World Bank Report Examines Regulatory Reforms Worldwide

by Ulrika Lomas, for LawAndTax-News.com, Brussels

14 September 2005

According to a new report released by the World Bank on Monday, Eastern European nations are aggressively courting entrepreneurs with far-reaching reforms that streamline business regulations and taxes, whilst African and Middle Eastern nations with high youth unemployment rates continue to thwart small and medium businesses with heavy legal burdens and piecemeal reforms.

"Doing Business in 2006: Creating Jobs", cosponsored by the World Bank and International Finance Corporation, the private sector arm of the World Bank Group, found that effective reforms, while often simple, can create many new jobs.

"Jobs are a priority for every country, and especially the poorest countries. Doing more to improve regulation and help entrepreneurs is key to creating more jobs--and more growth. It is also a key to fighting poverty. Women, who make up three quarters of the work force in some developing economies, will be big beneficiaries. So will young people looking for their first job. The past year's diverse range of successful reformers - from Serbia to Rwanda - are showing the way forward. We can all learn from their experience," explained Paul Wolfowitz, President of the World Bank Group.

The annual report, which for the first time provides a global ranking of 155 nations on key business regulations and reforms, found that African nations impose the most regulatory obstacles on entrepreneurs and have been the slowest reformers over the past year.

Meanwhile, every country in Eastern Europe improved at least one aspect of the business environment, and countries such as Serbia and Montenegro and Georgia topped the global rankings for most reforms enacted.

The report tracked a set of regulatory indicators related to business startup, operation, trade, payment of taxes, and closure by measuring the time and cost associated with various government requirements.

It found that overall, European nations were the most active in enacting reforms.

The top 12 reformers in the past year, in order, were Serbia and Montenegro, Georgia, Vietnam, Slovakia, Germany, Egypt, Finland, Romania, Latvia, Pakistan, Rwanda, and the Netherlands.

The report additionally found that poor countries levy the highest business taxes in the world. These high taxes create incentives to evade, driving many firms into the underground economy, and do not translate to higher revenues.

The top 30 economies in the world in terms of the report’s ease-of-doing-business index, were named, in order, as: New Zealand, Singapore, the United States, Canada, Norway, Australia, Hong Kong/China, Denmark, the United Kingdom, Japan, Ireland, Iceland, Finland, Sweden, Lithuania, Estonia, Switzerland, Belgium, Germany, Thailand, Malaysia, Puerto Rico, Mauritius, the Netherlands, Chile, Latvia, Korea, South Africa, Israel, and Spain.

The World Bank explained that:

"All the top countries regulate businesses, but they do so in less costly and burdensome ways. The Nordic countries, all of which are on the top 30 list, do not regulate too little. Instead, they have simple regulations that allow businesses to be productive and focus intervention where it counts - protecting property rights and providing social services."

"Just 8 percent of economic activity in Nordic countries occurs in unregistered (informal sector) businesses. The reason is that regulations are simple to comply with and businesses receive excellent public services for what they pay in taxes."

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