Germany; Hong Kong to supervise construction, 16 require the
SAR, China; Latvia; Lebanon; Maldives; building company to hire an external
In 32 of the economies where a govern- Montenegro; Serbia; Singapore; and Spain. supervisor or firm, and 7 require supervi-
ment agency reviews and approves the sion by both an in-house engineer and an
plans (13 of them in Sub-Saharan Africa), external engineer. Many other economies
no licensed architect or engineer is part of have a mixed system, requiring the use
the committee that approves the plans. of an in-house or external supervising
engineer while also having a government
Figure 6.2 Upper-middle-income and high-income economies are more likely than agency conduct its own inspections.
others to require that independent experts review building plans
The practice of having an in-house
Share of economies with type of review
for building plans (%) engineer conduct inspections during con-
100 struction is most common in Europe and
Central Asia (used in 73% of economies)
80 and East Asia and the Pacific (56%) (fig-
ure 6.3). Requirements to hire an external
60
supervising engineer or firm to conduct
inspections are not common, including
40
among economies in Europe and Central
20 Asia and the OECD high-income group.
However, in some OECD high-income
0 economies, such as Australia, Iceland and
Low income Lower middle income Upper middle income High income
New Zealand, an external firm generally
Review by government agency Review by association of architects conducts certain types of inspections. No
Review by independent expert
economy in South Asia requires the use
of an external firm to conduct inspec-
Source: Doing Business database.
Note: The percentages shown in the figure are based on data for 189 economies, though for economies in which
tions, and very few do so in Latin America
Doing Business collects data for two cities, the data for the two cities are considered separately. and the Caribbean.
Dealing With Construction Permits 65

States (New York City). On the other


Figure 6.3 Having in-house engineers conduct inspections is more common than
hand, in 10 economies inspections rarely
having external engineers or firms conduct them
occur in practice even though they are
Share of economies with type of engineer required by law.
conducting inspections (%)
80
70 Quality control after
60
construction
While inspections during construction
50
are an important element of qual-
40
ity control, verifying that the completed
30
building was built in accordance with
20 the approved plans and is safe for use is
10 equally important. Builders sometimes
0 deviate from the approved plans. This is
Europe & East Asia South Asia OECD high Middle East Latin Sub-Saharan
Central Asia & Pacific income & North Africa America Africa often done to save money, such as when
& Caribbean
it costs less to get a building permit for
In-house engineer External engineer or firm a smaller building. But the consequences
can be serious. For example, if structural
Source: Doing Business database.
Note: The percentages shown in the figure are based on data for 189 economies, though for economies in which calculations are done for a two-story
Doing Business collects data for two cities, the data for the two cities are considered separately. building but the builder adds more lev-
els, this can put excessive stress on the
Inspections conducted by a government inspections are most common among foundation and lead to the collapse of
agency are generally of three types: unan- OECD high-income economies, though the building (similar to the Rana Plaza
nounced or unscheduled inspections (also used in only about a quarter of this group. case). While some of these issues can be
known as random inspections), which detected through quality control during
can occur at any time and at any stage of Twenty-two economies have no legal construction, requiring a final inspec-
a construction project; phased inspections, requirement for inspections of any type tion allows a last check for issues that
which occur at specific stages of con- during construction. But inspections are might have been overlooked earlier and
struction, such as at excavation, founda- still conducted as a matter of practice in 9 is essential to ensuring the safety of the
tion and so on; and risk-based inspections, of these economiesAngola, Brazil (Rio building. Once the building passes this
which occur if warranted (for example, de Janeiro), Equatorial Guinea, Gabon, final inspection, a completion certificate,
for buildings of a certain size, location the Marshall Islands, Panama, Samoa, certificate of conformity or occupancy
or use). Sub-Saharan African economies So Tom and Prncipe and the United permit is generally issued.
tend to rely on random inspections,
mostly because of a shortage of qualified
staff. Random inspections are sometimes Figure 6.4 Risk-based inspections are more common in OECD high-income
done simply to verify that a building economies than in other regions
permit has been issued. But they can also Share of economies with type of
become rent-seeking opportunities. In inspection (%)
most cases, however, especially in low- 70
income Sub-Saharan African economies, 60
these random inspections do not take 50
place in practice, even if required by law.9
40
30
The majority of economies that rely on
20
a government agency for quality control
10
use either phased or risk-based inspec-
0
tions, though only a few of these opt South Asia East Asia Latin America Sub-Saharan OECD high Europe & Middle East
& Pacific & Caribbean Africa income Central Asia & North Africa
for risk-based inspections (figure 6.4).
Phased inspections are most common in Phased inspections Risk-based inspections

South Asia and East Asia and the Pacific,


Source: Doing Business database.
used in more than half the economies
Note: The percentages shown in the figure are based on data for 189 economies, though for economies in which
in each of these regions. Risk-based Doing Business collects data for two cities, the data for the two cities are considered separately.
66 Doing Business 2016

Economies use different approaches implement it in practicethe majority of to pay an additional premium to the insur-
for the final inspection. Among the 189 them in Sub-Saharan Africa. ance company). In Belize, New Zealand
economies covered by Doing Business, and the United Kingdom, for example, the
84% (159 economies) require one or Thirteen economies have no legal require- warranty period can range from one to
more government agencies to conduct ment for a final inspectionAfghanistan, three years after the building is completed.
the inspection. Where a joint inspection the Comoros, Equatorial Guinea, Ethiopia, During this period the building contractor
is required, it is often done by the permit- Guyana, Kiribati, Liberia, Maldives, the must repair any defects. Contractors com-
issuing authority and the civil defense Marshall Islands, the Federated States of monly hold insurance to cover these costs
department (or its equivalent). In the 100 Micronesia, Nicaragua, Samoa and the even if not required to do so by law.
economies that allow either an in-house Republic of Yemenalmost all of them
engineer or an external engineer or firm low- or lower-middle-income economies. In other economies, however, liability is
to provide supervision during construc- But in two of these economiesthe generally shared by the contractor and the
tion, this engineer is often required to Comoros and Samoaa final inspection architect, often for 10 years. In Australia,
submit a final report to the permit-issuing still commonly occurs in practice. for example, both the contractor and the
authority attesting that the building was architect must have insurance for 10 years.
built in accordance with the approved But even among high-income economies,
plans and regulations. Eleven economies WHO IS HELD LIABLE FOR very few make this insurance mandatory.
require this report only from an in-house STRUCTURAL FLAWS?
engineer, 5 require it only from an exter- In more than 60% of economies in all
nal party, and only Greece requires it from When defects are discovered during con- regions except Sub-Saharan Africa, the
both parties (without a final inspection by struction, they are more likely to be easily architect who designed the plans or the
a government agency). Yet 50 economies remedied. But defects are often discovered construction company will be held liable for
that require this final report from an in- only after the building has been occupied. any defects, but not the supervising engi-
house or external engineer still require a Remedying defects at that stage can be neer or the agency that conducted inspec-
final inspection by a government agency. both costly and time-consuming. So it is tions during construction (figure 6.6). In
important that the responsible party be most cases, who is held liable depends on
All economies in the OECD high-income held liable and that the parties involved the origin of the defect. For example, if the
group and in Europe and Central Asia in the building design, supervision and defect was a result of an error at the design
require a final inspection by law (figure construction obtain insurance to cover the stage, the architect is usually held liable. In
6.5). South Asia and East Asia and the costs of any structural defects. 22% of economies no party is held liable by
Pacific have the smallest shares of econo- law.
mies that do sothough the shares Under contract and tort laws there can be
are still quite large, at 82% and 85%. a warranty period for the liability, a period Having insurance to cover costs that arise
Among the 176 economies worldwide that can be extended for an additional cost from structural defects benefits all parties
that require a final inspection, 15% rarely to the owner (because the builder will need involved, from clients to contractors. It
ensures that damages will be covered if
Figure 6.5 Almost all economies require a final inspection by law defects are detected once the building is
occupiedand when parties know they
Share of economies that require
are protected, this can encourage more
a final inspection by law (%)
construction. Having insurance to protect
100
against the high costs from potential dam-
80
ages can be particularly important for small
and medium-size construction companies.
60
More than half of economies (57%) do not
40 require any party to purchase insurance to
cover structural defects, nor is insurance
20
commonly purchased as a matter of prac-
0 tice. While these economies may require
OECD high Europe & Middle East Latin America Sub-Saharan East Asia South Asia
income Central Asia & North Africa & Caribbean Africa & Pacific that companies purchase professional
liability insurance or workers compensa-
Source: Doing Business database.
tion insurance, Doing Business looks only
Note: The percentages shown in the figure are based on data for 189 economies, though for economies in which
Doing Business collects data for two cities, the data for the two cities are considered separately. at whether insurance must be purchased
Dealing With Construction Permits 67

Figure 6.6 In economies around the world, the architect or construction company is Figure 6.7 Most high-income
most likely to be held liable for structural defects economies have at least two
qualification requirementsincluding a
Share of economies where party is
held liable (%)
university degreefor the professionals
who supervise construction
100

Economies by type of qualification


80 requirements for the professionals who
supervise construction (%)
60 100

40 80

20 60

0 40
Europe & OECD Middle East Latin America East Asia South Asia Sub-Saharan
Central Asia high income & North Africa & Caribbean & Pacific Africa
20
Construction company Architect Supervising engineer

0
Source: Doing Business database. Low Lower Upper High
income middle middle income
Note: The percentages shown in the figure are based on data for 189 economies, though for economies in which income income
Doing Business collects data for two cities, the data for the two cities are considered separately.
University degree, minimum years
of experience and certification
to cover defects found after the building is construction on-site. The professionals University degree plus one other
requirement
completed. Among the 51 economies that reviewing building plans are required to
No university degree required
do require such insurance by law, 75% of have a university degree in architecture or
them require the construction company engineering in 84% of economiesand
Source: Doing Business database.
to have the insurance. Only 15 economies must be a registered member of the nation- Note: The percentages shown in the figure are based
require the supervising engineer or the al association of architects or engineers in on data for 189 economies, though for economies in
which Doing Business collects data for two cities, the
agency that conducts inspections to hold 62%. But only 46% of economies require data for the two cities are considered separately.
insurance. And in 30 economies where these professionals to have a minimum
insurance is not required by law, most number of years of practical experience,
construction companies and architects and only 28% require them to pass a quali- or to pass a qualification exam. And in
nevertheless purchase insurance as a fication exam. And 20 economies have no 28 economies they are subject to no
matter of practice. qualification requirements for the profes- qualification requirements.
sionals who review building plans.

WHAT CERTIFICATIONS ARE The professionals who supervise con- WHY DOES THE QUALITY
REQUIRED? struction on-site are required to have a MATTER FOR ALL?
university degree in engineering, con-
The professionals who conduct inspections struction or construction management The quality of a construction permitting
ensure safety standards for buildings, so in 73% of economiesand required to system matters in ensuring the safety of
it is important that they be certified and be a registered member of the national construction and consequently of citi-
have the necessary technical qualifica- association of engineers in 53% of zens. In general, high-income economies
tions. Similarly, the individuals who review economies, the majority of them high- have better quality control and safety
and approve building plans need to have income economies. Most economies mechanisms (figure 6.8). Most of these
a technical background in architecture or that have at least two qualification economies not only have put the neces-
engineering to understand whether the requirements for the professionals who sary safety controls in their legislation but
plans meet the necessary safety standards. supervise construction (one being a also have been able to effectively imple-
university degree) are also high-income ment them in practice.
Most economies have more stringent qual- economies (figure 6.7). Like the profes-
ification requirements for the professionals sionals who review building plans, those The quality of a construction permitting
responsible for verifying that building who supervise construction on-site system also matters in reducing corrup-
plans are in compliance with the building are rarely required to have a minimum tionsomething to which the construc-
regulations than for those who supervise number of years of practical experience tion industry is particularly susceptible in
68 Doing Business 2016

Figure 6.8 High-income economies have better quality control and safety mechanisms
Average building quality Average building quality
control index (015) control index (015)
15 15

12 12

9 9

6 6

3 3

0 0
Low Lower middle Upper High OECD Europe & South Asia Middle East East Asia Latin America Sub-Saharan
income income middle income high income Central Asia & North Africa & Pacific & Caribbean Africa
income

Source: Doing Business database.

economies around the world. Transparency construction permitting system tend to excessive documentation requirements
and clarity in building regulations can have lower levels of perceived corruption while still ensuring the necessary reviews
reduce opportunities for corruption. (figure 6.9). of building plans by qualified profes-
Indeed, the findings show that economies sionals and the necessary safety checks
with greater quality and efficiency in their Moreover, the data show that efficiency during construction.
goes hand in hand with quality. Economies
with a more efficient construction per-
Figure 6.9 The greater the quality and mitting system also tend to have better CONCLUSION
efficiency of the construction permitting quality control and safety mechanisms
system, the lower the level of perceived (figure 6.10). Most of these economies Introducing the new building quality
corruption in an economy have managed to put in place systems control index has expanded the coverage
Corruption Perceptions Index that avoid burdensome procedures and of the dealing with construction permits
(0100)

70
Figure 6.10 Economies with a more efficient construction permitting system tend to
60 have better quality control and safety mechanisms
50
Distance to frontier score for
40 building quality control index
100 High quality, High quality,
30 low efficiency high efficiency
90 Bosnia and
20 Herzegovina Taiwan, China
80
10
70
0
025 2650 5175 76100 60
Distance to frontier score for dealing with 50
construction permits (0100)
40 Lao PDR

Sources: Doing Business database; Transparency 30


International data (https://www.transparency.org
/cpi2014/results). 20
Note: A higher score on the Corruption Perceptions 10 Low quality, Afghanistan Low quality,
Index indicates a lower level of perceived corruption. low efficiency high efficiency
Data for the Corruption Perceptions Index are for 0
2014. Economies for which no data are available for 0 10 20 30 40 50 60 70 80 90 100
the index are excluded from the sample. These are Distance to frontier score for efficiency of construction permitting
Antigua and Barbuda, Belize, Brunei Darussalam,
Equatorial Guinea, Fiji, Grenada, Kiribati, Maldives,
the Marshall Islands, the Federated States of Source: Doing Business database.
Micronesia, Palau, San Marino, the Solomon Islands, Note: The figure compares the average distance to frontier score for indicators of the efficiency of construction
St.Kitts and Nevis, St.Lucia, Tonga, Vanuatu, and permitting (procedures, time and cost to comply with the formalities to build a warehouse) with the distance to
West Bank and Gaza. The relationship is significant at frontier score for the building quality control index. The sample includes all 189 economies. The relationship is
the 1% level after controlling for income per capita. significant at the 5% level after controlling for income per capita.
Dealing With Construction Permits 69

indicators. Data for this index cover such


key elements as the transparency and
quality of building regulations, the qual-
ity control mechanisms for supervising
construction, and liability and insurance
regimes. The findings show that having
the necessary quality control and safety
mechanisms in place matters in reduc-
ing corruption and that economies with
more efficient construction permitting
systems also tend to have better quality
control and safety mechanisms.

NOTES
This case study was written by Marie Lily Delion,
Anushavan Hambardzumyan, Joyce Antone
Ibrahim and Ana Maria Santillana Farakos.
1. Moullier 2009.
2. De Soto 2000.
3. Agence France Presse, Nigeria Approves
Building Code, News24.com, August3, 2006,
http://www.news24.com/. Because many
cases go unreported, the actual figure is
probably higher.
4. Associated Press, Bangladesh Official:
Disaster Not Really Serious, USA Today,
May3, 2013; Nexus of Politics, Corruption
Doomed Rana Plaza, Dhaka Tribune, April26,
2013.
5. Ali and Ahmed 2015.
6. World Bank 2009.
7. Glaeser, Gyourko and Saks 2003, 2005.
8. This applies to projects in categories IIII as
defined in Ukraines Law on Regulation of
Urban Development of March12, 2011.
9. For the data on whether inspections during
construction and the final inspection occur in
practice, respondents were asked to assess
whether these inspections occur in practice
all the time, most of the time or not at all.
In cases where respondents gave varied
responses, the team conducted thorough
follow-up with additional respondents to
resolve the differences.
Doing Business 2016

Getting electricity
Measuring reliability, prices and transparency

E
This year Doing Business collected new lectricity plays a vital part in the of the power sectors overall performance
data in 189 economies on the price of modern economy. Yet merely hav- in each economy. For this reason Doing
electricity and the overall quality of ing access to power is not enough. Business introduces two new indicators this
electricity supply. The reliability of supply is also crucial. year (figure 7.1). The reliability of supply and
High electricity prices and frequent According to 2013 World Bank Enterprise transparency of tariffs index encompasses
power outages constrain the Survey data for 135 economies, business quantitative data on the duration and
operations of businesses and affect owners perceive an unreliable supply of frequency of power outages as well as
entrepreneurs decisions on whether electricity as one of the main obstacles to qualitative information on how utilities and
to establish a business and on how to their activities. In both Sub-Saharan Africa regulators handle power outages and how
operate it. and South Asia about 45% of firms identi- tariffs and tariff changes are communicated
A sound regulatory environment can fied reliability of the power supply and to customers. The price of electricity pro-
help ensure a stable electricity supply. connecting to the grid as among the key vides comparable data on electricity prices
In 131 of the 189 economies covered constraints to doing business.1 Businesses for commercial customers (this indicator is
by Doing Business, a national energy in Pakistan estimated losses due to power not included in the ranking on the ease of
regulator monitors the frequency and outages at up to 34% of annual revenue, doing business, however).
duration of power outages. In 66 of while respondents in the Central African
these economies utilities compensate Republic reported losses of up to 25% of The new data broaden the coverage of
customers or pay fines if outages revenue. Not surprisingly, research shows the getting electricity indicators, provid-
exceed the limits set by the regulator. that capital (domestic and foreign) tends ing a more comprehensive picture. Yet
Electricity tariffs for commercial to be attracted to countries that are able the data show that the efficiency of the
customers typically range from 10 to to offer a reliable and competitively priced connection process and the reliability of
30 cents per kilowatt-hour, but prices supply of electricity.2 electricity supply appear to be correlated.
in some economies are much higher. In other words, economies where it is
Tariffs need to strike a balance Since 2011 Doing Business, through its get- easy to connect to the grid tend to have a
remaining affordable to customers ting electricity indicators, has measured well-developed and reliable network infra-
while enabling the utility to recover one aspect of access to electricityby structure characterized by few outages
costs and make a profit. recording the time, cost and number of pro- (figure 7.2). The Republic of Korea, for
cedures required for a small to medium-size example, has the fastest process for get-
Information about tariffs needs to
be clear and easily accessible to business to legally connect a commercial ting a new electricity connection (taking
customers. Making tariffs readily warehouse to the electrical grid. Over the only 18 days) as well as a low cost to con-
available and providing advance years the getting electricity indicators have nect (40% of income per capita). Korea
notice of changes in tariffs can help served as a benchmarking tool, enabling also has the highest possible score on the
businesses manage their costs. utilities and regulators to measure the effi- reliability of supply and transparency of
ciency of the electricity connection service tariffs index. Businesses in Seoul typically
and contributing to dialogue on regulatory experience power outages amounting to
reforms and good practices. less than an hour a year and can receive
compensation for an outage caused by the
But the efficiency of the connection utility if power isnt restored within five
processas measured by the time, cost minutes. The utility uses automated sys-
and number of procedures to get a new tems for monitoring outages and restoring
connectionrelates to only a small part service. And the independent regulatory
Getting Electricity 71

uses manual systems to monitor outages.


Figure 7.1 New measures have expanded the coverage of the getting electricity
Moreover, there is no active regulatory
indicators
body, electricity tariffs are not published
System average interruption duration index
online, and customers receive no com-
Getting a connection
to the electrical grid
(SAIDI) pensation when outages occur.

System average interruption frequency Even so, an efficient connection process


index (SAIFI)
does not automatically translate into
Reliability better reliability of supply. The ability of
Time of supply and
(calendar transparency Mechanisms for monitoring outages and a distribution utility to provide reliable
days) of tariffs indexa restoring service
supply depends on many factors along
Cost Procedures the chain from generation through trans-
(% of income (number)
per capita) Regulatory monitoring mission to delivery of electricity to the
customer.
Financial deterrents aimed at limiting
outages

Price of electricitya
RELIABILITY OF SUPPLY
Consumption price for commercial
customers (cents per kilowatt-hour) Communication of tariffs and tariff changes
Electricity outages can have serious
effects on businesses. They can dam-
a. New indicator added this year. The price of electricity is not included in the ranking on the ease of doing business. age assets (such as electronics) and
inventory. And they can disrupt work by
body that oversees the sector makes sure its supply and the power infrastructure is shutting down equipment and cutting off
that changes in electricity tariffs are com- outdated and subject to huge transmis- lighting, heating or internet connections.
municated ahead of time. sion and distribution losses. In Niamey Our businesses are down because of
getting a new connection takes 115 days these outages; without electricity we
Businesses face a different situation in and costs more than 6,200% of income cant work. We really cant afford any
Niger, where there is a substantial gap per capita. Customers experience power more of this, said Mr. Ali, a businessman
between the demand for electricity and outages almost daily, and the utility still who owned a dry-cleaning company in
downtown Cairo. He was among the
20 million people affected by the citys
Figure 7.2 Economies with an efficient connection process tend to have a reliable frequent power outages in 2014.3
electricity network
Constrained by outages, millions of
Distance to frontier score for reliability of
supply and transparency of tariffs index
businesses around the world need to
100 Low efficiency,
High efficiency, alter their operations to avoid disrup-
high reliability
high reliability tions or resort to captive power options,
90
usually diesel generators. According to
80
the 2013 World Bank Enterprise Survey
70
data, more than 40% of firms located in
60
61 developing economies in the Middle
50 East and North Africa, South Asia and
40 Sub-Saharan Africa have their own gen-
30 erator even when they are connected to
20 the grid.4 Businesses in higher-income
10 Low efficiency, High efficiency, economies also contend with unreli-
low reliability low reliability
0 able power supply. As a result of the
0 10 20 30 40 50 60 70 80 90 100
200001 rolling blackouts in the U.S.
Distance to frontier score for efficiency of connection process
state of California, a substantial number
Source: Doing Business database.
of businesses decided to install backup
Note: The figure compares the average distance to frontier score for indicators of the efficiency of the connection generators,5 which typically cost tens of
process (procedures, time and cost) with the distance to frontier score for the reliability of supply and transparency thousands of dollars and generate very
of tariffs index. The correlation between the two scores is 0.49. The relationship is significant at the 1% level after
controlling for income per capita. expensive electricity.
72 Doing Business 2016

An unstable electricity supply can also total duration of outages, and SAIFI the whether electricity tariffs are transparent
lead to lower employment and to lower average frequency of outages, experienced and easily available (with effective tariffs
production for firms. Using data from by a customer in a year (excluding outages available online and customers notified
Nigeria for 19702005, a study identi- due to natural disasters). The calculation of a change in tariff ahead of the billing
fied the inadequate and unstable power of SAIDI and SAIFI values is based on a cycle).
supply to the industrial sector as a major standardized approach that is the most
cause of unemployment in the country. common one in use around the world. To What do the data on reliability
Industry is a core sector for the genera- ensure the comparability of data across show?
tion of national wealth and employment economies, Doing Business relies only on The data show that the occurrence of
in Nigeria, but faced with an electricity SAIDI and SAIFI. The data are collected in outages is associated with several fac-
sector hampered by poorly utilized gen- the largest business city of each economy tors. One is an economys income level.
eration capacity, high transmission losses (and, in 11 economies, also in the second A typical firm operating in a low-income
and frequent outages, companies turn to largest business city). economy faces nearly 250 outages a year,
self-provision of electricity. This raises lasting close to 1,000 hours in total, while
their production costs, reducing their The reliability of supply and transpar- a typical one in a high-income economy
competitiveness and thus their demand ency of tariffs index also measures five experiences only 1.5 outages a year,
for labor. The erratic and inadequate qualitative aspects: whether utilities use totaling around 3 hours. The frequency
power supply in Nigeria has often been automated tools to monitor power out- and duration of outages also vary sub-
cited as the main reason forcing mul- ages; whether they use automated tools stantially among regions. Sub-Saharan
tinationals to relocate production lines to restore power supply; whether a regula- African economies have the longest total
to other countries.6 Power outages also torthat is, an entity separate from any duration of outages, averaging almost
affect output levels. As a result of power utilitymonitors utilities performance 700 hours a year for a customerwhile
supply interruptions in Bangladesh in on reliability of supply (through periodic OECD high-income economies have the
200103, utilities failed to meet an esti- or real-time reviews); whether utilities shortest, averaging only about 1 hour a
mated 13.6% of the industrial sectors face financial deterrents aimed at limiting year (figure 7.3). Economies in South
demand. In 200001 the resulting eco- outages (such as a requirement to com- Asia have the highest frequency of out-
nomic losses amounted to 1.7% of GDP.7 pensate customers or to pay fines); and ages, averaging more than 200 outages

The effects go beyond economic costs.


An unreliable electricity supply also has Figure 7.3 Electricity customers in Sub-Saharan Africa endure the most time without
power supply on average
consequences for a societys well-being
and living conditions. Only 25% of
Average total duration of power
health facilities in Kenya can count on outages in a year (hours)
a reliable power supply. In India nearly 800
half of health facilities have no access to
700
electricity at all.8 Most public services
600
are compromised when power shuts
500
down. And outages can pose a threat
400
to personal safetysuch as by putting
out streetlights and traffic lights and by 300

disabling burglar alarms in homes. 200


100
How is the reliability of supply 0
Sub-Saharan South Asia Middle East & East Asia Latin America Europe & OECD
measured? Africa North Africa & Pacific & Caribbean Central Asia high income
The reliability of supply and transparency of
tariffs index provides a tool for benchmark-
Source: Doing Business database.
ing the performance of utilities in providing
Note: The figure shows the average number of hours without electricity supply over the course of a year for a low-
a reliable electricity supply. To assess the or medium-voltage customer in the largest business city of each economy, as measured by SAIDI. For 10 economies
the data are also collected for the second largest business city. The data are for the most recent year available.
reliability of supply, Doing Business uses two The sample comprises 147 economies. It excludes the following economies, for which no data were available:
standard measures: the system average Angola; The Bahamas; Bangladesh; Benin; Botswana; the Central African Republic; Chad; the Republic of Congo;
Djibouti; the Arab Republic of Egypt; Equatorial Guinea; Ethiopia; The Gambia; Ghana; Guinea-Bissau; Haiti; Iraq;
interruption duration index (SAIDI) and Kiribati; the Kyrgyz Republic; Lao PDR; Lebanon; Lesotho; Madagascar; Malawi; Maldives; the Federated States of
the system average interruption frequency Micronesia; Montenegro; Mozambique; Myanmar; Nepal; Qatar; Rwanda; So Tom and Prncipe; Sierra Leone;
South Africa; St. Kitts and Nevis; St. Vincent and the Grenadines; the Syrian Arab Republic; Tajikistan; Timor-Leste;
index (SAIFI). SAIDI measures the average Repblica Bolivariana de Venezuela; and the Republic of Yemen.
Getting Electricity 73

is to set minimum quality standards while


Figure 7.4 Electricity customers in South Asia experience the greatest average
also monitoring data on outages. Among
frequency of power outages
the economies with less than one hour of
Average number of power cuts in 2014, 95% have a regulator
power outages in a year that performs periodic or real-time moni-
250 toring of outages. Data for low- and lower-
middle-income economies underscore
200 the importance of regulatory monitoring
(figure 7.5). Regulatory oversight can lead
150
to stark differences in the duration of out-
100
ages even among economies with similar
income levels. Guatemala City, where a
50 regulator monitors power cuts, registered
4 hours of outages in 2013. Tegucigalpa,
0
South Asia Sub-Saharan Middle East East Asia Latin America Europe & OECD Honduras, where there is no regulatory
Africa & North Africa & Pacific & Caribbean Central Asia high income oversight of outages, had 257 hours of
power interruptions that same year.
Source: Doing Business database.
Note: The figure shows the average number of power outages over the course of a year for a low- or medium- Another strategy often used by regula-
voltage customer in the largest business city of each economy, as measured by SAIFI. For 10 economies the data tors is to set a limit on the frequency
are also collected for the second largest business city. The data are for the most recent year available. The sample
comprises 147 economies. It excludes the following economies, for which no data were available: Angola; The and duration of outages and then require
Bahamas; Bangladesh; Benin; Botswana; the Central African Republic; Chad; the Republic of Congo; Djibouti; the
Arab Republic of Egypt; Equatorial Guinea; Ethiopia; The Gambia; Ghana; Guinea-Bissau; Haiti; Iraq; Kiribati; the
utilities to pay compensation to custom-
Kyrgyz Republic; Lao PDR; Lebanon; Lesotho; Madagascar; Malawi; Maldives; the Federated States of Micronesia; ers if they exceed that limit. Alternatively,
Montenegro; Mozambique; Myanmar; Nepal; Qatar; Rwanda; So Tom and Prncipe; Sierra Leone; South Africa;
St. Kitts and Nevis; St. Vincent and the Grenadines; the Syrian Arab Republic; Tajikistan; Timor-Leste; Repblica regulators may impose a fine on utilities.
Bolivariana de Venezuela; and the Republic of Yemen. The size of such penalties varies across
economies. But those that use financial
a year for a typical customer; OECD high- regulation should not compromise their deterrents to limit outages had 14 power
income economies have the lowest, balance sheets. cuts on average in 2014, lasting around
averaging 1 outage a year (figure 7.4). 30 hours in total, while those that dont
To create incentives to provide adequate use them had 5 times as many outages,
Many issues affecting the quality of sup- service, one strategy used by regulators lasting almost 10 times as long.
ply are beyond government control. In
some economies the national electricity Figure 7.5 Among low- and lower-middle-income economies, customers endure far
supply is undermined by frequent natural less time without power supply in those with regulatory monitoring of outages
disasters coupled with limited natural
Average total duration of power
resources. Addressing issues of genera- outages in a year (hours)
tion capacity and reliability of transmis-
1,200
sion and distribution grids may take a
long-term approach. But in the shorter 1,000
term there are practical actions that 800
governments can take to ensure more
600
reliable service. One is to put in place a
robust regulatory framework with the 400
right oversight and incentives. Electricity
200
supply is typically a natural monopoly,
so customers dissatisfied with the qual- 0
Average for low- Global average for low- Average for low-
ity or price of the service often have no and lower-middle-income and lower-middle-income and lower-middle-income
economies with economies economies without
alternatives to choose from. This makes regulatory monitoring regulatory monitoring
it important for regulators to monitor
utilities performance on matters relating Source: Doing Business database.
Note: The figure shows the average number of hours without electricity supply over the course of a year for a low-
to outages and tariffs. But to ensure that or medium-voltage customer in the largest business city of each economy, as measured by SAIDI. For four low- or
utilities can make the necessary invest- lower-middle-income economies the data are also collected for the second largest business city. The data are for
the most recent year available. Regulatory monitoring refers to periodic or real-time monitoring of outages. The
ments to maintain and improve service, sample comprises 51 economies.
74 Doing Business 2016

Like regulators, utilities can also take the sources of power failureswhich in reasonable tariffs. At the same time, the
action to improve the reliability of supply. economies with high SAIDI and SAIFI private sector takes into account the cost
One way is to invest in the information values are usually faulty equipment, of electricity when making investment
technology systems used to monitor inadequate generation capacity and decisions, and businesses often try to
power interruptions and restore service. outdated power system infrastructure. curb their energy costs through energy
Because of financial constraints and Tackling these issues requires consider- efficiency measures. But achieving effi-
the cost of introducing such systems, able investments (box 7.1). But making cient power pricing is easier said than
many utilities continue to rely on call these expenditures should not neces- done. The power sector is characterized
centers to record outages, then send out sarily price out the majority of custom- by substantial up-front fixed costs, and
maintenance crews to find the location ersevidence suggests that expensive it takes many years for initial invest-
of the fault and identify the cause. This electricity bills do not ensure efficient ments to pay off. Beyond that, costs vary
process typically takes several hours. service. Indeed, an analysis covering 189 between different times of the day (peak,
In 119 economies, however, utilities are economies that controls for income per off-peak), seasons (dry, rainy), types
able to rely instead on an electronic capita shows that it is possible to have a of users (residential, commercial) and
system, such as a Supervisory Control stable supply even with low tariffs. This geographic areas (urban, rural).10
and Data Acquisition (SCADA) system combination is most commonly found in
or an Incidence Management System. A economies that are rich in fuel energy Tariffs, as well as any changes in them,
SCADA system, for example, transfers resources. But there are exceptions. One need to be clearly communicated to
data in real time between the substations of them is Turkey. Electricity customers customerswhether through the utilitys
and the operator terminals. When an in Istanbul experience five outages a and regulators websites, the media, pub-
outage occurs, information on the exact year on average, and tariffs amount to lic hearings or other means. Customers
location and cause of the power cut can 14 cents per kilowatt-hour, considerably need this information so that they can
immediately be sent to a dispatch crew.9 lower than the global average. plan their expenses, understand the util-
A SCADA system can also automatically itys billing system and, if needed, contest
restore power flow once it is safe to do so. the charges. Businesses want to know in
This automation not only helps increase PRICE OF ELECTRICITY advance of any change in expenditure
reliability; by reducing damage to equip- AND TRANSPARENCY so that they can adjust their allocation
ment, it also helps lowercosts. of financial resources accordingly. In
Efficient pricing is central to a well- some economies the law requires utili-
Beyond investing in adequate tools to functioning power sector. Utilities need ties to announce changes several billing
monitor and restore power outages, to be able to recover their costs and make cycles ahead. In others, the regulator
utilities also need to directly address a profit by charging their customers helps ensure that tariffs are published in

BOX 7.1Improving the reliability of power supply in Mexico


Mexicos capital has had a big improvement in the reliability of electricity supply. In 2010 a typical customer living in the Mexico
City metropolitan area experienced 7.33 hours of power outages. In 2014, just four years later, the same customer would have
had to deal with outages totaling only 55 minutes.

Power interruptions are often caused by aging infrastructure, faulty equipment, electricity supply shortages and even such
factors as erratic weather or falling trees. The local utility in Mexico City, the Comisin Federal de Electricidad (CFE), has been
tackling these problems. Between 2010 and 2014 the utility invested 3.76 billion Mexican pesos (about $244 million) in modern-
izing electrical circuits and underground networks; improving the maintenance of substations, power plants and other assets;
and pruning trees.a

Besides investing in infrastructure, the utility also relies on a robust system for monitoring outages, to ensure a timely response
in detecting power cuts and restoring supply. Thanks to its SCADA system, the utility can conduct real-time monitoring of power
interruptions and electronically restore electricity supply in the city.

At the national level too there is a sophisticated monitoring system in place. In 2012 Mexicos Electric Research Institute devel-
oped an electronic tool based on GIS (geographic information system) technology to forecast the effects of hurricanes on the
countrys electricity infrastructure. This has helped improve the planning and preparation for weather-related power outages,
reducing the total duration of supply interruptions in Mexico.b
a. Comisin Federal de Electricidad 2015.
b. Espinosa Reza, Gonzlez Castro and Sierra Rodrguez 2011; Mena Hernndez 2012.
Getting Electricity 75

different media outlets and that the infor- To assess the transparency of prices, population with access to electricity.
mation is clear and detailed enough so Doing Business scores economies on Indeed, in the business sector high elec-
that customers can calculate their prices. whether tariffs are made available tricity prices can discourage investments
In Pakistan, for example, customers are online and communicated properly to and also raise questions about whether it
informed if the regulator and the util- customers and whether tariff changes makes more sense to connect to the grid
ity even have a consultation on potential are announced ahead of the billing cycle or to use a captive power option.
tariff changes. through a means of communication
reaching a majority of customers (televi- Interestingly, however, data for a sample
How are prices and their sion, radio, courier, newspapers). This of 187 economies suggest that electricity
transparency measured? score is part of the reliability of supply prices do not affect average electrifica-
To measure the price of electricity, Doing and transparency of tariffs index. tion rates across income groupsexcept
Business computes a monthly bill for a perhaps when prices exceed 40 cents
small to medium-size business in the What do the data on prices per kilowatt-hour (figure 7.7). Indeed, in
largest business city of each economy show? Liberia, where the price per kilowatt-hour
(and, in 11 economies, in the second The price of electricity as measured is 56 centsnearly four times the price in
largest business city as well). To ensure by Doing Business varies widely among Finlandonly 9.8% of the population has
comparability of the data across econo- regions (figure 7.6). It is lowest on aver- access to electricity. Prices this high can
mies, Doing Business uses a standardized age in the Middle East and North Africa be a strong deterrent to establishing a
case study centered on a commercial (11 cents per kilowatt-hour) and highest formal connection to electricityand this
warehouse with a subscribed capacity on average in East Asia and the Pacific indirectly contributes to electricity theft
and level of energy use typical of this kind (27 cents per kilowatt-hour). and to revenue losses for the utility,11 trig-
of customer: the warehouse requires a gering a vicious cycle in which it struggles
capacity of 140 kilovolt-amperes (kVA) Many factors drive the price of electric- to adequately serve its customers. Even
and has an hourly consumption of 112 ity in an economy, with some of the so, utilities need to adopt prices that
kilowatt-hours. The case study assumes important ones being the availability of allow them to maintain the necessary
that the warehouse uses electricity domestic energy resources, the condi- power system infrastructure and provide
30 days a month, in March, and from tion of power sector infrastructure, the quality services.
9:00 a.m. to 5:00 p.m. (which amounts adequacy of generation capacity and the
to a monthly consumption of 26,880 existence and extent of subsidy regimes. The price of electricity has an important
kilowatt-hours). When multiple electric- A combination of these factors typi- effect on power consumption. According
ity suppliers exist, it is assumed that cally explains the differences in the prices to a report from the U.S. Department of
the cheapest supplier is used. To allow observed, and these in turn may affect Energy, customers adjust their consump-
comparison of the price of electricity for the electrification ratethe share of the tion patterns to changes in price as well as
businesses around the world, the total
price is then converted to U.S. dollars and
expressed in cents per kilowatt-hour. Figure 7.6 The average price of electricity varies widely among regions

Average price of electricity


By compiling a standard electricity bill, (cents per kilowatt-hour)
Doing Business adopts the perspective 30
of a local entrepreneurmeasuring the
25
price and not the cost of electricity. Price
is what final customers pay for electricity 20
supply. Cost is the expense incurred by
15
the utility company to produce, purchase,
transport and distribute electricity. 10
There may be a considerable difference 5
between the price of electricity and its
cost. In some economies, for example, 0
East Asia Latin America Sub-Saharan South Asia OECD Europe & Middle East &
the government subsidizes the price & Pacific & Caribbean Africa high income Central Asia North Africa
customers pay for electricity by paying a
Source: Doing Business database.
portion of the energy costs to the utility. Note: The price of electricity is derived from the monthly consumption cost for the commercial warehouse in
the Doing Business case study. The sample comprises 188 economies. Excluded from the sample is Repblica
Bolivariana de Venezuela.
76 Doing Business 2016

p.m. Standard rates apply throughout


Figure 7.7 Electrification rates vary among income groups, but the effect of
the rest of the day, and off-peak rates at
electricity prices is unclear
night. On Saturdays the TOU periods are
Average electrification rate different, and on Sundays only off-peak
(% of population)
rates apply. The tariffs for each TOU
100
period then vary according to the season,
80
with higher rates charged between June
and August. The complexity of the tariff
60 schedule does not end there: volume
charges also vary, depending on the
40 transmission zone (based on the trans-
mission distance) and on voltage levels.
20
Finally, the utility charges customers sev-
eral other fees each monthfor capacity,
0
Low income Lower middle income Upper middle income High income administration, network access, service,
Average price of electricity (cents per kilowatt-hour) reliability, reactive energy and other net-
< 10 cents 2030 cents > 40 cents work subsidies. Up to 10 different charges
1020 cents 3040 cents
may apply, all of them varying according
to the characteristics of a customers
Sources: Doing Business database; World Development Indicators database (http://data.worldbank.org/indicator), connection.17
World Bank.
Note: The price of electricity is derived from the monthly consumption cost for the commercial warehouse in the
Doing Business case study. The sample comprises 187 economies. Excluded from the sample are Taiwan, China; and The complexity of tariff schedules makes
Repblica Bolivariana de Venezuela.
it important for utilities to circulate clear
information on tariffs. Some utilities go
to changes in the structure of tariffs, such time of use, to adjust to differences in the a step further. With the aim of helping
as the introduction of a time-of-use (TOU) level of energy consumption between customers, Malaysias largest electric
tariff.12 Fluctuations in price can affect different times of day or between week- utility company, Tenaga Nasional Berhad,
decision making by businesses, for which ends and weekdays. Where TOU tariffs set up a web page with a bill calculator
electricity bills represent a considerable are used, lower tariffs typically apply for residential, commercial and industrial
expense.13 Data for 152 economies show a during times when aggregate consump- connectionsmaking it easy for custom-
negative correlation between the price of tion is lower, such as at night and on ers to estimate their future electricity
electricity and manufacturing value added the weekend, and higher tariffs during costs based on the voltage level and sub-
as a percentage of GDP.14 An increase in peak consumption periods. Complex scribed capacity of their connection and
electricity prices may lead to firms switch- tariffs like these are commonly used in their estimated monthly consumption
ing to industries with fewer opportunities industrial economiesas in the United during peak and off-peak periods. The
for enhancing productivityand away States, for example, where nonresidential website also offers businesses advice on
from manufacturing.15 Moving up the customers account for 60% of electricity how to boost their energy savings. And
value chain becomes difficult where elec- consumption.16 it provides an energy audit calculator to
tricity prices are high. estimate the electricity consumption of
Among the 189 economies covered by different appliances.18 Such tools not only
The structure of a tariff schedule is as Doing Business, 52% have a TOU tariff help customers understand their electric-
important as the tariff itself in sending option for commercial or industrial cus- ity bills; they also allow them to analyze
the right signals to customers. Pricing tomers. This time-based tariff schedule their electricity use and identify ways to
for nonresidential customers tends to exists in 93% of OECD high-income increase efficiency.
be complex. It is usually structured economies but only 35% of economies in
as a three-part tariff consisting of a East Asia and the Pacific. In South Africa,
monthly fixed charge (determined by the for example, the utility defines different CONCLUSION
characteristics of the network), a capac- daily TOU periods for different types of
ity charge (determined by the highest connections. For most commercial cus- Ensuring a reliable supply of electricity,
recorded power demand over the billing tomers there are three daily TOU rates: under transparent and efficient pricing,
period) and a volume charge (defined peak, standard and off-peak. Peak rates plays a key part in promoting investment
by the energy consumption). In addition, apply on weekdays from 7:00 a.m. to opportunities and economic growth
volume charges may be differentiated by 10:00 a.m. and from 6:00 p.m. to 8:00 and thus represents a key challenge for
Getting Electricity 77

governments around the world. As Doing and refer to industries belonging to the
International Standard Industrial Classification
Business data suggest, governments can
(ISIC) divisions 1537. These data are from
use regulatory measures to encourage the World Development Indicators database
good practices in electricity supply (http://data.worldbank.org/indicator), World
Bank. The data on the price of electricity are
systems. These regulatory measures
derived from the monthly consumption cost
need to strike the right balance, ensur- for the commercial warehouse in the Doing
ing that customers receive a reliable Business case study. The sample comprises
152 economies.
and reasonably priced electricity supply
15. Abeberese 2013.
without compromising utilities revenues. 16. Brief and Davids 2011.
Utilities can also take practical measures 17. See Eskoms website at http://www.eskom
.co.za/.
to increase the reliability of supply and
18. See Tenaga Nasional Berhads website at
the accessibility of tariff information to http://www.tnb.com.my/.
customers.

NOTES
This case study was written by Jean Arlet, Volha
Hrytskevich, Haya Mortada, Tigran Parvanyan,
Jayashree Srinivasan and Erick Tjong.
1. Enterprise Surveys database (http://www
.enterprisesurveys.org/), World Bank.
2. Audinet and Rodriguez Pardina 2010.
3. Arwa Ibrahim, Egypts Power Outages
Continue to Intensify, Middle East Eye,
September 5, 2014, http://www
.middleeasteye.net/news/egypts-power
-outages-compound-559103879.
4. Enterprise Surveys database (http://www
.enterprisesurveys.org/), World Bank. These
economies are Afghanistan; Algeria; Angola;
Bangladesh; Benin; Bhutan; Botswana; Burkina
Faso; Burundi; Cabo Verde; Cameroon;
the Central African Republic; Chad; the
Democratic Republic of Congo; the Republic
of Congo; Cte dIvoire; Djibouti; the Arab
Republic of Egypt; Eritrea; Ethiopia; Gabon;
The Gambia; Ghana; Guinea; Guinea-
Bissau; India; Iraq; Jordan; Kenya; Lebanon;
Lesotho; Liberia; Madagascar; Malawi;
Mali; Mauritania; Mauritius; Morocco;
Mozambique; Namibia; Nepal; Niger; Nigeria;
Pakistan; Rwanda; Senegal; Sierra Leone;
South Africa; South Sudan; Sri Lanka; Sudan;
the Syrian Arab Republic; Swaziland; Tanzania;
Togo; Tunisia; Uganda; West Bank and
Gaza; the Republic of Yemen; Zambia; and
Zimbabwe.
5. Black, Larsen and Ryan 2002.
6. George and Oseni 2012.
7. Wijayatunga and Jayalath 2008.
8. Practical Action 2013.
9. Terezinho 2015.
10. Briceo-Garmendia and Shkaratan 2011.
11. According to a recent study, global losses due
to electricity theft amount to $89.3 billion a
year (Northeast Group 2014).
12. U.S. Department of Energy 2006.
13. Jewell 2006.
14. Doing Business finds that the correlation
between manufacturing value added and the
price of electricity is 0.21. The relationship is
significant at the 1% level after controlling for
income per capita. The data on manufacturing
are a three-year moving average for 201214
Doing Business 2016

Registering property
The paths of digitization

T
Over the past five years 37 economies en years ago, transferring property database. It also optimizes processes by
computerized their land registry. in Rwanda took more than a year. streamlining workflows and helps com-
In the economies that digitized their Today, thanks to the web-based pile information in ways not possible with
registry, the time required to transfer Land Administration Information System manual systems. Faster processes reduce
property has fallen by 38% since 2011. implemented in Kigali, the process takes the time involved in transferring property
In those that did not, the time has only a month. Rwandas case is not rights and speed up mortgage applica-
decreased by only 7%. unique. Over the past five years 37 econ- tions, saving the land registry and appli-
omies computerized their land registry. cants much time. Computerization also
Before making the transition to a
The average time required to register a allows a land registry to set up tracking
digital land registry, policy makers
property transfer in these economies fell mechanisms to assess its performance
need to take into account such
considerations as the legal framework, by 38%from 47 days to 29while the and improve its services to customers.1
technological capabilities, and human global average only decreased from 55
and social factors. days to 48 (figure 8.1). Data accuracy is another advantage.
Because each transaction entered in a
Going digital can be done in several
Economies that invest in a digital land computerized system can be automati-
stepsstarting with computerization
registration system benefit in several cally registered, information is up to date.
of the registry and moving on to fully
ways. One way is through greater effi- A computerized system also provides
online registration of immovable
ciency. Computerization helps reduce built-in mechanisms for quality control,
property.
duplication in the storage of information allowing land registry staff to perform
Beyond going digital, land registries and makes it possible to consolidate consistency checks and verify data
can develop new servicessuch a large amount of information in one instantly.
as mobile applications and
interconnection with other agencies.
Computerization can increase security
by allowing backup copies to be made.
Figure 8.1 The time required to
register a property transfer fell sharply The latest data can be saved in different
in economies that digitized their land locations and protected from natural
registry disasters such as floods or from events
such as arson or civil war.
Average time to register property
(days)
60 Computerization also strengthens
transparency by making land records
50
more accessible to all stakeholders. A
40 computerized system makes it easier for
30
different people to access data in differ-
ent locations at the same time. By sharing
20
information online, it takes away discre-
10 tion and reduces opportunities for arbi-
trary action. With simple and transparent
0
Economies with Economies with no rules, a digital system emboldens citizens
digitization reforms digitization reforms
and businesses to question unreason-
2011 2015
able procedures. When the Indian state
Source: Doing Business database. of Karnataka digitized its land records,
Registering Property 79

Box 8.1How did one of the oldest land registration systems become a modern digital organization?
Her Majestys Land Registrycovering England and Walesis one of the oldest land registration authorities in existence today.
Launched 153 years ago, it was modeled on a pilot project in South Australia that spread to most of the English-speaking world.
In London the first land registry opened in 1862, with six staff. Land registration then gradually expanded across England and
Wales.

In recent decades digitization has transformed the land registration system of England and Wales. Computerization of the land
registry was recommended by a study in 1968 and began in 1974; work on computerizing the index of property owners names
began three years later. The conversion of paper land registers into computerized format began in 1986. Development of internal
computerized casework systems also started in the 1980s. Each land registry offices information technology network was con-
nected to a main data processing center, which updated the land register in real time. The new system was rolled out over several
years, and by 1992 the land registry had 10 million titles registered in its database.

In 1997 the land registry began scanning the historical land records272 volumes containing a mix of handwritten and typed
pages made from parchment, waxed linen or paper along with printed documents. By 1998 the total number of titles registered
in the database had reached 15 million, while the total number of stored deeds, kept on 80 miles of shelving, was estimated at
almost 100 million.

The next major step was the Land Registration Act of 2002, which introduced online registration to transfer property. The first
internet service was launched in 2005, allowing any applicant to obtain information on any property by entering the identifica-
tion data. Then it became possible to electronically update the land register in cases not affecting ownership. Finally, it became
possible to actually transfer property online using electronic signatures.

In January 2013 the British government gave itself 400 days to transform 25 major servicesincluding land registrationby
making them simpler, clearer and faster to use. In 2013/14 the land registry increased its productivity by 21% despite a 16% rise
in applications. Some 76% of substantive applications were submitted electronically in 2014, and today about 24 million titles
are registered.

Additional improvements are planned in the future. During the Queens speech at the opening of Parliament in 2014, Queen
Elizabeth II announced a new infrastructure bill to help make the United Kingdom the most attractive place to start, finance and
grow a businessincluding by supporting the delivery of new digital services by the land registry.
Sources: Cooke 2003; Mayer and Pemberton 2000.

it also made the records more opento still struggling with a paper-based land the legal framework, technological capa-
empower citizens to challenge arbitrary registry. bilities, and human and social factors.
actions.2 Land registries with robust inter-
nal data recording, control and validation Digitization is not reserved for high- A necessary first step before going digital
systems are more easily accessible and income economies; many developing is to review current laws and regulations
more open for collaboration with external economies have also digitized their land relating to land registration. Out-of-date
stakeholders. In several cases this has registry. Cabo Verde is one of them. In legislation can be an impediment. In
had an impact on access to credit, such its two biggest cities, Praia and Sal, all Guinea-Bissau, for example, titles were
as in urban areas of India.3 property titles have been fully scanned, required to be handwritten and so could
and software to process registrations not be processed by computer. This
Land registries need not go fully digital successfully implemented. In Kenya the requirement was removed in 2013. In
all at once. They can start by shifting land registry of Nairobi has recently gone other cases new regulations were needed
from paper to digital record keeping and through a full digitization of its records to support computerized systems. In
then move to fully online registration. and is now developing new electronic Malaysia the National Land Code had
Economies around the world have suc- services for its customers. Going digital to be amended in 1992 to introduce
cessfully made the transitionincluding is a step-by-step process that can take new provisions relating to functions of
England and Wales, where 24 million different paths (figure 8.2). the computerized land administration
titles were digitized, and Ireland, where system, such as recording changes to
about 1.7 million individual titles repre- land titles and extracting data from land
senting 32,000 paper map sheets were BEFORE GOING DIGITAL records. In the United States the Uniform
digitized (box 8.1). Their experiences offer Real Property Electronic Recording Act,
information not only on the process of The transition from a paper-based land allowing electronic documents, was
digitization but also on its benefitsand administration system to a digital one passed in 2004.4
can serve as an inspiration for economies involves several considerations, including
80 Doing Business 2016

processes and to the development of real


Figure 8.2 What are the stages in projects for digitizing land records?
estate products.8
Before going digital

Reviewing the legal


framework GOING DIGITAL
Going digital
Conducting a cost-benefit INSEVERAL WAYS
analysis of the technology Computerizing the land
involved registry Going beyond digital
Scanning land ownership
Once an appropriate legal framework
Taking into account
documents Offering online services and data system have been established,
human, social and
for land transactions
organizational factors Having fully digital land
Providing information on
the land records can be converted into a
records
the real estate market digital format so that they are properly
Connecting the registry stored and protected from the effects of
to other agencies
time (excessive use, moisture) or even
natural disasters (floods, earthquakes).9

Another important first step is to review different land databases with no links One viable way to digitize historical
existing practices at the land registry. between them can be one such obstacle. records is to scan or microfilm them
Going digital does not mean computeriz- In several cases a preliminary step in (figure 8.3). After a flood affecting
ing every process at the registry. Manual digitization was to consolidate all the dif- land records in 2000, Mozambique
systems for land administration can be ferent databases into onefundamental scanned most of its titles in Maputo in
cumbersome. A review of the registrys not only for strengthening the systems 2013. Scanning land documents offers
practices can identify procedures that organizational structure and efficiency several advantages. It allows a backup
are redundant and processes that need but also for providing security of title. system for data and helps maintain the
to be reengineered to enable electronic Belarus started its digitization program integrity of public records over time for
submission of records. As successful land by unifying the land and building regis- a limited cost. And scanned archives can
registry reforms have shown, the process tries databases. Denmark also began be easily shared with the parties to a land
for obtaining approvals required for land by centralizing information. The country transaction.
transfers can be simplified if a robust had a complex system with an archive
registration system is in place. of 80 million paper documents man- But scanned records, while a big step
aged by local district courts that were up from paper-based databases, do not
Choosing appropriate technology is a key not connected to one another. Denmark allow users to extract information
step in designing a new digital system. centralized the information in the Land because by definition they are stored as
Different stages of development require Registry Court, which now administers images. An alternative to scanning is to
different technology solutions that take the registration of rights on all property input the information from land records
into account any constraints and limita- in the country. into a digital database. This approach is
tions. Ghana and Uganda each developed costlier and more time-consuming, but it
a technology approach in line with their Investments in the land registrys infra- has a much greater effect on efficiency. A
capacity, objectives and resources. structure need to be complemented by digital database allows users to conduct
Uganda opted for proprietary software well-prepared and well-trained staff. quick title searches and provides power-
while Ghana relied on open-source Without buy-in and full understand- ful protection against double registration.
software. The open-source solution is ing among the registry employees, no Digital records also make it easier to
likely to save on annual software fees, new digital system will succeed. And access information about a property,
but it requires Ghana to develop the adequate training is essential for achiev- including liens and encumbrances.
local capacity to maintain the programs.5 ing top-quality services and efficient
Developing such capacity is critical to management of land records. In Croatia Computerizing a land administration sys-
ensuring that the system is sustainable. more than 2,000 land registry employ- tem takes time and yields results only in
ees benefited from detailed training on the long runas the example of Denmark
Any successful plan for going digital the new information technology system illustrates (figure 8.4). Mauritius imple-
also needs to take into account potential put in place throughout the country.6 In mented a new electronic system in 2011.
obstacles in the overall land administra- India several thousand civil servants were The system allows automatic population
tion system. This includes obstacles that trained in the states where digitization of information on registered properties
the design of the new system might pose was initiated.7 Successful training policies dating back to 1978 and enables differ-
for different stakeholders. Having many can contribute to innovative construction ent branches of the Registrar-Generals
Registering Property 81

cadastral plan images on the same web- the property transfer. In Portugal banks
Figure 8.3 The type of land records
site. In Azerbaijan notaries have been able can request that a registry employee
varies widely across income groups
to obtain nonencumbrance certificates come to their premises with a laptop
Economies by type of online since 2014. Where electronic cer- and secure access to the registrys data-
land records (%)
tificates are introduced, the law may need base to complete the property transfer
100
to be amended to make the certificates there. In other economies a customer
legally bindinga critical step. can complete the registration using any
80
computer connected to the internet. The
60 Some digital land registries go further, United Arab Emirates has developed a
allowing online registration of property mobile application to help customers
40 transfersnow possible in 40 econo- complete a property transfer using their
mies. Some set very high standards. In mobile phone.
20
countries such as the Netherlands and
New Zealand customers file their appli- Online systems can do more than stream-
0
Low Middle High cation through the land registrys web line the process at the registry. Setting up
income income income
portal. In New Zealand a lawyer can pro- a single system or portal connecting all
Fully digital Scanned agencies involved in property transfers
cess the transfer immediately through the
Paper
registrys portal. In Austria applications can ease the burden for firms or individu-
Source: Doing Business database. for a property transfer must be submitted als in complying with requirements from
electronically through a data exchange the different agencies. It can also aid
Department to share information, system, an online communication system the government, by helping to eliminate
increasing efficiency. The system also used by notaries, lawyers and the courts duplications of effort and inconsistencies
allows users to copy information from (where the land registry is based) to in records. A single system or intercon-
scanned deeds. In four years, thanks to submit claims, briefs and applications nected portal ensures that all agencies
the new system, Mauritius was able to and deliver court transcripts, orders and are automatically updated once an appli-
reduce the time for registration from 210 decisions. This system provides standard cation is processed. This is the case in
days to 14. forms for different kinds of applications, Panama, for example. Colombia, Italy and
such as for registration of ownership and Peru have developed portals that connect
registration of mortgages. the notary to the land registry and the
GOING BEYOND DIGITAL ministry of finance.
RECORDS Some land registries are using their
online systems to offer more mobile To ensure complete information about
For a land registry, launching a fully digital services. In some economies the land property, mapping agencies in 89 econo-
database is a crucial step in increasing registry offers to have a trained member mies have an electronic database to
the reliability of its records and services. of staff come to the customer to register record property boundaries, check maps
It is also a first step toward greater con-
nectivity with other agencies involved in
property transfers, such as the cadastre Figure 8.4 Denmark implemented a fully computerized system over several years,
reducing the time and procedures to register property
and tax authority. And it is a precondition
for offering online services. Time (days) Procedures (number)

45 7
With a digital database in place, a land 40 6
administration system can start to offer 35
electronic certificates of nonencum- 5
30
brance, which guarantee that there is 25 4
no lien on the property. The system in 20 3
many economies allows users to conduct 15
2
title searches online and immediately 10
1
issues the certificate of nonencumbrance 5
through its web portal or sends the cer- 0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0
tificate to the user within minutes (figure
Time Procedures
8.5). In Costa Rica, for example, users can
obtain property certificates and certified Source: Doing Business database.
82 Doing Business 2016

substantially undermine the quality and


Figure 8.5 Electronic databases to check for encumbrances are very common in
efficiency of the land registrys services.
OECD high-income economies and Europe and Central Asia
Share of economies with a Developing economies should not be dis-
database for encumbrances (%)
couraged by the magnitude of the changes
100
involved in going digital. Economies with
80 varied circumstances and income levels
have been able to digitize their land regis-
60 try and substantially reorganize their land
administration systemmany through a
40
step-by-step approach. Digitizing a land
registry offers benefits not only through
20
greater efficiency but also through safer
0 and more reliable records and a more
0
OECD Europe & Latin America Middle East East Asia Sub-Saharan South Asia
high income Central Asia & Caribbean & North Africa & Pacific Africa transparent process. It also improves the
functioning of property markets by mak-
ing land information instantly available.
Source: Doing Business database.
And it benefits citizens by improving the
security of title and the accessibility of
and provide cadastral information. Some customer service. This is the case in information.
have geographic information systems, Bangladesh, where technology is consid-
which allow users tointegrate, store, edit, ered critical to increasing the efficiency
analyze, share and display geograph- of the land administration system.10 NOTES
icinformation. Combining information on Several land registries use their electronic
the location of the plot with information systems to share information about This case study was written by Laura Diniz,
Frdric Meunier, Haya Mortada, Parvina
on liens and encumbrances streamlines their activities. Lithuanias land registry Rakhimova and Joonas Taras.
the due diligence process. publishes statistics on its performance
1. Whitman 1999.
on its website. Panamas publishes 2. Bhatnagar 2003.
In addition to offering services online, monthly data on the number of transac- 3. Deininger and Goyal 2012.
4. Kampamba, Tembo and Nkwae 2014.
making information readily available on a tions that it completes, broken down by
5. Cheremshynskyi and Byamugisha 2014.
portal or website is also considered good typemortgages, first registrations and 6. Croatia, Ministry of Justice 2010.
practice. The land registry in Zambia transfers. The land registry in the United 7. Habibullah and Ahuja 2005.
8. UNECE 2012.
displays a detailed list of procedures and Arab Emirates uses social media to keep
9. Barthel, Barnes and Stanfield 2000.
documents required for the registration the public informed about its operations. 10. Imtiaz and Rahman 2014.
process on its website. In 104 economies Some governments have provided cus-
people can find the land registrys fee tomers with an online tool to track their
schedule for the largest business city applications and file complaints about
online. Some land registries have devel- land services. In Nicaragua applicants
oped a fee calculator plug-in on their can use a tracking number to check the
website so that customers can calculate status of their deed registration on the
the expected cost for a particular prop- registrys website.
erty transfer. Publishing such information
saves customers time in inquiring about
the process. It also eliminates asym- CONCLUSION
metries in information between users
and officials, minimizing the possibilities While many economies have modernized
for informal payments and abuses of the their land registry and are looking into the
system. next steps, others still rely on archaic
record-keeping systems. In 74 of the 189
Land registries have also been using their economies covered by Doing Business,
online systems to enhance the transpar- property titles in the largest business city
ency of their operations and improve are kept only in paper format. This can
Doing Business 2016

Trading across borders


A new approach to measuring trade processes

I
n the past 10 years international trade a robust relationship between total factor Using a new methodology, Doing
patterns have been defined by the rise productivity and imports of knowledge Business measures the time and cost
of developing economies, the expan- (measured by imports of patent-based for three sets of procedures needed for
sion of global value chains, the increase technology). Indeed, the study found that exporting and importing: documentary
in commodity prices (and the growing 93% of the increase in total factor pro- compliance, border compliance and
importance of commodity exports) and ductivity over the past century in OECD domestic transport.
the increasingly global nature of macro- countries was due solely to these tech- For the first time this year, Doing
economic shocks. Each of these trends nology imports. These results suggest Business considers the product of
has reshaped the role of trade in facilitat- that international trade is a critical chan- comparative advantage for each
ing development.1 nel for the transmission of knowledge, economy when measuring export
which in turn improves capital intensity procedures, while for import
The restoration of more open trade follow- and economic growth. procedures it focuses on a single, very
ing World War II involved major multilater- common manufactured product (auto
al and preferential trade agreements aimed The relationship between trade and eco- parts).
at lowering tariff and nontariff barriers to nomic growth can also be observed at the Among economies requiring
trade. For the first time economic relations firm level. Substantial evidence suggests product-specific inspections for their
and international trade were governed by a that knowledge flows from international exported agricultural product, border
multilateral system of rules, including the buyers and competitors help improve compliance times range from 11 hours
General Agreement on Tariffs and Trade the performance of exporting firms. A to 210. This variation suggests that it
(GATT) and the Bretton Woods institu- review of 54 studies at the firm level is possible to protect consumers and
tions. These trade agreements, combined in 34 countries reveals that firms that businesses without unduly delaying
with tremendous advances in transport export are more productive than those trade.
and communications technology, have that do not (though exporting does not For economies in a customs union
led to unprecedented rates of growth necessarily improve productivity).5 This with their case study trading partner,
in international trade. Between 1950 is in large part because firms participat- the time for documentary and border
and 2007, for example, real world trade ing in international markets are exposed compliance is substantially lower on
grew by 6.2% a year while real income to more intense competition and must average than for others.
per capita grew by 2% a year.2 Greater improve faster than firms that sell their Economies that are less efficient
international trade is strongly correlated products domestically. importers also tend to be less efficient
with economic growth. A study using data exporters.
from 118 countries over nearly 50 years While access to international markets
(195098) found that those opening up is important for all economies, develop-
their trade regimes experienced a boost in ing economies are uniquely affected by
their average annual growth rates of about trade policy. Because they are skewed
1.5 percentage points.3 toward labor-intensive activities, their
growth depends on their ability to import
Evidence suggests that one important capital-intensive products.6 Without
channel by which international trade access to international markets, develop-
leads to economic growth is through ing economies must produce these goods
imports of technology and associ- themselves and at a higher cost, which
ated gains in productivity.4 A study of 16 pulls resources away from areas where they
OECD countries over 135 years revealed hold a comparative advantage. In addition,
84 Doing Business 2016

low income per capita limits domestic time-consuming than exporting other requiring product-specific inspections for
opportunities for economies of scale. A kinds of merchandise. New data collected agricultural exports, border compliance
trade regime that permits low-cost produc- by Doing Business show that in economies times vary widely.
ers to expand their output well beyond whose top export is an agricultural product,
local demand can therefore boost business complying with border and documentary In many economies inefficient processes,
opportunities. Thus while international requirements takes considerably longer unnecessary bureaucracy and redundant
trade can benefit developed and develop- on average than in economies whose procedures add to the time and cost
ing economies alike, trade policy is clearly top export is a nonagricultural product. for border and documentary compli-
inseparable from development policy. The data also show that a much larger ance. Only recently has the relationship
share of economies whose top export is between administrative controls and
An important issue touching on both trade an agricultural product require product- trade volumes attracted the attention of
and development policy is that exporting specific inspections and procedures for multilateral trade networks (see box 9.1
agricultural products is more costly and their export. That said, among economies for several explanations for this recent

Box 9.1Why the renewed focus on trade facilitation?


The recent interest in trade facilitation has come about for several reasons. First, tariff and quota barriers, particularly on general
merchandise flows, are lower than in the past thanks to the success of multilateral and preferential trade agreements along with
the global recognition of the benefits of international trade. This has sharpened the focus of policy makers and traders on the
costs of international trade, which can pose a substantial barrier to trade.

Second, the next major frontier for multilateral trade negotiationsas well as for poverty reduction programsis the facilitation
of global trade in agricultural products (broadly comprising animal and plant-based products). Three-quarters of the worlds
poorest people depend, directly or indirectly, on agriculture as their main source of income,a so policies affecting agriculture af-
fect poverty, inequality and overall economic growth.b And agricultural products are more regulated and controlled than general
merchandise. While phytosanitary and other sanitary standards are widely, and justifiably, adhered to by both importers and ex-
porters of these products, public officials attempting to protect domestic agriculture and mining from international competition
can impose high costs on traders and, in some cases, discourage international trade through protectionist measures. For bulk
agricultural commodities the costs of regulation are magnified by the long downward trend in prices as global supply outpaces
global demand.c

Third, as researchers have gained access to great quantities of microeconomic data in recent decades, certain stylized facts
have emerged about firms and their participation in international markets that reveal the significant costs of trade.d Trading in-
ternationally is certainly more expensive than engaging in domestic trade. For example, compared with other firms in the same
industry, those that engage in international trade tend to be larger and more productive as well as capital and skill intensiveand
they tend to pay higher wages. In addition, there is substantial evidence of fixed costs of entry into foreign marketsfirms that
engaged in international trade in the past are much more likely to do so again.

Yet Doing Business indicators are best understood as measuring marginal rather than fixed costs of trading internationally. The
trading across borders case study assumes that the exporter or importer has already established its business and is fully op-
erational. The one-time cost to obtain a trade license or customs identification number is not measured. The data capture
other costs that are not related to entry into the market but do not necessarily vary with the volume of trade (such as the costs
of customs procedures, inspections by government agencies and obtaining, preparing and submitting documents). However,
differences in marginal trade costs captured by Doing Business have a greater impact on the number of firms participating in
international trade.

Recent research has made progress in quantifying the effect of changes in marginal costs on trade volumes and participation.
One study finds that a 7% reduction in the median number of days spent in Albanian customs leads to a 7% increase in the value
of imports.e Another finds that a 10% increase in customs delays results in a 3.8% decline in exports in Uruguay.f Delays increase
costs for exporters, forcing them to reduce their foreign sales. Buyers also experience higher costs and downsize (or eliminate)
purchases from firms that experience such delays.
a. World Bank 2007.
b. World Bank Group and WTO 2015.
c. World Bank 2007.
d. See Tybout (2003) and Melitz and Redding (2014) for extensive reviews of the empirical and theoretical literature.
e. Fernandes, Hillberry and Mendoza Alcantara 2015.
f. Volpe Martincus, Carballo and Graziano 2015.
Trading Across Borders 85

interest in trade facilitation). In 2013, the product.8 Time and cost are recorded stages, exchanging numerous pieces of
for example, members of the World for border compliance (both handling and information at each level. Any technol-
Trade Organization (WTO) concluded clearance and inspections), documentary ogy that makes this flow of information
a Trade Facilitation Agreement aimed compliance and domestic transport. For faster and more efficient is likely to have
at streamlining trade procedures. The imports, the case study follows the ship- a large effect on trade costs and on the
Organisation for Economic Co-operation ment from the economys most widely time spent on different procedures.
and Development (OECD) estimates used land border or port to a warehouse Acknowledging the already large number
that fully implementing the WTO Trade in its largest business city. The shipment of economies that have adopted some
Facilitation Agreement could reduce consists of 15 metric tons of container- version of an electronic data interchange,
trade costs by 14.1% for low-income ized auto parts for all economies, and and anticipating more digitization in the
economies, 15.1% for lower-middle- the trading partner is the main import future, Doing Business now measures the
income economies and 12.9% for upper- partner for the product. time to trade in hours rather than in days.
middle-income economies. Adopting
even its simple (though often still costly) The basic premise of the new methodol-
recommendations, such as automating ogy is that the case study should reflect EXPORTING A PRODUCT OF
trade and customs processes, could the actual directions and volumes of COMPARATIVE ADVANTAGE
reduce costs for these income groups by international tradeand that the admin-
2.12.4%.7 In measuring the time and cost istrative and regulatory burdens faced by By selecting the top nonextractive
associated with border and documentary traders differ greatly across different traded export product for the case study in
compliance across 189 economies, Doing products and trading partners. Trade flows each economy, Doing Business ensures
Business supports more efficient regula- are governed by comparative advantage, that it measures the time and cost to
tory practices for trading across borders. by the preferences of consumers, by the export a product that is relevant to the
international structure of production and economy as well as to policy makers. Of
by the size and geographic location of an the 97 possible products at the two-digit
A NEW APPROACH economy and its trading partners. The type level in the Harmonized System (1996)
of traded product determines the standards of classification, 39 emerge as the top
The Doing Business indicators on trading to which it is held (for example, food items export products for the 189 economies
across borders were among the first glob- are subject to more safety inspections than covered by Doing Business. These range
al measures of the administrative, regula- computer equipment). And along with the from dairy products to machinery and
tory and logistical burdens that add to the type of product, the identity of the trading mechanical appliances. Grouping these
time and cost for trading internationally. partner determines the probability of intru- products into broad categories shows
This years report introduces important sive and nonintrusive inspections under risk that 37% of economies have an agricul-
changes in the methodology for the management systems commonly used at tural product as their top export, 29%
indicators. These changes are aimed ports and borders around the world. a heavy manufacturing product, 22% a
at increasing the economic and policy light manufacturing product and 12% a
relevance of the indicators, improving the In recent decades two additional forces metal-based product. Mapping these
consistency and replicability of the data have shaped international trade flows. data reveals intuitive patterns (figure 9.1).
and clarifying the context in which the The first is the emergence of multilateral For example, most economies whose top
data should be interpreted as well as the trade agreementsand, increasingly, of export is an agricultural product are in
caveats that should be kept in mind. regional onesaimed at reducing the Africa or Oceania, while most whose top
barriers to trade. The new methodology export is a heavy manufacturing product
Under the new methodology Doing allows an economy to be in a customs are in North America or Europe.
Business customizes the case study union with its case study trading partners.
assumptions for exports and imports. Box 9.2 details several of the interest- Analysis of outcomes such as the time and
For exports, it measures the time and ing findings from this years data on the cost for border compliance and documen-
cost to export a shipment of 15 metric impact of customs union membership. tary compliance reveals some interesting
tons of the economys top nonextractive trends. In economies whose top export is
export product. The case study follows The second is the application of infor- an agricultural product, border compliance
the shipment from a warehouse in the mation and communication technol- takes 70% more time (35 more hours) on
economys largest business city to the ogy in international trade. The process average than in other economies, while
most widely used land border or port of international trade is a long and documentary compliance takes twice as
through which the shipment would be complicated one: multiple economic and much time (figure 9.2). The difference in
exported to the main export partner for government agencies interact at many cost for documentary compliance is also
86 Doing Business 2016

BOX 9.2Does customs union membership affect the time and cost for trading?
Forty-seven years ago, while the rest of the international community was negotiating the levels of tariffs and quotas, the European
Union embarked on a grand experimentthe launch of a customs union. There would be no customs duties at internal borders
between the EU member states; there would be common customs duties on imports from outside the European Union as well as
common rules of origin for products from outside; and there would be a common definition of customs value.

While the EU customs union remains one of the best examples of trade facilitation between disparate nations, it is far from
alone. More than half the 189 economies covered by Doing Business are in a customs union today. Moreover, 33 economies are
in a customs union with their case study export partner, and 39 are in a customs union with their case study import partner. For
these economies the time for documentary and border compliance is substantially lower on average than for othersas data for
EU member economies illustrate (see figure).

Being in the same customs union as an export or import partner tends to reduce the time to trade

Average time for Average time for


documentary compliance (hours) border compliance (hours)

EU member economy exporting


to EU member economy 0.8 3.5
EU member economy exporting
to non-EU member economy 2.0 19.9
Source: Doing Business database.

But not all customs unions are equal. Customs unions among OECD high-income economies (essentially the EU customs union)
perform substantially better than others, followed by customs unions in Europe and Central Asia and then by those in Sub-
Saharan Africa. In Latin America and the Caribbean membership in the same customs union as the top export partner does not
significantly improve the border compliance time to export. But it does have an effect on documentary compliance time. For
imports, customs unions reduce border compliance time in Latin America and the Caribbean as well as other regions. In Latin
America and the Caribbean, however, documentary compliance time is actually greater if the import partner is within the same
customs union. This may be due to the requirement for a certificate of origin to prove that products are being traded within the
customs union.
Note: A customs union is understood as the substitution of a single customs territory for two or more customs territories, where members apply a common external tariff.
The analysis therefore excludes entities that began as a single customs territory, such as the U.S. customs territory (the United States and Puerto Rico [territory of the
United States]) and the main customs territory of China (with Hong Kong SAR, China; and Taiwan, China) as well as treaties extended by the EU customs area (San Marino
and Turkey). Because the data on the cost to export or import do not include customs duties and tariffs, the analysis also excludes free trade areas (such as NAFTA), where
trade within the group is duty free but members set their own tariffs on imports from nonmembers.

large: obtaining, preparing and submit- as fumigation or phytosanitary inspec- product-specific inspections and proce-
ting documents for agricultural products tions) to export that product, while only dures for that export.
is twice as costly as doing so for other 21% of other economies do so for their top
product categories. export product. Differences that are even Yet even among economies whose
more striking emerge when comparing top export is an agricultural product,
The main reason for these differences is agricultural products with manufacturing documentary and border compliance times
that 81% of economies whose top export products (excluding metal-based prod- vary widely. Border compliance times for
is an agricultural product require product- ucts). Only 20% of economies whose top agricultural products subject to product-
specific inspections and procedures (such export is a manufacturing product require specific inspections range from 11 hours
Trading Across Borders 87

Figure 9.1 What are the trading patterns revealed by each economys top export product and partner?
to United Kingdom to Belgium to the to Switzerland to Norway to United
to Germany
Netherlands to France to Italy Kingdom Top export product by type
to Spain
to India MONGOLIA Agricultural
to G
erm
MALTA SYRIAN
any Metal based
TUNISIA A.R.
LEBANON I.R. OF IRAN Light manufacturing
MOROCCO WEST BANK & GAZA IRAQ

JORDAN to Rep. Heavy manufacturing


to India AFGHANISTAN C H I N A of Korea to Japan
ALGERIA KUWAIT
Economies not in South Asia or
LIBYA ARAB BAHRAIN PAKISTAN
REP. OF to NEPAL
BHUTAN East Asia and the Pacific
SAUDI Ch
EGYPT QATAR in a
ARABIA to Jap Not in the Doing Business sample
an
INDIA Taiwan,
BANGLADESH China
UNITED ARAB OMAN
Hong Kong,
EMIRATES s MYANMAR SAR, China
ate

to China
to U n it e d St LAO
MAURITANIA P. D. R.
CABO VERDE SUDAN VIETNAM
MALI
NIGER

to China
THAILAND
CHAD ERITREA REP. OF
SENEGAL YEMEN to U CAMBODIA
nite
THE GAMBIA d St MARSHALL
ates ISLANDS
BURKINA FASO DJIBOUTI PHILIPPINES
GUINEA-BISSAU GUINEA BENIN NIGERIA SRI FEDERATED STATES
LANKA AYSI PALAU OF MICRONESIA
ETHIOPIA
to Singapore AL BRUNEI
CTE GHANA SOUTH

A
SIERRA LEONE CENTRAL DARUSSALAM
DIVOIRE SUDAN to Japan
AFRICAN REP. SINGPORE
LIBERIA
TOGO CAMEROON SOMALIA
MALDIVES
EQUATORIAL GUINEA to India
SO TOM AND PRNCIPE I N D O N E S I A PAPUA K I R I B A T I
to U REP. OF UGANDA KENYA NEW
nite GABON
d Stat CONGO to Germ GUINEA SO LO M O N
es RWANDA any TIMOR-LESTE
to Ne
ISLAN DS
DEM. REP. OF BURUNDI therla SAMOA
CONGO nds
SEYCHELLES to U
nite
d Kin
TANZANIA gdom
VANUATU FIJI

COMOROS TONGA
ANGOLA
MALAWI to Australia
Top export product by type ZAMBIA
IBRD 41849
SEPTEMBER 2015
Agricultural
ZIMBABWE MOZAMBIQUE MADAGASCAR
Metal based NAMIBIA
MAURITIUS
Light manufacturing BOTSWANA

Heavy manufacturing
SWAZILAND
Economies not in the
Middle East and North Africa or LESOTHO
Sub-Saharan Africa SOUTH
AFRICA
Not in the Doing Business sample CANADA
IBRD 41850 EUROPE
SEPTEMBER 2015

UNITED STATES JAPAN


to China REP. OF
ISRAEL
KOREA
to United States to Canada
to Germany

Kingdom
to United

THE BAHAMAS
MEXICO
ST. KITTS AND NEVIS AUSTRALIA
ANTIGUA AND BARBUDA CHILE
DOMINICAN
HAITI REP. DOMINICA
BELIZE ST. LUCIA
JAMAICA Puerto Rico
(US) BARBADOS NEW
HONDURAS ZEALAND
GUATEMALA ST. VINCENT AND THE GRENADINES
EL SALVADOR NICARAGUA g d om
GRENADA to United Kin
TRINIDAD AND TOBAGO
COSTA RICA R. B. DE GUYANA
PANAMA VENEZUELA SURINAME Top export product by type

Agricultural Economies not in the OECD


COLOMBIA high-income group
Metal based
Not in the Doing Business sample
ECUADOR Light manufacturing
to Chin
a
Heavy manufacturing
IBRD 41803
na
to Ch i SEPTEMBER 2015

PERU
BRAZIL
any
erm
to G
IBRD 41828
SEPTEMBER 2015 Top export product by type
BOLIVIA
Agricultural

Metal based
PARAGUAY
Light manufacturing

Heavy manufacturing
n

Top export product by type


tio
era

d
Fe Economies not in Europe and
ian
Agricultural uss Central Asia
to R

Metal based URUGUAY to Sweden Not in the Doing Business sample


RUSSIAN FEDERATION
Light manufacturing ARGENTINA
Heavy manufacturing
LATVIA
RUSSIAN
Economies not in Latin America FED. LITHUANIA
and the Caribbean
to Germany

Not in the Doing Business sample BELARUS

azil to Chi
to Br na

to Austria KAZAKHSTAN
UKRAINE
IBRD 41832
SEPTEMBER 2015 SAN
CROATIA MOLDOVA
to F

MARINO
ROMANIA
ran

BOSNIA & KYRGYZ REP.


ce

MONTE- HERZ. SERBIA


to Italy NEGRO
KOSOVO
FYR BULGARIA UZBEKISTAN
MACEDONIA TAJIKISTAN ina
GEORGIA to Ch
ALBANIA

to Greece ARMENIA AZERBAIJAN


TURKEY

CYPRUS

to Iraq

Source: Doing Business database.


Note: The figure reflects World Bank regional classifications, which may differ from common geographic classifications, especially in the case of OECD high-income economies.

to 210. This variation suggests that it is an economys own government authorities businessesand thus within its control
possible to protect consumers and busi- in the time and cost for border compli- and those of procedures imposed from
nesses while still facilitating (or at least ance, Doing Business is able to distinguish abroad.
not impeding) trade. By including only the between the effects of policies imposed by
product-specific procedures required by a government on its own consumers and
88 Doing Business 2016

cost). In fact, 40% of economies require


Figure 9.2 Exporting agricultural products takes more time and cost than exporting
inspections by other agencies in addition
other products
to customs when importing auto parts.
Average time (hours) Yet why are the average time and cost to
Average cost (US$)
import auto parts almost in line with the
600
averages to export agricultural products?
500
One reason is that another 17% of
400
economies also require preshipment
300 inspectionsinspections conducted in the
economy of origin by third-party companies.
200
These economies have significantly greater
100 border and documentary compliance times
and costs for importing auto parts (figure
0
Time Cost Time Cost 9.3). While the existence of protectionist
Documentary compliance Border compliance measures cannot be denied, some import
inspections are important in protecting con-
Agricultural products Nonagricultural products
sumers. Even so, there is potential to improve
the efficiency of preshipment inspections
Source: Doing Business database.
and reduce costs for traders. Among the
economies requiring such inspections
Of 69 economies whose top export requiredbut whether they are carried for auto parts, border compliance times
is an agricultural product, 56 have out efficiently. range from 56 hours to 1,330, revealing
product-specific procedures for this much room for improvement.
exportwhile among 118 economies
whose top export is a metal-based, heavy IMPORTING AUTO PARTS While importing generally requires great-
manufacturing or light manufacturing er time and cost than exporting, compar-
product, only 25 have product-specific While top export products vary widely, all ing the data for economies shows that
procedures for it. These economies 189 economies import similar products. those that perform well in the time and
span all regions and income groups, The explanation for this is intraindustry cost to export their product of compara-
from Norway among OECD high- trade, driven mostly by the global nature tive advantage often also perform well in
income economies to Guinea-Bissau in of modern production techniques. Supply the time and cost to import auto parts.
Sub-Saharan Africa. Both Grenada and chains (for raw materials, intermediate Of the top 10 performers in the border
Australia, for example, require sanitary goods and final products) extend around compliance time to export (excluding the
inspections and certificates for their top the globe in search of higher quality and European Union), 6 are also in the top 10
export product. Yet completing border lower pricesboth benefiting from and in the border compliance time to import.
compliance procedures takes 101 hours inducing reductions in the time and cost This pattern is repeated at the other end
and $1,034 for an exporter of nutmeg in for international trade. This phenomenon of the spectrum, with 5 of the bottom 10
Grenada, while it takes only 36 hours and is represented in manufactured products, performers on this measure for exporting
$749 for an exporter of meat in Australia. and it allows the selection of a single also being in the bottom 10 for importing.
And completing documentary compli- import productauto partsfor all 189
ance takes 10 times as many hours for economies. Focusing the case study on Similar patterns emerge across regions.
the exporter in Grenada (77) as it does the import process for a single homoge- Importing takes substantially less
for the exporter in Australia (7). The neous product makes the resulting data time on average in OECD high-income
exporter in Grenada must contact the even more comparable. economies than in other economies,
Ministry of Agriculture several days in and so does exporting. Take the example
advance and wait to obtain a hard-copy Importing auto parts involves greater of Canada, where traders benefit from
document to clear customs. In Australia, time and cost on average than export- a well-functioning electronic system
by contrast, quarantine authorities work ing does. Intuitively, it makes sense that linking Canadian and U.S. customs.
closely with both producers and customs imports face more inspections (increas- The entire border compliance process
authorities throughout the production ing border compliance time and cost) between Canada and the United States
process. What matters is not whether as well as more procedures (increasing can be completed in two hours.
enhanced inspections and procedures are documentary compliance time and
Trading Across Borders 89

a coastline and trade with their export


Figure 9.3 Importing auto parts requires greater time and cost in economies
partner through their port. While the
requiring preshipment inspections
export partner is an immediate geo-
Average time (hours) graphic neighbor for 33% of landlocked
Average cost (US$)
economies, this is the case for only 22%
800
of economies with a coastline (excluding
700 islands). Most economies that trade with
600 their geographic neighbor are OECD high-
500 income economies in Europe. Among the
400 189 economies studied by Doing Business,
300 the most common export partners
200 are OECD high-income economies in
Europe, followed by OECD high-income
100
economies outside of Europe, and then
0
Time Cost Time Cost Time Cost by economies in East Asia and the Pacific.
Only customs inspections Customs and other inspections Preshipment inspections
The second way in which the new
Border compliance Documentary compliance methodology accounts for geography
is through the domestic transport time
Source: Doing Business database. and cost measures. Under the previous
methodology Doing Business measured
And completing border compliance The new methodology accounts for the the time and cost for transport to the
procedures costs about the same for role of geography in two ways. The first main port, which meant transport across
a Canadian importer ($172) as it does is by assuming, for each economy, that borders for landlocked economies. Under
for a Canadian exporter ($167). In Sub- trade is with its natural trading partners the new methodology it considers only
Saharan Africa, by contrast, border com- (the largest buyer of its export product domestic transport within the borders of
pliance takes 160 hours on average for an and its largest source of auto parts), an economy, capturing the time and cost
importer and 108 hours for an exporter. regardless of the mode or route of trans- associated with transporting a shipment
In Cameroon, for example, exporting a port. In 97% of cases the natural trading between a warehouse in the largest busi-
shipment of cocoa takes 202 hours and partner for the export product also hap- ness city and the economys most widely
costs $983in part because exports of pens to be the largest trading partner used seaport (or airport) or land border.
cocoa undergo a phytosanitary inspec- overall. Thus the measures of time and The time and cost for domestic transport
tion. But importing auto parts, which cost have broader applicability. also include the loading and unloading of
requires a preshipment inspection, takes the shipment at the warehouse.
271 hours and costs $1,407. It seems safe Geography and distance play a role in
to conclude that economies that are less determining export partnerslarge In this years report, however, the time and
efficient importers also tend to be less economies and landlocked economies cost for domestic transport do not affect
efficient exporters. tend to trade with regional neighbors. the ranking on the ease of doing business.
Yet the distribution of import partners These measures are excluded from the
for auto parts reveals much greater calculation of the ranking because they
THE BIG ROLE OF geographic dispersion, with 57% of depend on predetermined factors such
GEOGRAPHY economies importing auto parts from as topography and geographic distances.
one of four economies: Germany, Japan, While infrastructure, traffic regulations
For millennia, geography has determined the United States or France. This shows and transport industry regulations can
whether economies trade with each that geography and distance play less mitigate the effects of geography, most
other and what products are exchanged. of a role when it comes to choosing the such factors are beyond a governments
The Silk Road was so named because the most efficient, reliable and high-quality ability to change through reforms.
long distances and extremely high trans- supplier of auto parts.
port costs made trading only high-value Nevertheless, the speed of domestic
products like silk worthwhile. Advances Of the 189 economies covered, 42 are transport and the cost per kilometer can
in technology have increased the flow of landlocked, 28 have a coastline but trade provide a starting point in evaluating the
information and goods, but geography with their case study export partner efficiency of infrastructure and relevant
continues to play a very important role. through a land border, and the rest have transport and traffic regulations across
90 Doing Business 2016

Figure 9.4 The cost and speed of domestic transport vary across income groups

Average domestic transport speed Average domestic transport cost


(kilometers per hour) (US$ per kilometer)
30 30

25 25

20 20

15 15

10 10

5 5

0 0
Low income Lower middle income Upper middle income High income

Domestic transport speed Domestic transport cost

Source: Doing Business database.

economies. Data show that the cost and the time and cost for trading across
speed vary by income group, region and borders is the efficiency of regulation
type of geography, while there is a clear and its implementation. Exporting an
pattern showing that domestic trans- agricultural product involves greater time
port speed increases with the level of and cost than exporting a machine. But
economic development (figure 9.4). among the economies whose top export
is an agricultural product, the time and
cost to export that product vary greatly.
CONCLUSION This suggests that neither comparative
advantage nor geography is destiny.
The data collected under the new method- Smart regulations that are implemented
ology for the trading across borders indica- well can protect national borders without
tors reveal that economies top export unduly penalizing traders, consumers or
products are quite region specificfor producers.
example, OECD high-income economies
tend to export manufactured products
while Sub-Saharan African economies tend NOTES
to export agricultural products. The identity
of the top export partner also reveals the This case study was written by Ccile Ferro,
Khrystyna Kushnir, Mathilde Lugger, Valentina
importance of geography; economies tend Saltane, Brandon Thompson and Ins Zabalbeitia
to export to those close to them. Trade in Mgica.
auto parts, however, is highly concentrated, 1. WTO 2014.
with just four economies being the major 2. WTO 2008.
3. Wacziarg and Welch 2008.
suppliers to 57% of the world. This reflects
4. Madsen 2007.
the nature of comparative advantage as 5. Wagner 2007.
well as the global span of modern produc- 6. Krueger 1998.
7. OECD 2014.
tion techniques.
8. For 11 economies the data are collected
separately for both the largest business city
The benchmark data collected for this and the second largest one.
years report reveal that both the type of
product being traded and the geographic
location of trading partners affect trade
costs. But one of the determinants of
Doing Business 2016

Enforcing contracts
Measuring good practices in the judiciary

E
fficient contract enforcement is 1998 found that reforms in corporate Doing Business introduces a new
essential to economic development and bankruptcy laws had little effect measure in the enforcing contracts
and sustained growth.1 Economic on the development of their financial indicator set this year, the quality of
and social progress cannot be achieved institutions. Improvements began only judicial processes index. This indicator
without respect for the rule of law and once their legal institutions became more tests whether each economy has
effective protection of rights, both of efficient.10 implemented a series of good practices
which require a well-functioning judiciary in the areas of court structure and
that resolves cases in a reasonable time The efficiency of courts continues to proceedings, case management, court
and is predictable and accessible to the vary greatly around the world. Enforcing automation and alternative dispute
resolution.
public.2 Economies with a more efficient a contract through the courts can take
judiciary, in which courts can effectively less than 10 months in New Zealand, On average, OECD high-income
enforce contractual obligations, have Norway and Rwanda but almost 4 years economies have the largest number
more developed credit markets and a in Bangladesh. And the cost of doing so of judicial good practices in place as
higher level of development overall.3 ranges from less than 10% of the value measured by the new index, while
A stronger judiciary is also associated of the claim in Iceland, Luxembourg and Sub-Saharan African economies have
with more rapid growth of small firms.4 Norway to more than 80% in Burkina the fewest.
Overall, enhancing the efficiency of the Faso and Zimbabwe. In five economies, Economies that score well on the new
judicial system can improve the busi- including Indonesia and Mozambique, index tend to have faster and less
ness climate, foster innovation, attract the cost can exceed the value in dispute, costly dispute resolution as measured
foreign direct investment and secure tax suggesting that litigation may not be a by the enforcing contracts indicators.
revenues.5 cost-effective way to resolve disputes. None of the 189 economies covered by
Doing Business receive full points on the
A study examining court efficiency in dif- new index, showing that all economies
ferent provinces in Argentina and Brazil AN EXPANDED FOCUS FOR still have room for improvement in
found that firms located in provinces THE INDICATORS judicial efficiency.
with more effective courts have greater
access to credit.6 Another study, focusing Over the years the Doing Business
on Mexico, found that states with bet- indicators on enforcing contracts have
ter court systems have larger and more measured the time, cost and procedural
efficient firms.7 Effective courts reduce complexity to resolve a standardized
the risks faced by firms and increase their commercial dispute between two
willingness to invest.8 Firms in Brazil, domestic businesses through local first-
Peru and the Philippines report that they instance courts. The dispute involves the
would be willing to invest more if they breach of a sales contract worth twice the
had greater confidence in the courts.9 income per capita or $5,000, whichever
is greater. The case study assumes that
Where legal institutions are ineffective, a seller delivers custom-made goods to a
improvements in the law may have lim- buyer who refuses delivery, alleging that
ited impact. A study of the transitioning the goods are of inadequate quality. To
economies of Eastern Europe and the enforce the sales agreement, the seller
former Soviet Union between 1992 and files a claim with a local court, which
92 Doing Business 2016

hears arguments on the merits of the The quality of judicial processes index
case. Before reaching a decision in favor covers a set of good practices across USING DEDICATED
of the seller, the judge appoints an expert four areas, corresponding to the four SYSTEMS FOR COMMERCIAL
to provide an opinion on the quality of the components of the index: court structure CASES AND SMALL CLAIMS
goods in dispute, which distinguishes the and proceedings, case management,
case from simple debt enforcement. court automation and alternative dispute Dedicated systems for commercial cases
resolution (figure 10.1). These practices and small claims can make a big differ-
This year Doing Business introduces can result in a more efficient and trans- ence in the effectiveness of a judiciary.11
an important change in methodology parent judiciary, greater access to justice, Having specialized commercial courts or
for the enforcing contracts indicators. a smaller case backlog, faster and less divisions reduces the number of cases
While it continues to measure the costly contract enforcement and, in some pending before the main first-instance
time and cost to resolve a standardized cases, more qualitative judgments. court and thus can lead to shorter resolu-
commercial dispute under the same tion times within the main trial courtone
assumptions, it now also tests whether This case study discusses many of the reason that economies have sometimes
each economy has adopted a series of good practices encompassed by the introduced specialized courts as a case
good practices that promote quality and quality of judicial processes index. It management tool. But the benefits do
efficiency in the commercial court sys- first looks at two aspects of the court not end there. Commercial courts and
tem. For this purpose it has replaced the structure and proceedings indexthe divisions tend to promote consistency in
indicator on procedural complexity with availability of dedicated mechanisms the application of the law, increasing pre-
a new indicator, the quality of judicial to resolve commercial disputes and the dictability for court users.12 And judges
processes index. The aim is to capture availability of dedicated mechanisms to in such courts develop expertise in their
new and more actionable aspects of the resolve small claims. It then moves on field, which likely leads to faster and more
judicial system in each economy, provid- to case management and court automa- qualitative dispute resolution.13
ing a picture of judicial efficiency that tion, intertwined concepts often treated
goes beyond the time and cost associ- together. Finally, it explores mechanisms The data show that 97 of the 189 econo-
ated with resolving a dispute. of alternative dispute resolution. mies covered by Doing Business have
a specialized commercial jurisdiction
established by setting up a dedicated
stand-alone court, a specialized com-
Figure 10.1 Areas covered by the quality of judicial processes index mercial section within an existing court
or specialized judges within a general
Court structure and Case Court Alternative dispute civil court. In the 16 Sub-Saharan African
proceedings management automation resolution economies that have introduced com-
mercial courts or sections over the
Availability of Regulations
setting time Ability to file Availability and past ten yearsBenin, Burkina Faso,
a specialized initial complaint regulation of
commercial court standards for key
electronically arbitration Cameroon, Cte dIvoire, Ghana,
or division court events
Guinea-Bissau, Lesotho, Liberia, Malawi,
Availability of a Availability and Mauritius, Mozambique, Rwanda,
small claims court Regulations on Ability to serve regulation of
adjournments process Senegal, the Seychelles, Sierra Leone
or simplified voluntary
procedure for and continuances electronically mediation or and Togothe average time to resolve
small claims conciliation the standardized case measured by
Doing Business was reduced by about 2.5
Availability of
Availability performance Ability to pay months. In Cte dIvoire the reduction
of pretrial measurement court fees
attachment mechanisms electronically was more than 6 months. In 2011 resolv-
ing a commercial dispute in Abidjan took
Criteria used 770 days. In 2013, after the creation of
Use of pretrial Publication of
to assign cases conference judgments a specialized commercial court, it took
to judges
only 585 days.
Availability of an
electronic case Small claims courts or simplified pro-
management
system cedures for small claims, as the form of
justice most likely to be encountered by
the general public, play a special part in
Enforcing Contracts 93

building public trust and confidence in When well implemented, case manage- availability of regulations setting time
the judicial system.14 They help meet the ment techniques can enhance record- standards for key court events, the avail-
modern objectives of efficiency and cost- keeping, reduce delays and case backlogs ability of regulations on adjournments
effectiveness by providing a mechanism and provide information to support stra- and continuances, and the possibility of
for quick and inexpensive resolution of tegic allocation of time and resources holding a pretrial conferencea hearing
legal disputes involving small sums of all of which encourage generally better to narrow down contentious issues and
money.15 In addition, they tend to reduce services from courts.21 They can also evidentiary questions before the trial,
backlogs and caseloads in higher courts. improve the predictability of court events, explore the complexity of the case and
Small claims courts usually use informal which can ensure accountability, increase the projected length of the trial, create a
hearings, simplified rules of evidence and public trust, reduce opportunities for cor- schedule for the proceedings and check
more streamlined rules of civil procedure ruption and enhance the transparency of with the parties on the possibility of
and typically allow the parties to repre- court administration.22 settlement. When collecting data relat-
sent themselves.16 ing to regulations on time standards and
While the case management principles adjournments, Doing Business also sur-
Faster and less costly dispute resolu- adopted by courts vary depending on their veys experts on whether these standards
tion matters to small and medium-size needs and the local legal culture, some have are respected in practice.
enterprises, which may not have the been applied so consistently worldwide as
resources to stay in business during to have evolved into a set of core principles. The data show that having a pretrial con-
long, costly litigation. If a claim could not These include early court intervention, ference is a common case management
be enforced because the relative cost is establishing meaningful events such as tool, used in 87 economies (figure 10.3).
prohibitive, there would be a denial of the filing of a plea or the submission of the Laws or regulations setting time standards
justice.17 By providing a venue for resolv- final judgment, establishing time frames for for key court events exist in 111 economies,
ing claims with costs and procedures that these events and for disposition, creating though these time standards are respected
are realistic and proportionate to the size realistic schedules and expectations that in practice in only 76 of these economies.
of the dispute, small claims courts and events will occur as scheduled, introducing Detailed rules regulating adjournments
simplified procedures for small claims early options for settlement, establishing are available in only 50 economies.
increase access to justice for businesses firm and realistic appearance dates and
and individuals.18 developing mechanisms that control frivo- Another way to support effective
lous adjournments.23 implementation of case management
According to Doing Business data, 128 techniques is to use case management
economies have either a stand-alone Doing Business collects data on three reports that compile and analyze case
small claims court or a simplified pro- of the recognized core principles: the performance data.24 These can show
cedure for small claims within the first-
instance court.19 Of these 128 economies,
Figure 10.2 Most economies in Latin America and the Caribbean have a court or
116 allow parties to represent themselves
procedure for small claims in place
during the proceedings. Across regions,
Latin America and the Caribbean and
the OECD high-income group have the Share of economies with a court
largest shares of economies with a court or procedure for small claims (%)

or simplified procedure for small claims in 100


place91% in both cases (figure 10.2).
80

60
MANAGING THE FLOW
OFCASES 40

Case management refers to a set of 20


principles and techniques intended to
ensure the timely and organized flow of 0
Latin America OECD South Asia Middle East & East Asia Europe & Sub-Saharan
cases through the court from initial filing & Caribbean high income North Africa & Pacific Central Asia Africa
through disposition. Case management
enhances processing efficiency and
promotes early court control of cases.20 Source: Doing Business database.
94 Doing Business 2016

Figure 10.3 Some of the features covered by the quality of judicial processes index exist in far more economies than others
Number of economies
with feature
200
180
160
140
120
100
80
60
40
20
0

ion

ce

nt

ss

g
*

re

*
en t

ort

(jud ent

(lawment

filin
ds

nts

nts
tion

s)

oce
s

edu

me
ren

ges
atio
ase

ivis
hm

yer
dar

rep
me

me

em
pay
itra

n fe

f pr
roc

nic
of c

e
rd
tac

cili

tan

udg

urn

nag

nag
e

ctro
l co
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rp

anc

eo
to
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fee
l at

es
nt

o
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ma

ma
rt o

vic
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tria

orm

Ele
cou
me
tria

tim

nic
or

ser
cou

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ase
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ign

on

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tion

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ial
on

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ims

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Source: Doing Business database.
Note: For features marked with an asterisk, an economy must have received a score of at least 0.5 to be included in the count. For details on the scoring, see the data notes.

whether case management goals have of a hearing schedule; management of the availability of electronic filing of the
been met in individual cases or at the electronic notifications; tracking of the initial summons. This year it began look-
court levelsuch as through data on status of cases; management of case ing at two additional features: electronic
the number of cases pending before the documents; electronic filing of briefs service of process and electronic payment
court, the clearance rate, the average and motions; and access to court orders of court fees. Just as for electronic filing
disposition time or the age of the pending and decisions. Such systems may be of the initial summons, Doing Business
caseload. Such reports can show court available to a range of users, from judges tests only whether these features are
administrators where inefficiencies and to lawyers, court administrators and in place, not whether they are used by
bottlenecks lie and also help them track court users. Doing Business looks at their the majority of court users. For all these
the progress of ongoing case manage- availability to judges and to lawyers. features the court of reference is the one
ment initiatives. And by breaking data The data show that they are more com- that would have jurisdiction to hear the
down at the judge level, they can serve monly available to judges: an electronic Doing Business standardized case.
as a performance measurement toolan case management system as defined by
important use, since research shows that Doing Business is available to judges in 41 These features streamline and speed up
many delays in litigation are attributable economies, while such a system is avail- the process of commencing a lawsuit.
to lax case management by the judge.25 able to lawyers in only 37 economies.28 But they also have broader benefits.
Data collected this year on the availabil- Electronic records tend to be more con-
ity of four of the more common types of venient and reliable. Reducing in-person
performance management reports show AUTOMATING PROCESSES interactions with court officers minimizes
that at least two of these types are pub- the chances for corruption and results in
licly available in 71 economies.26 As courts around the world have made speedier trials, better access to courts
increasing use of electronic systems, and more reliable service of process.
Some economies have introduced court users have seen the benefitsin These features also reduce the cost to
electronic systems to support case greater judicial transparency as well as enforce a contractcourt users save
management by automating many of its greater court efficiency. in reproduction costs and courthouse
components.27 Features available through visits, while courts save in storage costs,
electronic case management systems Automation and judicial archiving costs and court officers costs.
may include access to laws, regulations transparency And studies show that after electronic
and case law; access to forms to be sub- Until this year Doing Business measured filing is introduced in courts, the acces-
mitted to the court; automatic generation court automation only in connection with sibility of information increases and
Enforcing Contracts 95

access to and delivery of justice improve how cases are assigned to judges within and South Asia also account for only two
considerably.29 the competent court. A credible system each.
for random assignment of cases mini-
In the past five years Doing Business mizes the chances for corruption.30 While Automation and court efficiency
recorded 13 reforms focused on intro- almost all economies (172) provide for Sophisticated court automation can
ducing an electronic filing system for random assignment of cases, only 48 support effective case management.
commercial cases and allowing attor- have a fully automated process. Courts that have automated processes
neys to submit the initial complaint for actions such as serving documents
online. Introducing electronic filing was The second relates to whether judgments or submitting a claim can more easily
the most common feature of enforcing rendered in commercial cases at all levels implement electronic case management
contracts reforms recorded in last years are made publicly available.31 Publishing systems. Even where case management
report and is among the most common judgments contributes to transparency is not fully automated, some court
in this years report. Today electronic and predictability, allowing litigants to automation can be an effective tool for
filing of the initial complaint is allowed rely on existing case law and judges to court administrators, enabling them to
in 24 economies. Electronic service of consistently build on it. Access to the more easily monitor the movement of
process is slightly more commonthe results of commercial cases benefits cases through the court. Economies in
initial summons can be served by e-mail, companies that invest in a particular juris- the OECD high-income group and Europe
fax or text messaging in 27 economies. diction, clarifying the scope of their rights and Central Asia tend to have both great-
Electronic payment of court fees is the and duties.32 Making judgments available er court automation and more developed
most commonly available feature of does not necessarily require substantial case management than those in any
court automation measured by Doing resources, but it does require internal other region. Together, these two regions
Businessallowed in 45 economies. organization. Case decisions must be account for 17 of the 24 economies
Even so, these three features, along with accessible and catalogued efficiently so worldwide that make electronic filing
electronic case management, remain the that they can be easily searched. available and for 23 of the 34 economies
least common of the good practices cov- that offer an electronic case management
ered by the quality of judicial processes In 42 economies courts publish virtu- system for both judges and lawyers.
index (figure 10.4). ally all recent judgments in commercial Outside these regions, court automation
cases either online or through publicly remains limited: 74 economies score a 0
Doing Business also explores two dimen- available gazettes. Sub-Saharan Africa on the court automation index.
sions that are closely intertwined with accounts for only two of these econo-
court automation and, ultimately, with mies; the Middle East and North Africa The Republic of Korea and Singapore are
judicial transparency. The first relates to two of only four economies worldwide
that receive full points on the court
automation index; they also score points
Figure 10.4 Court automation and case management are two areas where many
for the availability of electronic case
economies can improve
management systems for both judges
Average index score and lawyers. Unsurprisingly, both these
as % of best score
economies reformed in this area in the
100
past few years. Korea launched an elec-
80 tronic case filing system in 2010 that
allows electronic document submission,
60 registration, service notification and
access to court documents (box 10.1).
40 Singapore introduced a new electronic
litigation system in 2014. The system
20
allows litigants to file cases onlineand
0
it enables courts to keep litigants and
OECD Latin America South Asia Europe & Middle East & East Asia Sub-Saharan lawyers informed about their cases
high income & Caribbean Central Asia North Africa & Pacific Africa
through e-mail, text alerts and text
Alternative dispute resolution index Court structure and proceedings index
messages; to manage hearing dates;
Case management index Court automation index
and even to hold certain hearings by
videoconference.
Source: Doing Business database.
96 Doing Business 2016

BOX 10.1The computerization of Korean courts


Today Korean courts are fully computerized, but this did not happen overnight. The process started in the late 1970s with the
creation of a database of cases flowing through courts. In the early 1980s a word processing software was introduced to sup-
port judges in writing judgments. In 1986 a case management system was launched, enabling clerks and judges to search all
civil cases in the database and deal more efficiently with their caseloads. Soon after, a master plan for creating e-courts was
conceivedand this was followed by steps to make the case management system accessible to external users, add electronic
signatures and digital certificates to the system and make real-time national data on court activities available. Finally, in 2010
Korea launched an electronic case filing system. The system enables some judges to adjudicate up to 3,000 cases a year, man-
age up to 400 a month and hear up to 100 pleas a month.
Sources: Doing Business research; interview with Korean Judge Hoshin Won, Daegu District Court, Seoul.

The data suggest a striking relationship ADR should be seen not as something Especially in smaller cases, having a
between court automation and case that can replace traditional litigation but neutral mediator or arbitrator saves busi-
management on the one hand and the as a tool that can assist courts in resolv- nesses time and money in resolving com-
time and cost for dispute resolution on ing disputes in a timely, cost-effective mercial disputes and provides greater
the other. Singapore has the shortest and transparent way. ADR mechanisms control over outcomes and confidential-
resolution time worldwide150 days for can improve efficiency in the court sys- ity.38 It also reduces the instances in
the standardized commercial dispute. tem as a whole by helping to reduce case which a dispute leads to the termination
Korea is a short step away, with a reso- backlogs and bottlenecks.33 They can of a commercial relationship.39 And with
lution time of 230 days. Korea also has reduce delays where these are caused todays increasingly complex business
among the lowest costs worldwide to by complex formal procedures or inade- dealings, specialized ADR programs
resolve a commercial dispute, at about quate court resourcesand reduce high focusing on particular types of technical
10.3% of the value of the claim. And costs where these are driven by formal or complex disputes can be more effec-
both Korea and Singapore are among the procedures, high filing fees and court tive and produce better settlements than
economies that have been promoting delays. Economies with an integrated courts, increasing litigants satisfaction
judicial transparency and the develop- system of courts and ADR tend to have with outcomes.
ment of consistent case law through the a more reliable judiciary, benefiting the
online publication of judgments rendered courts, the parties involved and the Almost all (183) of the economies sur-
at all levels. economy as a whole.34 veyed recognize arbitration in one way
or another as a mechanism for dispute
When used as an alternative to the resolution. Most (171) also recognize
USING ALTERNATIVE judicial process, ADR has its own set voluntary mediation or conciliation. To
MEANS TO RESOLVE of benefits. It gives the parties more be effective, ADR mechanisms need
DISPUTES control over the resolution of disputes to be accessible. They also need to be
and in most cases increases their sat- comprehensively regulated, with all
While the Doing Business indicators on isfaction with outcomes. A study in the substantive and procedural provisions
enforcing contracts have traditionally Canadian province of Quebec has even available in a single source, such as a
measured dispute resolution through shown that a form of ADR known as specific statute. The data show that this
the local court system, this year the judge-presided settlement conference is more often the case for arbitration:
focus has broadened to also cover promotes access to justice.35 while 179 economies have a dedicated
mechanisms of alternative dispute law or chapter on arbitration, only 102
resolution (ADR)in particular, arbi- Effective systems of domestic commer- have a similar instrument on voluntary
tration, voluntary mediation and con- cial arbitration and mediation or concili- mediation or conciliation.
ciliation. In commercial arbitration the ation matter to investors.36 Lawyers and
parties agree to submit their dispute to business owners know that high litigation Economies worldwide have consis-
an independent arbitrator or arbitral tri- costs and long delays make resolving tently focused on promoting and regu-
bunal, which issues a final and binding commercial disputes in court difficult lating arbitration and mediation. Three
decision. In a mediation or conciliation and expensive and may look elsewhere economiesCte dIvoire, Latvia and
process the parties ask a third person for dispute resolutionand businesses Senegalhave made such issues a prior-
to assist them in reaching an amicable may pass the costs on to consumers or ity over the past year, introducing new
settlement of their dispute. abstain from investing in a jurisdiction.37 laws that regulate mediation.
Enforcing Contracts 97

Table 10.1 On average, OECD high-income economies have the highest number of judicial good practices in place as measured by
the new indices
Court structure and Alternative dispute Quality of judicial
proceedings index Case management Court automation resolution index processes index
Region (05) index (06) index (04) (03) (018)
OECD high income 3.70 2.96 1.85 2.45 10.96
Europe & Central Asia 3.54 3.24 1.52 2.18 10.48
Latin America & Caribbean 3.48 1.84 0.75 2.30 8.37
East Asia & Pacific 2.74 1.91 0.94 2.02 7.61
South Asia 3.06 0.63 0.56 2.25 6.50
Middle East & North Africa 3.25 0.75 0.35 2.13 6.48
Sub-Saharan Africa 3.11 1.11 0.23 1.98 6.43
Source: Doing Business database.
Note: The quality of judicial processes index is the sum of the four other indices shown here, with 18 being the highest possible score. For details on how the indices are
constructed, see the data notes.

processes indexSingapore, Australia A well-organized, reliable and stream-


WHY DOES ALL THIS and the former Yugoslav Republic of lined judiciary plays an important part
MATTER? Macedoniaonly two are high-income in the efficient delivery of justice. The
economies. And while some regions data for the enforcing contracts indica-
OECD high-income economies tend to have relatively low average scores on the tors show that economies that have
focus more consistently on implementing new index, top performers can be found more judicial good practices in place
judicial good practices. On average, these in these regions as well. In Sub-Saharan also tend to have faster and less expen-
economies have the largest number Africa, for example, Mauritius receives sive commercial dispute resolution
of judicial good practices as measured 13 of 18 possible points, a higher score (figure 10.5).
by Doing Business (table 10.1). But top than the average for OECD high-income
performers can be found in all income economies. The availability of good practices making
groups. Of the three economies with the contract enforcement easier and more
highest scores on the quality of judicial efficient matters to businesses and,
indeed, even plays a role in the level of
Figure 10.5 Economies with more judicial good practices in place tend to have faster domestic credit provided by the financial
and less costly contract enforcement sector to the economy. Economies that
score well on the quality of judicial pro-
Distance to frontier score for quality
of judicial processes index cesses index have higher levels of credit
100 provided to the private sector by domes-
90 tic financial institutions (figure 10.6).
80
70
CONCLUSION
60
50
Data for the new quality of judicial pro-
40 cesses index highlight great variation in
30 the implementation of judicial good prac-
20 tices across the 189 economies covered.
10 Some practicessuch as the availability
0
of arbitration or the availability of a small
0 10 20 30 40 50 60 70 80 90 100 claims court or procedureare wide-
Distance to frontier score for time and cost to enforce a contract spread; others still need attention in even
the most sophisticated economies. One
Source: Doing Business database. example is electronic case management,
Note: The correlation between the distance to frontier score for the quality of judicial processes index and the available to judges in only 41 economies
distance to frontier score for the time and cost to enforce a contract is 0.37. The relationship is significant at the
1% level after controlling for income per capita. and to lawyers in only 37.
98 Doing Business 2016

if judges in the relevant court can use such


Figure 10.6 Economies with more judicial good practices in place have higher levels a system for at least four of eight specified
of domestic credit provided to the private sector purposes. An economy is considered to have
an electronic case management system
Domestic credit to private sector available to lawyers if lawyers can use such
(% of GDP) a system for at least four of a different set of
seven purposes. For more details, see the data
300
notes.
29. Berkman Center for Internet & Society at
250 Harvard University 2010; Zorza 2013.
30. USAID 2009.
31. An exclusion is made for very small cases and
200 cases in which privacy may be an issue.
32. Byfield 2011.
150 33. Love 2011.
34. World Bank Group, Investment Climate
Advisory Services 2011.
100 35. Roberge 2014.
36. Pouget 2013.
37. National Arbitration Forum 2005.
50
38. Pouget 2013; Stipanowich 2004; Love 2011.
39. UNCITRAL 2004b.
0
0 10 20 30 40 50 60 70 80 90 100
Distance to frontier score for quality of judicial processes index

Sources: Doing Business database; World Development Indicators database (http://data.worldbank.org


/indicator), World Bank.
Note: Domestic credit to private sector refers to financial resources provided to the private sector by financial
corporations, such as through loans, purchases of nonequity securities, and trade credits and other accounts
receivable, that establish a claim for repayment. The data for this indicator are for 2014. The correlation between
the distance to frontier score for the quality of judicial processes index and domestic credit to private sector as a
percentage of GDP is 0.40. The relationship is significant at the 1% level after controlling for income per capita.

None of the 189 economies covered by 14. Ramsay 1996.


15. Axworthy 1976; Ramsay 1998.
Doing Business receive full points on the
16. HALT 2007; Baldwin 2000.
quality of judicial processes index. By 17. Axworthy 1976.
helping to identify specific areas needing 18. Baldwin 2000.
19. Throughout this case study, any economy
attention, the index can be a useful tool
for which Doing Business covers two cities
for governments seeking to reform and is included in the count of economies with
modernize their judiciary. a particular feature as long as the feature is
available in at least one of the two cities.
20. Michigan State Court Administrative Office
2004; Gramckow and Nussenblatt 2013.
NOTES 21. Michigan State Court Administrative Office
2004; Gramckow and Nussenblatt 2013;
Rooze 2010; Steelman, Goerdt and McMillan
This case study was written by Erica Bosio, Salima
2004.
Daadouche, Christian De la Medina Soto and
22. USAID, Center for Democracy and
Maksym Iavorskyi.
Governance 2001; Gramckow and
1. Esposito, Lanau and Pompe 2014; Dakolias Nussenblatt 2013; Rooze 2010; Steelman,
1999; Ball and Kesan 2010; Klerman 2006; Goerdt and McMillan 2004.
Dam 2006; Rosales-Lpez 2008. 23. Michigan State Court Administrative Office
2. Dakolias 1999; Sherwood, Shepherd and 2004; Gramckow and Nussenblatt 2013;
DeSouza 1994. Rooze 2010; Steelman, Goerdt and McMillan
3. Dam 2006. 2004.
4. Islam 2003. 24. Gramckow and Nussenblatt 2013; Steelman,
5. Esposito, Lanau and Pompe 2014. Goerdt and McMillan 2004.
6. World Bank 2004. 25. Steelman 2008.
7. World Bank 2004. 26. The four types of reports are time to
8. World Bank 2004. disposition report, clearance rate report, age
9. Castelar-Pinheiro 1998; Sereno, de Dios and of pending caseload report and single case
Capuano 2001; Herrero and Henderson 2001. progress report.
10. Pistor, Raiser and Gelfer 2000. 27. Rooze 2010.
11. Djankov and others 2003. 28. Under the Doing Business methodology, an
12. Zimmer 2009. economy is considered to have an electronic
13. Zimmer 2009. case management system available to judges
Doing Business 2016

Resolving insolvency
New funding and business survival

W
hen Kodak filed for bankruptcy insolvent company will need access to New funding provided to an insolvent
in January 2012, few were additional funds.3 It is unlikely to be able company after the start of insolvency
surprised. The company had to rely on internal sources to finance its proceedingsknown as post-
dominated the U.S. photographic film costsincluding payments for the goods commencement financecan enable
industry for decades, but technology in the and services needed to continue the busi- the business to continue operating
form of digital photography and camera- ness. So the company may need to seek during insolvency.
equipped smartphones had advanced fast- external funding (figure 11.1). The authorization of post-
er than its ability to adapt. Yet 20 months commencement finance and
later Kodak emerged from a successful New funding provided to an insolvent the treatment of the claims of
reorganization with a new business focus. company after the start of insol- post-commencement creditors are
In between, Kodak had received $950 vency proceedings is known as post- two important areas that need to be
million in new loans that were crucial for commencement finance.4 It can become addressed in insolvency law. But half
paying vendors and suppliers and running necessary at different stages of insolvency the 189 economies covered by Doing
its day-to-day business operations while it proceedingsimmediately after the appli- Business have no provisions in these
underwent reorganization.1 cation for insolvency, during the prepara- areas.
tion and approval of a reorganization plan Clear and effective regulations on post-
As the Kodak example shows, businesses or before the sale of assets in a liquidation. commencement finance may improve
in financial distress may need new money Besides paying for goods and services the availability and terms of new
to survive. Yet lending to companies that essential to continued operation, new funds funding for viable firms undergoing
are finding it difficult to honor promises are often used to cover labor costs, insur- insolvency proceedingsfunding
made to existing creditors hardly seems ance, rent and other expenses necessary that can support their successful
a profitable venture. A framework is to maintain the value of the assets.5 But reorganization or enable their sale as a
needed that allows access to new funds it is important that post-commencement going concern in liquidation.
for financially distressed but potentially finance mechanisms be used judiciously. To Financially distressed businesses are
viable businesses while ensuring a high avoid restricting the availability of credit in more likely to pursue reorganization
probability of repayment. Creating such a regular commercial transactions, the use of and more likely to emerge from
framework can be a challenge. post-commencement finance should be insolvency proceedings as a going
limited to supporting the reorganization of concernin economies that have
When a company becomes insolvent viable firms or enabling the sale of busi- provisions on post-commencement
when it cannot pay its debts as they fall nesses as a going concern in liquidation finance.
dueeither the company itself or its and only if new credit would lead to higher Many economies are introducing
creditors may start insolvency proceedings. returns to existing stakeholders in the provisions on post-commencement
In an efficient insolvency system these pro- distressed business (box 11.1). finance as part of an overall effort to
ceedings will result in the reorganization of strengthen mechanisms for business
the insolvent company if it is viable or in its rescue.
liquidation if it is not. Continued operation of What are some good
the debtors business during the insolvency practices?
proceedings is imperative for successful
reorganization. It can also be important in Insolvency law can create a predictable
liquidation, where the goal is to maintain and enforceable framework for lending
and maximize the value of the debtors to companies in insolvency proceedings
assets.2 But to continue operating, the through provisions explicitly allowing
100 Doing Business 2016

will be paid. These concerns can be


Figure 11.1 Post-commencement finance can be critical in helping a business go
addressed through provisions in two
from insolvency to recovery
areas: explicit authorization of post-
commencement finance and treatment
of the claims of post-commencement
creditors. Good practices in these areas
have been recommended by a range
of international institutions, including
Business suffers Business or creditors Business attempts to the United Nations Commission on
financial difficulties start insolvency restructure
proceedings
International Trade Law, the World Bank,
the International Monetary Fund and the
Asian Development Bank.

$ $ $ As a first step, insolvency law needs


to include clear provisions authorizing
post-commencement finance as well as
efficient mechanisms for obtaining such
finance.7 The law can grant the power to
In exchange, claims of Creditors offer Business needs new obtain new loans either to the debtor or to
post-commencement post-commencement funds to continue
creditors are given finance operating the insolvency representative managing
priority the debtors assets. The law can address
the form of the new moneyloans and
other forms of finance from new or exist-
ing lenders. And to ensure that the power

$ to take on new loans is used prudently,


the law may require that the court or the
creditors approve all new borrowing.8
Thanks to new funds, Business restructuring Business is rescued,
business continues to is successful jobs are saved, In Serbia the law gives bankruptcy
operate creditors get paid
administrators the power to obtain new
loans during insolvency proceedings.9 In
Finland a debtor can take on new debt
post-commencement borrowing and Several competing interests come without the approval of the insolvency
providing some assurance of payment. into play: the insolvent debtor aims to representative as long as the debt is
Without such provisions, lenders are continue its operations or maximize connected with the debtors regular
unlikely to make new funds available the value of its assets (or both); exist- activities and the amount and terms are
on acceptable termsor indeed on any ing creditors want to have their rights not unusual; all other loans require the
terms at all.6 recognized and preserved; and potential approval of the insolvency representa-
new creditors need assurance that they tive.10 In Japan debtors in reorganization

Box 11.1New funding comes to the rescue


Marvel Entertainment Groupthe company behind the Avengers, Spider-Man and the Fantastic Fourwent through a tumultu-
ous time in the late 1990s. A failed investment strategy and shrinking comic book market had left the company reeling, and its
main investors could not agree on the best way forward. Unable to resolve its problems out of court, Marvel filed for reorganiza-
tion in 1996. The proposed reorganization plan included large infusions of equity and credit to finance a new strategic invest-
ment program. But the company needed immediate assistance to pay its suppliers and employees and to meet its operating and
investment needs during reorganization. The court approved a $100 million loan from a bank group led by Chase Manhattan.
This loan helped keep the company operating during the several months of negotiations that followed. Marvel proved that it was
worth the investment: its latest film, Avengers: Age of Ultron, had pulled in more than $1 billion at the worldwide box office only
24 days after its release in May 2015.
Sources: Marvel Entertainment Group 1996; Lambie 2015; Variety 1997; Pedersen 2015.
Resolving insolvency 101

proceedings can seek the permission of the priority of existing secured creditors availability of credit for the debtor during
the court to borrow money.11 In liquida- without these creditors receiving alterna- the reorganization proceedings.
tion proceedings the power to request tive protectionor at least notice of the
the courts approval rests with the bank- change and an opportunity to be heard.
ruptcy trustee.12 Second, the law needs to enable debtors chances of business
to obtain new funding without security. survival
Besides explicitly authorizing post- For this unsecured post-commencement
commencement finance, insolvency finance, the law needs to grant the Economies around the world have
law needs to establish clear rules for claims of post-commencement creditors undertaken reforms aimed at improv-
ranking the claims of existing and post- priority over those of existing unsecured ing their insolvency systems (box 11.2).
commencement creditors.13 Ranking creditors.16 As a general rule, granting The majority of those recorded by Doing
rules determine which creditors get paid post-commencement finance super- Business in the past five years focused on
first, second or last from the proceeds priority over all existing claims (secured introducing or strengthening reorganiza-
received from the sale of the debtors and unsecured) is not recommended, tion mechanisms.21 Providing an effective
assets. The higher a creditors ranking because this approach risks disrupting and efficient framework for saving viable
priority, the greater the likelihood that the the extension of secured credit in regular businesses is at the heart of internation-
creditor will be paid. So it is no surprise commercial transactions.17 ally established good practices in the area
that the ranking priority that a debtor of insolvency.22
(or an insolvency representative acting In South Africa new financing may be
for the debtor) can offer to potential either unsecured or secured by any asset Empirical evidence on how insolvency
creditors is among the central issues in of the company that is not already subject reforms affect credit markets is clear
the regulation of post-commencement to existing claims. Post-commencement they lead to greater access to credit for
finance.14 At the same time, the rights and finance receives preference over all unse- firms, at lower cost.23 Empirical evidence
priorities of existing creditors, especially cured claims against the company except on how these reforms affect the chances
secured creditors, must be upheld to the those related to employment and to costs of business survival is limited, however.
extent possible. This ensures fairness and of bankruptcy proceedings.18 In Serbia Objective data on business rescue are
predictability, important aspects of any post-commencement finance is treated difficult to establish, and elements
credit system.15 as an expense of the bankruptcy estate contributing to successful results are
and is paid first before other claims, difficult to isolate.24 But one vital factor
Achieving a balance between provid- including claims of existing creditors. But appears to be the availability of post-
ing incentives to potential lenders and it does not affect prior rights of secured commencement finance.25 Indeed,
respecting the rights of existing creditors creditors unless these creditors agree adequate interim financing to ensure
is not easy. Two main practices are gen- otherwise.19 In Belgium the law gives the continued operation of distressed
erally recommended. First, the law needs debts arising during judicial reorganiza- businesses has been identified as one of
to explicitly allow debtors to obtain new tion priority over all other unsecured debt four critical components of turnaround
funding by pledging assets as collateral in the event of a subsequent liquidation.20 successalong with competent
to secure the loans, as a way to provide The aim is to support continued opera- management, a viable core operation
assurance of payment. But the provision tion of the debtors business and the and a motivated labor force.26 Real-life
of this new security should not affect examples support this conclusion (box

Box 11.2New provisions on post-commencement credit in Mexico


Mexico initiated an important financial reform in 2013 with the aim of increasing the availability of credit for businesses and en-
couraging economic growth. This effort culminated in the Financial Reform Act of 2014. Some of the changes targeted the coun-
trys Insolvency Law. Adopted in 2000, this law had been part of a series of measures aimed at modernizing Mexicos insolvency
frameworkwhich had been in place for more than half a centuryand promoting business rescue in the wake of the 1994 peso
crisis. But its effects fell short of expectations: by 2013 less than a thousand insolvency cases had been filed under the new law.a

It became apparent that if distressed businesses were to preserve their financial viability and the jobs they create, changes were
needed to make insolvency proceedings more attractive to both debtors and creditors. Several new features were introduced.
These include the possibility for a debtor to obtain new finance during reorganization proceedings, to enable continued opera-
tion of its business. The new credit would have priority over existing credit, both secured and unsecured.
a. De la Rosa 2014.
102 Doing Business 2016

Box 11.3New funding can save companies with viable operations


Fruit of the Loom, a manufacturer of leisure clothing, was struggling in the late 1990s. The company filed for reorganization
after suffering steep losses in 1999. This step allowed the company certain protections from creditors while it attempted to
restructure the business. At the time, Fruit of the Loom was a Chicago-based company with operations in several countries and
40,000 employees. Although the companys U.S. branch was going through insolvency proceedings, its Canadian and European
subsidiaries continued operating. So it was imperative that the company receive interim financing to fund operations. A $625
million loan led by Bank of America was key in ensuring a successful resolution. The company was purchased in 2001 by Warren
Buffetts Berkshire Hathaway for $835 million in cash.
Sources: Gamble 2003; Florida Times-Union 1999; Chicago Tribune 2001.

11.3). Research also provides support, finance. So it is possible that having a pre- encourage and facilitate the continued
showing that constraints on external dictable and enforceable framework for operation of a business during insolvency
financingarising as a result of events post-commencement lending improves proceedings, which is particularly impor-
such as a financial crisisimpede the availability and terms of new funding tant in reorganization. More than 90%
successful restructuring.27 for viable businesses during insolvency of economies that have provisions on
proceedings, thus allowing such busi- post-commencement finance also have
Every year the Doing Business team col- nesses to successfully reorganize and specific provisions on corporate reorgani-
lects data on the efficiency of insolvency continue operating. This reasoning zation as part of their insolvency law.
proceedings in economies around the also applies to liquidation proceedings,
world. One aspect captured by the data is where post-commencement finance can But the availability of a reorganization
the type of proceeding that a distressed support the temporary continuation of mechanism does not guarantee that
business is most likely to encounter in a business to enable its sale as a going it can or will be used in practice. The
each economy. Another is the likelihood concern. German Insolvency Code, for example,
that a distressed but potentially viable provides a mechanism for business
business can survive insolvency and Of the 189 economies covered by Doing rescue, yet only a small percentage of
continue operating as a going concern. Business, 84 have explicit provisions financially distressed businesses use
The data are collected through question- authorizing post-commencement finance this mechanism with successful results.31
naires that ask insolvency experts in each in their laws while 84 do not. (The other What role might be played by the exis-
economy to estimate the most likely type 21 economies have no recorded insol- tence of provisions on post-commence-
of insolvency proceeding and the most vency practice and are therefore excluded ment finance? One way to look at this
likely outcome of such proceeding based from the analysis.)29 Of the 84 economies
on specific assumptions about the debtor that have provisions authorizing post-
and the creditors. Starting with last years commencement finance, only 9 have no Figure 11.2 Half the economies
report, the team has also collected data special provisions on how the claims of studied have no provisions on post-
on certain aspects of insolvency laws and post-commencement creditors should commencement finance
regulations in each economy, including be ranked relative to existing claims. The Economies by treatment of
the availability and priority of post- other 75 economies establish priority in post-commencement finance
commencement finance. The data are the applicable insolvency law: 36 rank the
collected through readings of the law and claims of post-commencement creditors No practice
through consultations with insolvency above those of existing unsecured credi- PCF authorized
experts in each economy.28 with no priority
tors only, and 39 rank such claims above of ranking 21
those of all existing creditors (figure 11.2). 9
PCF authorized 84
The Doing Business data show possible No PCF
and ranked
36 provisions
connections between the existence of Provisions on post-commencement above unsecured
creditors only
regulations on post-commencement finance are often part of a larger mecha-
39
finance and the likelihood of business nism of corporate reorganization. In
survival. While these connections do not Finland, for example, the Restructuring of
necessarily establish a causal relation- Enterprises Act includes such provisions PCF authorized and
ranked above all creditors
ship, they do show that business rescue while the Bankruptcy Act is silent on this
is more likely in economies where the subject.30 The reason is that the purpose Source: Doing Business database.
law provides for post-commencement of post-commencement finance is to Note: PCF = post-commencement finance.
Resolving insolvency 103

question is to compare two sets of data Moreover, the Doing Business data show that this is the most common outcome in
collected by Doing Business: the data on that survival of distressed businesses at the majority of economies with provisions
which economies have provisions on the end of insolvency proceedings is more on post-commencement finance. Survival
post-commencement finance and the likely in economies with provisions on of the business as a going concern is likely
data on which insolvency proceeding is post-commencement finance. Survival in only 44% of economies with such
most common in each economy. as a going concern is the most common provisions. Even so, this represents a
outcome of insolvency proceedings in significantly higher probability of survival
The results suggest that distressed only 47 of the 189 economies studied. than in economies without provisions on
businesses are more likely to pursue This outcome can be a result of either post-commencement finance: survival
reorganization in economies that have reorganization proceedings or the sale of as a going concern is the likely outcome
provisions on post-commencement an existing business as a going concern of insolvency proceedings in only 12%
finance. Successful reorganization is the to new owners at the end of liquidation of these economies. The positive cor-
most common insolvency proceeding in or foreclosure proceedings.33 Of the 47 relation between post-commencement
19% of these economies, while attempted economies where survival is the most finance provisions and the outcome of
but unsuccessful reorganization is common outcome, 37 have explicit pro- proceedings holds even after taking into
the most common in 40% (figure visions on post-commencement lending account differences in the income level of
11.3). By contrast, among economies while the other 10 do not (figure 11.4). economies.35
with no explicit provisions on post-
commencement finance, attempted but The existence of post-commencement
unsuccessful reorganization is common in finance provisions does not guarantee Conclusion
only 11%, and successful reorganization is business survival, however. In South
unlikely (recorded in only one economy). Africa, for example, amendments to the Data collected by Doing Business
The positive correlation between Companies Act in 2011 included detailed show that well-structured provisions
provisions on post-commencement rules on post-commencement finance on post-commencement finance are
finance and the likelihood of attempted and its priority.34 Yet the most common important. By establishing predictable
or successful reorganization holds even outcome of insolvency proceedings in and enforceable rules on lending during
after taking into account differences in the country continues to be liquidation of insolvency proceedings, these provisions
the income level of economies.32 the distressed business and its piecemeal may encourage creditors to lend to viable
sale. Indeed, the DoingBusiness data show businesses capable of reorganization
and to do so on better terms. They may
Figure 11.3 Distressed businesses are Figure 11.4 Businesses are more likely also encourage creditors to provide the
more likely to pursue reorganization in to emerge from insolvency proceedings necessary bridge financing to enable the
economies with post-commencement as a going concern in economies with sale of businesses as a going concern in
finance provisions post-commencement finance provisions liquidation. When financially distressed
Economies in each group by most Number of economies in each group by most businesses have legally sanctioned
common proceeding (%) likely outcome of insolvency proceedings access to new funds, they may be more
100 80 likely to attempt reorganization and to
emerge from the process successfully.
80
60 The data validate the emphasis put on
the continuation of business operations
60
40 during insolvency proceedings as a
40 way to facilitate reorganization and to
preserve and maximize the value of the
20
20 debtors assets.

0 0
Economies with Economies with Economies with Economies with These results also explain why a growing
no PCF provisions PCF provisions no PCF provisions PCF provisions number of economies are amending their
Successful reorganization Survival as a going concern insolvency laws to include or improve
Attempted but unsuccessful reorganization Piecemeal sale provisions on post-commencement
Other proceedings
finance. One of these is Mexico, whose
Source: Doing Business database. Source: Doing Business database. Financial Reform Act of 2014 intro-
Note: PCF = post-commencement finance. Other Note: PCF = post-commencement finance. duced the possibility of requesting
proceedings include liquidation, foreclosure and
receivership. post-commencement finance during
104 Doing Business 2016

reorganization proceedings and gave the 18. Companies Act 2008 (Act 71 of 2008),
section 135.
claims of post-commencement creditors
19. Law on Bankruptcy (Law 104/09 of
priority over those of existing creditors. December16, 2009), article 27.
Similarly, in the past two years Cyprus, 20. Loi relative la continuit des entreprises (law
related to companies continuation), article 37.
Jamaica, the Seychelles, and Trinidad and
21. In the five years from 2009 to 2014, 60
Tobago introduced provisions on post- economies implemented 87 reforms affecting
commencement finance and its priority the Doing Business indicators on resolving
insolvency. Reforms in the area of corporate
as part of an overall effort to strengthen
reorganization were the most common: 10
and modernize mechanisms for business economies introduced a new reorganization
rescue. proceeding, and 21 promoted reorganization
or made improvements to their existing
reorganization framework.
Nevertheless, half the economies cov- 22. See, for example, World Bank (2011) and
ered by Doing Business have no provisions UNCITRAL (2004a).
23. Armour and others 2015.
on post-commencement finance. And
24. Vriesendorp and Gramatikov 2010.
even economies that do have such provi- 25. See comment to global principle 31 in
sions often see little or no use of them American Law Institute (2012).
26. Bibeault 1982, p. 112.
in practice. Doing Business data show
27. Vriesendorp and Gramatikov 2010.
that focusing on post-commencement 28. For a detailed description of the methodology
finance as part of the effort to facilitate for the resolving insolvency indicators, see the
data notes.
and promote business rescue can lead
29. For a definition of no practice economies
to more attempts at reorganization and as recorded by the resolving insolvency
higher rates of business survival. indicators, see the data notes.
30. Restructuring of Enterprises Act (Act 47/
1993, as subsequently amended), sections 29,
32 and 34.
NOTES 31. According to Germanys Federal Statistical
Office, 24,085 businesses filed for insolvency
in the country in 2014. Doing Business
This case study was written by Maksym Iavorskyi,
respondents estimate that less than a quarter
Klaus Koch Saldarriaga, Olena Koltko and Mara
of businesses filing for insolvency successfully
Antonia Quesada Gmez.
undergo restructuring proceedings.
1. Kodak 2012. 32. The correlation between the score that
2. UNCITRAL 2004a, p. 113. economies receive on explicit authorization
3. Clift 2011. of post-commencement finance and the
4. Post-commencement finance as described most likely type of proceeding as measured
in this case study differs from trade credit by Doing Business is 0.49. The relationship is
extended by vendors that continue to trade significant at the 1% level after controlling for
with a debtor during the insolvency process. income per capita.
The rules and priorities for trade credit often 33. For a detailed explanation of the methodology
differ from those for post-commencement used to determine the outcome of insolvency
finance. proceedings, see the data notes.
5. UNCITRAL 2004a, pp. 113-14, and World 34. Companies Act 2008 (Act 71 of 2008),
Bank 2011, principle C9. section 135.
6. See comment to global principle 31 in 35. The correlation between the score that
American Law Institute (2012). economies receive on explicit authorization
7. UNCITRAL 2004a, p. 118. of post-commencement finance and the
8. UNCITRAL 2004a, pp. 11315, 11718. outcome of insolvency proceedings as
9. Law on Bankruptcy (Law 104/09 of measured by Doing Business is 0.36. The
December16, 2009), article 27(2). relationship is significant at the 1% level after
10. Restructuring of Enterprises Act (Act 47/ controlling for income per capita.
1993, as subsequently amended), section 29.
11. Civil Rehabilitation Act (Act 225 of December
22, 1999), article 41.
12. Bankruptcy Act (Act 75 of June 2, 2004),
article 78(v).
13. See standard 5.6 in Asian Development Bank
(2000, p. 35).
14. IMF, Legal Department 1999.
15. See principle C12 in World Bank (2011,
pp.1819).
16. See recommendations 6368 in UNCITRAL
(2004a, pp. 11319).
17. IMF, Legal Department 1999.
Doing Business 2016

Legal research findings on


business regulation and the law

H
ow laws and regulations affect The review reveals four thematic axes The legal research findings relevant
the life of a local company is a (table 12.1). First, a number of articles to the Doing Business indicators cover
complex question. The Doing study the impact of court efficiency and four main areas: court efficiency
Business report has endeavored to pro- the role of alternative dispute resolution and alternative dispute resolution;
vide a cross-country comparison of the (ADR) in countries development by ana- corporate governance; creditors rights
regulatory environment for local small lyzing the symbiotic relationship between and collateral laws; and insolvency
and medium-size businesses since its the two.3 Second, many articles examine rules and reorganization procedures.
inception 13 years ago. Its analysis has the rights and obligations of different Alternative dispute resolution
traditionally focused on two aspects of types of shareholders in a company and mechanisms tend to have a symbiotic
the regulatory environment as it applies the rules of corporate governance that relationship with court efficiency.
to the topics covered: the efficiency with can help ensure good corporate manage- Where available, these mechanisms
which a regulatory goal is achieved and ment. Third, researchers have looked tend to be linked with faster dispute
the quality of the rule itself. The data at how creditors rights affect access to resolution in courts.
collected for the Doing Business indicators finance, often focusing on the importance The corporate governance literature
over the years have served as a source of of a modern secured transactions system. highlights the need for a clear set of
information for articles published in peer- Finally, studies have debated the impor- rules on who makes key decisions,
reviewed academic journals and for work- tance of reorganization procedures in an who needs to be informed about those
ing papers. In reviewing this research, insolvency framework, particularly in the decisions and how abuse from different
past editions of the Doing Business report light of the U.S. reorganization model. stakeholders can be prevented.
presented the economic perspective on The creditors rights literature focuses
the findings.1 But the indicators are also on analyzing whether the legal
part of a broader discussion on what con- COURT EFFICIENCY AND framework can help maximize the
stitutes business friendly rule of law. ALTERNATIVE DISPUTE value of collateral held by small and
RESOLUTION medium-size companies while giving
This chapter reviews articles that were secured creditors the assurance that
published in legal journals ranked among The Doing Business indicators on enforc- their rights will be protected.
the top 70 and that focus on areas ing contracts have historically touched
The main objective of insolvency
covered by four sets of Doing Business on some of the issues of judicial efficien- legislation is to ensure the survival of
indicatorsincluding articles whose cy explored by legal research in recent viable businesses, on the one hand,
core analysis centers either on the years, and a new indicator introduced and the most equitable return for
adequacy of legislation as compared with this yearthe quality of judicial pro- stakeholders in businesses that should
internationally accepted standards or cesses indexbroadens their coverage ultimately be liquidated, on the other.
on the application of the law.2 The four to include several additional aspects.
sets of indicators are those on enforcing One of these is the availability of arbitra-
contracts, getting credit (legal rights), tion and voluntary mediation as ADR
protecting minority investors and resolv- mechanisms. Several studies discuss
ing insolvency. While most of these indi- aspects of ADR and its relationship
cators are based primarily on a study of with court efficiency, including Dakolias
substantive law, some also examine the (1999), Ryan (2000) and Drahozal and
efficiency of the judiciary in dealing with OConnor (2014).
commercial disputes and insolvencies.
106 Doing Business 2016

TABLE 12.1 Four thematic axes in the literature

Court efficiency Creditors rights and collateral Insolvency rules and


and ADR Corporate governance laws reorganization procedures
Performance of judicial Regulatory convergence in Importance of secured Good insolvency practices
administration shareholder protection and transactions regimes Azar (2008)
Dakolias (1999) corporate governance Kozolchyk and Furnish (2006)
Katelouzou and Siems (2015) Deciding between liquidation and
ADR mechanisms and procedural Aytekin, Miles and Esen (2013) Legal and collateral registry reorganization proceedings
safeguards reform in Malawi Adams (1993)
Ryan (2000) Director versus shareholder Dubovec and Kambili (2013)
primacy Relationship between
Scope of arbitration clauses Bainbridge (2014) Secured transactions reform in reorganization law and the
Drahozal and OConnor (2014) Ghana performance of reorganization
Agency cost in principal-agent Dubovec and Osei-Tutu (2013) systems
Technology and access to justice relationship Eisenberg and Sundgren (1997)
Cabral and others (2012) Hill and McDonnell (2015) Statutory erosion of creditors LoPucki and Triantis (1994)
Gilson and Gordon (2013) rights and the U.K. example
Walters (2014) Secured creditors rights in
Company form and rights of reorganization proceedings
shareholders Segal (2007)
De Jong (forthcoming)
Voting on reorganization plans
Relationship between shareholder Kordana and Posner (1999)
and worker protection
Gahan, Ramsay and Welsh
(2014)

Another aspect measured by the new makers, as cross-country data on court on data provided by public sources on
index is the use of technology in ways that efficiency are scarce and no other data the following metrics: number of cases
can increase court efficiency and reduce set compares judicial efficiency in as filed per year, number of cases disposed
corruptionsuch as electronic filing, elec- many as 189 economies. per year, number of cases pending at
tronic delivery of legal documents to the year-end, clearance rate (ratio of cases
parties to a case, electronic payment of Until recently there was also little quan- disposed to cases filed), congestion rate
court fees, random assignment of cases to titative research on judicial efficiency. (pending and filed cases over resolved
the judges, publication of judgments and Researchers preferred to focus instead cases), average duration of each case and
electronic case management systems. on the qualitative aspect of comparative number of judges per 100,000 inhabit-
As Cabral and others (2012) suggest, law. Dakolias (1999) was among the first ants (figure 12.1).
technology can also improve access to to carry out a comparative analysis of the
justice. Beyond these aspects, the index performance of judicial administration. The results show that in many of these
also measures elements of the court Focusing on 11 economies in different economies the judiciary was able to meet
structure (such as the availability of a regions, the authors analysis was based demand at a specific point in time; as time
specialized commercial court and a court
or simplified procedure for small claims)
Figure 12.1 The number of judges relative to the population varies widely across
as well as the case management system
economies
(such as the existence of specific rules on
adjournments or time limits for key court France
events like delivery of the final judgment).4 Germany
Braslia
Panama
Added to the traditional indicators on Hungary
So Paulo
the time and cost to enforce a contract,
Peru
the new index provides broader insights Ecuador
into judicial efficiency and the quality of Chile
Singapore
judicial processes and can help policy Colombia
makers around the world make more Ukraine
informed decisions when undertaking 0 1 2 3 4 5 6 7 8 9
judicial reform. A review of the literature Number of judges per 100,000 inhabitants
suggests that the enforcing contracts
indicators are a unique tool for policy Source: Adapted from Dakolias (1999).
Legal research findings on business regulation and the law 107

passed, however, difficulties arose and (such as the adoption of standardized joint venture agreements) and find,
reforms were needed to address deficien- forms or the use of incentives like grants) among other things, that almost all
cies. Some of the solutions proposed to foster technology. franchise contracts include carve-outs
by Dakolias involve introducing ADR in their arbitration clauses. In addition,
mechanisms to address backlogs, increas- ADR mechanisms have long been recog- the authors argue that where there is
ing the number of judges by establishing nized as an important tool for enhancing mistrust in the courts, parties will rely on
temporary courts and using information court efficiency, either by helping to arbitration procedures. And they show
technology to improve productivityall alleviate court congestion or by provid- that contractual value is lost if parties
areas addressed by Doing Business. ing a faster, less costly and more flexible cannot rely on courts to protect the value
solution for litigants. Today ADR mecha- of their information and innovation.
Researchers have studied some of these nisms are commonly incorporated into
solutions more broadly. For example, the litigation process (such as through
Cabral and others (2012) analyze how court-annexed arbitration),5 and even if CORPORATE GOVERNANCE
the use of technology by courts and there is criticism of these mechanisms, WHO SHOULD HAVE
legal aid organizations can help improve models such as contractual arbitration CONTROL?
access to justice for low-income litigants and mediation are undeniably popular in
in the United States. While great strides the business community. Ryan (2000) The Doing Business indicators on protecting
have been made through the use of argues that the widespread use of ADR minority investors measure the protection
web-based delivery models (such as needs to be accompanied by procedural of minority shareholders from conflicts
electronic filing and document assem- safeguards so as to ensure the rights of of interest as well as shareholders rights
bly), accessibility and usability are still far the parties involved. The author suggests in corporate governance. To construct
from ideal. Indeed, the authors argue that that among the most important develop- these indicators, Doing Business applies a
to avoid penalizing the parties to a case, ments in judicial ADR has been the desig- consistent methodology and case study
courts implementing new technologies nation of uniform standards of ethics and to assess whether each economy has
should consider the barriers that some procedure. The author provides further implemented a set of good practices in
litigants might face in accessing the recommendations in areas relating to litigation and corporate governance that
technologiessuch as self-represented confidentiality, evidence, public account- protect minority shareholders. As Aytekin,
litigants, litigants located in rural areas ability, ethical issues and quality control. Miles and Esen (2013) illustrate, econo-
and persons with disabilities or with mies can benefit from the lessons drawn
limited English proficiency. The relationship between courts and ADR from comparisons with good practices
mechanisms can be particularly complex worldwide. And the authors confirm ear-
In addition, Cabral and his coauthors when a contractual relationship is agreed lier Doing Business findings that developing
argue that mobile devices, for example, between sophisticated parties. Drahozal economies are closing the gap in regula-
will become one of the primary means of and OConnor (2014) argue that when tory frameworks. Indeed, Katelouzou
accessing information and that the legal the parties to a contract choose between and Siems (2015) suggest that there is
community needs to adapt accordingly. courts and arbitration, an ex ante proce- a pattern of global convergence toward
And they emphasize the need to improve dural unbundling occurs when they select regulatory good practices as measured by
well-accepted technological enhance- specific claims and remedies rather than Doing Business, regardless of legal origin or
ments such as electronic filing systems. an a la carte choice of individual proce- tradition.
The adoption of open technical standards dures. For example, it is common practice
for electronic filing, the authors contend, for arbitration clauses to exclude certain Hill and McDonnell (2015) concur on
could ensure universal access for liti- claims and remedies or for parties to agree the importance of measurements and
gants. They also propose a triage system that even when going to court they will benchmarks, suggesting that they have
that would recommend cost-efficient still rely on arbitration to resolve particular contributed to reducing the agency prob-
choices for litigants. Finally, the authors matters.6 These practices, referred to as lem in modern company law in the past
analyze different barriers to the adoption carve-ins and carve-outs, are used to decade. Gilson and Gordon (2013) also
of effective technology strategies that ensure greater performance incentives reflect on the agency issue. Nevertheless,
could improve access to justice. They and lower dispute resolution costs. as Bainbridge (2014) shows, whether
identify eight sometimes overlapping shareholder-centric or board-centric
barriers (for example, lack of funding, a The authors gather empirical data on company law is more beneficial depends
lack of uniformity or standardization and procedural unbundling for different on myriad characteristics specific to
a perception that using technology is not types of contracts (such as franchise each economy. In line with the updated
full justice) as well as potential solutions agreements, technology contracts and methodology for the protecting minority
108 Doing Business 2016

investors indicators, De Jong (forthcom- faster progress in corporate governance prevented. Bainbridge (2014) discusses
ing) attempts to shed further light on practices than Canada is. The authors whether shareholders or management
differences between regulatory frame- find that Turkey has improved in many should ultimately have control in corpo-
works applicable to listed and nonlisted aspects of modern corporate governance, rate decisions and whose interests should
companies and on the consequences for though the development of effective and ultimately prevail. The author examines
the rights of investors. efficient boards remains an area of slower the general assumption that shareholder
progress. And they provide support for primacy is a defining characteristic of New
Research on company law and corporate the claim that developing countries are Zealand company law and compares the
governance models has generated three closing the corporate governance gap means and ends of corporate governance
commonly accepted paradigms: First, with high-income countries. in that body of law with those in the
this area of law may be path-dependent considerably more board-centric regime
and thus not subject to many significant In another important finding, Aytekin, of the United States. He finds that New
changes in a given jurisdiction. Second, Miles and Esen show that while there Zealand company law both establishes
the influence of the U.S. corporate gov- was no change in Turkeys positive trend shareholder wealth maximization as the
ernance model has led to the dominance of corporate governance development objective of corporate governance and,
of market-oriented company law. And during the 200809 financial crisis, despite assigning managerial authority to
third, an economys legal origin and stage Canadas corporate governance practices the board of directors, gives shareholders
of economic development are important and reputation were adversely affected significant control rights. This contrasts
factors in determining shareholder during this period. The authors conclude with the separation of ownership and con-
protection. Yet Katelouzou and Siems that researchers and practitioners need trol mandated by the U.S. system. Arguing
(2015), using leximetric data measuring to give special attention to the develop- that this separation of ownership and con-
the strength of formal legal protections ment and functioning of company boards trol has significant efficiency advantages,
in 30 countries over a 24-year period, in Canada as well as Turkey, because the author suggests that New Zealand
demonstrate the weakening of these they find that this element of corporate has opted for a more shareholder-centric
paradigms. To do so, they construct a governance is weaker than others in both model because there are only a small
shareholder protection index by measur- these countries. number of New Zealand firms for which
ing 10 aspects of shareholder protection, director primacy would be optimal.
some of which are also covered by the For a corporation to flourish, a clear set of
protecting minority investors indicators. rules is needed on who makes key deci- Transparency in the decision-making
According to the authors findings, the sions, who needs to be informed about structure is also imperative to ensure the
U.S. model of company law is not the those decisions and how abuse from performance of corporationsespecially
norm. In addition, since the financial cri- different company stakeholders can be since performance can be understood in
sis, interest in reform has shifted to other
areas of law. And countries with similar Figure 12.2 Shareholder protection increased between 1990 and 2013 in all 30
levels of shareholder protection do not countries in a study
necessarily have the same legal origin
Shareholder protection index (010) 2013
or stage of economic development. The 1990
10
authors also suggest that all 30 countries
9
in their study increased shareholder pro- 8
tection over the period covered (figure 7
12.2). 6
5
Comparisons of countries with different 4
legal traditions and levels of develop- 3
2
ment can help identify good practices
1
as well as weaknesses in law. Aytekin,
0
Miles and Esen (2013) use a comparative
sia Pak land
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Cze M hile
Rep o
Lat ic
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Slo onia
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ina
Un Fra ia
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Kin tes
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Can an
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Sou Bra a
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Sp a
Sw ain
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Be any
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ubl

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Sw Turk

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approach to analyze the development of


Ma

corporate governance in Turkey, particu-


nF

larly after 2006. They use a comparison


Rus

with Canada to identify strengths and


Source: Adapted from Katelouzou and Siems (2015, figure 1).
weaknesses in the Turkish system and
Note: Higher scores on the shareholder protection index (as defined in Katelouzou and Siems 2015) indicate stronger
to determine whether Turkey is making protection of shareholders in the law.
Legal research findings on business regulation and the law 109

different ways. Hill and McDonnell (2015) law could relax certain mandatory provi- while Dubovec and Kambili (2013) and
illustrate how corporate managers may sions for nonlisted public companies and Dubovec and Osei-Tutu (2013) reflect
favor themselves at the cost of corpora- thus offer more flexibility to shareholders. on the experiences of different countries
tions or shareholders and thus become bad In contrast with British law, under Dutch in implementing such systems. Going
agents. They argue that the agency cost law a private company can make public in another direction, Walters (2014)
paradigm, by emphasizing the maximiza- offers of its securities and become listed, looks at ways in which lenders are able
tion of shareholder value as the duty of though there is no appropriate legislative to adjust to changes in bankruptcy law
corporate managers, has had some good regime as there is for a public company. perceived as affecting their interests.
effects, but also some bad effects and The author concludes with a discussion
some ugly ones. The good is to provide a on several areas in which British or Dutch When thinking about secured transac-
benchmark that can make it easy to identify company law distinguishes between tions reform, policy makers and research-
bad management performance. The bad public and private companies, including ers tackle two main issues: What type
effect extends to actions with ambiguous capital protection, resolutions and meet- of legal framework can help maximize
consequences, such as takeovers aimed ings, rights attached to shares, the board, the value of collateral held by small and
primarily at reducing development costs, accounting law and dispute resolution. medium-size companies while giving
which may entail results worse even than secured creditors the assurance that their
the self-gain of corporate managers. The Finally, Gahan, Ramsay and Welsh (2014) rights will be protected? And how does
ugly effect emerges when managers, by use leximetric analysis to document the secured transactions system in place
focusing on increasing shareholders value, changes in the level of worker protection affect the relative competitiveness of the
boost their own first through questionably and shareholder protection in six coun- private sector through its impact on the
defined performance payments. tries over the period 19702005. They cost of commercial credit?
find that both worker and shareholder
Gilson and Gordon (2013) analyze protection increased in five of the six Kozolchyk and Furnish (2006) examine
the costs of ownership by institutional countriesFrance, Germany, India, the these issues through an analysis of the
investment intermediariesthe agency United Kingdom and the United States. basic principles of modern secured trans-
costs of agency capitalism in the United By contrast, in the sixth country, Australia, actions law. They explain that the main
States and other jurisdictions. According shareholder protection increased while reason such laws are essential is that
to the authors, such costs emerge from a the level of worker protection in 2005 they enable the use of movable assets as
divergence of interests, not only between was similar to that in 1970. Statistical collateral, increasing access to affordable
owners and managers but also between tests show that greater formal protection credit and thus promoting economic
owners of record (institutional investors) for shareholders does not come at the development. The authors review the
and beneficial owners. These costs can expense of formal protection for workers historical evolution of security interests
be lessened with the aid of shareholder (figure 12.3). in Latin America and the development
activists, serving as an additional set of by the Organization of American States
specialists who can intervene and chal- of the Model Inter-American Law on
lenge institutional investors. CREDITORS RIGHTS AND Secured Transactions, which can help
COLLATERAL LAWS address shortcomings in the existing
The form of a company is also rel- legislation of different countries in the
evant in corporate governance. De Jong One of the Doing Business indicators on region. Finally, the authors compare
(forthcoming) analyzes the distinction getting credit, the strength of legal rights Mexicos amendments of secured trans-
between public and private (limited) index, centers on the key stages in the actions laws in 2000 and 2003 with the
companies and its relevance to company life cycle of a security interest in movable model law and the U.S. and Canadian
law in the Netherlands and the United property: creation, publicity and enforce- paradigms and provide suggestions on
Kingdom. In both jurisdictions the private ment. These are the pillars of a modern how the country could continue the
company is of more recent origin than the secured transactions system. The index reform process.
public company and currently the most also measures aspects of the interactions
common company form. The author dis- between collateral law and bankruptcy Dubovec and Kambili (2013) examine the
cusses the motives for choosing the pub- regimes, providing guidance on good ongoing legal and collateral registry reform
lic company form over the more lightly practices according to internationally in Malawi and its potential for creating a
regulated private company one as well as accepted standards. Recent articles look modern, efficient secured transactions
the justifications for the more extensive at closely related issues. Kozolchyk and system. In Malawi, as in Sub-Saharan
regulation of the public company. De Furnish (2006) highlight the importance Africa generally, getting access to credit
Jong argues that both British and Dutch of modern secured transactions systems, has been a major challenge for small and
110 Doing Business 2016

Figure 12.3 Greater shareholder protection did not come at the cost of worker protection in France and Germany between 1970
and 2005

France Germany
Z -score for index Z -score for index

4 4

3 3

2 2

1 1

0 0

-1 -1

-2 -2

-3