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Eastern Europe Leading Way In Business Reform

by Ulrika Lomas, Tax-News.com, Brussels

28 September 2007


Thanks to reforms of business regulation, more businesses are starting up in the reforming countries, a new report by the World Bank and the International Finance Corporation (IFC) has found, with countries in Eastern Europe and the former Soviet Union, along with a large group of emerging markets including China and India, leading the way in 2006/7.

According to the annual World Bank/IFC 'Doing Business' report, this year Egypt topped the list of reformers that are making it easier to do business. Egypt greatly improved its position in the global rankings with regard to ease of doing business, with reforms in five of the 10 areas studied by the report. And for the second year running, Singapore topped the aggregate rankings on ease of doing business.

Besides Egypt, the other top reformers are, in order: Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria. Another 11 countries — Armenia, Bhutan, Burkina Faso, the Czech Republic, Guatemala, Honduras, Mauritius, Mozambique, Portugal, Tunisia, and Uzbekistan — had put in place three or more reforms. Reformers made it simpler to start a business, strengthened property rights, enhanced investor protections, increased access to credit, eased tax burdens, and expedited trade while reducing costs. In all, the report found that 200 reforms — in 98 economies — were introduced between April 2006 and June 2007.

“The report finds that equity returns are highest in countries that are reforming the most,” observed Michael Klein, World Bank/IFC Vice President for Financial and Private Sector Development. “Investors are looking for upside potential, and they find it in economies that are reforming—regardless of their starting point,” he added. Large emerging markets are reforming fast: China, Egypt, India, Indonesia, Turkey, and Vietnam all improved the ease of doing business.

Eastern Europe and Central Asia, as a region, surpassed East Asia this year with regard to ease of doing business. Several of the region's countries have even surpassed many economies of Western Europe on this score. Croatia, FYR Macedonia, Georgia, Bulgaria, and Hungary are among the region's top reformers. Estonia, the most business-friendly country of the former socialist bloc, ranks 17th on the ease of doing business. Georgia and Latvia are also in the top 25.

“The results show that as governments ease regulations for doing business, more entrepreneurs go into business,” explained Simeon Djankov, lead author of the report. “Eastern Europe has witnessed a boom in new business entry that rivals the rapid growth in East Asia in the past,” he added.

In Africa, the pacesetters are Ghana and Kenya. Reform elsewhere in the region was uneven, with nearly half of the countries studied not reforming at all. With a global ranking of 27th, Mauritius tops the rankings in Africa on the ease of doing business, and also had the most reforms in the region, with improvements in six of the 10 areas studied by Doing Business. Also leading reform in southern Africa were Madagascar and Mozambique. In West Africa, little reform took place other than in Ghana and Burkina Faso.

Reform in the Middle East and North Africa is picking up speed, led by Egypt, Saudi Arabia, and Tunisia. Latin America and East Asia are at the bottom of the list of reformers. China was the standout in East Asia, implementing far-reaching new private property rights and a new bankruptcy law.

Higher rankings on the ease of doing business are associated with higher percentages of women among entrepreneurs and employees. “Greater regulatory reform has especially large benefits for women,” stated Caralee McLiesh, an author of the report. “Women often face regulations that may be aimed at protecting them but are counterproductive in effect, forcing them into the informal sector. There women have little job security and few social benefits.”

In the Democratic Republic of Congo, where women need their husbands' consent to start a business, they run only 18% of small businesses. In neighbouring Rwanda, which has no such regulations, women run more than 41% of small businesses.

Doing Business 2008 ranks 178 economies on the ease of doing business. The top 25, in order, are: Singapore, New Zealand, the United States, Hong Kong (China), Denmark, the United Kingdom, Canada, Ireland, Australia, Iceland, Norway, Japan, Finland, Sweden, Thailand, Switzerland, Estonia, Georgia, Belgium, Germany, the Netherlands, Latvia, Saudi Arabia, Malaysia, and Austria.

The rankings are based on 10 indicators of business regulation that track the time and cost to meet government requirements in business start-up, operation, trade, taxation, and closure. The rankings do not reflect such areas as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates.

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