Doingbusiness in 2006 A snapshot of Business Indicators

Doingbusiness in 2006 A snapshot of Business Indicators Richard Stern, FIAS James Emery, PEP AFR May 22 -23 , 2006 Addis Ababa, Ethiopia 1

What this presentation is about 1. Doing. Business—a snapshot of the investment climate, benchmarked with other countries 2. A DB assessment of the business climate in Ethiopia and how the indicators work: example: analysis of starting a business 3. A snapshot of other DB indicators to present a general assessment of the economy 4. How the World Bank Group (PSD, FIAS/PEP Africa) work together to remediate the problems raised by DB 2

Doingbusiness indicators 2004 2005 2006 • Regulation of Entry • Corporate Governance • Business Licensing • Labor Regulations • Property Registration • Taxation • Trade Infrastructure • Transport • Customs • Standards • Contract Enforcement • Credit Markets • Credit information • Collateral • Bankruptcy • Updates of ‘ 04 topics • Updates of ‘ 04 and ‘ 05 Products: Report, academic papers, country summaries, website database 3 www. doingbusiness. org

Use Doing. Business to drive reforms l Develop targets to rank relative to reference groups. l Competitors – at least as good as competitors l Neighbors – best in the region Economic models – goal to approach models which help shape strategy and policy l Phased strategy of achieving objectives l Use Doing Business as an outcome indicator l l Useful for engaging private sector in process Objective and updated annually l Measure results – DB is a tool to attract invesment, growth and jobs l 4

Where DB Finds Results: Most reforms in East Europe Percentage of countries with at least one reform 5

Who is reforming in Africa? l Rwanda - a top reformer - abolished mandatory preshipment inspections and created specialized court chambers for business and tax matters, reducing court delays. l Mozambique cut the property transfer tax from 10 to 2. 4% of the property value, the largest cost reduction in the world. l Kenya and Mauritius improved credit information sharing by amending their banking acts. This makes it easier for lenders to evaluate creditworthiness. l In Mauritania, the Nouakchott port now operates around the clock, compared with only 60 hours a week previously. l Burundi introduced a new summary procedure for debt recovery and allowed private bailiffs to operate, reducing delays in the courts. 6

Top economies on the ease of doing business 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. New Zealand Singapore United States Canada Norway Australia Hong Kong, China Denmark United Kingdom Japan Ireland Iceland Finland Sweden Lithuania Estonia Switzerland 17. Belgium 18. Germany 19. Thailand 20. Malaysia 21. Puerto Rico 22. Mauritius 23. Netherlands 24. Chile 25. Latvia 26. Korea 27. South Africa 28. Israel 29. Spain 99. Vietnam 101. Ethiopia 16. 7

Who’s in your DB neighborhood? 8

Ethiopia’s rank on the ease of doing business: 101 26 47 48 57 71 94 114 129 137 140 Ease of paying taxes Hiring and firing workers Closing a business Dealing with licenses Ease of contract enforcement Ease of starting a business Getting credit Trading across borders Protecting investors Ease of registering property 9

A Snapshot of Doing Business in Ethiopia Starting a business 10

Methodology: a time and motion study 1. Follow the entrepreneur from the beginning to the end of a basic transaction 2. Record every step of the process, and the associated time and cost 3. Gather all the relevant laws, regulations, decrees, fee schedules 11

Starting a Business: Methodology The Company l Is a limited liability company l Operates in the country’s most populous city l Is 100% domestically owned and has 5 owners, none of whom is a legal entity. l Has up to 50 employees 1 month after the commencement of operations, all of them nationals l Has a company deed 10 pages long l Performs general industrial or commercial activities 12

Starting a Business: Methodology Procedure l any interaction of the company founder with external parties: l l lawyers, l auditors, l l government agencies, notaries, etc Both pre- and post-incorporation procedures that are officially required for an entrepreneur to legally operate a business are recorded. 13

Number of procedures to start a business 14

Time it takes to start a business (days) 15

Cost of starting a business (% of per cap income) 16

Starting a business: some best practices and reforms • Single access point for businesses Colombia, Nicaragua, Turkey, Makes start-up on twice as fast Belgium • Standardized articles of incorporation Facilitates document processing at registry and prevents errors Slovakia, Singapore, Sweden, • Simplify license requirements • Eliminate the mandatory publication in the Official Gazette Norway Honduras (temporary license), Mexico (SARE), Peru Ethiopia, Germany, Serbia and Montenegro, 17

A Snapshot of Doing Business in Ethiopia Contract enforcement 18

Contact enforcement: Number of Procedures 19

Contract enforcement: number of days 20

Contract enforcement: Financial cost (percent of debt value) 21

In addition. . . q. Property registration q. Cross-boarder trade q. Taxes 22

Procedures to register property 23

Time to register property (in days) 24

Cost of registering property (in percent of property value) 25

Time to export (in days) 26

Number of signatures to export 27

Time to Import (in days) 28

Number of signatures to import 29

Paying taxes: time cost in hours/year 30

Paying taxes: financial cost (% gross profits) 31

Paying taxes: number of payments/year 32

Target areas to work on l Doing Business and ICA results can prioritize areas for reform: l Property registration l Business start-up l Licensing l Contract enforcement Import/Export procedures l And within those highlight specific procedural constraints which are binding l 33