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A World Bank Group Flagship Report

Doing Business 2018


Reforming to Create Jobs

Comparing Business Regulation


for Domestic Firms in 190 Economies
2018 International Bank for Reconstruction and Development / The World Bank
1818 H Street NW, Washington DC 20433
Telephone: 202-473-1000; Internet: www.worldbank.org

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ISBN (paper): 978-1-4648-1146-3


ISBN (electronic): 978-1-4648-1147-0
DOI: 10.1596/978-1-4648-1146-3
ISSN: 1729-2638

Cover design: Corporate Visions, Inc.


15 TH EDITION

Doing Business 2018


Reforming to Create Jobs

COMPARING BUSINESS REGULATION FOR DOMESTIC FIRMS IN 190 ECONOMIES


A World Bank Group Flagship Report
Doing Business 2018

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 190 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 190 economiestopic Contributors
rankings, indicator values, lists of More than 13,000 specialists in 190
regulatory procedures and details economies who participate in
underlying indicators Doing Business
http://www.doingbusiness.org/data http://www.doingbusiness.org/contributors
/doing-business
Reports
Access to Doing Business reports as well Entrepreneurship data
as subnational and regional reports, case Data on new business density (number
studies and customized economy and of newly registered companies per 1,000
regional profiles working-age people) for 143 economies
http://www.doingbusiness.org/reports http://www.doingbusiness.org/data
/exploretopics/entrepreneurship
Methodology
The methodologies and research papers Distance to frontier
underlying Doing Business Data benchmarking 190 economies to
http://www.doingbusiness.org/methodology the frontier in regulatory practice and a
distance to frontier calculator
Research http://www.doingbusiness.org
Abstracts of papers on Doing Business /data/distance-to-frontier
topics and related policy issues
http://www.doingbusiness.org/research Information on good practices
Showing where the many good
Doing Business reforms practices identified by Doing Business
Short summaries of DB2018 business have been adopted
regulation reforms and lists of reforms http://www.doingbusiness.org/data
since DB2006 /good-practice
http://www.doingbusiness.org/reforms
Doing Business 2018

Contents
iv Foreword Doing Business 2018 is the 15th in a
series of annual reports investigating
1 Overview the regulations that enhance business
11 About Doing Business activity and those that constrain it.
Doing Business presents quantitative
22 Reforming the Business Environment in 2016/17 indicators on business regulation
and the protection of property rights
that can be compared across 190
Case studies economiesfrom Afghanistan to
Zimbabweand over time.
39 Starting a Business
Doing Business measures aspects of
Transparency of information at business registries regulation affecting 11 areas of the
life of a business. Ten of these areas
45 Dealing with Construction Permits
are included in this years ranking on
Private sector participation in construction regulation
the ease of doing business: starting
51 Registering Property a business, dealing with construction
Using information to curb corruption permits, getting electricity, registering
property, getting credit, protecting
56 Resolving Insolvency minority investors, paying taxes, trading
The challenges of successfully implementing insolvency reforms across borders, enforcing contracts and
resolving insolvency. Doing Business
also measures features of labor market
regulation, which is not included in this
years ranking.
62 References
Data in Doing Business 2018 are current
67 Data Notes as of June 1, 2017. The indicators are
119 Distance to Frontier and Ease of Doing Business Ranking used to analyze economic outcomes
and identify what reforms of business
126 Summaries of Doing Business Reforms in 2016/17 regulation have worked, where and why.

142 Country Tables

206 Labor Market Regulation

222 Acknowledgments
Doing Business 2018

Foreword
In its 14 years of publication, Doing Business Since its inceptionwhen Doing Business
has come a long way. At a recent interna- covered 145 economiesthe scope of
tional forum, I heard the leaders of India the report has expanded to 190 econo-
and the Russian Federation talking about mies worldwide. The regulatory areas
how important it is for their countries to measured by the report have also been
improve their Doing Business rankings and expanded to include more aspects that
create more jobs for young workers. are relevant to the daily operations of
domestic small and medium-size firms.
When the first edition was published in For eight of the 11 Doing Business indica-
September 2003, little data was available tor sets, the reports traditional focus
on regulation affecting business activity. on efficiencydefined as the time, cost
Doing Business created a new approach and number of interactions necessary to
to policy reformone informed by hard incorporate a new business or connect
data and focused on domestic compa- a warehouse to the electrical gridhas
nies. The objectives of Doing Business are been complemented with a new focus
as clear as they are ambitious: to inform on regulatory quality. Doing Business data
the design of reforms and motivate these shows that efficiency and quality go hand
reforms through country benchmarking. in hand, reinforcing each other.
Behind each set of indicators lies rigorous
academic analysis, done in coopera- Despite these additions and improve-
tion with leading scholars. For example, ments, one aspect of Doing Business has
the indicators on efficient insolvency remained unchanged: its focus on pro-
systems were created with the help of moting regulatory reform that strength-
Professor Oliver Hart from Harvard ens the ability of the private sector to
University, the 2016 Nobel Prize winner create jobs, lift people out of poverty
in economics.1 In the years since the start and create more opportunities for the
of the project, over 3,000 peer-reviewed economy to prosper. The notion that the
academic papers and another 7,000 private sector has substantial economic,
working papers have been written using social and development impact is now
the Doing Business data. Their findings universally recognized. Responsible for
improve our knowledge of how economic an estimated 90% of employment in
policy works. developing economies, the private sector

1. Djankov and others 2008.


FOREWORD v

is ideally placed to alleviate poverty by Hard data helps do that. It gives a voice
providing the opportunities to secure a to the people to demand improved public
good and sustainable standard of living. services. It also increases government
accountability. Over the past decade,
Policy reforms catalyze private invest- more than 60 economies have estab-
ment. Promoting a well-functioning pri- lished regulatory reform committees that
vate sector is a major undertaking for use the Doing Business indicators. As a
any government. It requires long-term result, governments have reported more
policies of removing administrative than 3,180 regulatory reforms, includ-
barriers and strengthening laws that ing about 920 reforms that have been
promote entrepreneurship. inspired by Doing Business. This is true
impact.

Kristalina Georgieva
Chief Executive Officer
The World Bank
Washington, DC
Doing Business 2018

Overview
This year marks the 15th Doing Business report. Since the inception of the Doing Business uses 11 indicator sets to
project in 2003, the global business regulatory environment has changed measure aspects of business regulation
dramatically. Governments around the world have embraced and nurtured that matter for entrepreneurship.
advances in information technology to reduce bureaucratic hurdles and
Although good regulatory practices
increase transparency. Today, in 65 of the 190 economies covered by Doing
can be found around the world, they
Business, entrepreneurs can complete at least one business incorporation
are most common in OECD high-
procedure online, compared with only nine of the 145 economies measured in
income economies and the economies
Doing Business 2004. Furthermore, in 31 economies it is now possible to initiate
of Europe and Central Asia.
a commercial dispute online. This kind of progress can also be observed in the
other areas measured by Doing Business. Sub-Saharan Africa has the widest
variation in performance among the
areas measured by Doing Business, with
Doing Business measures aspects of and predictable. Conversely, in an Mauritius standing at 25 in the ranking
business regulation and their impli- economy where business regula- and Somalia at 190.
cations for firm establishment and tion is cumbersome or ambiguous,
operations. It does not include all she may be less willing to start South Asia is the only region not
the issues that are relevant for busi- her own company. In this case, the represented in the top 50 ranking for
nesses decisions, but it does cover economy forfeits a new entrepreneur ease of doing business. However, India
stands out this year as one of the 10
important areas that are under the as well as the associated capital
economies that improved the most in
control of policy makers. Governments investment and job creation. In turn,
the areas measured by Doing Business.
worldwide recognize the economic consumers have fewer, lower quality
and political benefits of improved and more expensive product choices. The regions with the highest share of
business regulation. In fact, 119 of the Such a scenario highlights the way in reforming economies in Doing Business
190 economies measured by Doing which cumbersome regulation can 2018 are Europe and Central Asia,
Business 2018 enacted at least one distort resource allocation by stifling South Asia and Sub-Saharan Africa.
business regulation reform in 2016/17. entrepreneurial endeavors in favor of
Of these, 79.8% implemented at least maintaining a less optimal status quo. Crises are opportunities for reform;
one reform for a second consecutive economies are more likely to
year and 64.7% for a third. Consider the case of the potential implement regulatory reforms in the
software entrepreneur. If she were a areas measured by Doing Business
Business regulation can enable new national of Canada, it would take just when there is fiscal distress. Evidence
shows that an economic crisis creates
ideas to come to life. When a software two procedures, one and a half days
a stronger motivation for reform than a
engineer realizes that she can develop and less than 1% of income per capita
change of government.
a better and less-expensive product to start her business in Toronto. First,
than is currently available, she may she would need to file for federal incor- Better performance in Doing Business
choose to start her own company to poration and provincial registration is associated with lower levels of
develop the idea. She will be more online via Industry Canadas Electronic unemployment and poverty.
likely to become an entrepreneur in an Filing Centre; this costs 200 Canadian
economy where the rules governing dollars ($159) and is completed
start-ups are accessible, transparent within a day. Second, she would need to
2 DOING BUSINESS 2018

register online for value added tax; this case, as well as credit and equity market Specifically, incumbent firms are more
costs nothing and is completed within regulations and logistics of importing likely to continue operating despite
half a day. She can perform these steps and exporting goods (figure 1.1). There poor productivity because there is little
online from the comfort of her home. are many other factors that influence competition from new, more productive
As her business expands and becomes firm decisionssuch as the availability firms. In the absence of effective regula-
profitable, she would be expected to of skilled labor or market sizethat are tion, firms are also less inclined to leave
pay 20.9% of her commercial profits not captured in Doing Business. But the informal sector.1
in taxes and contributions annually. Doing Business focuses on key areas
However, if the same entrepreneur were of interaction between the govern- In addition, Doing Business measures
a national of the Philippines, living in ment and entrepreneurs, where policy the coverage, scope and quality of
Quezon City, the business incorporation makers and regulators can directly credit information available from credit
process would require 16 procedures, influence procedures to facilitate these registries and bureaus. When function-
take 28 days and cost around 16% of interactions. For more information on ing well, these institutions form an
income per capita. She would need to what is measured and what is not, see essential element of an economys
make 20 different tax and contribution the chapter About Doing Business. financial infrastructure by strengthening
payments and visit multiple agencies access to financial services, particularly
in person. Furthermore, her business credit. By collecting and sharing credit
would be expected to pay 42.9% of WHAT ARE THE BENEFITS information, such agencies reduce infor-
its commercial profits in taxes and OF IMPROVED BUSINESS mation asymmetries, increase access
contributions annually. Cumbersome REGULATION? to credit for small firms, lower interest
business regulatory structures such rates, improve borrower discipline
as these constrain the ability of entre- The 11 Doing Business indicator sets and strengthen bank supervision and
preneurs to transform their ideas into capture the effectiveness and quality of credit risk monitoring. Indeed, a study
viable businesses. business regulation. Research findings of a credit bureau serving the equip-
substantiate the economic relevance ment finance industry in the United
Doing Business measures the processes of the aspects of business regulation States found that better exchange of
for starting a business, obtaining a measured by Doing Business. Recent information between lenders results
building permit, getting an electricity research, for example, examines the in improved repayment behavior by
connection, transferring property, pay- impact of improving business regulation. firms, including lower incidences of
ing taxes, taking a commercial dispute One study finds that high start-up costs delinquencies and defaults. This impact
to court, and resolving an insolvency can result in lower overall productivity. was stronger for firms that typically lack

FIGURE 1.1 What is measured in Doing Business?

Starting a
Getting a
business
location
Labor market Dealing with
Starting a regulation
business construction
permits
Getting
Resolving electricity
insolvency

Registering
Operating in a Enforcing property
Accessing
secure business contracts
finance
environment
Getting credit
Paying taxes Protecting
Trading across minority
borders investors
Dealing with
day-to-day
operations

Source: Doing Business database.


Note: Labor market regulation is not included in the ease of doing business ranking.
OVERVIEW 3

informational transparency, such as small by not allowing creditors to take impor- Central Asia and three from East Asia
and young firms.2 tant decisions related to the company and the Pacific. Eighteen of the top 20
assets during insolvency procedures. are classified as high-income economies.
Doing Business places emphasis on the Another cause was the establishment of The top 5 performers are New Zealand,
quality of legal infrastructure and the a compensation scheme for agents man- Singapore, Denmark, the Republic of
strength of legal institutions. The pro- aging bankruptcy proceedings based on Korea and Hong Kong SAR, China. The
tecting minority investors indicator set, assets sold and operating revenues of a former Yugoslav Republic of Macedonia is
for example, measures the protection of firm, which created a significant increase the only upper-middle-income economy
minority shareholders. For businesses to in the cost of bankruptcy procedures on the list, while Georgia is the only low-
secure equity finance, legal mechanisms and reduced creditors recovery rate.4 er-middle-income one (table 1.1). To date,
are needed to prevent the use of corporate no low-income economy has reached the
assets by company insiders for personal In the area of cross-border trade, Doing top 20 group. However, being wealthy
gainespecially during financial crises Business measures the effectiveness does not guarantee a front-runner posi-
or times of market distress. Research of trade logistics. Several studies have tion in the ease of doing business ranking;
has shown that during the 2008 global underscored the importance of port many high-income economies still have
financial crisis, for example, companies automation and efficiency for both room for progress. Having few bureau-
in economies with better investor protec- trade facilitation and regional economic cratic hurdles, robust legal institutions
tions and stronger corporate governance development. These studies have found and laws and regulations that are based
experienced a smaller decrease in their that ports that are more automated on international good practices is what
market value. Conversely, firms in econo- require less maintenance, are more matters most for a good performance in
mies with weak legal structures saw a cost-effective and ensure better worker the ease of doing business ranking.
more significant decline in value.3 safety. Furthermore, a study of the
determinants of shipping costs from Among the top 20 economies, Georgia,
The Doing Business indicators on resolv- Latin America to the United States with a ranking of 9, has implemented the
ing insolvency provide evidence of a found thatfor most exporting econo- highest number of business regulation
strong relationship between regula- mieshigh transportation costs pose reforms since the launch of Doing Business
tory quality and efficient outcomes. even greater barriers to trade than in 2003a total of 47. With 41, FYR
The indicator set measures the qual- import tariffs, and that port inefficien- Macedonia has carried out the second
ity of regulation as the recovery rate cies significantly add to these costs. One highest number of reforms among the
for secured creditors and the extent to of the most striking findings is that by top 20. During the same period, Latvia
which domestic law has incorporated improving port efficiency from the 25th and Lithuania have also actively reformed
certain internationally-accepted prin- to the 75th percentile, shipping costs are their business regulatory environments,
ciples on liquidation and reorganization lowered by 12%, substantially increasing with 28 and 31 reforms respectively.
proceedings. Efficient outcomes occur the volume of bilateral trade.5 One of Among other reforms, Lithuania has
when viable businesses are given a the principal causes of port inefficiency made six reforms to its business incor-
chance to survive, while loss-prone, is excessive regulationprecisely what poration processes, five reforms to
inefficient firms exit the market, putting Doing Business advocates to curb. bankruptcy proceedings and four reforms
resources to better use elsewhere in to its taxation system. Many other top-
the economy. In the absence of strong ranked economies have followed this pat-
legal bankruptcy legislation, however, WHERE IS BUSINESS tern of continuous reform, demonstrating
the balance between firm survival and REGULATION BETTER? that comprehensive reform efforts can
efficient exit is distorted. This distortion lead to considerable improvements in an
was highlighted by research using data The overall measure of the ease of doing economys regulatory and business envi-
from Hungary, where the majority of business gives an indication of where it ronment. Another feature that the top
firms in bankruptcy were preserved and is easier for domestic small and medium- 20 economies have in commonalbeit
allowed to continue operating as going size firms to do business. Although the not measured by Doing Businessis that
concernsdespite generating sub- economies with the most business- on average they have higher labor force
stantial operating losses and resulting friendly regulation in this years ease participation rates and lower levels of
in low recovery rates for creditors. The of doing business ranking are relatively income inequality. Indeed, the average
main cause of this distortion was the diverse, the economies within the top 20 Gini coefficient6 of the top 20 economies
inadequate allocation of control rights share some common features. Fourteen is 0.3 (with 0 representing perfect equal-
between secured and unsecured credi- of the top 20 are OECD high-income ity and 1 representing perfect inequality),
tors, which decreased the recovery value economies; three are from Europe and compared to 0.4 for the lowest 20.7
4 DOING BUSINESS 2018

TABLE 1.1 Ease of doing business ranking


DB DB DB
2018 DTF DTF 2018 DTF DTF 2018 DTF DTF
Rank Economy score change Rank Economy score change Rank Economy score change
1 New Zealand 86.55 -0.18 65 Albania 68.70 + 0.96 129 St. Vincent and the Grenadines 55.72 +0.01
2 Singapore 84.57 +0.04 66 Bahrain 68.13 +0.01 130 Palau 55.58 +0.46
3 Denmark 84.06 -0.01 67 Greece 68.02 +0.01 131 Nicaragua 55.39 +0.09
4 Korea, Rep. 83.92 0.00 68 Vietnam 67.93 +2.85 132 Barbados 55.20 -0.09
5 Hong Kong SAR, China 83.44 +0.29 69 Morocco 67.91 -0.03 133 Lebanon 54.67 -0.10
6 United States 82.54 -0.01 70 Jamaica 67.27 +0.57 134 St. Kitts and Nevis 54.52 +0.18
7 United Kingdom 82.22 -0.12 71 Oman 67.20 +0.08 135 Cambodia 54.47 +0.23
8 Norway 82.16 -0.25 72 Indonesia 66.47 +2.25 136 Maldives 54.42 +0.64
9 Georgia 82.04 +2.12 73 El Salvador 66.42 +3.54 137 Tanzania 54.04 +0.11
10 Sweden 81.27 +0.03 74 Uzbekistan 66.33 +4.46 138 Mozambique 54.00 +0.97
11 Macedonia, FYR 81.18 -0.21 75 Bhutan 66.27 +1.06 139 Cte d'Ivoire 53.71 +2.04
12 Estonia 80.80 +0.05 76 Ukraine 65.75 +1.90 140 Senegal 53.06 +3.75
13 Finland 80.37 -0.11 77 Kyrgyz Republic 65.70 +0.54 141 Lao PDR 53.01 +0.43
14 Australia 80.14 0.00 78 China 65.29 +0.40 142 Grenada 52.94 -0.11
15 Taiwan, China 80.07 +0.41 79 Panama 65.27 +1.25 143 Mali 52.92 +0.30
16 Lithuania 79.87 +1.05 80 Kenya 65.15 +2.59 144 Niger 52.34 +2.26
17 Ireland 79.51 -0.19 81 Botswana 64.94 +0.07 145 Nigeria 52.03 +3.85
18 Canada 79.29 -0.09 82 South Africa 64.89 -0.08 146 Gambia, The 51.92 -0.01
19 Latvia 79.26 -0.79 83 Qatar 64.86 +0.61 147 Pakistan 51.65 +0.71
20 Germany 79.00 -0.19 84 Malta 64.72 +0.43 148 Burkina Faso 51.54 +0.20
21 United Arab Emirates 78.73 +1.87 85 Zambia 64.50 +3.92 149 Marshall Islands 51.45 +0.03
22 Austria 78.54 -0.15 86 Bosnia and Herzegovina 64.20 +0.42 150 Mauritania 50.88 +1.56
23 Iceland 78.50 +0.01 87 Samoa 63.89 +2.06 151 Benin 50.47 +1.85
24 Malaysia 78.43 +0.96 88 Tunisia 63.58 -0.20 152 Bolivia 50.18 +0.32
25 Mauritius 77.54 +2.09 89 Tonga 63.43 +0.50 153 Guinea 49.80 +0.32
26 Thailand 77.44 +5.68 90 Vanuatu 63.08 +0.02 154 Djibouti 49.58 +3.99
27 Poland 77.30 +0.18 91 St. Lucia 62.88 +0.01 155 Micronesia, Fed. Sts. 48.99 +0.01
28 Spain 77.02 0.00 92 Saudi Arabia 62.50 +2.92 156 Togo 48.88 +0.64
29 Portugal 76.84 -0.14 93 San Marino 62.47 -0.03 157 Kiribati 48.74 -0.31
30 Czech Republic 76.27 +0.03 94 Uruguay 61.99 +0.35 158 Comoros 48.52 +0.47
31 France 76.13 -0.06 95 Seychelles 61.41 +1.01 159 Zimbabwe 48.47 +0.80
32 Netherlands 76.03 +0.51 96 Kuwait 61.23 +1.52 160 Sierra Leone 48.18 -0.06
33 Switzerland 75.92 +0.19 97 Guatemala 61.18 -0.43 161 Ethiopia 47.77 +2.08
34 Japan 75.68 +0.07 98 Dominica 60.96 +0.34 162 Madagascar 47.67 +3.05
35 Russian Federation 75.50 +0.81 99 Dominican Republic 60.93 +2.52 163 Cameroon 47.23 +2.18
36 Kazakhstan 75.44 +1.06 100 India 60.76 +4.71 164 Burundi 46.92 +0.06
37 Slovenia 75.42 +0.99 101 Fiji 60.74 +0.04 165 Suriname 46.87 +0.11
38 Belarus 75.06 +0.55 102 Trinidad and Tobago 60.68 -0.19 166 Algeria 46.71 -0.01
39 Slovak Republic 74.90 -0.25 103 Jordan 60.58 +2.38 167 Gabon 46.19 +1.33
40 Kosovo 73.49 +4.98 104 Lesotho 60.42 +0.54 168 Iraq 44.87 +0.48
41 Rwanda 73.40 +3.21 105 Nepal 59.95 +2.35 169 So Tom and Prncipe 44.84 +0.39
42 Montenegro 73.18 +1.64 106 Namibia 59.94 +0.54 170 Sudan 44.46 +0.17
43 Serbia 73.13 +0.26 107 Antigua and Barbuda 59.63 +0.98 171 Myanmar 44.21 +0.30
44 Moldova 73.00 +0.20 108 Paraguay 59.18 +0.06 172 Liberia 43.55 +3.10
45 Romania 72.87 +0.17 109 Papua New Guinea 59.04 +0.17 173 Equatorial Guinea 41.66 +1.77
46 Italy 72.70 +1.15 110 Malawi 58.94 +6.33 174 Syrian Arab Republic 41.55 +0.08
47 Armenia 72.51 +0.59 111 Sri Lanka 58.86 +0.13 175 Angola 41.49 +1.38
48 Hungary 72.39 +0.26 112 Swaziland 58.82 +0.25 176 Guinea-Bissau 41.45 +0.23
49 Mexico 72.27 +0.18 113 Philippines 58.74 +0.42 177 Bangladesh 40.99 +0.15
50 Bulgaria 71.91 +0.10 114 West Bank and Gaza 58.68 +3.80 178 Timor-Leste 40.62 -0.07
51 Croatia 71.70 +0.05 115 Honduras 58.46 -0.07 179 Congo, Rep. 39.57 -0.52
52 Belgium 71.69 -0.23 116 Solomon Islands 58.13 -0.01 180 Chad 38.30 -0.28
53 Cyprus 71.63 -0.49 117 Argentina 58.11 +0.07 181 Haiti 38.24 +0.01
54 Israel 71.42 +0.05 118 Ecuador 57.83 -0.01 182 Congo, Dem. Rep. 37.65 +0.22
55 Chile 71.22 +0.37 119 Bahamas, The 57.47 +0.82 183 Afghanistan 36.19 -1.80
56 Brunei Darussalam 70.60 +5.83 120 Ghana 57.24 +0.34 184 Central African Republic 34.86 +0.78
57 Azerbaijan 70.19 +3.12 121 Belize 57.11 +0.03 185 Libya 33.21 +0.03
58 Peru 69.45 +0.01 122 Uganda 56.94 +0.42 186 Yemen, Rep. 33.00 +0.06
59 Colombia 69.41 -0.11 123 Tajikistan 56.86 +0.93 187 South Sudan 32.86 -0.33
60 Turkey 69.14 +1.16 124 Iran, Islamic Rep. 56.48 +0.26 188 Venezuela, RB 30.87 -0.79
61 Costa Rica 69.13 +1.23 125 Brazil 56.45 +0.38 189 Eritrea 22.87 +0.42
62 Mongolia 69.03 +1.27 126 Guyana 56.28 +0.39 190 Somalia 19.98 -0.31
63 Luxembourg 69.01 +0.35 127 Cabo Verde 56.24 +0.42
64 Puerto Rico (U.S.) 68.85 +0.05 128 Egypt, Arab Rep. 56.22 +0.10
Source: Doing Business database.
Note: The DB 2018 rankings are benchmarked to June 2017 and based on the average of each economys distance to frontier (DTF) scores for the 10 topics included in
the aggregate ranking. For the economies for which the data cover two cities, scores are a population-weighted average for the two cities. A positive change indicates an
improvement in the score between 2016 and 2017 (and therefore an improvement in the overall business environment as measured by Doing Business), while a negative
change indicates a deterioration and 0.00 indicates no change in the score.
OVERVIEW 5

What can the Doing Business 2018 data tell FIGURE 1.2 Where it is easier to do business and where it is more difficult
us about global patterns? Good regulatory
practices are present in almost all of the Distance to frontier score (0100)

worlds regions. Aside from 28 OECD 100

high-income economies, the 50 highest-


ranked economies include 13 from Europe 80

and Central Asia, five from East Asia and


the Pacific, two from Sub-Saharan Africa 60
and one each from the regions of Latin
America and the Caribbean and the 40
Middle East and North Africa. Each region
also has a relatively wide spectrum of 20
strong and weak performers. Economies
are ranked based on the distance to frontier 0
score. This measure shows the distance OECD Europe & East Asia Latin America Middle East South Asia Sub-Saharan
high income Central Asia & Pacific & Caribbean & North Africa Africa
of each economy to the frontier, which
represents the best performance observed Highest score Lowest score Average score

on each of the indicators across all econo-


Source: Doing Business database.
mies in the Doing Business sample (box
1.1). In OECD high-income economies,
for example, New Zealand, Denmark and across all regions. Among the economies insolvency is only 33.04. Indeed, Doing
Korea have the highest overall distance of Sub-Saharan Africa, Mauritius has the Business data show considerable varia-
to frontier scores at 86.55, 84.06 and highest distance to frontier score (77.54), tion in performance between economies
83.92, respectively. Conversely, Greece, while Somalia the lowest (19.98). within the same region and within the
Luxembourg and Chile have the lowest same regulatory area. Within South Asia,
scores in this group, at 68.02, 69.01 and Regional rankings across different Doing India has the highest score (80) for pro-
71.22. However, the OECD high-income Business indicator sets also show large tecting minority investors compared to
group has the smallest gap between the variations. South Asia, for examplethe Afghanistans score of 10. Similarly, there is
highest and the lowest scores, of only only region not represented in the top 50 a substantial difference in scores between
18.53 percentage points (figure 1.2). listscores comparatively well for starting economies in the Middle East and North
Sub-Saharan Africa has the widest gap a business, with an average distance to Africa region. Malta, for example, has
(57.56 percentage points), with a regional frontier score of 83.27. In contrast, South a distance to frontier score for trading
average score of only 50.43the lowest Asias regional average score for resolving across borders of 91.01, while Algeria
only scores 24.15. Interestingly, all regions
have at least one economy in the top 20
ranking on the protecting minority inves-
BOX 1.1What is the distance to frontier score?
tors indicators and all regionsexcept the
Doing Business measures many different dimensions of business regulation. To
OECD high-income grouphave at least
combine measures with different units such as the number of days to obtain a
construction permit and the number of procedures to start a business into a sin- one economy in the bottom 20 ranking on
gle score, Doing Business computes the distance to frontier score. The distance to the protecting minority investors indica-
frontier score captures the gap between an economys current performance and tors. These patterns indicate that there is
the best practice across the entire sample of 41 indicators across 10 Doing Business further room for improvement across all
indicator sets. For example, according to the Doing Business database across all regions and at all income levels.
economies and over time, the least time to start a business is 0.5 days while in the
worst 5% of cases it takes more than 100 days to incorporate a company. Half a
day is, therefore, considered the frontier of best performance, while 100 days is WHICH ECONOMIES
the worst. Higher distance to frontier scores show absolute better ease of doing
IMPROVED THE MOST IN
business (as the frontier is set at 100 percentage points), while lower scores show
DOING BUSINESS 2018?
absolute poorer ease of doing business (the worst performance is set at 0 per-
centage points). The percentage point distance to frontier scores of an economy
on different indicators are averaged to obtain an overall distance to frontier score. Doing Business 2018 captures 264 busi-
For more details, see the chapter on the distance to frontier and ease of doing ness regulation reforms across the 10
business ranking. measured indicator sets. As in previous
years, Sub-Saharan Africa is the region
6 DOING BUSINESS 2018

with the highest number of reforms (83 economy chose to target for improve- indicator sets capturing the most busi-
in total), followed by East Asia and the ment, while the change in the distance ness regulation reforms across regions
Pacific (45) and Europe and Central Asia to frontier score indicates the size of the in 2016/17 are paying taxes and trading
(44). The regions with the highest share impact those changes had on the Doing across borders. Indeed, the reform agen-
of reforming economies are Europe and Business data. Across all economies, the das of OECD high-income and East Asia
Central Asia (79%), South Asia (75%) average distance to frontier score increase and the Pacific economies appear to be
and Sub-Saharan Africa (79%), while the is 0.76 percentage points, with the highest dominated by regulatory changes cap-
OECD high-income group has the lowest regional increase in Sub-Saharan Africa tured by the paying taxes indicator set
share (46%). The indicator sets for start- (1.18), although this region does not have (figure 1.3). Lower-middle-income econo-
ing a business and getting credit record the highest percentage of economies mies have the highest average reform
the highest number of reforms (38 each) implementing at least one business count at 1.9 reforms each; low-income
in 2016/17. They are closely followed regulatory reform. Nevertheless, there is a economies are second highest at 1.3
by the trading across borders indicator strong correlation between the number of reforms. Unsurprisingly, high-income
set with 33 reforms. The least-reformed reforms and the actual improvement in the economies recorded the lowest average
areas as captured by Doing Business distance to frontier score.8 Doing Business reform count (1).
continue to be the indicators with a legal data show that it has become easier for
focusfor example, resolving insolvency small and medium-size enterprises to Of the 10 economies showing the most
(13 reforms) and enforcing contracts do business in 62.6% of economies improvement in performance on the Doing
(20). Legal reforms are typically slow to worldwide (or 119 of the 190 economies Business indicators, three are from Sub-
advance, mainly because they require measured by Doing Business). Saharan Africa, two from East Asia and
long-term political commitments, sub- the Pacific, two from Europe and Central
stantial resources and close collaboration While economies in the Sub-Saharan Asia, one from Latin America and the
between multiple regulatory agencies and Africa region show the highest aver- Caribbean, one from the Middle East and
rulemaking institutions. age increase in the distance to frontier North Africa and one from South Asia.
score, economies in the OECD high- Brunei Darussalam, the only high-income
It is important to look at both the num- income group have the lowest average economy on the list of top 10 improv-
ber of reforms and their impact on the increase (0.11 percentage points). This ers, showed the largest advance toward
distance to frontier score because they is not surprising as most OECD high- the global good practice frontier after
provide different information. The number income economies are already near to implementing eight reforms in 2016/17;
of reforms indicates how many areas an global good practices. The Doing Business it joins this list for the second year in a

FIGURE 1.3 The average number of reforms per economy is highest in South Asia but the average impact is biggest in Sub-Saharan Africa
Number of reforms and change in distance to frontier score
(average number per economy)
3.0
Average number of reforms making it easier to do business
Average number of reforms making it more difficult to do business
2.5
Average change in distance to frontier score

2.0

1.5

1.0

0.5

0.0
South East Asia & Europe & Sub-Saharan Middle East & Latin America & OECD
Asia Pacific Central Asia Africa North Africa Caribbean high income
Starting
Most common Protecting Trading
topic of reform Paying Registering a business; Getting Paying
minority across
by region taxes property Trading across credit taxes
investors borders
borders

Source: Doing Business database.


Note: The average change in the distance to frontier score shows the change between Doing Business 2018 and Doing Business 2017.
OVERVIEW 7

row. El Salvador, India, Malawi, Nigeria FIGURE 1.4 Reform intensity tends to rise in response to crises
and Thailand also made impressive
strides and joined the 10 top improvers Resolving insolvency reforms
(average number per economy)
for the first time. Among top improvers,
0.18
Brunei Darussalam, India and Thailand
0.16
implemented the highest number of busi-
0.14
ness regulation reforms in 2016/17, with
eight reforms each. The remaining four 0.12

economies in the list of top improvers are: 0.10


Kosovo, Uzbekistan, Zambia and Djibouti. 0.08
For details on the reforms these countries 0.06
undertook, see the chapter on reforming
0.04
the business environment in 2016/17.
0.02
0.00
The database of Doing Business reforms
DB2005

DB2006

DB2007

DB2008

DB2009

DB2010

DB2011

DB2012

DB2013

DB2014

DB2015

DB2016

DB2017

DB2018
indicates differences in reform momen-
tum, both within topics and across regions.
Why are reforms more common in some
Source: Djankov, Georgieva and Ramalho 2017a.
years than others? When do economies
tend to reform in the areas covered
in Doing Business? Two main theories it. In general, political change is not Reforming in the areas measured by
explain the timing of regulatory reform. associated with more reform unless the Doing Business can be particularly ben-
The first suggests that economies reform political change takes place after the eficial to employment creation when
when they mustthat is, when there is fiscal crisis. Indeed, economies tend those reforms take place in the areas
no choice but to implement a regulatory to reform when they must, rather than of starting a business and labor market
change. In this case, an increase in reforms when they can. regulation.14 Such an assertion, how-
would be more likely during crises.9 A sec- ever, is made with some caveats from
ond theory argues that economies reform other research exploring causal relation-
when they canthat is, when govern- WHAT IMPACT DOES ships between business entry regulation
ments are recently elected and are in the BUSINESS REGULATION and job creation.15 Nonetheless, one of
honeymoon period.10 HAVE ON EMPLOYMENT AND the mechanisms through which busi-
POVERTY? ness regulation can impact employment
Doing Business data can be used to explore directly is the simplification of business
which theory is more likely to hold true Many factors explain poverty. These start-up regulations. Across economies
in practice. Recent research shows that can include vulnerability to natural there is a significant positive association
governments are more likely to reform disasters, remoteness, quality of gov- between employment growth and the
business regulation when their economy ernance, property rights, availability of distance to frontier score (figure 1.5).
is experiencing a fiscal crisis.11 This is infrastructure and services, proximity to While this result shows an association,
particularly true for regulation concern- markets, social relationships, the gender and cannot be interpreted in a causal
ing resolving insolvency, which showed of the head of household, employment fashion, it is reassuring to see that
a spike in reform activity in 2010/11,12 a status, hours worked, property owned economies with better business regula-
couple of years after the 2008/09 finan- and educational attainment.13 Several tion, as measured by Doing Business,
cial crisis. The reason is that these kinds of of these factors have a direct link to the also tend to be the economies that
reforms take time to be implemented and areas measured in Doing Business since are creating more job opportunities.16
captured by Doing Business (figure 1.4). the Doing Business indicators measure When it comes to unemployment, the
However, the effect of fiscal crises on factors such as the quality of governance expected opposite result is evident.
reform intensity is less robust when and property rights. Furthermore, Doing Economies with less streamlined busi-
public debt is lower. When a fiscal Business can have an indirect link to these ness regulation are those with higher
crisis can be solvedalbeit temporar- factors as improvements to business levels of unemployment on average. In
ilyby increasing borrowing, the need regulation can drive additional job cre- fact, a one-point improvement in the
for reform becomes less urgent. In ation. And ultimately, as a reliable source distance to frontier score is associated
contrast, the honeymoon theory of of income, employment can lift people with a 0.02 percentage point decline in
reforms has less evidence to support out of poverty. unemployment growth rate.17
8 DOING BUSINESS 2018

FIGURE 1.5 Better business regulation is associated with employment growth and poorer regulation with higher unemployment

Employment growth rate between Unemployment growth rate between


2010 and 2015 (percentage points) 2014 and 2015 (percentage points)
2.5 2.5
2
2
1.5
1.5 1

1 0.5
0
0.5
-0.5
0 -1

-0.5 -1.5
-2
-1
-2.5
-1.5 -3
0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100

Average distance to frontier score, Distance to frontier score,


20102015 (0100) 2015 (0100)

Sources: Doing Business database; International Labor Organization data (http://www.ilo.org/ilostat).


Note: The relationships are significant at the 1% level after controlling for income per capita. The left-hand side relationship also holds when using employment growth rate and
distance to frontier average score between 2010 and 2015.

Doing Business 2017 reported that there assist with the process of registering business analyzes new data about the
is a negative association between the their businesses. information available at business regis-
Gini index, which measures income tries. It finds that economies with more
inequality within an economy, and the The data support this interpretation as transparent and accessible information
distance to frontier score. Economies there is a strong association between have lower levels of corruption on
with poor quality business regulation inequality, poverty and business regu- average. The case study on registering
have higher levels of income inequal- lation. In fact, economies with better property analyzes the transparency of
ity on average. This relationship can business regulation have lower levels information as captured by the quality
be partially explained by the strong of poverty on average. Indeed, a 10 of land administration index and shows
association between measures of percentage point improvement in the that transparent land administration
poverty and the distance to frontier distance to frontier is associated with a systems are associated with a lower
score. When business regulation is 2 percentage point reduction in the pov- incidence of bribery.
overly cumbersome, entrepreneurs and erty rate, measured as the percentage of
workers are pushed out of the formal people earning less than $1.90 a day.21 The case study on dealing with con-
sector and must resort to operating Fragility is also a factor linked to poverty. struction permits analyzes private
in the informal sector.18, 19 The informal However, even fragile economies can sector participation in construction
sector is characterized by a lack of improve in areas that ultimately reduce regulation. It demonstrates that econo-
regulation, minimal social protection poverty levels. Despite their fragile mies which employ some form of pri-
and increased levels of poverty.20 status, several economies implemented vate sector involvement in construction
Individuals living in poverty are likely to reforms as captured by Doing Business regulation tend to have more efficient
gain the most from smarter and more 2018 (box 1.2). processes and better quality controls.
streamlined business regulation. When However, they also exhibit higher
bureaucratic hurdles are high, only the costs and a propensity for conflicts
most privileged members of society WHAT IS NEW IN THIS of interest. Finally, the case study on
can get things done, either through YEARS REPORT? resolving insolvency discusses three
hiring third parties or paying bribes. successful insolvency reformsin
In economies with complex company This years report presents four case France, Slovenia and Thailandand the
incorporation processes, for example, studies, two of which focus on trans- lessons learned that are transferable to
entrepreneurs tend to hire lawyers to parency. The case study on starting a other economies.
OVERVIEW 9

BOX 1.2 Crises as opportunities?

Fragile states, often characterized by weak governance, residual violence, concentrated poverty and inequality, face myriad devel-
opment and humanitarian challenges. Depleted human capital, minimal rule of law and violence all contribute to significantand
often extremerates of poverty in fragile states.a While fragile states are not home to the majority of the worlds poor, the poor are
disproportionately located in fragile states,b underscoring the need to address poverty in these economies. In poor and fragile states,
the private sector is often constrained by a lack of infrastructure, political instability, high rates of informality and poor business
skills. Private sector job creation is one of the factors that can diminish the incentives to engage in violence, thereby reducing
both fragility and poverty.c

Doing Business data show that fragile economies are reforming and approaching crises as opportunities for better business
regulations. As a result, the gap with non-fragile economies in some areas of business regulation has been narrowing over time
(see figure). In 2016/17, of the 34 economies classified as most vulnerable by the World Bank Groups 2017 Harmonized List
of Fragile Situations,d 14 implemented at least one business regulation reform and six economies implemented two reforms or
more. Getting credit was the most reformed area of business regulation, accounting for eight of the 24 reforms implemented
by this group. Djibouti recorded five reforms, the highest number among all fragile states. Djibouti reduced the fees associ-
ated with starting a business and construction inspections, implemented decennial liability for all professionals involved in
construction projects, increased the transparency of its land administration system and established a new credit information
system. As a result of these reforms, Djiboutis distance to frontier score improved by 3.79 percentage points.

Fragile states are converging with non-fragile states on the cost to register property and start a business
Average cost to register property Average paid-in minimum capital
(% of property value) requirement (% of income per capita)
14 600

12 500

10
400
8
300
6
200
4

2 100

0 0
DB2006

DB2007

DB2008

DB2009

DB2010

DB2011

DB2012

DB2013

DB2014

DB2015

DB2016

DB2017

DB2018

DB2006

DB2007

DB2008

DB2009

DB2010

DB2011

DB2012

DB2013

DB2014

DB2015

DB2016

DB2017

DB2018
Non-fragile states Fragile states Non-fragile states Fragile states

Source: Doing Business database.


Note: Fragile states are classified based on the World Bank Groups Harmonized List of Fragile Situations for fiscal year 2017. The sample includes 174 economies
where data is available back to Doing Business 2006.

Kosovo, the second most-reformed country in the fragile states group, implemented three business regulation reforms.
Iraq, Madagascar, Myanmar, and Sierra Leone made two reforms each in 2016/17. Iraq simplified the process of starting a
business by combining multiple registration procedures and reducing the time to register a company. It also launched a new
credit registry, improving access to credit information. Similarly, Myanmar adopted a regulation that allows the creation of
credit bureaus, while Madagascar increased the coverage of its credit registry. Kosovo and Liberia undertook reforms in the
area of resolving insolvency in 2016/17. Both of these economies introduced a legal framework for corporate insolvency,
making liquidation and reorganization procedures available to debtors and creditors.
a. World Bank 2011.
b. Burt, Hughes and Milante 2014.
c. Collier and Hoeffler 2004.
d. The harmonized list also includes Tuvalu, the only economy from the list that is not measured by Doing Business.
10 DOING BUSINESS 2018

a simplified preventive settlement procedure


for small companies and a new reconciliation
NOTES procedure for companies facing financial
difficulties, encouraging an agreement
1. Moscoso Boedo and Mukoyama 2012. between a debtor and its main creditors.
2. Doblas-Madrid and Minetti 2013. The OHADA Uniform Act also introduced
3. Enikolopov, Petrova and Stepanov 2014. provisions on cross-border insolvency that
4. Franks and Loranth 2014. were implemented in all 17 OHADA member
5. Clark, Dollar and Micco 2004. states.
6. The Gini coefficient, the most commonly- 13. Kraay and McKenzie 2014; Banerjee and Duflo
used measure of inequality, is a measure of 2011; Rodrick, Subramanian and Trebbi 2004;
statistical dispersion intended to represent the Buvinic and Gupta 1997.
income or wealth distribution of an economys 14. Bruhn 2011; Bruhn 2013; Branstetter and
residents. others 2014.
7. The relationship is significant at the 1% level 15. Bruhn 2013; Fajnzylber, Maloney and Montes-
after controlling for income per capita. Rojas 2011; Kaplan, Piedra and Seira 2011.
8. The correlation between the number of 16. The relationship is significant at the 1% level
reforms and the actual improvement in the after controlling for income per capita.
distance to frontier score is 0.57. 17. The relationship is significant at the 1% level
9. Drazen and Grilli 1993; Ranciere and after controlling for income per capita and
Tornell 2015. population size; it is shown in figure 1.5.
10. Haggard and Williamson 1994. 18. De Soto 1989.
11. Djankov, Georgieva and Ramalho 2017a. 19. Dabla-Norris, Gradstein, and Inchauste 2008.
12. The second peak is explained by substantial 20. Loayza and Serven 2010.
business regulation reforms undertaken by 21. Djankov, Georgieva and Ramalho 2017b.
the 17 member states of the Organization This association is significant when using the
for the Harmonization of Business Law in following indicator sets individually: starting a
Africa, known by its French acronym OHADA. business, dealing with construction permits,
The organization adopted a revised Uniform getting credit and enforcing contracts. The
Act Organizing Collective Proceedings for relationship holds after controlling for income
Wiping Off Debts in 2015, which introduced per capita and government expenditure.
Doing Business 2018

About
Doing Business
The foundation of Doing Business is the notion that economic activity benefits from Doing Business measures aspects of
clear and coherent rules: rules that set out and clarify property rights and facilitate business regulation affecting domestic
the resolution of disputes. And rules that enhance the predictability of economic small and medium-size firms defined
interactions and provide contractual partners with essential protections against based on standardized case scenarios
arbitrariness and abuse. Such rules are much more effective in shaping the incentives and located in the largest business city
of economic agents in ways that promote growth and development where they are of each economy. In addition, for 11
reasonably efficient in design, are transparent and accessible to those for whom they economies a second city is covered.
are intended and can be implemented at a reasonable cost. The quality of the rules
Doing Business covers 11 areas
also has a crucial bearing on how societies distribute the benefits and finance the
of business regulation across
costs of development strategies and policies.
190 economies. Ten of these
areasstarting a business, dealing
with construction permits, getting
Good rules create an environment where apply to firms at different stages of their electricity, registering property, getting
new entrants with drive and good ideas life cycle. The results for each economy credit, protecting minority investors,
can get started in business and where can be compared with those for 189 other paying taxes, trading across borders,
good firms can invest, expand and cre- economies and over time. enforcing contracts and resolving
ate new jobs. The role of government insolvencyare included in the
policy in the daily operations of domes- distance to frontier score and ease of
tic small and medium-size firms is a FACTORS DOING BUSINESS doing business ranking. Doing Business
central focus of the Doing Business data. MEASURES also measures features of labor market
The objective is to encourage regulation regulation, which is not included in
that is designed to be efficient, acces- Doing Business captures several impor- these two measures.
sible to all and simple to implement. tant dimensions of the regulatory
Doing Business relies on four main
Onerous regulation diverts the energies environment as it applies to local firms.
sources of information: the relevant
of entrepreneurs away from developing It provides quantitative indicators on
laws and regulations, Doing Business
their businesses. But regulation that is regulation for starting a business, deal-
respondents, the governments of the
efficient, transparent and implemented ing with construction permits, getting
economies covered and the World
in a simple way facilitates business electricity, registering property, getting
Bank Group regional staff.
expansion and innovation, and makes credit, protecting minority investors, pay-
it easier for aspiring entrepreneurs to ing taxes, trading across borders, enforc- More than 43,000 professionals in 190
compete on an equal footing. ing contracts and resolving insolvency economies have assisted in providing
(table 2.1). Doing Business also measures the data that inform the Doing Business
Doing Business measures aspects of features of labor market regulation. indicators over the past 15 years.
business regulation for domestic firms Although Doing Business does not pres-
through an objective lens. The focus of ent rankings of economies on the labor Doing Business data are widely
the project is on small and medium-size market regulation indicators or include used by governments, researchers,
international organizations and think
companies in the largest business city of the topic in the aggregate distance to
tanks to guide policies, conduct
an economy. Based on standardized case frontier score or ranking on the ease of
research and develop new indexes.
studies, Doing Business presents quantita- doing business, it does present the data
tive indicators on the regulations that for these indicators.
12 DOING BUSINESS 2018

TABLE 2.1What Doing Business measures11 areas of business regulation marketplace without needlessly hinder-
ing the development of the private sector.
Indicator set What is measured
Starting a business Procedures, time, cost and paid-in minimum capital to start a The distance to frontier and
limited liability company
ease of doing business ranking
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 To provide different perspectives on the
construction permitting system data, Doing Business presents data both for
Getting electricity Procedures, time and cost to get connected to the electrical grid, individual indicators and for two aggregate
the reliability of the electricity supply and the transparency of tariffs measures: the distance to frontier score
Registering property Procedures, time and cost to transfer a property and the quality of and the ease of doing business ranking.
the land administration system
The distance to frontier score aids in
Getting credit Movable collateral laws and credit information systems assessing the absolute level of regulatory
Protecting minority investors Minority shareholders rights in related-party transactions and in performance and how it improves over
corporate governance
time. This measure shows the distance of
Paying taxes Payments, time and total tax and contribution rate for a firm to
comply with all tax regulations as well as post-filing processes
each economy to the frontier, which rep-
resents the best performance observed on
Trading across borders Time and cost to export the product of comparative advantage and
import auto parts each of the indicators across all economies
Enforcing contracts Time and cost to resolve a commercial dispute and the quality of in the Doing Business sample since 2005
judicial processes or the third year in which data were col-
Resolving insolvency Time, cost, outcome and recovery rate for a commercial insolvency lected for the indicator. The frontier is set
and the strength of the legal framework for insolvency at the highest possible value for indicators
Labor market regulation Flexibility in employment regulation and aspects of job quality calculated as scores, such as the strength
of legal rights index or the quality of land
administration index. This underscores
How the indicators are selected Business indicators on getting credit and the gap between a particular economys
The design of the Doing Business indica- getting electricity. performance and the best performance at
tors has been informed by theoretical any point in time and is used to assess the
insights gleaned from extensive research Some Doing Business indicators give a absolute change in the economys regula-
and the literature on the role of institu- higher score for more regulation and tory environment over time as measured
tions in enabling economic development.1 better-functioning institutions (such as by Doing Business. The distance to frontier
In addition, the background papers devel- courts or credit bureaus). Higher scores is first computed for each topic and then
oping the methodology for each of the are given for stricter disclosure require- averaged across all topics to compute the
Doing Business indicator sets have estab- ments for related-party transactions, aggregate distance to frontier score. The
lished the importance of the rules and for example, in the area of protecting ranking on the ease of doing business
regulations that Doing Business focuses minority investors. Higher scores are complements the distance to frontier
on for such economic outcomes as trade also given for a simplified way of apply- score by providing information about an
volumes, foreign direct investment, mar- ing regulation that keeps compliance economys performance in business regu-
ket capitalization in stock exchanges and costs for firms lowsuch as by easing lation relative to the performance of other
private credit as a percentage of GDP.2 the burden of business start-up formali- economies as measured by Doing Business.
ties with a one-stop shop or through a
The choice of the 11 sets of Doing single online portal. Finally, Doing Business Doing Business uses a simple averaging
Business indicators has also been guided scores reward economies that apply a approach for weighting component indi-
by economic research and firm-level risk-based approach to regulation as a cators, calculating rankings and determin-
data, specifically data from the World way to address social and environmental ing the distance to frontier score.4 Each
Bank Enterprise Surveys.3 These surveys concernssuch as by imposing a greater topic covered by Doing Business relates to
provide data highlighting the main regulatory burden on activities that pose a different aspect of the business regula-
obstacles to business activity as reported a high risk to the population and a lesser tory environment. The distance to frontier
by entrepreneurs in more than 131,000 one on lower-risk activities. Thus, the scores and rankings of each economy vary,
companies in 139 economies. Access economies that rank highest on the ease often considerably, across topics, indicat-
to finance and access to electricity, for of doing business are not those where ing that a strong performance by an econ-
example, are among the factors identified there is no regulationbut those where omy in one area of regulation can coexist
by the surveys as important to busi- governments have managed to create with weak performance in another (figure
nessesinspiring the design of the Doing rules that facilitate interactions in the 2.1). One way to assess the variability of
ABOUT DOING BUSINESS 13

FIGURE 2.1 An economys regulatory environment may be more business-friendly in some areas than in others

Distance to frontier score (0100) 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
New Zealand
Denmark
Hong Kong SAR, China
United Kingdom
Georgia
Macedonia, FYR
Finland
Taiwan, China
Ireland
Latvia
United Arab Emirates
Iceland
Mauritius
Poland
Portugal
France
Switzerland
Russian Federation
Slovenia
Slovak Republic
Rwanda
Serbia
Romania
Armenia
Mexico
Croatia
Cyprus
Chile
Azerbaijan
Colombia
Costa Rica
Luxembourg
Albania
Greece
Morocco
Oman
El Salvador
Bhutan
Kyrgyz Republic
Kenya
South Africa
Malta
Samoa
Tonga
St. Lucia
San Marino
Seychelles
Guatemala
Dominican Republic
Fiji
Jordan
Nepal
Antigua and Barbuda
Papua New Guinea
Sri Lanka
Philippines
Honduras
Argentina
Bahamas, The
Belize
Tajikistan
Brazil
Cabo Verde
St. Vincent and the Grenadines
Nicaragua
Lebanon
Cambodia
Tanzania
Cte d'Ivoire
Lao PDR
Mali
Nigeria
Pakistan
Marshall Islands
Benin
Guinea
Micronesia, Fed. Sts.
Kiribati
Zimbabwe
Ethiopia
Cameroon
Suriname
Gabon
So Tom and Prncipe
Myanmar
Equatorial Guinea
Angola
Bangladesh
Congo, Rep.
Haiti
Afghanistan
Libya
South Sudan
Eritrea
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 190 economies covered by this years report. See the country tables for the distance to frontier scores for each Doing Business topic for all economies.

an economys regulatory performance is market size, the incidence of bribery and reforms should not focus only on these
to look at its distance to frontier scores corruption or the quality of the labor force. aspects, because those that it does not
across topics (see the country tables). measure are also important.
Morocco, for example, has an overall The focus is deliberately narrow even
distance to frontier score of 67.91, mean- within the relatively small set of indica- Doing Business does not attempt to quan-
ing that it is about two-thirds of the way tors included in Doing Business. The time tify all costs and benefits of a particular
from the worst to the best performance. and cost required for the logistical pro- law or regulation to society as a whole.
Its distance to frontier score is 92.46 for cess of exporting and importing goods The paying taxes indicators measure the
starting a business, 85.72 for paying taxes is captured in the trading across borders tax and contribution rate, which, in isola-
and 81.12 for trading across borders. At indicators, for example, but they do not tion, is a cost to businesses. However, the
the same time, it has a distance to frontier measure the cost of tariffs or of interna- indicators do not measurenor are they
score of 34.03 for resolving insolvency, 45 tional transport. Doing Business provides a intended to measurethe benefits of the
for getting credit and 58.33 for protecting narrow perspective on the infrastructure social and economic programs funded
minority investors. challenges that firms face, particularly with tax revenues. Measuring the quality
in the developing world, through these and efficiency of business regulation pro-
indicators. It does not address the extent vides only one input into the debate on the
FACTORS DOING BUSINESS to which inadequate roads, rail, ports and regulatory burden associated with achiev-
DOES NOT MEASURE communications may add to firms costs ing regulatory objectives, which can differ
and undermine competitiveness (except across economies. Doing Business provides
Many important policy areas are not to the extent that the trading across
covered by Doing Business; even within the borders indicators indirectly measure TABLE 2.2 Examples of areas not
areas it covers its scope is narrow (table the quality of ports and border connec- covered by Doing Business
2.2). Doing Business does not measure the tions). Similar to the indicators on trading Macroeconomic stability
full range of factors, policies and institu- across borders, all aspects of commercial Development of the financial system
tions that affect the quality of an econo- legislation are not covered by those on Quality of the labor force
mys business environment or its national starting a business or protecting minor-
Incidence of bribery and corruption
competitiveness. It does not, for example, ity investors. And while Doing Business
Market size
capture aspects of macroeconomic stabil- measures only a few aspects within each
ity, development of the financial system, area that it covers, business regulation Lack of security
14 DOING BUSINESS 2018

a starting point for this discussion and the largest business city, and learning with applicable regulations. In practice,
should be used in conjunction with other from local good practices, Doing Business entrepreneurs may not be aware of what
data sources. has complemented its global indicators needs to be done or how to comply with
with subnational studies (box 2.1). Also, regulations and may lose considerable time
coverage was extended to the second trying to find out. Alternatively, they may
ADVANTAGES AND largest business city in economies with a intentionally avoid complianceby not
LIMITATIONS OF THE population of more than 100 million (as registering for social security, for example.
METHODOLOGY of 2013) in Doing Business 2015. Firms may opt for bribery and other infor-
mal arrangements intended to bypass
The Doing Business methodology is Doing Business recognizes the limitations the rules where regulation is particularly
designed to be an easily replicable way to of the standardized case scenarios and onerousan aspect that helps explain dif-
benchmark specific aspects of business assumptions. But while such assumptions ferences between the de jure data provided
regulation. Its advantages and limitations come at the expense of generality, they by Doing Business and the de facto insights
should be understood when using the also help to ensure the comparability of offered by the World Bank Enterprise
data (table 2.3). data. Some Doing Business topics are com- Surveys.5 Levels of informality tend to
plex, and so it is important that the stan- be higher in economies with particularly
Ensuring comparability of the data across dardized cases are defined carefully. For burdensome regulation. Compared with
a global set of economies is a central example, the standardized case scenario their formal sector counterparts, firms in
consideration for the Doing Business usually involves a limited liability com- the informal sector typically grow more
indicators, which are developed using pany or its legal equivalent. There are two slowly, have poorer access to credit and
standardized case scenarios with specific reasons for this assumption. First, private employ fewer workersand these workers
assumptions. One such assumption is limited liability companies are the most remain outside the protections of labor law
the location of a standardized business prevalent business form (for firms with and, more generally, other legal protections
the subject of the Doing Business case more than one owner) in many economies embedded in the law.6 Firms in the informal
studyin the largest business city of the around the world. Second, this choice sector are also less likely to pay taxes. Doing
economy. The reality is that business reg- reflects the focus of Doing Business on Business measures one set of factors that
ulations and their enforcement may differ expanding opportunities for entrepreneur- help explain the occurrence of informality
within a country, particularly in federal ship: investors are encouraged to venture and provides policy makers with insights
states and large economies. But gather- into business when potential losses are into potential areas of regulatory reform.
ing data for every relevant jurisdiction in limited to their capital participation.
each of the 190 economies covered by
Doing Business is infeasible. Nevertheless, Another assumption underlying the DATA COLLECTION IN
where policy makers are interested in Doing Business indicators is that entre- PRACTICE
generating data at the local level, beyond preneurs have knowledge of and comply
The Doing Business data are based on a
detailed reading of domestic laws and
TABLE 2.3 Advantages and limitations of the Doing Business methodology regulations as well as administrative
Feature Advantages Limitations requirements. The report covers 190
economiesincluding some of the small-
Use of standardized Makes data comparable across economies Reduces scope of data; only regulatory
case scenarios and methodology transparent reforms in areas measured can be est and poorest economies, for which
systematically tracked little or no data are available from other
Focus on largest Makes data collection manageable (cost- Reduces representativeness of data sources. The data are collected through
business city a effective) and data comparable for an economy if there are significant
differences across locations several rounds of communication with
Focus on domestic Keeps attention on formal sectorwhere Unable to reflect reality for informal
expert respondents (both private sector
and formal sector regulations are relevant and firms are sectorimportant where that is practitioners and government officials),
most productive largeor for foreign firms facing a through responses to questionnaires, con-
different set of constraints
ference calls, written correspondence and
Reliance on expert Ensures that data reflect knowledge of Indicators less able to capture variation
respondents those with most experience in conducting in experiences among entrepreneurs visits by the team. Doing Business relies on
types of transactions measured four main sources of information: the rel-
Focus on the law Makes indicators actionablebecause Where systematic compliance with the evant laws and regulations, Doing Business
the law is what policy makers can change law is lacking, regulatory changes will
not achieve full results desired respondents, the governments of the
economies covered and the World Bank
a. In economies with a population of more than 100 million as of 2013, Doing Business covers business regulation
in both the largest and second largest business city. Group regional staff (figure 2.2). For a
ABOUT DOING BUSINESS 15

BOX 2.1Subnational Doing Business indicators: regional-level benchmarking in the European Union
Subnational Doing Business studies point to differences in business regulation and its implementationas well as in the pace of
regulatory reformacross locations in a single economy or region. For several economies, subnational studies are now periodi-
cally updated to measure change over time or to expand geographic coverage to additional cities. Six economies completed sub-
national studies this year: Afghanistan, Colombia, three EU member states (Bulgaria, Hungary and Romania) and Kazakhstan. In
addition, an ongoing study updated data for Nigeria.

With funding from the European Commissions Directorate-General for Regional and Urban Policy (DG REGIO), the first of a
series of new subnational reports was launched focusing on the European Union member states. Doing Business in the European
Union 2017: Bulgaria, Hungary and Romania builds on subnational studies completed in Italy, Spain and Poland. The next study in
the subnational series will cover Croatia, the Czech Republic, Portugal and the Slovak Republic.

These studies will provide valuable input to individual country reports produced for the European Semester, the European Unions
economic and fiscal policy coordination framework, and will be closely linked with the Lagging Regions initiative launched by the
European Commission in June 2015, which studies constraints to growth and investment in the European Unions low-income
and low-growth regions.

Doing Business in the European Union 2017: Bulgaria, Hungary and Romania goes beyond the largest business cities of Sofia, Budapest
and Bucharest to benchmark an additional 19 locations. In total, the study measures business regulation in 22 locationssix in
Bulgaria, seven in Hungary and nine in Romania. The study benchmarks the locations using five Doing Business indicator sets:
starting a business, dealing with construction permits, getting electricity, registering property and enforcing contracts.

The study finds that there are locations in each economy that outperform the EU average in at least one area. In Bulgaria, for
example, Varna and Pleven outperform the EU average on the starting a business indicators. This is also the case in Pecs and
Szeged (Hungary), which outperform the EU average on the dealing with construction permits indicators. All Hungarian cities
and Oradea (Romania) perform above the EU average for registering property; most locations also do so for enforcing contracts.
However, none of the subnational locations surveyed came close to the EU average on the indicators for getting electricity.

While no single location excels in all five areas covered by the study, most demonstrate a noteworthy performance in at least one
area, providing reform-minded officials with examples of existing good practices that can be replicated. For example, Bulgarian cities
could make starting a business easier by adopting the good practices observed in Varna. Cities in Hungary could make it easier to get
electricity by emulating the good practices of Szeged and Szekesfehervar. And Romanian cities could strengthen their own contract
enforcement regimes by studying the example of Timisoara. The study, which also includes comparisons with 187 other economies
worldwide, provides practical recommendations and showcases good practices for improving the business environment.

FIGURE 2.2 How Doing Business collects and verifies the data

Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct.

Questionnaire Data collection and analysis Report


development The Doing Business team distributes launch
the questionnaires and analyzes the
relevant laws and regulations along
The Doing Business team updates with the information in the Data verification The report is published,
the questionnaires and consults questionnaires. followed by media outreach
with internal and external experts. and findings dissemination.
The Doing Business team travels to The Doing Business team shares
approximately 30 economies. preliminary information on reforms
with World Bank Group regional teams
The Doing Business team engages in for their feedback.
conference calls, video conferences
and in-person meetings with The Doing Business team analyzes the
government officials and private data and writes the report. Comments
sector practitioners. on the report and data are received
from across the World Bank Group
Governments and World Bank Group through an internal review process.
regional teams submit information on
regulatory changes that could
potentially be included in the global
count of regulatory reforms.
16 DOING BUSINESS 2018

detailed explanation of the Doing Business commercial court dispute, and read the Extensive consultations with multiple
methodology, see the data notes. insolvency code to identify if the debtor contributors are conducted by the team
can initiate liquidation or reorganization to minimize measurement error for the
Relevant laws and regulations proceedings. These and other types of rest of the data. For some indicatorsfor
The Doing Business indicators are based laws are available on the Doing Business example, those on dealing with construc-
mostly on laws and regulations: approxi- law library website.7 Since the data col- tion permits, enforcing contracts and
mately two-thirds of the data embedded lection process involves an annual update resolving insolvencythe time com-
in the Doing Business indicators are based of an established database, having a very ponent and part of the cost component
on a reading of the law. In addition to large sample of respondents is not strictly (where fee schedules are lacking) are
filling out questionnaires, Doing Business necessary. In principle, the role of the based on actual practice rather than
respondents submit references to the rel- contributors is largely advisoryhelping the law on the books. This introduces a
evant laws, regulations and fee schedules. the Doing Business team to locate and degree of judgment by respondents on
The Doing Business team collects the texts understand the laws and regulations. what actual practice looks like. When
of the relevant laws and regulations and There are quickly diminishing returns to respondents disagree, the time indicators
checks the questionnaire responses for an expanded pool of contributors. This reported by Doing Business represent the
accuracy. The team will examine the civil notwithstanding, the number of contribu- median values of several responses given
procedure code, for example, to check the tors rose by 60% between 2010 and 2017. under the assumptions of the standard-
maximum number of adjournments in a ized case (box 2.2).

BOX 2.2Where is the implementation of regulation more predictable and does it matter?
Doing Business measures the median duration of each procedure or process individually across the different indicator sets with
time components. However, in practice, the time it takes to complete the same transaction can differ significantly from one
entrepreneur to another. Because entrepreneurs place a premium on reliability and low risk, this variability in time can have
important implications.

This year, Doing Business sets out to better understand these differences for the eight indicators with a time component, namely
starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across borders,
enforcing contracts and resolving insolvency. To do so, Doing Business collected data estimating the time to complete a procedure in
both the best and worst case scenarios in an economy. The data show that in Spain, for example, a commercial dispute trial takes
280 days on average in a normal case, but can range from 180 days to 550 days depending on the individual circumstances.

The data show thatacross the eight Doing Business indicators mentioned abovehigh-income economies have lower time
variability and, therefore, more predictable regulatory environments than low- or middle-income economies (see figure below
for an example). In addition, the data confirm that the median is very much at the center of the time distribution. In the United
Kingdom, for example, the median time for dealing with construction permits is 90 days. The worst case scenario is 120 days
and the best case scenario is 60 days, meaning that the distribution is centered around the median plus or minus 30 days.

High-income economies have the smallest difference between the best and worst case scenario time estimates
Time to start a business (days) Time to resolve insolvency (months)
25 40

35
20
30

15 25

20
10 15

10
5
5

0 0
Low income Middle income High income Low income Middle income High income

Median Difference Median Difference

Source: Doing Business database. (continued)


ABOUT DOING BUSINESS 17

BOX 2.2Where is the implementation of regulation more predictable and does it matter? (continued)
Doing Business data also show that the median is positively correlated with the difference between the best and worst case
scenarios (see figure below). The longer the median time to comply with a regulation, the more difficult it becomes to predict the
time needed to do sothe median becomes a measure for the unpredictability in time. In fact, economies with more variability
in time do not experience higher levels of corruption on average other than what is already predicted by the median.

In economies where it takes longer to start or close a business, the time to do so is less predictable
Median time to start a business (days) Median time to resolve insolvency (months)
120 80

70
100
60
80
50

60 40

30
40
20
20
10

0 0
0 10 20 30 40 50 60 70 0 20 40 60 80 100 120
Difference between the maximum and minimum Difference between the maximum and minimum
time to start a business (days) time to resolve insolvency (months)

Source: Doing Business database.

Doing Business respondents and getting electricity. Information that an incorporation lawyer may carry out
More than 43,000 professionals in 190 is incorporated into the indicators is also 10 such transactions each month. The
economies have assisted in providing provided by certain public officials (such incorporation lawyers and other experts
the data that inform the Doing Business as registrars from the company or prop- providing information to Doing Business
indicators over the past 15 years.8 This erty registry). are therefore better able to assess the
years report draws on the inputs of more process of starting a business than are
than 13,000 professionals.9 The Doing The Doing Business approach is to work individual firms. They also have access to
Business website shows the number of with legal practitioners or other profes- current regulations and practices, while
respondents for each economy and each sionals who regularly undertake the a firm may have faced a different set of
indicator set. transactions involved. Following the rules when incorporating years before.
standard methodological approach for The second reason is that the Doing
Selected on the basis of their expertise in time-and-motion studies, Doing Business Business questionnaires mostly gather
these areas, respondents are profession- breaks down each process or transaction, legal information, which firms are unlikely
als who routinely administer or advise such as starting a business or register- to be fully familiar with. For example,
on the legal and regulatory requirements ing a building, into separate steps to few firms will know about all the main
in the specific areas covered by Doing ensure a better estimate of time. The legal procedures involved in resolving a
Business. Because of the focus on legal time estimate for each step is given by commercial dispute through the courts,
and regulatory arrangements, most of practitioners with significant and routine even if they have gone through the pro-
the respondents are legal professionals experience in the transaction. cess themselves. But a litigation lawyer
such as lawyers, judges or notaries. In should have little difficulty in provid-
addition, officials of the credit bureau or There are two main reasons that Doing ing the requested information on all
registry complete the credit information Business does not survey firms. The first the procedures.
questionnaire. Accountants, architects, relates to the frequency with which firms
engineers, freight forwarders and other engage in the transactions captured by Governments and World Bank
professionals answer the questionnaires the indicators, which is generally low. For Group regional staff
related to paying taxes, dealing with con- example, a firm goes through the start- After receiving the completed ques-
struction permits, trading across borders up process once in its existence, while tionnaires from the Doing Business
18 DOING BUSINESS 2018

respondents, verifying the information understanding the role of business regu- mean that they are all action-worthy
against the law and conducting follow-up lation in economic development, Doing in a particular context. Business regula-
inquiries to ensure that all relevant infor- Business is also an important source of tory reforms are only one element of a
mation is captured, the Doing Business information for researchers. strategy aimed at improving competitive-
team shares the preliminary descriptions ness and establishing a solid foundation
of regulatory reforms with governments Governments and policy makers for sustainable economic growth. There
(through the World Bank Groups Board Doing Business offers policy makers a are many other important goals to pur-
of Executive Directors) and regional staff benchmarking tool useful in stimulating suesuch as effective management of
of the World Bank Group. Through this policy debate, both by exposing potential public finances, adequate attention to
process, government authorities and challenges and by identifying good prac- education and training, adoption of the
World Bank Group staff working on the tices and lessons learned. Despite the latest technologies to boost economic
economies covered by Doing Business narrow focus of the indicators, the initial productivity and the quality of public ser-
can alert the team about, for example, debate in an economy on the results they vices, and appropriate regard for air and
regulatory reforms not reported by the highlight typically turns into a deeper water quality to safeguard public health.
respondents or additional achievements discussion on areas where business regu- Governments must decide what set of
of regulatory reforms. The Doing Business latory reform is needed, including areas priorities best suits their needs. To say
team can then turn to the local private well beyond those measured by Doing that governments should work toward
sector experts for further consultation Business. In economies where subnational a sensible set of rules for private sector
and, as needed, corroboration. In addi- studies are conducted, the Doing Business activity (as embodied, for example, in
tion, the team responds formally to the indicators go one step further in offering the Doing Business indicators) does not
comments of governments or regional policy makers a tool to identify good suggest that doing so should come at the
staff and provides explanations of the practices that can be adopted within their expense of other worthy policy goals.
scoring decisions. economies (box 2.1).
Over the past decade governments have
Data adjustments Many Doing Business indicators can be increasingly turned to Doing Business
Information on data corrections is pro- considered actionable. For example, as a repository of actionable, objective
vided in the data notes and on the Doing governments can set the minimum data providing unique insights into good
Business website. A transparent complaint capital requirement for new firms, invest practices worldwide as they have come
procedure allows anyone to challenge the in company and property registries to to understand the importance of business
data. From November 2016 to October increase their efficiency, or improve the regulation as a driving force of com-
2017 the team received and responded to efficiency of tax administration by adopt- petitiveness. To ensure the coordination of
over 180 queries on the data. ing the latest technology to facilitate the efforts across agencies, economies such
preparation, filing and payment of taxes as Colombia, Malaysia and the Russian
by the business community. And they Federation have formed regulatory reform
USES OF THE DOING can undertake court reforms to shorten committees. These committees use the
BUSINESS DATA delays in the enforcement of contracts. Doing Business indicators as one input to
But some Doing Business indicators inform their programs for improving the
Doing Business was designed with two capture procedures, time and costs that business environment. More than 60 oth-
main types of users in mind: policy makers involve private sector participants, such er economies have also formed such com-
and researchers. It is a tool that govern- as lawyers, notaries, architects, electri- mittees. In East Asia and the Pacific, they
ments can use to design sound business cians or freight forwarders. Governments include Brunei Darussalam; Indonesia; the
regulatory policies. Nevertheless, the may have little influence in the short Republic of Korea; the Philippines; Taiwan,
Doing Business data are limited in scope run over the fees these professions China; and Thailand. In the Middle East
and should be complemented with other charge, though much can be achieved and North Africa: the Arab Republic of
sources of information. Doing Business by strengthening professional licensing Egypt, Kuwait, Morocco, Saudi Arabia
focuses on a few specific rules relevant regimes and preventing anticompetitive and the United Arab Emirates. In South
to the specific case studies analyzed. behavior. And governments have no con- Asia: Bangladesh, India and Pakistan. In
These rules and case studies are cho- trol over the geographic location of their Europe and Central Asia: Albania, Croatia,
sen to be illustrative of the business economy, a factor that can adversely Georgia, Kazakhstan, Kosovo, the Kyrgyz
regulatory environment, but they are affect businesses. Republic, the former Yugoslav Republic
not a comprehensive description of that of Macedonia, Moldova, Montenegro,
environment. By providing a unique data While many Doing Business indicators Poland, Tajikistan, Turkey, Ukraine and
set that enables analysis aimed at better are actionable, this does not necessarily Uzbekistan. In Sub-Saharan Africa: Benin,
ABOUT DOING BUSINESS 19

Burundi, the Comoros, the Democratic registration reforms in Mexico also result- competitiveness and prevent them from
Republic of Congo, the Republic of Congo, ed in 14.9% of informal business owners taking full advantage of their productive
Cte dIvoire, Guinea, Guinea-Bissau, shifting to the formal economy.13 capacity. With the availability of Doing
Kenya, Liberia, Malawi, Mali, Mauritius, Business indicators on trading across
Niger, Nigeria, Rwanda, Senegal, Sierra Efficient and non-distortionary business borderswhich measure the time, pro-
Leone, Sudan, Tanzania, Togo, Zambia and regulations are important drivers of pro- cedural and monetary costs of exporting
Zimbabwe. And in Latin America and the ductivity. A study on India, for example, and importingseveral empirical studies
Caribbean: Argentina, Brazil, Chile, Costa shows that inefficient licensing and size have assessed how trade costs affect the
Rica, the Dominican Republic, Guatemala, restrictions cause a misallocation of export and import performance of econo-
Jamaica, Mexico, Nicaragua, Panama, Peru resources, reducing total factor produc- mies. A rich body of empirical research
and St. Lucia. Since 2003, governments tivity by preventing efficient firms from shows that efficient infrastructure and a
have reported more than 3,180 regulatory achieving their optimal scale and allowing healthy business environment are posi-
reforms, about 920 of which have been inefficient firms to remain in the market.14 tively linked to export performance.19
informed by Doing Business.10 The study shows that removing these
restrictions would boost total factor pro- Improving infrastructure efficiency and
Many economies share knowledge on ductivity by an estimated 40-60%. In the trade logistics bring documented benefits
the regulatory reform process related to European Union and Japan, implicit taxes to an economys balance of trade and
the areas measured by Doing Business. on capital use were shown to reduce the individual traders. However, delays in
Among the most common venues for average size of firms by 20%, output by transit time can reduce exports: a study
this knowledge sharing are peer-to-peer 8.1% and output per firm by 25.6%.15 A analyzing the importance of trade logis-
learning eventsworkshops where offi- recent study on Cte d'Ivoire, Ethiopia, tics found that a 1-day increase in transit
cials from different governments across Ghana and Kenya demonstrates large time reduces exports by an average of 7%
a region or even across the globe meet productivity gains following the removal in Sub-Saharan Africa.20 Another study
to discuss the challenges of regulatory of firm-level distortions caused by found that a 1-day delay in transport time
reform and to share their experiences. uneven regulations and a poor business for landlocked economies and for time-
environment.16 Research also shows that sensitive agricultural and manufacturing
Think tanks and other research raising the efficiency level of bankruptcy products has a particularly large negative
organizations laws in select OECD high-income econo- impact, reducing trade by more than 1%
Doing Business data are widely used by mies to that of the United States would for each day of delay.21 Delays while clear-
think tanks and other research organiza- increase the total factor productivity of ing customs procedures also negatively
tions, both for the development of new the former by about 30% through a rise impact a firms ability to export, particu-
indexes and to produce research papers. in bank loans to large firms.17 larly when goods are destined for new
clients.22 And in economies with flexible
Many research papers have shown the Considerable effort has been devoted to entry regulations, a 1% increase in trade
importance of business regulation and studying the link between government is associated with an increase of more
how it relates to different economic out- regulation of firm entry and employment than 0.5% in income per capita, but has
comes.11 One of the most cited theoretical growth. In Portugal, business reforms no positive income effects in economies
mechanisms on how excessive business resulted in a reduction of the time and with more rigid regulation.23 Research
regulation affects economic performance cost needed for company formalization, has also found thatalthough domestic
and development is that it makes it too increasing the number of business start- buyers benefit from having goods of
costly for firms to engage in the formal ups by 17% and creating 7 new jobs per varying quality and price to choose
economy, causing them not to invest or 100,000 inhabitants per month. New fromimport competition only results in
to move to the informal sector. Recent start-ups were more likely to be female- minimal quality upgrading in OECD high-
studies have conducted extensive empiri- owned, were smaller and headed by less income economies with cumbersome
cal testing of this proposition using Doing experienced, less-educated entrepre- regulation while it has no effect on quality
Business and other related indicators. neurs than before the reform, suggesting upgrading in non-OECD economies with
According to one study, for example, a that the reform created a more inclusive cumbersome regulation.24 Therefore,
reform that simplified business registra- environment for aspiring entrepreneurs.18 the potential gains for consumers from
tion in Mexican municipalities increased import competition are reduced where
registration by 5% and wage employment In many economies, companies engaged regulation is cumbersome.
by 2.2%and, as a result of increased in international trade struggle with high
competition, reduced the income of trade costs arising from transport, logis- Doing Business measures aspects of busi-
incumbent businesses by 3%.12 Business tics and regulations that impede their ness regulation affecting domestic firms.
20 DOING BUSINESS 2018

However, research shows that better loans, suggesting that faster processing this negative effect is stronger in econo-
business regulationas measured by of debt recovery cases cut the cost of mies with stricter employment protection
Doing Businessis associated with high- credit.30 An in-depth review of global bank legislation.35 Rigid employment protection
er levels of foreign direct investment.25 flows revealed that firms in economies legislation can also have negative distribu-
Furthermore, foreign direct investment with better credit information sharing tional consequences. A study on Chile, for
can either impede or promote domestic systems and higher branch penetration example, found that the tightening of job
investment depending on how business evade taxes to a lesser degree.31 Strong security rules was associated with lower
friendly entry regulations are in the shareholder rights have been found to employment rates for youth, unskilled
host economy. In fact, foreign direct lower financial frictions, especially for workers and women.36
investment has been shown to crowd firms with large external finance relative
out domestic investment in economies to their capital stock (such as small firms By expanding the time series dimension
with costly processes for starting a or firms in distress).32 and the scope of the data, Doing Business
business.26 Another study showed that hopes to continue being a key reference for
economies with higher international There is also a large body of theoretical the debate on the importance of business
market integration have, on average, and empirical work investigating the regulation for economic development
easier and simpler processes for starting distortionary effects of high tax rates and both within and outside the World Bank
a business.27 cumbersome tax codes and procedures. Group (box 2.3).
According to one study, business licens-
Recent empirical work shows the impor- ing among retail firms rose 13% after a Indexes
tance of well-designed credit market tax reform in Brazil.33 Another showed Doing Business identified 17 different data
regulations and well-functioning court that a 10% reduction in tax complexity is projects or indexes that use Doing Business
systems for debt recovery. For example, comparable to a 1% reduction in effective as one of its sources of data.37 Most of
a reform making bankruptcy laws more corporate tax rates.34 these projects or institutions use indica-
efficient significantly improved the recov- tor level data and not the aggregate ease
ery rate of viable firms in Colombia.28 In Labor market regulationas measured by of doing business ranking. The indicator
a multi-economy study, the introduction Doing Businesshas been shown to have set most widely used is starting a busi-
of collateral registries for movable assets important implications for the labor mar- ness, followed by labor market regulation
was shown to increase firms access to ket. According to one study, graduating and paying taxes. These indexes typically
finance by approximately 8%.29 In India from school during a time of adverse eco- combine Doing Business data with data
the establishment of debt recovery tri- nomic conditions has a persistent, harmful from other sources to assess an economy
bunals reduced non-performing loans by effect on workers' subsequent employ- along a particular aggregate dimension
28% and lowered interest rates on larger ment opportunities. The persistence of such as competitiveness or innovation.

BOX 2.3Recent Doing Business research drawing on new data from Doing Business and World Bank
Enterprise Surveys
The Doing Business team conducted several studies in 2016/17 analyzing how the current data on business regulations from
Doing Business and the World Bank Enterprise Surveys are associated with various economic and institutional outcomes. These
studies found that:

Small and medium-size firms are more likely to be credit constrained. In addition, a more advanced credit information system
is associated with lower levels of credit constraints, particularly for smaller firms, firms that are not externally audited or
firms that lack a quality certification.a
Fiscal pressures encourage regulatory reform. However, the effect of fiscal imbalances on reform weakens when govern-
ments can rely on low borrowing costs.b
Service unreliability is a significant factor in low-income economies, where power outages fluctuate significantly from year
to year. Furthermore, burdensome electricity connections are associated with utility corruption and higher electricity sector
constraints reduce firm demand for energy inputs.c
There is a significant negative relationship between corruption and firm productivity when business regulation is high, but
there is no significant relationship when business regulation is low.d
a. Chvez 2017.
b. Djankov, Georgieva and Ramalho 2017a.
c. Arlet 2017.
d. Amin and Ulku 2017.
ABOUT DOING BUSINESS 21

The Heritage Foundations Index of has changed in ways relevant for the features Index; International Institute for Management
captured by the indicators. The data collection Developments World Competitiveness
Economic Freedom, for example, has used process should therefore be seen as adding Yearbook; DHLs Global Connectedness Index
22 Doing Business indicators to measure each year to an existing stock of knowledge (GCI); PricewaterhouseCoopers Paying Taxes
the degree of economic freedom in the reflected in the previous years report, not as 2016: The Global Picture; Legatum Institutes
creating an entirely new data set. Legatum Prosperity Index; The Millennium
world in four areas, including rule of law, 9. While about 13,000 contributors provided data Challenge Corporations Open Data Catalog;
government size, regulatory efficiency and for this years report, many of them completed International Civil Service Effectiveness
market openness.38 Economies that score a questionnaire for more than one Doing (InCiSE) Index of Oxford University, Blavatnik
Business indicator set. Indeed, the total number School of Government and The Institute for
better in these four areas also tend to have of contributions received for this years report Government.
a high degree of economic freedom. is more than 16,000, which represents a true 38. For more on the Heritage Foundations Index
measure of the inputs received. The average of Economic Freedom, see the website at
number of contributions per indicator set and http://heritage.org/index.
Similarly, the World Economic Forum economy is more than seven. For more details,
uses Doing Business data in its Global see http://www.doingbusiness.org
Competitiveness Index to demonstrate /contributors/doing-business.
10. These are reforms for which Doing Business
how competitiveness is a global driver is aware that information provided by
of economic growth. The organization Doing Business was used in shaping the
also uses 13 Doing Business indicators in reform agenda.
11. The papers cited here are just a few examples
five indexes that measure institutions, of research done in the areas measured by
product market efficiency, labor market Doing Business. Since 2003, when the Doing
efficiency, financial market development Business report was first published, more
than 10.000 working papers and research
and business dynamism. These publicly articles published in peer-reviewed academic
accessible sources expand the general journals have discussed how regulation in the
business environment data generated areas measured by Doing Business influences
economic outcomes.
by Doing Business by incorporating it into 12. Bruhn 2011.
the study of other important social and 13. Bruhn 2013.
economic issues across economies and 14. Hsieh and Klenow 2009.
15. Guner, Ventura and Xu 2008.
regions. They prove that, taken individu- 16. Cirera, Fattal Jaef and Maemir 2017.
ally, Doing Business indicators remain a 17. Neira 2017.
useful starting point for a rich body 18. Branstetter and others 2014.
19. Portugal-Perez and Wilson 2011.
of analysis across different areas and 20. Freund and Rocha 2011.
dimensions in the research world. 21. Djankov, Freund and Pham 2010.
22. Martincus, Carballo and Graziano 2015.
23. Freund and Bolaky 2008.
24. Amiti and Khandelwal 2011.
NOTES 25. Corcoran and Gillanders 2015.
26. Munemo 2014.
1. Djankov 2016. 27. Norbck, Persson and Douhan 2014.
2. These papers are available on the Doing 28. Gin and Love 2006.
Business website at http://www 29. Love, Martinez-Peria and Singh 2013.
.doingbusiness.org/methodology. 30. Visaria 2009.
3. For more on the World Bank Enterprise 31. Beck, Lin and Ma 2014.
Surveys, see the website at http://www 32. Claessens, Ueda and Yafeh 2014.
.enterprisesurveys.org. 33. Monteiro and Assuno 2012.
4. For getting credit, indicators are weighted 34. Lawless 2013.
proportionally, according to their contribution 35. Kawaguchi and Murao 2014.
to the total score, with a weight of 60% 36. Montenegro and Pags 2003.
assigned to the strength of legal rights index 37. The projects or indexes using Doing Business
and 40% to the depth of credit information as a source of data are the following: Fraser
index. In this way, each point included in these Institutes Economic Freedom of the World
indexes has the same value independent of (EFW); The Heritage Foundations Index
the component it belongs to. Indicators for all of Economic Freedom (IEF); The World
other topics are assigned equal weights. For Economic Forums Global Competitiveness
more details, see the chapter on the distance Index (GCI); Networked Readiness Index
to frontier and ease of doing business ranking. (NRI, jointly with INSEAD); Human Capital
5. Hallward-Driemeier and Pritchett 2015. Index (HCI); Enabling Trade Index (ETI); Travel
6. Schneider 2005; La Porta and Shleifer 2008. and Tourism Competitiveness Index (TTCI);
7. For the law library, see the website at http:// INSEADs Global Talent Competitiveness
www.doingbusiness.org/law-library. Index (GTCI); Global Innovation Index (GII,
8. The annual data collection exercise is an jointly with Cornell University and the World
update of the database. The Doing Business Intellectual Property Organization); KPMGs
team and the contributors examine the Change Readiness Index (CRI); Citi and
extent to which the regulatory framework Imperial College Londons Digital Money
Doing Business 2018

Reforming
the Business Environment
in 2016/17
From June 2, 2016, to June 1, 2017, Doing Starting a business in Thailand used to take 27.5 days. Today, thanks to a series of
Business recorded 264 regulatory reforms business regulation reforms, the process takes only 4.5 days. First, Thailand eliminated
making it easier to do businesswith the requirement that companies obtain a company seal. Previously, every certificate
119 economies implementing at least of shares had to be signed by at least one director and bear the company seal. And
one reform across the different areas second, Thailand repealed the requirement to obtain approval of the companys
measured by Doing Business. work regulations from the Labor Department. Before the reform, companies with
more than 10 employees were required to submit their work regulations to the Labor
The economies that showed the most
Department for approval. The companys work regulations are now checked during
notable improvement in Doing Business
regular labor inspections. Thailands case is not unique. In all, 38 economies reduced
2018 are Brunei Darussalam, Thailand,
the complexity and cost of business incorporation processes in 2016/17, making it
Malawi, Kosovo, India, Uzbekistan,
Zambia, Nigeria, Djibouti and El Salvador. easier and faster for entrepreneurs to start a business.

Starting a business and getting credit


were the areas with the highest incidence Reform pays off. Reducing administrative real GDP growth rates by about 1 percent-
of reforms in 2016/17, with 38 reforms burdens, simplifying regulation, strength- age point per year on average over the next
recorded in each area. Simplifying ening competition and cutting red tape are two decades.4 Improving infrastructure
registration formalities was the most reforms that are positively associated with efficiency and trade logistics bring docu-
common feature of reforms making it higher manufacturing productivity growth mented benefits to an economys external
easier to start a business. The most in low-income economies and aggregate trade balance and individual traders but
common feature of reforms making it productivity growth in middle-income transit delays can reduce exports. A study
easier to get credit was the introduction of economies.1 There is ample evidence of analyzing the importance of trade logistics
new credit bureaus and registries. the positive impact of reforming in the found that a 1-day increase in transit time
Doing Business areas with a historically reduces exports by an average of 7% in
Europe and Central Asia continued to
be the region with the highest share of higher number of reformsnamely start- Sub-Saharan Africa.5
economies (79%) implementing at least ing a business, paying taxes and trading
one business regulation reform, a trend across borders. Regulatory reforms that
that began over a decade ago. Sub- make it easier to start a formal business, WHO REFORMED THE MOST
Saharan Africa, however, was the region for example, are associated with an IN 2016/17?
with the highest total number of reforms increase in the number of registered firms
in 2016/17, with 83 reforms recorded and with a higher level of employment and From June 2, 2016, to June 1, 2017, Doing
across all areas measured productivity.2 The composition and quality Business recorded 264 regulatory reforms
by Doing Business. of taxation can have a significant impact making it easier to do businesswith 119
on productivity and economic growth.3 economies implementing at least one
East Asia and the Pacific had the highest Tax policies can negatively impact produc- reform across the different areas mea-
number of economies recording the tivity by creating disincentives for firms to sured by Doing Business (see table 3A.1 at
greatest overall number of reforms
engage in innovative activities or distort- the end of this chapter). However, start-
making it easier to do business in
ing the capital-labor allocation when con- ing a business, getting credit and trading
2016/17. Brunei Darussalam and Thailand
sidering labor taxes, including mandatory across borders are the topics with the
each implemented eight reforms while
social contributions. Research shows that highest incidence of reforms in 2016/17
Indonesia implemented seven reforms.
eliminating such fiscal barriers would lift (table 3.1).
REFORMING THE BUSINESS ENVIRONMENT IN 2016/17 23

TABLE 3.1 Economies in Europe and Central Asia recorded the highest share of greatest overall number of reforms mak-
reforms making it easier to do business in 2016/17 ing it easier to do business in 2016/17;
Brunei Darussalam and Thailand each
Number of reforms Region with the highest share of
Area of reform in 2016/17 reformers in 2016/17 implemented eight reforms while
Starting a business 38 South Asia Indonesia implemented seven reforms.
Latin America and the Caribbean and
Dealing with construction permits 22 Sub-Saharan Africa
the OECD high-income group had the
Getting electricity 20 Europe & Central Asia
smallest shares of economies imple-
Registering property 29 Europe & Central Asia menting business regulation reforms.
Getting credit 38 South Asia The Middle East and North Africa was
Protecting minority investors 21 South Asia also among the regions with a relatively
Paying taxes 30 East Asia & Pacific small share of economies reforming
(65%). Nonetheless, Saudi Arabia
Trading across borders 33 South Asia
implemented six reforms.
Enforcing contracts 20 South Asia
Resolving insolvency 13 South Asia
The 10 economies showing the most
Source: Doing Business database. notable improvement in performance
Note: The labor market regulation indicators also recorded 17 regulatory changes in the Doing Business 2018
report. These changes are not included in the total reform count. on the Doing Business indicators in
2016/17 were Brunei Darussalam,
The region with the highest share of econ- number of reforms in 2016/17 with 83 Thailand, Malawi, Kosovo, India,
omies reforming across all topics is Europe reforms recorded across all areas mea- Uzbekistan, Zambia, Nigeria, Djibouti
and Central Asia, continuing a trend that sured by Doing Business. Three-quarters and El Salvador (table 3.2). These econ-
began over a decade ago. Indeed, 79% of economies in the region implemented omies together implemented 53 busi-
of economies in the region implemented at least one business regulation reform ness regulation reforms across 10 of
at least one business regulation reform in 2016/17. Similarly, 75% of economies the areas measured by Doing Business.
recorded by Doing Business 2018. With in South Asia have implemented at least Overall, the 10 top improvers imple-
five reforms, Uzbekistan is the regional one business regulation reform captured mented the most regulatory reforms
leader on the total count of reforms, fol- in Doing Business 2018. in the area of getting credit (eight
lowed by Lithuania and Azerbaijan with reforms), starting a business, dealing
four reforms each. However, Sub-Saharan East Asia and the Pacific has the great- with construction permits and paying
Africa is the region with the highest total est number of economies recording the taxes (seven reforms in each area).

TABLE 3.2 The 10 economies improving the most across three or more areas measured by Doing Business in 2016/17
Reforms making it easier to do business
Ease of
doing Change Dealing with Protecting Trading
business in DTF Starting a construction Getting Registering Getting minority Paying across Enforcing Resolving
Economy rank score business permits electricity property credit investors taxes borders contracts insolvency
Brunei 56 5.77
Darussalam
Thailand 26 5.65
Malawi 110 5.42
Kosovo 40 4.94
India 100 4.66
Uzbekistan 74 4.50
Zambia 85 3.94
Nigeria 145 3.82
Djibouti 154 3.79
El Salvador 73 3.56

Source: Doing Business database.


Note: Economies are selected on the basis of the number of reforms and ranked on how much their distance to frontier (DTF) score improved. First, Doing Business selects the economies
that implemented reforms making it easier to do business in three 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
due to reforms from the previous year (the impact due to changes in income per capita and the lending rate is excluded). The improvement in their score is calculated not by using the
data published in 2016 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.
24 DOING BUSINESS 2018

Among the 10 top improvers, Brunei increased the transparency of dealing the business incorporation process by
Darussalam made the biggest advance with construction permits by publishing introducing the SPICe form (INC-32),
toward the regulatory frontier for the all relevant regulations, fee schedules and which combined the application for the
second consecutive year by implement- pre-application requirements online. In Permanent Account Number (PAN)
ing eight reforms making it easier to do addition, Nigeria improved access to credit and the Tax Account Number (TAN)
business. Brunei Darussalam removed information by legally guaranteeing bor- into a single submission. Furthermore,
post-incorporation procedures and rowers the right to inspect their own data following improvements to the online
implemented new building guidelines for and by starting to provide credit scores to system in 2016, the time needed to
construction, eliminating the requirement banks, financial institutions and borrow- complete the applications for Employees
to obtain a hoarding permit and to submit ers. Nigeria also introduced new central- Provident Fund Organization (EPFO)
both the commencement and completion ized electronic payment channels for and the Employees State Insurance
notice to the one-stop shop. Additionally, the payment of all federal taxes. Malawi Corporation (ESIC) decreased. The joint
Brunei Darussalam adopted a new secured halved the fees charged by the city council application for the Mumbai Value Added
transactions law that strengthened the and reduced the time to process building Tax (VAT) and the Profession Tax (PT)
rights of borrowers and creditors and plan approvals. It also improved access to also was fully implemented in January
strengthened minority investor protec- credit information by establishing a new 2017. India also strengthened access to
tions by increasing shareholders rights credit bureau. Zambia made exporting credit by amending the rules on priority
and role in major corporate decisions, and importing easier by implementing of secured creditors outside reorganiza-
clarifying ownership and control structures the ASYCUDA World data management tion proceedings and adopting a new
and requiring greater corporate transpar- system and made tax compliance easier insolvency and bankruptcy code that
ency. The economy also introduced an by introducing an online platform for filing introduced a reorganization procedure
electronic case management system for and paying taxes. All three economies for corporate debtors. In trading across
use by judges and lawyers and introduced introduced or made amendments to their borders, India reduced border compliance
an online system for filing and payment secured transactions laws. time by improving infrastructure at the
of the contributions to the employee Nhava Sheva Port in Mumbai. Export and
provident fund. Finally, in 2016/17 Brunei Kosovo and Uzbekistan are the two import border compliance costs were also
Darussalam enhanced its National Single economies in Europe and Central Asia that reduced in both Delhi and Mumbai after
Window for goods clearance. made the biggest advances toward the merchant overtime fees were abolished.
frontier in 2016/17. Kosovo recorded three Thanks to the increased use of electronic
Thailand, the other economy in East Asia reforms making it easier to do business, and mobile platforms, since July 2016
and the Pacific that made it to the list including adopting a new law that estab- importers under the Authorized Economic
of the 10 top improvers, implemented lishes clear priority rules inside bankruptcy Operator (AEO) program have been able
changes in eight areas measured by Doing for secured creditors and clear grounds to clear cargo faster through simplified
Business. Thailand streamlined the post- for relief from a stay for secured credi- customs procedures.
registration process to start a new busi- tors during reorganization procedures.
ness. Thailand also adopted a new secured Uzbekistan, which recorded five reforms, With four reformscaptured in the
transactions law that strengthened the streamlined the process of obtaining an indicators for dealing with construction
rights of borrowers and creditors, intro- electricity connection by introducing a permits, getting electricity, paying taxes
duced an automated risk-based system turnkey service at the utility that fulfills and trading across bordersEl Salvador
for selecting companies for tax audit and all connection-related services, including is the only economy in Latin America
increased the automation and efficiency the design and construction completion of and the Caribbean on this years list of
of enforcement processes in Bangkok. In the external connection. 10 top improvers. Similarly, Djibouti (with
addition, Thailand strengthened its land five reforms) is the only economy in the
administration system by implementing a With eight reforms making it easier to do Middle East and North Africa region on
geographic information system and scan- business in 2016/17, India was the only the list.
ning the majority of maps in Bangkok. economy in South Asia to join the list of
the 10 top improvers. India made obtaining
Three Sub-Saharan African economies a building permit faster by implementing REMOVING OBSTACLES TO
Nigeria, Malawi and Zambiamade it to an online Single Window System for the STARTING A BUSINESS
the list of 10 top improvers in 2016/17. approval of building plans; the new system
Nigeria made starting a business faster allows for the submission and approval Entrepreneurs in many economies con-
by introducing the electronic approval of building plans prior to requesting the tinue to face significant barriers to entry
of registration documents. Nigeria also building permit. India also streamlined when starting a business. Burdensome
REFORMING THE BUSINESS ENVIRONMENT IN 2016/17 25

and costly regulation can prevent Since its inception, Doing Business has
entrepreneurs from entering the formal captured at least one reform making it STREAMLINING THE
economy, negatively impacting both the easier to start a business in almost 95% PROCESS OF OBTAINING
public and private sectors. Formalization of economies. These reforms have made A BUILDING PERMIT
allows entrepreneurs and employees to it faster and easier for firms to launch
access the legal and financial services and formally operate. Fifteen years ago, The construction sector is a critical
available to registered companies (such it took entrepreneurs worldwide 52 days indicator of the health of an economy. An
as obtaining loans and social secu- on average to start and formally operate abundance of stalled construction proj-
rity benefits). There is clear evidence a firm. Today, it takes 20 days. ects is a visible sign of economic hardship,
that streamlining regulatory procedures while a booming construction industry is
can encourage business entry, busi- Simplifying registration requirements indicative of economic growth. Although
ness growth, job creation and rising can range from merging registration various obstacles remainincluding the
national incomes. procedures to eliminating redundant fragmented nature of the construction
processes. Several economies in Sub- industry and its hesitancy to adapt to
Thirty-eight economies made starting a Saharan Africa took steps to streamline technological changegovernments
business easier in 2016/17 by reducing these formalities in 2016/17 (figure 3.1). around the world are focused on imple-
the procedures, time or cost associ- By eliminating the requirement that menting reforms that reduce the time
ated with the process. Two-thirds of a woman must obtain her husbands and cost to obtain permission to build.6
these economies simplified registration permission to operate a business, the In 2016/17, five of the 22 economies
formalities by, for example, abolishing Democratic Republic of Congo made that reformed their construction permit-
requirements to obtain various approv- it easier for women to register firms. ting processes focused their reforms on
als or consolidating several registration And by combining multiple business reducing the time to obtain the building
processes into one. Others streamlined registration procedures, the Democratic permit itself (figure 3.2).
postregistration procedures by eliminat- Republic of Congo also reduced the time
ing the need to obtain a general business required to start a business by nearly a Cte dIvoire, which showed the most
license or company seal. And still others business week. significant improvement in this area in
set up or improved one-stop shops,
reduced or eliminated minimum capital
requirements and set up online platforms FIGURE 3.1 Economies in South Asia and Sub-Saharan Africa have the highest share
of reforms making it easier to start a business in 2016/17
for entrepreneurs. Of the 38 economies
that reformed in this area, 12 implement-
ed complex improvements associated Share of economies that made it easier to start a business in 2016/17 (%)
with two or more types of reforms. 40

Equatorial Guinea advanced the most 35


toward the frontier in starting a business
in 2016/17. It did this by abolishing the 30
requirement to obtain an authorization
of establishment from the Office of 25
the Prime Minister to start a business.
Previously, it took four months on aver- 20

age for each new business to obtain


15
this authorization.

10
Niger, another economy that notably
improved the ease of starting a business,
5
reduced its minimum capital require-
ment, allocated more personnel to its
0
one-stop shopresulting in a reduc-
South Asia Sub-Saharan Middle East & Europe & East Asia Latin America OECD
tion in the time required to register a Africa North Africa Central Asia & Pacific & Caribbean high income
companyand allowed for the publica-
tion of the notice of company incorpora-
tion online free of charge. Source: Doing Business database.
26 DOING BUSINESS 2018

FIGURE 3.2 Many economies made getting construction permits faster in 2016/17 Both an efficient connection process and
safeguards to mitigate outage risks are
crucial to business owners. Effective cus-
Time to get building permit (days)
tomer protections and regulations also
400
provide predictability for firms, enabling
350 them to better forecast risks.

300 Given the importance of the electricity


sector, many economies aim to improve
250
access to electricity and the quality of
200 supply to strengthen the operating envi-
ronment for small and medium-size
150
enterprises. Doing Business recorded
100 reforms in 20 economies making it easier
to get electricity in 2016/17. Of these,
50 12 economies focused on improving the
0
connection process and eight on the reli-
Cte d'Ivoire Gabon Tanzania Angola Lithuania ability of electricity supply.
DB2017 DB2018
The most common feature of elec-
Source: Doing Business database. tricity reforms in the past year was
improvement to the connection pro-
2016/17, established a one-stop shop for its permitting process by improving the cess. Regulatory changes that reduce
building permits and published deadlines, efficiency of its one-stop shop and increas- the number of interactions required
costs and procedures related to obtaining ing the frequency of building permit council between the utility or other third parties
the urban planning certificate. As a result, meetings to once a month. and customers when they apply for an
Cte dIvoire reduced the number of electricity connection are an effective
required procedures by four and the time In Europe and Central Asia, Ukraine way to improve the connection process.
to process applications by 210 days. reduced the cost of construction by Armenia successfully reduced the num-
significantly lowering mandatory inves- ber of interactions required in 2016/17
Notable progress was also made elsewhere tor contributions to Kyivs social and by installing a geographic information
in Sub-Saharan Africa, where 15 econo- engineering-transport infrastructure. system, eliminating the need for a site
mies reformed multiple aspects of their Lithuania reduced the time needed to inspection to issue the technical condi-
construction permitting processes. Gabon obtain technical conditions and the build- tions. As a result, the total time to obtain
streamlined procedures and reduced the ing permit. Uzbekistan streamlined the a connection was reduced from 138 days
time to obtain a building permit by setting process for obtaining approvals of land in 2016 to 127 days in 2017.
up an internal pre-approval meeting of plot allocations from various agencies.
relevant technical experts who examine In the Dominican Republic and Kenya
the application prior to a formal committee changes were made to improve the reli-
meeting. Gabon also made its building reg- MAKING ACCESS TO ability of power supply. Major upgrades
ulations, fee schedules and requirements ELECTRICITY MORE were made to the network infrastructure
to obtain a building permit available online. EFFICIENT AND RELIABLE in Santo Domingo and Nairobi, resulting
Similarly, Benin and Ghana improved in a notable reduction in the duration of
transparency by making regulations con- World Bank Enterprise Surveys data outages (figure 3.3). In Kenya, the utility
cerning construction openly accessible show that business owners in develop- in Nairobi invested in its distribution lines
online while Rwanda increased quality ing economies identify access to reliable and transformers and set up a squad
control during construction by introducing electrical services as the fourth largest specializing in restoring power when out-
risk-based inspections. Kenya reduced obstacle to doing business.7 However, ages occur. In the Dominican Republic,
construction fees by eliminating clear- electricity sector constraints vary. A dif- the utility in Santo Domingo built new
ance fees from the National Environment ficult connection process is associated substations, redesigned the network
Management Authority and the National with utility corruption and may hamper zoning plan and established a response
Construction Authority. Malawi halved firms,8 while an unreliable electricity squad to quickly restore service after an
building permit fees. Tanzania streamlined supply is linked to low firm productivity.9 outage. The initiatives implemented by
REFORMING THE BUSINESS ENVIRONMENT IN 2016/17 27

FIGURE 3.3 The duration of power outages has decreased in the Dominican Republic and Kenya

Dominican Republic Kenya


Average outage duration Average frequency of outages Average outage duration Average frequency of outages
per customer served (SAIDI) per customer served (SAIFI) per customer served (SAIDI) per customer served (SAIFI)
130 60 190 40

120 170
50
110 30
150
100
40 130
90 20
110
80 30

90
70 10
20
60 70

50 10 50 0
2014 2015 2016 2014 2015 2016
SAIDI SAIFI SAIDI SAIFI

Source: Doing Business database.


Note: The figures show the average number of hours without electricity supply (as measured by SAIDI) and the average number of power outages (as measured by SAIFI) per
customer served over the course of a year in the largest business city in each economy.

the utilities in both economies resulted in improving the quality of land adminis- 10% transfer tax and registration duty,
significant improvements in the reliability tration in 2016/17. The most common implementing a complaint mechanism
of electric supply. As a result, Kenya and improvements included increasing trans- and publishing service standards.
the Dominican Republic became eligible parency of information and increasing Rwanda also made improvements to its
to score on Doing Business reliability of administrative efficiency by reducing the property registration process in 2016/17.
supply and transparency of tariff index time to transfer property. Rwanda reduced the time for a property
as their System Average Interruption transfer by introducing new online ser-
Duration Index (SAIDI) and System Mauritius made the biggest improve- vices such as user searches of property
Average Interruption Frequency Index ment in the ease of registering property information and online property transfer
(SAIFI) scores are now below 100. in 2016/17. It did this by eliminating the filing and registration (figure 3.4). It is

FIGURE 3.4 Rwanda has consistently reduced the time it takes to transfer property
IMPROVING THE QUALITY OF
LAND ADMINISTRATION
Time to transfer property (days)
400
Valid property rights are necessary to
support investment, productivity and 350
economic growth. Evidence from econo-
300
mies around the world suggests that
property owners with registered titles 250
are more likely to invest. They also have a
better chance of getting credit when using 200

their property as collateral. Likewise, hav- 150


ing reliable, up-to-date information in
cadasters and land registries is essential 100
for governments to correctly assess and
50
collect property taxes.
0
Twenty-nine economies made register- DB2008 DB2010 DB2012 DB2014 DB2016 DB2018

ing a property easier by increasing the


efficiency of property transfers and Source: Doing Business database.
28 DOING BUSINESS 2018

now possible to search online for owners credit reporting by operationalizing a new credit bureaus in Nigeria, Qatar and
of specific properties, locations and the credit bureau, Credit Data CRB, in July the United Arab Emirates began offer-
encumbrances affecting the property. In 2016. The credit bureau distributes posi- ing credit scores to their data users as
addition, the parties, or their notary, can tive and negative credit information on a value-added service. Improvements
file the property transfer deed for regis- both firms and individuals and borrowers were also made in the distribution of
tration online. Niger significantly reduced have a legally-guaranteed right to inspect data from sources other than financial
registration costs by reducing notary their own data. Cameroon, Indonesia, institutions. In Bhutan, two utility
fees from 4% of the property value to Iraq, Jordan and Slovenia all established a companies began submitting positive
a regressive fee scheme based on the new credit bureau or registry in 2016/17. and negative information on consumer
property value. The government also Azerbaijan, Djibouti and Myanmar accounts to the credit bureau. In Kenya,
made changes to the General Tax Code to improved their regulatory framework for public utility companies and savings and
lower property transfer registration fees. credit reporting, enabling the creation of credit cooperative organizations are now
new credit bureaus in the near future. required to share credit information. In
Among regions, Europe and Central Asia the Islamic Republic of Iran, a vehicle
and Sub-Saharan Africa tie as the regions Economies in West Africa also imple- dealership began sharing information on
with the most reforms relating to the mented reforms in 2016/17 to improve credit-based transactions with the credit
transfer of property in 2016/17. In Europe their credit reporting systems. All West bureau.
and Central Asia, Croatia passed the Real African Economic and Monetary Union
Estate Transfer Act, which decreased the (WAEMU) member states have now In 2016/17, 18 economies made it
real estate transfer tax from 5% to 4%, formally adopted the Uniform Law on the easier for businesses to obtain credit
while Kazakhstan made cadastral plans Regulation of Credit Information Bureaus. by modifying legislation to encourage
in Almaty available to the public via the WAEMUs regional credit bureau, the use of moveable property as collat-
governments website and began pub- Creditinfo VoLo, began operations in eral. The most common feature of reform
lishing statistics on land disputes. The Burkina Faso, Guinea-Bissau and Togo in included improvements in the legislative
Russian Federation made property regis- early 2017. These economies joined Cte framework for secured transactions
tration services available at its one-stop dIvoire, Mali, Niger and Senegal, where encompassing functional equivalents to
shop and passed legislation requiring Creditinfo VoLo was launched in 2016 security interests and creating modern,
that property registrations be completed (figure 3.5). searchable collateral registries which
within nine working days. In Sub-Saharan are accessible on-line for the registra-
Africa, the land registry in Mauritania Elsewhere, economies adopted global tion, modification and cancelation of
launched a website that provides rel- good practices in credit reporting. The security interests. West Bank and Gaza
evant information to the public on land
registry services, including property
transfer regulations, procedures and fees. FIGURE 3.5 Timeline of West African Economic and Monetary Union regional
Senegal decreased property registration credit bureau
times by streamlining the interactions
between different departments at the
WAEMU Council of Uniform Law Creditinfo Volo starts
property registry, introducing internal Ministers adopts adopted by National operations in Burkina
Uniform Law Assembly of Mali Faso, Guinea-Bissau,
mechanisms to identify bottlenecks and Togo; Uniform Law
enacting internal time limits to speed up adopted by National
Assembly of Benin
the registration process.

STRENGTHENING ACCESS TO 2013 2014 2015 2016 2017


CREDIT
Uniform Law Creditinfo Volo starts
Twenty-four economies implemented adopted by national operations in Cte
assemblies of Cte dIvoire, Mali, Niger,
reforms improving their credit information dIvoire, Niger, Senegal; Uniform Law
Senegal adopted by national
systems in 2016/17. The most common assemblies of Burkina
Faso, Guinea-Bissau, Togo
feature of reform was the introduction
of new credit bureaus and registries to
improve the sharing of credit information.
Malawi made the most improvement in Source: Doing Business database.
REFORMING THE BUSINESS ENVIRONMENT IN 2016/17 29

made the most noteworthy improve- 51% of a companys assets must be Thirteen economiesAzerbaijan, Brunei
ment in 2016/17 by adopting a secured authorized by its shareholders and that Darussalam, Djibouti, Arab Republic of
transactions law in 2016 that establishes the notice of meeting should be sent 21 Egypt, France, Indonesia, Kazakhstan,
a modern collateral registry and allows days in advance. As a result of these and Lithuania, Malaysia, Nepal, Rwanda,
a general description of present and other amendments, Djibouti improved Saudi Arabia and Uzbekistanpassed
future assets used as security interests. its score on all six indices of the indicator legislation in 2016/17 that increased
The new rules also establish priority for set, resulting in a 21.67-percentage point corporate transparency requirements.
secured creditors outside insolvency and increase in its distance to frontier score for These laws give more agenda-setting
permit out-of-court enforcement. minority investor protections (figure 3.6). power to shareholders and disclose
board member activities in other com-
Belarus created the Registry of Twenty other economies also strength- panies, executive compensation and
Encumbrances on Movable Property ened minority shareholder protections audit reports. As a result, all of these
in 2016 to record, store and provide in 2016/17.10 Costa Rica enacted Law economies improved their scores on the
information on security interests in No. 9392 in October 2016 which pro- extent of corporate transparency index.
movable assets. Mongolias Law on vides specific protections for minority
Movable and Intangible Property Pledges, investors and strengthens safeguards Azerbaijan, Bhutan, Brunei Darussalam,
which entered into force in March 2017, against conflicts of interest. The board Djibouti, Georgia, Kazakhstan, Rwanda,
regulates the assignment of receivables, of directors now must vote on transac- Saudi Arabia and Thailand took steps to
financial leases and retention-of-title tions with interested parties and board clarify corporate governance, ownership
sales, requiring their registration with members who have a personal interest and control structures by, for example,
the collateral registry. Similarly, Brunei must clearly disclose their interest and enacting legislation that requires
Darussalam, the Kyrgyz Republic, abstain from voting in this case. Should companies to nominate independent
Mongolia, Malaysia, Nepal, Nigeria, shareholders choose to file a claim board members and set up an audit
Russia, Samoa, Turkey and Zambia intro- against the transaction, the law also committee. These changes resulted in
duced new laws establishing modern increases their access to evidence both improvements in the scores of these
collateral registries. before and during court proceedings. nine economies on the extent of owner-
As a result, Costa Ricas score improved ship and control index.
significantly on both the extent of disclo-
PROTECTING THE RIGHTS OF sure index and the ease of shareholder Finally, 11 economies enacted regula-
MINORITY SHAREHOLDERS suits index, resulting in a 10 percentage tion in 2016/17 enhancing approval and
point increase in its distance to frontier disclosure requirements for related-party
Djibouti made the most noteworthy score for minority investor protections. transactions. Among them, Luxembourg
improvements to minority investor pro-
tections in 2016/17. A new law, Law No.
FIGURE 3.6 Djibouti strengthened minority investor protections the most in 2016/17
191/AN/17/7, which modified the Code
of Commerce, takes significant steps to
Index score (010)
mitigate the risk of prejudicial conflicts of
8
interest in companies. The law requires
7
directors to inform their board in detail of
any conflict of interest they may have on 6
a proposed transaction. If they decide to 5
proceed, they must also include the terms
4
of the transaction and the extent of the
conflict of interest in the annual report. 3

Even after these precautions, shareholders 2


can file in court to cancel the transac- 1
tion and recover any profits made by the
0
interested parties if the transaction was Extent of Extent of director Extent Extent of Extent of Ease of
prejudicial to the company. Shareholders disclosure index liability index of shareholder ownership and corporate shareholder
rights index control index transparency suits index
can also inspect transaction documents index
before filing a suit and seek reimbursement DB2017 DB2018
of their legal expenses. In addition, the law
stipulates that transactions representing Source: Doing Business database.
30 DOING BUSINESS 2018

made it easier for shareholders repre- different assessment criteria for select- progress in the economies of Europe
senting 10% of the share capital of their ing companies for a tax audit, with its and Central Asia. Sub-Saharan Africa
company to get access to corporate focus now primarily on larger compa- remains the region with the smallest
information and to sue directors in nies. Low-risk companies and small share of economies using electronic filing
cases of prejudicial third-party transac- businesses would not be selected for a or payments. However, in 2016 the use of
tions. These 11 economiesCosta Rica, tax audit in the case of an underpayment online systems for filing and payment of
Djibouti, Georgia, India, Kazakhstan, or self-reporting an error in the corpo- taxes resulted in efficiency gains in sev-
Luxembourg, Pakistan, Rwanda, Saudi rate income tax return. eral economies in the region, including
Arabia, Thailand and Ukraineimproved Botswana, Kenya, Rwanda and Zambia.
on the extent of approval, extent of The most common feature of reforms Angola, Mauritania, Senegal and Togo
director liability and ease of shareholder in the area of paying taxes over the are improving their systems to enable
suits indices. past year was the implementation or taxpayers to shift from manual to online
enhancement of electronic filing and filing of tax returns in the near future.
payment systems. Besides El Salvador,
ENHANCING TAX 16 other economiesBotswana, Brunei Other economies directed efforts at
COMPLIANCE SYSTEMS Darussalam, India, Indonesia, Kenya, reducing the financial burden of taxes
Lithuania, Maldives, Morocco, New on businesses and keeping tax rates at
Properly developed, effective taxation Zealand, the Philippines, Rwanda, Saudi a reasonable level to encourage private
systems are crucial for a well-function- Arabia, Uruguay, Uzbekistan, Vietnam sector development. With the objective
ing society. In most economies, taxes and Zambiaintroduced or enhanced of promoting more stable employment
are the main source of revenue to fund systems for filing and paying taxes online. conditions, Italy exempted employers
public spending on education, health India eased tax compliance on businesses from social security contributions for a
care, public transport, infrastructure by implementing an online platform for maximum of 36 months for hires with
and social programs, among others. the electronic payment of the Employee open-ended contracts from January
Tax policy is one of the most conten- Provident Fund and introducing admin- 1, 2015 to December 31, 2015. Japan
tious areas of public policy. A large istrative measures to ease corporate reduced the corporate income tax rate at
body of theoretical and empirical work income tax compliance (figure 3.7). the national level from 25.5% to 23.9%
examines the effects of high tax rates for tax years beginning on or after April
and complex fiscal systems. Although The use of electronic tax filing and pay- 1, 2015. The Bahamas reduced the rate
determining the optimal tax system can ment systems has increased substan- of stamp duty on land sales from 10% in
be challenging because context matters tially since 2006, with the most notable 2015 to 2.5% in 2016.
when economies want to maximize their
welfare, there is less uncertaintyfrom
FIGURE 3.7 India made paying taxes faster by requiring the electronic payment of
both theoretical and empirical perspec-
some taxes
tivesabout the distortionary effects
of high taxes and cumbersome tax sys- Time per year Distance to frontier score
tems. A good tax system should ensure (hours) for paying taxes (0100)
that taxes are proportionate and certain 260 70
(not arbitrary) and that the method of 240
paying taxes is convenient to taxpayers. 65
220
Lastly, taxes should be easy to adminis-
ter and collect. 200 60
180
El Salvador made the greatest advances 160 55
in tax payment systems in 2016/17.
140
Following regulatory changes, all com- 50
panies are now required to submit their 120

tax returns electronically. Electronic 100 45


payments are now used by a majority DB2017 DB2018

of companies in El Salvador for profit Time (hours) Distance to frontier score for paying taxes
taxes, value added taxes and labor taxes,
including mandatory contributions. The
tax administration also moved to a Source: Doing Business database.
REFORMING THE BUSINESS ENVIRONMENT IN 2016/17 31

of documentary and border compli- Eleven economies significantly upgraded


FACILITATING ance by more than 760 hours overall. their trade logistics infrastructure in
INTERNATIONAL TRADE More than half of this time savings is 2016/17. Inadequate infrastructure is
associated with the enhancement of one of the main burdens in interna-
International trade is a cornerstone of existing electronic systems. Zambia tional trade.14 As part of its National
economic development, as access to reduced the time to complete docu- Development Plan 2013-2017, Angola
international markets is strongly cor- mentary and border compliance by has significantly rehabilitated and
related with economic growth.11 Although about 30%, underscoring the impact upgraded the port of Luanda, expanding
tariffs on exports and imports have fallen of roll out of the ASYCUDA World the terminals, adding new berths and
on average in recent decades, non-tariff system, an automated customs data acquiring equipment. This has resulted in
measures have gained increasing promi- management system, to multiple improvements in handling processes and
nence.12 Optimizing time and costs in the customs offices nationwide. In 2017 reduced border compliance time for both
trade sector is strongly associated with Zambia increased the functionality of exports and imports.
trade growth, diversification and eco- the platform, enabling the electronic
nomic expansion.13 Accordingly, global submission of declarations, supporting The regions implementing the most
trade policies have shifted their focus documents and the online payment of reforms making it easier to trade across
from tariffs to trade facilitation, including customs fees. Following its upgrade borders in 2016/17 were Sub-Saharan
the elimination of trade-related transac- from ASYCUDA to the Sistema nico Africa (46% of reforms in this area) and
tions costs. Doing Business tracks global de Modernizacin Aduanera (Single East Asia and the Pacific (18%). Together,
trade policies and reforms that facilitate Customs Modernization System; the economies in these two regions
trade by implementing cost-effective, SUMA), Bolivia has enabled traders to account for nearly 64% of reforms in this
time-efficient and transparent regulatory clear their goods electronically, submit- area as captured by Doing Business 2018.
practices (figure 3.8). ting customs declarations and support- The remainder of reforms were made
ing documents online and eliminating by economies in Latin America and the
Of the 33 economies that undertook the need for visits to multiple govern- Caribbean (15%), the Middle East and
reforms making it easier to trade ment agencies to obtain clearance. As a North Africa (9%), South Asia (9%) and
across borders in 2016/17, 22 improved result, Bolivia reduced the time required Europe and Central Asia (3%).
their existing electronic systems for to prepare and submit all required
exports or imports, reducing the time documentation by 72 hours overall.
ENHANCING JUDICIAL
EFFICIENCY
FIGURE 3.8 Reforms affecting customs, especially those regarding the
implementation of electronic systems, produce the highest time savings across regions A judicial system that provides effective
Total time reduction (hours)
commercial dispute resolution is crucial
900 to a healthy economy.15 Case manage-
800 ment systems supporting manual case
700
flow through forms and files contribute
to the overall timeliness and efficiency
600
of the justice system, especially when
500
combined with increased court automa-
400 tion and information communication
300 technology solutions.16 The introduction
200 of new case management features, or the
100 expansion of existing case management
0 or court automation systems, was the
Sub-Saharan Africa Latin America East Asia South Asia Middle East most common reform feature recorded
& Caribbean & Pacific & North Africa
in 2016/17. Some economiesGuyana
Electronic systems Customs administration Risk-based inspections Infrastructure and Kazakhstan, for examplefocused
on strengthening regulatory case
management principles by introducing
Source: Doing Business database.
Note: The time reduction captures reforms that were implemented and had a positive impact on time for the tighter time standards for key court
trading across borders indicator set from 2016 to 2017. The reforms recorded during this period are aggregated in events. Otherssuch as Switzerland
four wide-ranging categories: electronic systems, customs administration, risk-based inspections and infrastructure.
Regions with no reforms on time are excluded from the figure. and Taiwan, Chinafocused on the
32 DOING BUSINESS 2018

implementation of a platform for the online case management system. Today a higher overall level of entrepreneurship
electronic submission of the initial com- the Windhoek High Court has a case in the economy and preserve jobs.19 By
plaint. Hungary strengthened its existing clearance rate of above 110% (figure 3.9), facilitating the efficient business exit
electronic-filing system by integrating it higher than some of the most sophisti- and liquidation of nonviable companies,
with a platform that allows litigants to cated economies in the world, including an insolvency framework supports the
pay court fees electronically. Finland and Sweden.17 efficient reallocation of resources across
the economy.20
Namibia, the economy that improved Other economies have strengthened
most notably in the area of enforcing judicial efficiency through the introduc- In 2016/17 Doing Business recorded
contracts in 2016/17, is witnessing the tion of a specialized commercial court. 13 reforms making it easier to resolve
results of a seven-year reform process Bhutan introduced dedicated benches insolvency. The most common feature
in case management and information that only hear commercial cases. Guyana, of reform was the introduction of a reor-
communication technology systems that Nicaragua, the Slovak Republic and ganization procedure as an alternative to
began with a peer learning exercise with Vietnam strengthened their regulatory liquidation. Cabo Verde, the Dominican
some of the top-performing economies environment by introducing a new Code Republic, Grenada, India, Kosovo, Liberia,
on the enforcing contracts indicators. of Civil Procedure. Malawi, Panama, Singapore and the
The reform process led to the approval United Arab Emirates adopted legal
of new court rules in 2014 that incorpo- regulations enabling parties to make use
rated many case management principles PROMOTING EFFICIENT of reorganization procedures for the pur-
such as time limits for key court events, BANKRUPTCY REGIMES pose of saving viable businesses where
early case management through pre- there is a prospect of financial recovery.
trial conferences, earlier intervention by Efficient regulation of corporate insolven-
the judge, tools to dispose of cases that cy is associated with increased access The reform in Kosovo is particularly
have been abandoned by the parties to credit for firms and on better terms.18 noteworthy. A comprehensive insolvency
and court-connected mediation. The Creditors are more willing to lend because law, which was adopted in July 2016,
court also upgraded its information they are more likely to recover their loans. introduced a number of modern features
communication technology systems Additionally, economies that reform their that are aligned with international good
and court users are now able to submit insolvency law to provide a mechanism practices. In addition to establishing
their initial complaint online, while judges for business rescue may reduce the reorganization and liquidation proce-
and lawyers have access to a dedicated failure rate among firms, help maintain dures, the law provided the debtor with

FIGURE 3.9 Namibia has reduced its case backlog by implementing a case management system

Number of cases

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0
2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

Registered cases Finalized cases

Source: Namibia Superior Courts data (http://www.ejustice.moj.na).


REFORMING THE BUSINESS ENVIRONMENT IN 2016/17 33

the option to submit a pre-packaged information on the financial affairs of TABLE 3.4 Puerto Rico (U.S.)s
rehabilitation plan before the commence- the debtor at any time. Additionally, Transformation and Labor Flexibility
ment of reorganization proceedings Azerbaijan and Georgia granted creditors Act (TLFA)
and established expedited insolvency the right to object to the decision accept-
Old framework Labor reform
proceedings for small and medium-size ing or rejecting creditors claims.
Length of the maximum probationary period
enterprises. These new elements not only for permanent employees
streamline liquidation and reorganization 3 months 9 months
proceedings in Kosovo in general, but CHANGING LABOR MARKET
Wage premium for daily overtime work and
are also likely to shorten the timeframe REGULATION weekly holiday work
for resolving insolvency. The law also 100% premium rate 50% premium rate
allows the debtor to obtain new financ- Regulation of labor markets is essential
Mandatory paid annual leave, workers with 1
ing after the commencement of insol- for the achievement of primary economic year tenure
vency proceedings to facilitate continued goals, such as the efficient allocation of 15 days 9 days
operations, regulates the treatment of resourcesthat is, the distribution of
Mandatory paid annual leave, workers with
contracts and establishes a cross-border resources to their most productive uses.21 5-10 years tenure
insolvency regime (table 3.3). Labor regulation is also indispensable 15 days 12 days
in protecting vulnerable groups from
Source: Doing Business database.
Upper-middle-income and high-income market failures, such as forced labor and
economies mainly focused their efforts discrimination.22 In addition to these including the hiring of workers, working
on strengthening the rights of creditors fundamental functions, smart labor hours, redundancy rules and job qual-
in insolvency proceedings in 2016/17. regulation can help advance a myriad of ity. Some economies made their labor
Azerbaijan, the Dominican Republic, economic and social goals, ranging from regulation more rigid while others made
Grenada, and Panama made important better responses to economic shocks to it more flexible; in some economies, the
amendments to their legal frameworks the promotion of equal opportunities and changes were in both directions. Puerto
to provide creditors with additional social cohesion. The challenge in devel- Rico (U.S.), for example, undertook a
safeguards and enable their participation oping labor policies is to prevent both substantial regulatory reform effort by
in important decisions that affect their over- and under-regulation by balancing adopting the Transformation and Labor
interests. The Dominican Republic and labor flexibility with worker protection.23 Flexibility Act (TLFA), which introduced
Grenada granted creditors the right to comprehensive changes to regulation in
approve the sale of substantial assets of In 2016/17, Doing Business recorded all areas measured by the indicator for
the debtor. Azerbaijan and Grenada pro- 17 reforms in the areas covered by the labor market regulation (table 3.4). The
vided creditors with the right to request indicators for labor market regulation, TLFA increased the length of the maxi-
mum probationary period for permanent
TABLE 3.3 Kosovos previous and new insolvency frameworks employees, decreased the premium
for daily overtime work and the wage
Previous framework New framework
premium for weekly holiday, decreased
Can a debtor initiate liquidation or reorganization procedures? the mandatory paid annual leave and
No liquidation or reorganization Yes. Debtors can initiate both procedures. established severance payments for all
available.
employees wrongfully made redundant.
Do creditors vote on the reorganization plan?
No reorganization available. Yes. Creditors whose rights are affected by the proposed plan vote Kiribati also implemented significant
on it.
changes to labor regulation by approving
Can a court invalidate preferential and undervalued transactions concluded before insolvency proceedings? the Employment and Industrial Relation
No provisions. Yes. Code (EIRC) which regulates the number
Can a debtor obtain credit after commencement of insolvency proceedings? of work hours per day, establishes paid
No provisions. Yes. The debtor or the administrator may obtain new financing after annual leave and paid sick-leave and
the commencement of insolvency proceedings and the priorities of clarifies rules governing redundancies.
the new financing are clearly established.
Can creditors participate in important decisions?
Changes to the regulation of working
No provisions. Yes. Every creditor has the right to request information on the hours was a common feature of reform
debtor's financial situation from the insolvency representative and
may object to the decision regarding its own claims as well as claims in 2016/17. Albania reduced the number
of other creditors. of work hours to 48 per week. Similarly,
Source: Doing Business database. the Democratic Republic of Congo
34 DOING BUSINESS 2018

established a standard workday of eight 17. CEPEJ 2016.


18. Cirmizi, Klapper and Uttamchandani 2010.
hours per day and designated Sunday as a 19. Klapper and Love 2011.
weekly rest day. Taiwan, China, increased 20. For more on how insolvency frameworks
the number of weekly rest days from one support the efficient reallocation of resources
across the economy, see Djankov 2009,
to two and also extended the length of Funchal 2008, Klapper 2011 and Visaria 2009.
mandatory paid annual leave. Bosnia and 21. World Bank 2012.
Herzegovina decreased wage premiums 22. Agell 1999.
23. Kuddo and others 2015.
for overtime work, night work and weekly
holiday work. Tajikistan abolished restric-
tions on night work by non-pregnant
women and non-nursing mothers.

In addition, some economies made


changes to legislation regulating
redundancy rules and costs. Tajikistan
increased the amount of severance pay
that an employer must provide when
making an employee redundant. The
Bahamas amended its legislation to
introduce priority rules that apply to
reemployment and Singapore adopted
legislation requiring employers to notify
the Ministry of Manpower when termi-
nating a group of nine redundant workers.

Economies also implemented legislation


in the area of job quality in 2016/17. The
United States (Los Angeles) established a
maximum of six working days of paid sick
leave a year. Colombia, the Dominican
Republic, India and Paraguay increased
the duration of paid maternity leave.

NOTES
1. Dabla-Norris and others 2013.
2. Klapper and Love 2011.
3. IMF 2015.
4. IMF 2017.
5. Freund and Rocha 2011.
6. World Economic Forum 2017.
7. Enterprise Surveys database (http://www
.enterprisesurveys.org/), World Bank.
8. Geginat and Ramalho 2015.
9. Grimm, Hartwig and Lay 2012.
10. The economies that strengthened minority
shareholder rights in 2016/17 are Azerbaijan,
Bhutan, Brunei Darussalam, Costa Rica,
Djibouti, Egypt, France, Georgia, India,
Indonesia, Kazakhstan, Lithuania, Luxembourg,
Malaysia, Nepal, Pakistan, Rwanda, Saudi
Arabia, Thailand, Ukraine and Uzbekistan.
11. World Bank Group and WTO 2015.
12. Hoekman and Nicita 2011.
13. Arvis and others 2016.
14. Lanz, Roberts and Taal 2016.
15. Ramello and Voigt 2012.
16. Gramckow and others 2016.
REFORMING THE BUSINESS ENVIRONMENT IN 2016/17 35

TABLE 3A.1 Who reduced regulatory complexity and cost and/or strengthened legal institutions in 2016/17and what did they do?
Feature Economies Some highlights

Making it easier to start a business

Simplified preregistration Bhutan; China; Democratic Republic of Congo; Djibouti made starting a business more affordable by reducing the fees to register
and registration formalities Republic of Congo; Czech Republic; Djibouti; and publish the notice of commencement of activity.
(publication, notarization, Dominican Republic; Equatorial Guinea;
inspection, and other Ethiopia; Gabon; Indonesia; Iraq; Jamaica; Kenya;
requirements) Madagascar; Mauritius; Morocco; Nigeria; Pakistan;
Saudi Arabia; Senegal; Serbia; Thailand; Uzbekistan
Cut or simplified The Bahamas; Brunei Darussalam; Greece; India; The Bahamas made starting a business easier by merging the process of registering
postregistration procedures Iraq; Kenya; Kosovo; Madagascar; Malta; Niger; for the business license and value added tax. Greece made starting a business
(tax registration, social security Tajikistan; Thailand; Zimbabwe easier by creating a unified social security institution.
registration, licensing)
Introduced or improved India; Kuwait; Saudi Arabia Saudi Arabia made starting a business easier through the use of an online system,
online procedures which merges the name reservation and submission of the articles of association
into one procedure. Saudi Arabia also improved the online payment system,
removing the need to pay fees in person.
Created or improved one- Democratic Republic of Congo; Kuwait; Mauritania made starting a business easier by combining multiple registration
stop shop Mauritania; Moldova; Niger; Sierra Leone procedures.
Abolished or reduced Cameroon; Republic of Congo; Ethiopia; Gabon; Cameroon made starting a business easier by reducing the minimum capital
minimum capital requirement Niger requirement. Gabon made starting a business easier by reducing the minimum capital
requirement and by making the notarization of incorporation documents optional.

Making it easier to deal with construction permits

Reduced time for processing Angola; Brunei Darussalam; Cte dIvoire; Lithuania reduced the time it takes to obtain technical conditions and the building
permit applications El Salvador; Gabon; India; Kenya; Lithuania; permit. Niger introduced new rules to obtain a water connection as well as service
Mauritius; Niger; Nigeria; Tanzania; United Arab delivery objectives, resulting in a reduction in the time to obtain a water connection.
Emirates; Uzbekistan The Waste Water Management Authority (WMA) in Mauritius outsourced the design
and construction of sewage connection works to five private companies, thereby
reducing the time to provide sewage connection.
Improved transparency Benin; Cabo Verde; Gabon; Ghana; Niger; Nigeria; Gabon improved the transparency of information by publishing legislation
Seychelles related to the construction industry online. Nigeria (Kano and Lagos) increased
transparency by publishing all relevant regulations, fee schedules and pre-
application requirements online.
Streamlined procedures Brunei Darussalam; Gabon; Niger; Nigeria; Brunei Darussalam eliminated the requirement to obtain a hoarding permit and to
Uzbekistan submit both the commencement and completion notice to the one-stop shop. Niger
streamlined its internal processes and set up a building permit commission which
meets every Thursday to rule on permit applications.
Adopted new building Djibouti; El Salvador; Niger; Rwanda; United Arab Djibouti implemented a decree clearly establishing decennial liability for all professionals
regulations Emirates; Uzbekistan engaged in construction projects. Uzbekistan introduced a new system of allocating
land through a competitive selection process for land plots of up to a hectare.
Reduced fees Djibouti; Kenya; Malawi; Niger; Ukraine; United Kenya eliminated fees to obtain clearance from the National Environment
Arab Emirates Management Authority and the National Construction Authority. Malawi halved the
fees to obtain a building permit. The National Laboratory of Djibouti published new
official fees for its services, reducing the cost of concrete inspections.
Improved or introduced Angola; El Salvador; India El Salvador introduced a single window system, making preliminary construction
electronic platforms or online fees payable online. The Municipality of Greater Mumbai introduced an online
services single window system that allows for the submission and approval of building
plans prior to requesting the building permit along with various other services.
Introduced or improved one- Cte d'Ivoire; Tanzania Cte d'Ivoire created a one-stop shop for processing building permits. Tanzania
stop shop increased the efficiency of its one-stop shop by improving coordination among agencies.

Making it easier to get electricity

Facilitated more reliable power Dominican Republic; El Salvador; Jamaica; Kenya; Jamaica improved the reliability of supply in Kingston by investing in the
supply and transparency of tariff Mexico; Montenegro; Senegal; Vietnam distribution network through several initiatives, including the installation of smart
information meters and distribution automation switches.
Improved process efficiency Angola; Armenia; Indonesia; Italy; Niger; Armenia made getting electricity easier by imposing new deadlines for connection
Philippines procedures and introducing a new geographic information system at the utility.
Streamlined approval process Indonesia; Lithuania; Mozambique; Thailand; Mozambique reduced the time to get an electricity connection by streamlining
United Arab Emirates; Uzbekistan procedures through the utility instead of various agencies. Mozambique also
reduced costs by eliminating the security deposit for large commercial clients.
Improved regulation of Georgia; Indonesia; Mozambique; United Arab Georgia made getting electricity more affordable by reducing connection costs for
connection processes and Emirates new customers.
costs
36 DOING BUSINESS 2018

TABLE 3A.1 Who reduced regulatory complexity and cost and/or strengthened legal institutions in 2016/17and what did they do?
Feature Economies Some highlights

Making it easier to register property

Increased transparency of Benin; Brunei Darussalam; Djibouti; Hong Kong Mauritania created a new section on the government website containing
information SAR, China; Kazakhstan; Kuwait; Mauritania; information on the services provided by the land registry. Kazakhstan made
Mauritius; Nigeria; Pakistan; Seychelles; Suriname cadastral plans in Almaty available to the public and began publishing statistics on
the number of land disputes.
Increased administrative Antigua and Barbuda; Costa Rica; Guyana; Saudi Arabia implemented an online system to check for property ownership and
efficiency Kuwait; Nigeria; Russian Federation; Rwanda; encumbrances. Rwanda reduced the time to complete a property transfer from 12 to
Saudi Arabia; Senegal; Tajikistan seven days, by reducing the time needed to conduct a title search and registration.
Reduced taxes or fees Benin; Croatia; Indonesia; Mauritius; Myanmar; Niger decreased registration fees, effectively lowering the cost to register a
Niger; Senegal; Turkey property by 15%. Turkey made registering property easier by reducing mortar dues
(property transfer registration fees) from 4% to 3%.
Increased reliability of Hong Kong SAR, China; Romania; Serbia; Serbia and Thailand improved the reliability of their land administration systems
infrastructure Seychelles; Thailand by implementing a geographic information system. Hong Kong SAR, China, linked
information recorded by the Lands Department with that of the Land Registry.
Romania digitized its land book system in Bucharest.
Improved the accessibility of Armenia; Brunei Darussalam; Kazakhstan; Saudi Armenia, Brunei Darussalam, Kazakhstan and Saudi Arabia made their land dispute
the land dispute resolution Arabia mechanism more accessible by publishing statistics on land-related cases filed at
mechanism the court of first instance.

Strengthening legal rights of borrowers and lenders

Created a unified and/or Belarus; Brunei Darussalam; Kyrgyz Republic; Zambia strengthened access to credit by adopting a new law on secured
modern collateral registry for Malaysia; Mongolia; Nepal; Nigeria; Russian transactions that establishes a modern and centralized collateral registry.
movable property Federation; Samoa; Turkey; West Bank and Gaza;
Zambia
Introduced a functional and Brunei Darussalam; Mongolia; Nepal; Nigeria; West Bank and Gaza strengthened access to credit by adopting the Security
secured transactions system Samoa; West Bank and Gaza; Zambia Interests in Moveable Property Act. The new law on secured transactions
implements a functional secured transactions system. The law regulates functional
equivalents to loans secured with movable property, such as financial leases and
retention-of-title sales.
Allowed for general Albania; Thailand; West Bank and Gaza Albania implemented new laws allowing for the general description of assets that
description of assets that can can be used as collateral.
be used as collateral
Expanded range of movable Thailand; Vietnam Thailand introduced a law that broadens the scope of assets which can be used as
assets that can be used as collateral to secure a loan.
collateral
Granted absolute priority to Albania; Brunei Darussalam; India; Kosovo; Turkey introduced a law that allows out-of-court enforcement.
secured creditors or allowed Malawi; Thailand; Turkey; West Bank and Gaza
out-of-court enforcement
Granted exemptions to India; Kosovo; Thailand Kosovo adopted a new bankruptcy law that includes protections for secured
secured creditors from creditors during an automatic stay in reorganization proceedings.
automatic stay in insolvency
proceedings

Improving the sharing of credit information

Established a new credit Burkina Faso; Cameroon; Guinea-Bissau; Indonesia improved access to credit information by launching a new credit bureau.
bureau or registry Indonesia; Iraq; Jordan; Malawi; Slovenia; Togo
Improved regulatory Azerbaijan; Benin; Djibouti; Guinea-Bissau; Kyrgyz Djibouti improved access to credit information by adopting a law that creates a
framework for credit Republic; Myanmar; Turkey new credit information system.
reporting
Expanded scope of Bhutan; Islamic Republic of Iran; Kenya; In Bhutan, two utility companies began submitting positive and negative
information collected and Netherlands information on consumer accounts to the credit bureau.
reported by credit bureau or
registry
Introduced bureau or registry Nigeria; Qatar; United Arab Emirates In the United Arab Emirates, the credit bureau began offering consumer credit
credit scores as a value- scores to banks and financial institutions as a value-added service to help them
added service assess the creditworthiness of borrowers.
Guaranteed by law borrowers Nigeria; Swaziland Swaziland adopted the Consumer Credit Act 2016 guaranteeing borrowers right to
right to inspect data inspect their own data.
Expanded borrower coverage Madagascar In Madagascar, the credit registry for microfinance institutions was consolidated
by credit bureau or registry with the registry for banks, expanding the number of borrowers listed in the
registrys database with information on their borrowing history from the past five
years to more than 5% of the adult population.
REFORMING THE BUSINESS ENVIRONMENT IN 2016/17 37

TABLE 3A.1 Who reduced regulatory complexity and cost and/or strengthened legal institutions in 2016/17and what did they do?
Feature Economies Some highlights

Strengthening minority investor protections

Expanded shareholders role Azerbaijan; Bhutan; Brunei Darussalam; Djibouti; Lithuania enacted a law requiring the disclosure of information about board
in company management Arab Republic of Egypt; France; Georgia; Indonesia; members other directorships as well as basic information on their primary
Kazakhstan; Lithuania; Malaysia; Nepal; Rwanda; employment.
Saudi Arabia; Thailand; Uzbekistan
Enhanced access to Costa Rica; Djibouti; Georgia; Kazakhstan; Luxembourg adopted legislation allowing shareholders that represent at least 10%
information in shareholder Luxembourg; Rwanda; Thailand of the share capital to inspect transactions documents before filing a suit.
actions
Increased disclosure Costa Rica; Djibouti; India; Saudi Arabia; Ukraine Costa Rica adopted a law requiring board members who have a personal interest
requirements for related-party in a proposed transaction to clearly disclose it and not participate in the decision.
transactions
Increased director liability Djibouti; India; Luxembourg; Pakistan Djibouti adopted a law allowing shareholders to hold interested directors (as well as
other board members) liable when a transaction with interested parties is unfair or
prejudicial to the company and to have them repay profits made from the transaction
upon a successful claim.

Making it easier to pay taxes

Introduced or enhanced Botswana; Brunei Darussalam; El Salvador; India; El Salvador mandated all business taxpayers to file their annual income tax
electronic systems Indonesia; Kenya; Lithuania; Maldives; Morocco; return through one of the available electronic methods (DET software or online
New Zealand; Philippines; Rwanda; Saudi Arabia; processing). The general online tax processing and payment system was also
Uruguay; Uzbekistan; Vietnam; Zambia consolidated.
Reduced profit tax rate Japan; Norway Japan adopted the 2016 Tax Reform Bill on February 5, 2016, which reduced the
corporate income tax rate at the national level from 25.5% to 23.9% for tax years
beginning on or after April 1, 2015.
Reduced labor taxes and Belgium; France; Italy; Japan; Ukraine Ukraine introduced in 2016 a flat rate of 22% for the Unified Social Contribution
mandatory contributions tax paid by employers, which replaced the previous differentiated rates ranging
from 36.76% to 49.7%.
Reduce taxes other than The Bahamas; Indonesia; Thailand; Zambia Indonesia reduced the statutory rate for capital gains tax from 5% to 2.5%
profit and labor in 2016.
Simplified tax compliance China; India; Italy; Nigeria; Mauritania; Palau; India introduced the Income Computation and Disclosure Standards (ICDS) in 2016
processes or decreased Ukraine to standardize the methods of computing taxable income and other tax accounting
number of tax filings or standards. Data gathering became more automated in India due to the use of
payments modern enterprise resource planning (ERP) software.
Introduced a risk-based tax El Salvador; Thailand Thailand implemented a new automatic risk-based system for selecting companies
audit selection system for a tax audit in 2016. The system does not flag for a tax audit in cases of self-
reporting an error or an underpayment of tax liability due.
Introduced time limits for Senegal Senegal mandated by law that value added tax refunds be paid within 90 days
processing VAT cash refunds from the moment the tax authority receives the documents from the taxpayer
and the request for value added tax credit refund must be taken into account by
the administration within 30 days from the time the request has been submitted.
These changes were applied in practice.

Making it easier to trade across borders

Introduced or improved Bolivia; Botswana; Brazil; Brunei Darussalam; Bolivia upgraded its automated customs system (SUMA) and reduced documentary
electronic submission and Cabo Verde; Comoros; Malawi; Mauritius; compliance time to export. Zambia expanded its customs management system
processing of documents for Oman; Pakistan; Sierra Leone; Sri Lanka; St. Kitts nationwide, allowing electronic payments.
exports and Nevis; Swaziland; Taiwan, China; Uganda;
Vietnam; Zambia
Introduced or improved Bolivia; Brazil; Brunei Darussalam; Cabo Verde; Due to improvements made to their respective electronic customs platforms,
electronic submission and Comoros; Indonesia; Jamaica; Kenya; Malawi; Cabo Verde and Kenya both reduced import documentary compliance time by
processing of documents for Mauritius; Oman; Pakistan; Sri Lanka; Swaziland; 24 hours. Brazil made trading across borders faster by enhancing its electronic
imports Vietnam; Zambia systemintegrating customs, tax and administrative agenciesreducing import
documentary compliance time by 72 hours.
Strengthened transport or Angola; India; Malaysia; Mauritania; Mauritius; Angola rehabilitated the Port of Luanda, improving handling processes and
port infrastructure for exports Mozambique; Pakistan; Qatar; Russian Federation; reducing border compliance time. The Russian Federation opened a deep water port
Singapore; Uganda on the coast of the Gulf of Finland, increasing competition and reducing the cost of
border compliance at the Port of St. Petersburg.
Strengthened transport or port Angola; India; Malaysia; Mauritania; Mauritius; Qatar made trading across borders easier by inaugurating the Hamad Port. Expansion
infrastructure for imports Pakistan; Qatar; Russian Federation; Singapore of existing ports in Singapore and Malaysia improved the terminal handling process.
Facilitated customs Botswana; Brunei Darussalam; El Salvador; El Salvador increased the number of customs officers for clearance and inspections,
administration for exports Ethiopia; India; Mauritania; Mauritius; So Tom e reducing border compliance time. Mauritius decreased the number of intrusive
and imports Prncipe; Saudi Arabia; Sierra Leone; Vietnam inspections, which reduced border compliance time for both exports and imports
by 10 hours.
38 DOING BUSINESS 2018

TABLE 3A.1 Who reduced regulatory complexity and cost and/or strengthened legal institutions in 2016/17and what did they do?
Feature Economies Some highlights

Making it easier to enforce contracts

Introduced significant Guyana; Kazakhstan; Nicaragua; Senegal; Serbia; Nicaragua and the Slovak Republic each introduced a new Code of Civil
changes to the applicable civil Slovak Republic; Spain; Vietnam Procedure. Serbia adopted a new enforcement law that broadens and clarifies the
procedure or enforcement responsibilities of enforcement agents. Spain reduced the fees to file new cases.
rules
Expanded court automation Azerbaijan; Hungary; Mauritania; Rwanda; Azerbaijan, Hungary and Thailand implemented platforms to pay fees electronically.
by introducing electronic Thailand Mauritania and Rwanda made decisions rendered at all levels in commercial cases
payment or by publishing publicly available.
judgments
Introduced or expanded the Brunei Darussalam; India; Namibia; Saudi Arabia India introduced the possibility of generating performance measurement reports.
electronic case management Brunei Darussalam, Namibia and Saudi Arabia introduced electronic case
system management systems.
Introduced electronic filing Namibia; Switzerland; Taiwan, China Namibia, Switzerland and Taiwan, China, introduced electronic filing systems for
commercial cases, allowing attorneys to submit the initial summons online.
Introduced or expanded Bhutan Bhutan introduced a dedicated bench to resolve commercial disputes.
specialized commercial court
Expanded the alternative Vietnam Vietnam introduced a new law regulating voluntary mediation.
dispute resolution framework

Making it easier to resolve insolvency

Improved the likelihood of Azerbaijan; Cabo Verde; Dominican Republic; Cabo Verde established the possibility for the debtor to receive new financing
successful reorganization Georgia; Grenada; India; Kosovo; Liberia; Malawi; after the commencement of insolvency proceedings and introduced corresponding
Panama; Thailand; United Arab Emirates priority rules.
Introduced a new Cabo Verde; Dominican Republic; Grenada; India; The United Arab Emirates introduced the option of reorganization for commercial
restructuring procedure Kosovo; Liberia; Malawi; Panama; Singapore; entities as an alternative to liquidation.
United Arab Emirates
Strengthened creditors rights Azerbaijan; Cabo Verde; Dominican Republic; The Dominican Republic granted creditors the right to object to decisions of special
Georgia; Grenada; Kosovo; Liberia; Panama importance made by the insolvency representative, such as the sale of substantial
assets of the debtor in the course of insolvency proceedings.
Improved provisions on Azerbaijan; Cabo Verde; Dominican Republic; Liberia allowed avoidance of preferential and undervalued transactions concluded
treatment Georgia; Kosovo; Liberia; Malawi; Panama; United prior to commencement of insolvency proceedings.
of contracts during insolvency Arab Emirates
Regulated the profession of India; Liberia; Malawi; Panama Malawi regulated the profession of insolvency administrator, including its duties,
insolvency administrators powers and liabilities.

Changing labor legislation

Altered hiring rules and Finland; Mongolia; Puerto Rico (U.S.) Puerto Rico (U.S.) increased the length of the maximum probationary period for
probationary period permanent employees, hired after the effective date of the Transformation and
Labor Flexibility Act (TLFA).
Amended regulation of Albania; Bosnia and Herzegovina; Democratic Kiribati established rules for the number of work hours per day and the maximum
working hours Republic of Congo; Kiribati; Taiwan, China; number of working days per week.
Tajikistan
Changed redundancy rules The Bahamas; Kiribati; Puerto Rico (U.S.); Singapore adopted legislation requiring employers to notify the Ministry of
and cost Singapore; Tajikistan Manpower when terminating a group of nine redundant workers.
Reformed legislation Albania; Colombia; Dominican Republic; India; The United States (Los Angeles) adopted the Paid Sick Leave Ordinance, allowing
regulating worker protection Kiribati; Latvia; Paraguay; Puerto Rico (U.S.); for a maximum of six working days of paid sick leave a year upon the oral or
and social benefits United States written request of an employee.
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 2018

Starting
a Business
Transparency of information at business registries

Governments and civil society have come together in recent years to increase the Transparent information provided to
transparency of business information. New regulations have been adopted to improve the public by business registries can
transparency, particularly regarding the dissemination of company data. These reduce transactions costs and facilitate
changes have been made in the wake of a series of revelationssuch as the Panama investment decisions.
papers and the Bahamas leaksthat showed the extent to which individuals take
The most common types of information
advantage of obscure company ownership structures to illicitly move money around
shared by business registries include
the globe. There is now strong momentum behind expanding access to corporate
the companys name, its legal address
information, including company ownership.
and the names of its directors.

Information on beneficial ownership,


One way to increase transparency Providing public access to company corporate structure and annual
in the business environment is to information through business registries financial returns is less commonly
disclose beneficial ownership information strengthens confidence in businesses collected and made available to the
publiclythat is, to reveal the identity and institutions, but it also helps to public.
of individuals who ultimately enjoy the manage financial exposure and increase
benefits of property rights in equity, even market stability, thereby reducing the Technological advances have greatly
if they are not legal owners. Disclosure risks associated with doing business. enhanced access to information.
of beneficial ownership is useful in iden- Improving transparency necessitates
There is a strong association between
tifying suspected money laundering and the drafting of laws that expand public a transparent business registry and
potential terrorist financing. access to additional corporate data, such higher efficiency, as well as a lower
as the identities of the company direc- incidence of bribery.
To make ownership more transparent, tors, shareholders and beneficial owners.
Singapore amended its Companies Act
to require locally-incorporated compa- This year, Doing Business has collected
nies and foreign companies registered in preliminary data on the information gath-
Singapore to maintain beneficial owner- ered and shared by business registries in
ship information and to make the data 190 economies. Doing Business collects
public upon request. Ghana amended data on the public availability of both
its Companies Act in 2016 to regulate detailed corporate information (such as
disclosure of information on beneficial company name, directors, shareholders,
ownership. In May 2017 Germanys par- beneficial owners and so on) and the
liament passed a law requiring that the information needed to start a business
owners of all German enterprises (includ- (for example, a documents list, fee
ing offshore entities) be identified in an schedule, services standards and official
electronic beneficial ownership registry. statistics on firm creation). Each type of
Access to corporate information is vital for information obtained without the need
individuals and institutions looking to make for any personal interaction is assigned
sound investment decisions. It is crucial points to reflect greater transparency. The
for investors to know who they are doing features of transparency of information
business with in the global economy. range from 0 (least transparent) to 18
40 DOING BUSINESS 2018

(most transparent). The aim is to capture predictability of transactions, transpar- 2011 alone it is estimated that develop-
new and actionable aspects related to the ency can also benefit financial institu- ing economies suffered nearly $1 trillion
business incorporation framework and to tions and company services providers as in illicit financial outflows.6 Transparent
understand how transparency of informa- it becomes easier for them to obtain the data on company ownership are vital in
tion in business registration varies across information they need to comply effec- combating money laundering, tax evasion,
regions and how it is associated with other tively with due diligence requirements.2 corruption and other illegal activities.
institutional and economic outcomes. Registries with clearly-stipulated
requirements facilitate the process of
registering and verifying information. WHAT KIND OF BUSINESS
HOW IMPORTANT IS There tends to be a culture of greater INFORMATION IS AVAILABLE
TRANSPARENCY IN competition and economic growth in TO THE PUBLIC?
BUSINESS REGISTRIES? economies where it is easier for compa-
nies to enter the market.3 Most business registries share some
As the principal agency responsible for data with the public about the companies
registering firms, business registries allow Transparency of information can broaden registered with them. The types of infor-
companies to acquire a legal identity. This the pool of potential investors by reduc- mation that are most commonly made
legal status enables a firm to enter into ing the need for personal connections. It public by the business registry are the
contracts with other firms, access formal can level the playing field for a budding companys name, legal address, year of
financial systems and bid on public-sector entrepreneur who may lack the necessary incorporation, type of business activity
contracts.1 Business registries play a vital connections to formally launch his or her and the names of its directors.7
role by ensuring that the information they company. By reducing the risk associated
collect from these companies is not only with an investment, transparency can help Information regarding a firms corporate
captured within their systems but is also investors determine the viability of a structure, annual returns and beneficial
available to the public. Sharing information transaction.4 Revealing public informa- ownership is less commonly made
publicly makes it easier to ensure that the tion to curb information asymmetry can available to the public. It is possible
information is accurate. also reduce a firms cost of capital by to access information on a companys
attracting increased demand from large corporate structurethat is, whether it
Business registry transparency can investors (due to increased liquidity of its has subsidiaries or belongs to a holding
increase the accountability of firms securities).5 The financial cost of a lack of companyand its beneficial ownership
and public officials. By improving the data transparency can be significant: in in only a few economies (figure 4.1).

FIGURE 4.1 Data on shareholders and directors are more accessible than data on beneficial owners

Type of information publicly available


(economies per region, %)
100

80

60

40

20

0
Directors

Shareholders
Beneficial
owners

Directors

Shareholders
Beneficial
owners

Directors

Shareholders
Beneficial
owners

Directors

Shareholders
Beneficial
owners

Directors

Shareholders
Beneficial
owners

Directors

Shareholders
Beneficial
owners

Directors

Shareholders
Beneficial
owners

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

Online In person Not available

Source: Doing Business database.


STARTING A BUSINESS 41

Data on a firms corporate structure, for may prefer not to disclose their annual economies publish most of the informa-
example, is readily available in less than returns or annual accounts. tion collected on their websites.
one-third of economies worldwide.
Furthermore, the identity of a com- The business registry information most
panys beneficial owners is made public HOW IS INFORMATION widely available online includes the name
in fewer than one-quarter of economies MADE AVAILABLE TO THE of the company, its identification number,
globally; only 8% of economies in East PUBLIC? its legal address and the year the com-
Asia and the Pacific and 15% of OECD pany was incorporated. The most basic
high-income economies collect data During the past decade government informationthe company nameis
on beneficial ownership and make it agencies around the world have explored the information most commonly made
publicly available. ways to increase business registry trans- available online. The names of existing
parency. The need for access to corpo- companies are available online in 62%
In general, the types of business regis- rate information in the name of greater of economies covered by Doing Business,
try information made available to the transparency pushed many economies primarily because a company name must
public vary little across economies. to digitize their business registries and be verified before it can be registered as
The names of a companys directors, publish data online. By allowing around- a new business. The business registries
for example, are publicly available the-clock, online access to registry infor- in all OECD high-income economies
in 92% of high-income economies mation, the need for personal visits has offer online company name search. In
covered by Doing Business; this figure been reduced, significantly enhancing contrast, business registries in fewer than
is only slightly lower in low-income the utility of these registries. 10 economies in Sub-Saharan Africa
economies (84%). For other cat- including Nigeria and Rwandaoffer
egories of information, however, public Where company details can be searched this service (figure 4.2). More detailed
access is not equally provided across remotely, information and transaction informationsuch as information on a
economies. In 75% of high-income costs are reduced. Basic information firms shareholders, directors or benefi-
economies, for example, one can ver- underlying potential trade or business cial ownershipis less commonly made
ify the number and type of company dealingsfor example, whether an available online.
shares. This information can be pub- entity has the legal authority to com-
licly accessed at business registries mit to an export contract or whether a Information on a companys directors,
in fewer than half of low-income particular company is in good financial shareholders and beneficial owners is
economies. Similarly, while busi- standingcan be obtained quickly. The particularly important because it allows
nesses annual accounts are avail- majority of the business registries in the both business representatives and pri-
able for public consultation in most economies covered by Doing Business vate individuals to identify the owner-
high-income economies, these are share some company information online. ship of companies with which they may
available in only 10% of low-income Business registries in OECD high-income choose to do business or invest. In some
economies. Registries in many
developing economies either do not FIGURE 4.2 Company name search is mostly done in person in Sub-Saharan Africa
require companies to file annual
accounts with the business registry or OECD high income
provide limited access to businesses
annual accounts. As a result, the Europe & Central Asia

economy may be negatively impacted


South Asia
as poor quality corporate governance
regimes can restrict access to informa- East Asia & Pacific
tion and reduce investment returns.8
Middle East & North Africa

Some kinds of business data are more


Latin America & Caribbean
accessible than others. In general, public
access is greater when the information Sub-Saharan Africa
available is considered less sensitive.
0 20 40 60 80 100
Basic data such as a companys type
Share of economies offering name search, by method (%)
of activity or year of incorporation can
Online In person Not available
be found easily in most economies, but
for business reasons some companies Source: Doing Business database.
42 DOING BUSINESS 2018

regions, however, this information is either FIGURE 4.3 Higher levels of transparency at the business registry are associated with
not available or can only be obtained in higher overall levels of transparency in an economy
person. In South Asia, for example, busi-
ness registries in 75% of economies only Control of corruption estimate
allow information about shareholders to 2.5
be made available in person. In contrast, 2.0
less than 20% of economies in Europe 1.5
and Central Asia require that those seek- 1.0
ing this information appear in person at 0.5
0.0
the business registry; in the vast majority
-0.5
of economies in this region, shareholder -1.0
information can be obtained online. In -1.5
Sub-Saharan Africa, business registries -2.0
in 77% of economies do not make the -2.5
names of registered companies available 0 3 6 9 12 15 18
Features of transparency of information
online. In East Asia and the Pacific, one-
third of economies do not publish the
legal address or the names of company
Sources: Doing Business database; Worldwide Governance Indicators (https://www.govindicators.org), World Bank.
directors online. This type of information Note: The Worldwide Governance Indicators control of corruption indicator captures perceptions of the extent to which
would allow a company, before doing public power is exercised for private gain, including both petty and grand forms of corruption, as well as capture of the
state by elites and private interests. Estimate gives the economys score on the aggregate indicator in units of a standard
business with an individual, to verify, for normal distribution, ranging from approximately -2.5 to 2.5, with higher values representing lower corruption perceptions.
example, whether that person is a legiti- The features of transparency of information range from 0 (not transparent) to 18 (transparent). The sample includes 189
economies covered by both Doing Business and the control of corruption estimate (data on control of corruption estimate
mate company representative. not available for San Marino).The relationship is significant at the 1% level after controlling for income per capita.

Even when business registry informa- United Kingdom publish their entire busi-
tion is published online, it is not always ness registry database free of charge.9 HOW IS TRANSPARENCY OF
provided free of charge or made easily The presentation of the information can INFORMATION ASSOCIATED
searchable. In many economies, online also be a barrier. If data are available WITH EFFICIENCY AND
access to company information is only only through record-by-record searches, CORRUPTION?
available after preregistration or the for example, a person must begin their
payment of a subscription fee, limiting search with the company name or iden- Business registries facilitate the opera-
the information to those people who can tification number to access information tion of firms in the formal economy and
pay for it. In contrast, Denmark and the about it. they are often the first public institution

FIGURE 4.4 The time and cost to start a business tend to be lower in economies with higher transparency of information
at the business registry
Cost to start a business (% of GNI per capita) Time to start a business (days)
200 80

150 60

100 40

50 20

0 0
0 3 6 9 12 15 18 0 3 6 9 12 15 18
Features of transparency of information Features of transparency of information

Source: Doing Business database.


Note: The cost of starting a business is recorded as percentage of GNI per capita. The time required to start a business is recorded in calendar days. The features of transparency
of information range from 0 (not transparent) to 18 (transparent). Samples include 185 and 184 economies after the five highest cost estimates and the six highest time
estimates are removed as outliers, respectively. The relationship between the cost of starting a business and the features of transparency of information is significant at the 1%
level after controlling for income per capita. The same applies when the analysis is done using the time to start a business.
STARTING A BUSINESS 43

with which entrepreneurs interact. This Transparency can be approached from registries), particularly when transpar-
first interaction can have a formative multiple aspects. Beyond providing ency is conveyed on multiple levels (such
impact on the entrepreneurs perception readily available and reliable information as clearly stating business registration
of the efficacy of the public administra- about existing companies, it is important fees and the expected time to receive
tion. Indeed, the level of transparency that entrepreneurs can openly access incorporation documents).
and trust in an economy has been shown information about the requirements to
to be highly correlated with the level establish a business (such as a list of
of transparency of information at the required documents, fee schedules and CONCLUSION
business registry (figure 4.3). When services standards). When public access
business registry information is easily to information on company incorporation The transparency of the information
accessible and can be searched remotely, requirements is limited, it can represent provided by the business registry plays
it can facilitate business transactions by a substantial obstacle to entrepreneurs a vital role in an economy. Transparent
removing unnecessary steps and reduc- who want to start a business. However, business registries reduce information
ing transactions costs. when transparency is a priority for busi- asymmetry among entrepreneurs and
ness registries and all requirements are broaden the pool of potential investors
The level of transparency of information made public, more firms are able to enter by reducing the need for personal con-
at business registries is also associated the formal sector. If anyone can easily nections. Transparency can also raise
with the time and cost to start a business. obtain transparent information before a the accountability of public officials and
Data show that, on average, economies business transaction, it can increase the strengthen trust in public agencies. In
with greater transparency of information ability of companies to conduct proper the past decade, government agencies
tend to have faster and less costly pro- Know-Your-Client procedures, raising the around the world have used technology
cesses for starting a business (figure 4.4). level of trust in transactions and counter- to increase the transparency of public
In economies where official information parts. Easy access to relevant information services. Technology can be utilized by
on how to incorporate a business is not is also correlated with increased transpar- governments to improve transparency of
made readily available, entrepreneurs ency of interactions with public officials. company ownership and the procedures
may have to seek legal advice from third Doing Business data show that economies to start a business. This case study has
parties or visit various government offices with transparent business registries tend shown that the public availability of
to find reliable information. In contrast, to have lower incidences of bribery, both information on company ownership and
when the information is consolidated asked and given (figure 4.5). Transparent starting a business is associated with an
and easily obtained, entrepreneurs can information provides citizens with the increase in an economys overall level of
spend less time and money finding it; data they need to hold their counter- transparency, an increase in the efficiency
they can dedicate more time to running parts accountable and improves trust of business registration and a decrease
their business. in public agencies (including business in bribery.

FIGURE 4.5 Levels of bribery tend to be lower in economies with higher transparency of information at the business registry

Share of people who have been asked to pay a bribe (%) Share of people who paid a bribe (%)
100 100

80 80

60 60

40 40

20 20

0 0
0 3 6 9 12 15 18 0 3 6 9 12 15 18
Features of transparency of information Features of transparency of information

Sources: Doing Business database; Transparency International database (https://www.transparency.org).


Note: The features of the transparency of information range from 0 (not transparent) to 18 (transparent). The samples include 100 and 89 economies covered by both the Doing
Business database and the Transparency International database. The relationships are significant at the 1% level after controlling for income per capita.
44 DOING BUSINESS 2018

NOTES
This case study was written by Cyriane Coste,
Frederic Meunier, Nadia Novik, Morgann Reeves
and Erick Tjong.
1. ASORLAC, CRF, ECRF and IACA 2016.
2. De Simone and Fagan 2014.
3. Klapper, Laeven and Rajan 2006.
4. Malesky, McCulloch and Duc Nhat 2015.
5. Diamond and Verrecchia 1991.
6. Palstra 2014.
7. Accessibility to 14 types of business
information is included in this case study.
These are the following: name of company,
name of directors, name of shareholders,
name of beneficial owners, articles of
association, year of incorporation, company
identification number, legal address, physical
address, type of activity, annual accounts,
annual returns, capital structure and corporate
structure. In addition, the documents to start a
business, fees, service standards and statistics
are also included.
8. Bradley 2003.
9. Quintanilla and Darbishire 2016.
Doing Business 2018

Dealing
with Construction Permits
Private sector participation in construction
regulation

The world has witnessed an unparalleled expansion of cities in recent decades. The Involving private sector engineers or
urban population of developing economies is projected to double by 2030, while firms in construction regulation is a
the area covered by cities could triple.1 In tandem with this trend, the construction trend that has been gaining traction in
industry is forecast to grow by more than 70%,2 reaching $15 trillion by 2025.3 With economies around the world.
the population of cities rising around the world, municipal authorities are struggling
Some form of private sector participation
to keep up with increased demand for their services. In developing economies,
in construction regulation is employed
in particular, building departments operating under tight budgets and resource
in 93 of the 190 economies covered by
constraints are finding it increasingly difficult to enforce building codes, ensure that
Doing Business.
quality standards are met and adhere to efficient service delivery processing times.
Private sector participation in building
regulatory processes has shown positive
In some economies, local municipalities local governments. Hiring private sector results in achieving regulatory goals.
have partnered with the private sector experts has addressed this critical gap However, the delegation of authority
to supplement their strained capacity to while improving the efficiency of the from the public to the private sector has
oversee construction. However, faster regulatory process. When it solicits the generated significant challenges.
and more efficient services provided by experts of private third-party engineering
third-party inspectors inevitably cost and architectural firms, the public sector Economies that employ some form
taps into specialized skills that enable of private sector involvement in
more. Doing Business data show that the
construction regulation tend to have
need to hire qualified third-party profes- more robust compliance checks. These
more efficient processes and better
sionals on construction projects raises firms play a key role in monitoring the
quality controls. Yet, they also exhibit
the cost of regulatory compliance by enforcement of building regulations and
higher costs and a propensity for
1% on average in lower-middle-income ensuring adherence to adequate stan-
conflicts of interest.
economies and by 1.3% on average in dards of quality control at various stages
upper-middle-income economies. The of construction. The policy choice to integrate private
average cost of regulatory compliance sector entities in construction regulation
in low-income economies without third- Initially pioneered in high-income econo- should be accompanied by appropriate
party involvement is 7.8% lower; the miessuch as Australia, Japan and the safeguards that favor the public interest
tradeoff is that it takes longer than in United Kingdomthe trend toward over private profits.
those with third-party involvement. involving private third-party engineers
or specialized construction firms in
The use of independent, private-sector public service delivery has been gradually
entities in construction regulation has gaining traction in lower-middle-income
provided a conduit for the increased and upper-middle-income economies.
participation of the private sector in the Modern construction systems increas-
regulatory process andwhen appropri- ingly involve licensed or approved private
ate safeguards are in placehas offered engineers or firms, often enabled by the
an innovative way of addressing regula- municipality and local enforcement agen-
tory gaps. Low compensation for public cies, to fulfill a building control function.
sector regulators has resulted in a scar- Indeed, data show that 93 out of the 190
city of qualified building professionals in economies covered by Doing Business use
46 DOING BUSINESS 2018

some form of private third-party service in FIGURE 5.1 Private third-party services are more commonly used in construction
construction regulation. Of high-income regulation in high-income and upper-middle-income economies
and upper-middle-income economies,
Share of economies using private third-party
66.1% and 56.9%, respectively, use third- services in construction regulation (%)
party services in construction regulation, 70
while 37.7% of lower-middle-income
60
economies use third-party services.
In contrast, only 25% of low-income 50
economies make use of private third-
party services in construction regulation 40
(figure 5.1).
30

20
THE PRIVATE SECTORS
ROLE IN CONSTRUCTION 10

REGULATION 0
High income Upper middle income Lower middle income Low income
Over the past two decades, several mod-
els of private sector participation in build- Source: Doing Business database.
ing regulatory processes have emerged
in economies around the world. Private
participation in construction regimes can low-income economies. Under this legal building inspections during project execu-
range from a very limited role for the pri- framework, only buildings deemed safe tion, as is the case in 92% of economies
vate sectorsuch as in the Arab Republic by independent third-party entities can with private participation mechanisms.
of Egypt, where the Syndicate of Licensed be insured by an insurance company. Of these economies, 61% engage private
Engineers merely certifies the qualifica- entities in reviewing building plans, 54%
tions of the supervising engineerto The degree to which the private sector in conducting final inspections upon the
a more comprehensive role where a is engaged in regulatory activities varies completion of construction and 33% in
private firm has complete authority over significantly across economies (figure conducting risk assessments of projects.
the entire processsuch as in Australia, 5.2). However, the primary function of Nonetheless, the issuance of building and
where private building surveyors directly private third-party entities involved in occupancy permits remains largely under
oversee building design, control and construction regulation tends to focus on the purview of local authorities with only
inspection. In the United Kingdom,
builders are given the option of either
working with an approved private FIGURE 5.2 Almost all economies employing private-sector regulatory support allow
inspector or completing the required third-party inspections during construction
procedures with the public authorities. Share of economies allowing
specified third-party service (%)
In other economies, such as France and
100
the Republic of Congo, building controls
are associated with an insurance-driven 90

regulatory regime in which insurance and 80


warranty firms engage private inspection 70
firms in third-party reviews. While these 60
two economies share the same insur- 50
ance regime, there is a large disparity in
40
terms of their performance on the qual-
30
ity control index, where France scores
significantly higher than the Republic 20

of Congo. At least two parties are held 10


liable for any construction failure for a 0
period of 10 years in 32% of high-income Inspect during Review plans Conduct final Assess risks Issue building Issue occupancy
construction inspection permit permit
economies allowing third-party involve-
ment, but this figure falls to just 9% for Source: Doing Business database.
DEALING WITH CONSTRUCTION PERMITS 47

9% of economies delegating these regula- compared with just 40% before June in regulatory cost (figure 5.4). Even the
tory roles to the private sector. 2000. By establishing a successful regu- Netherlandsone of the few EU econo-
latory system that relies on third-party mies that has maintained exclusive public
checks, Japan increased its capacity to enforcement of building regulation
BENEFITS OF THIRD- detect deficiencies in building design and is now preparing to shift toward a more
PARTY INVOLVEMENT construction, offering timely and appro- hybrid system of enforcement involving
IN CONSTRUCTION priate remedies. Private third-party firms private third-party mechanisms.
REGULATION now play an instrumental and dominant
role in inspection works (figure 5.3). Introducing private third-party involve-
Economies can reap numerous ben- ment in construction regimes can also
efits when private sector involvement is Similarly, to improve the energy effi- expand regulatory capacity through
carefully implemented within a coher- ciency of its large stock of new buildings, efficiency gains. The use of private sec-
ent regulatory framework. In most EU in 2005 the Chinese government intro- tor third-party services allows for the
economies, there has been a complete duced an innovative private third-party flexibility to hire specialized expertise
shift from public to private governance mechanism to carry out compliance that is usually scarce in local municipal
mechanisms in building regulation, checks of green building code provi- governments, particularly in low- and
reflecting a desire to improve the quality sions, effectively tapping a vast and middle-income economies. Local govern-
of regulation, reduce the administrative readily-available pool of private sector ments are often subject to hiring restric-
burden for applicants and support a expertise. Five years after the reform, tions and operate with less competitive
greater focus on risk mitigation.4 compliance rates with regulatory pay scales that limit their capacity to hire
requirements had effectively doubled.6 well-qualified staff or contain the high
Public-private collaboration on con- level of staff turnover. These limitations
struction regulation has shown positive The former Yugoslav Republic of are usually compounded by a wide range
results including improved compliance Macedonia initiated sweeping construc- of factors, including inadequate local tax
with building regulations, more rigorous tion reforms in 2007/08 mandating bases to fund service delivery, limited
quality control throughout the project the use of private engineers licensed by transfers from national governments and
lifecycle and better processing efficiency. the Chamber of Engineers to undertake institutional capacity constraints.
Doing Business data show that private independent building plan reviews. Since
third-party involvement is associated then, FYR Macedonia has seen significant Doing Business data show that the
with better building quality in construc- improvements in the efficiency of con- process of dealing with construction
tion as measured by the building quality struction regulation as measured by Doing permits tends to be faster in economies
control index.5 Private sector involvement Business. The tradeoff has been an increase with private participation in construction
in construction regulation can support
the enforcement of building codes and
other applicable regulations. It effectively FIGURE 5.3 Private third-party inspection firms have become instrumental players
promotes compliance with the existing in Japan
legal framework, particularly in economies Share of inspections (%)
where clear, transparent rules and specific 100

technical instructions are prescribed. 90


80
Economies that integrated the private 70
sector into regulatory functions decades
60
ago have seen notable improvements
50
in building quality control. Japan, for
40
example, suffers from an extremely high
exposure to natural hazards such as 30

typhoons and earthquakes. The authori- 20


ties reformed building regulations in 1998 10
by introducing private third-party servic- 0
es to significantly expand its capacity to 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
carry out building inspections. By doing Public inspections Private inspections
so, it managed to increase the rate of final
inspections to more than 90% in 2016 Source: Japan, Ministry of Land, Infrastructure, Transport and Tourism database (http://www.mlit.go.jp).
48 DOING BUSINESS 2018

FIGURE 5.4 FYR Macedonia reduced the number of procedures and time it takes to of transparency and accountability.
build a warehouse following the introduction of private third-party building plan review The delegation of such a key regulatory
mandate to the private sector should
Procedures (number)
Time (days)
always be coupled with strict oversight
Cost (% of warehouse value)
safeguards designed to hold public
25 300
interest above private profits.
Reform 250
20 implementation
For the private sector to successfully
200 assume such an important regulatory
15 role, a robust vetting system should be in
150 place. Private third-party entities carrying
10 out controls on construction are entrust-
100 ed to promote compliance with building
codes and regulations and enforce
5
50 rigorous safeguards in favor of the public
interest. For such an arrangement to work
0 0 as intended, the public sector should
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
regulate private third-party professionals
Procedures Cost Time and firms. Public sector agencies do so
by enforcing professional certification
Source: Doing Business database. criteria that render individuals and firms
eligible to take on a regulatory mandate.
regulation. High-income economies gains in efficiency. The planning office in Insufficient qualifications of private
employing private sector regulatory sup- Bogot, Colombia, for example, reduced individuals or firms would undermine the
port experience time savings of up to 60 the average time needed to process a objective of such a regulatory mechanism
days on average compared to economies construction permit from three years in as the quality of service provided by
that do not rely on third-party participa- 1995 to 73 days in 2012 after it began these professionals would fail to meet the
tion. Private sector involvement in build- using private professionals to carry out required standards of safety.
ing control activities has the potential to plan reviews and issue building permits.
promote administrative efficiency, which Given the successful integration of third- Economies with third-party involvement
in turn results in favorable economic out- party professionals in building control in regulatory functions often adopt specif-
comes. A study of the economic impact activities, the authorities are now con- ic standards of eligibility for private sector
of expediting permit processing reveals sidering extending the use of specialized entities to be able to fulfill such a critical
that improving administrative efficiency engineers to building inspections, which regulatory role. These standards typically
results in a 16.5% increase in property tax remain under the jurisdiction of local include a minimum number of years of
collection, a 5.7% increase in construc- public officials. professional experience, certification by
tion spending and a 0.6% increase in a recognized professional body and proof
the rate of financial return for the inves- of performance on previous contracts.
tor.7 In contrast, regulatory delays could CHALLENGES OF THIRD- When private certification requirements
undermine the profitability of building PARTY INVOLVEMENT were not properly implemented in New
projects,8 adding a financial burden that IN CONSTRUCTION Zealand in the 1990s, the authorities
amounts to 5% of total construction REGULATION quickly abandoned the shift to private
costs incurred by developers9 and reduc- sector building controls and reverted to
ing the likelihood of further investment. Models of private sector participation the traditional public sector regulatory
in construction regimes vary. While role. New Zealands attempt to adopt
Economies with the least efficient con- third-party involvement in construction third-party inspections failed due to the
struction permitting procedures have regulation can facilitate doing business lack of strong regulatory safeguards. This
enforcement systems that rely exclusive- in the construction industry by reduc- resulted in the leaky building syndrome.
ly on public authorities. Conversely, some ing the burden on local authorities, it In 2008, the cost to repair 42,000 leaky
economies that have transitioned from a comes with tradeoffsincluding higher buildings was estimated around 11.3 bil-
public approach to a more open system construction costs. Privatization of lion New Zealand dollars (approximately
involving partnerships with the private public services should be implemented $8.3 billion).10 Third-party involvement
sector have experienced significant carefully, with due regard to standards in construction regulation holds the
DEALING WITH CONSTRUCTION PERMITS 49

promise of improving the regula- requirements. This may entail the acceptable levels by enforcing fee
tory framework, but it could also result introduction of oversight mechanisms, a schedules (within suggested industry
in unintended adverse consequences if liability and insurance regime and a disci- guidelines) or by requiring fewer external
inadequately implemented. Although plinary framework that accompanies the professionals to be engaged by investors
22.2% of high-income economies with transfer of regulatory authority from pub- or local construction companies. In
third-party involvement covered by Doing lic officials to third-party entities as part the Republic of Korea, for example, an
Business have standard eligibility require- of an essential quality assurance mecha- independent third-party may not charge
mentsincluding number of years of nism of third-party providers. China, more than 1.29% of the estimated
experience, a university degree and proof for example, directed the Ministry of construction cost, in accordance with
of performance on similar projectsonly Housing and Urban-Rural Development the Regulation for Scope of Architect
3.3% of low-income economies require to certify private third-party companies Services and Fee Standard. In other
these standard qualifications. to carry out compliance checks of green economies, the local building authority
building code provisions. The ministry either conducts all construction over-
Certifying agencies are mandated with maintains a comprehensive online public sight or absorbs the cost of engaging
monitoring the enforcement of profes- database that contains information on external third-party professionals in the
sional standards. Government agencies certified third-party firms. It requires the process through outsourcing. In South
represent the largest share of certifying management of construction inspection Africa, local authorities can temporar-
bodies (68.5%) in those economies companies to maintain accountability ily appoint external building inspectors
covered by Doing Business, followed and quality of service, enforcing penalties to conduct inspections on behalf of the
by the national order of engineers when violations are discovered by regular local authority.
(19.6%) and other independent bodies inspections of third-party firms.
(13%) (table 5.1). In the United States,
professional certification for third-party When the regulatory framework clearly CONCLUSION
services is provided by the International defines the roles and responsibilities of
Code Council (ICC), a non-governmen- private service providers, third-party Sound construction regulation can save
tal organization. Japan and China, by entities are aware of their rights and human lives, improve health and safety
contrast, host this important function obligations under the law and can and support a prosperous and sustain-
under central ministerial authorities.11 exercise their authority within a legally able building sector and economy.12 It
The United Kingdom has mandated transparent environment. Furthermore, can help facilitate doing business by
an independent organizationthe accountability provisions governing safeguarding lucrative investments,
Construction Industry Councilto conflicts of interest should be put in strengthening property rights and pro-
administer the registration system for place to minimize their incidence and tecting the public from faulty building
Approved Inspectors (AIs). promote unbiased and independent practices. Private sector involvement in
regulatory control. Regulations in 76% the enforcement of building regulations
Having strict qualification standards in of economies that make use of third- has shown positive results in achieving
place is an essential and necessary ele- party inspectors explicitly require the regulatory goals.13 However, several
ment of a third-party regulatory regime, independence of third-party inspectors; challenges should be addressed before
but this alone is insufficient to ensure they should have no financial interests in a policy of private sector involvement in
that qualified professionals are delivering the project and should not be related to construction regulation is pursued. The
a satisfactory service. Special attention the investor or builder. transfer of authority from the public
should be given to the effective enforce- to the private sphere could undermine
ment of these professional certification Without strong liability and insurance the public interest. Public-private
regimes and rigorous professional certifi- collaboration in building regulation
cation mechanisms, third-party involve- has delivered successful results when
TABLE 5.1 Distribution of certifying ment in construction regulation can authorities have enforced strict quali-
bodies for third-party entities involved
become inefficient or fail to ensure high fication requirements, effective over-
in construction regulation
quality building standards. Moreover, sight mechanisms and provisions on
Certification agency for third- Number of builders could incur the high costs that conflicts of interest, among other fun-
party entities in construction economies
often accompany private-sector regula- damental safeguards. A wealth of peer
Government 63
tory control without fully benefiting experience accumulated over the past
Order of architects or engineers 18 from the advantages that this control 20 years is now available to economies
Other independent body 12 is intended to offer. Some economies considering integrating third-party
Source: Doing Business database. regulate the cost of such services to entities in construction regulation.
50 DOING BUSINESS 2018

NOTES
This case study was written by Baria Nabil Daye,
Marie Lily Delion, Imane Fahli, Thomas Moullier,
Keiko Sakoda, Jayashree Srinivasan and Yelizaveta
Yanovich.
1. UN-Habitat 2016.
2. Moullier 2013.
3. Global Construction Perspectives and Oxford
Economics 2013.
4. Meijer and Visscher 2005.
5. For more on the building quality control index,
see the data notes.
6. As reported by the American Council for an
Energy-Efficient Economy. http://aceee.org
/research-report/i121.
7. PricewaterhouseCoopers 2005.
8. Wrenn and Irwin 2015.
9. Hsueh 2010.
10. Lovegrove 2016.
11. The Ministry of Land, Infrastructure, Transport
and Tourism (MLIT) in Japan and the Ministry
of Housing and Urban-Rural Development
(MoHURD) in China.
12. Van der Heijden 2009.
13. Moullier 2017.
Doing Business 2018

Registering
Property
Using information to curb corruption

Transparency is a key element of the quality of land administration systems. Transparency of information provided
Transparency eliminates asymmetrical information between users and officials by land administration systems can
with respect to services provided by the land administration, thereby increasing reduce transaction costs and facilitate
the efficiency of the real estate market. Transparent systems also strengthen investment in immovable property.
public confidence in governments and facilitate substantial reductions in the cost
In economies where information
of doing business.
on fee schedules and documentary
requirements is easily available,
the process of completing property
In 2013 Transparency International As a component of its registering
transfers tends to be more efficient.
reported that one in five users of land property indicator set, Doing Business
services globally claimed to have paid a has measured the transparency of land Since 2013, 25 economies have
bribe for services such as registering a administration systems for the past four become more transparent by launching
land title or obtaining updated property years.3 This research has focused on websites, publishing fee schedules,
ownership information. The prevalence whether information concerning the own- setting time limits and implementing
of bribery in the land sector creates ership and physical location of a property specific complaint mechanisms.
a substantial informal cost for those is public, whether essential information
trying to register or transfer land. For on the property transfer process is made In 51 economies, the only way to
those unable to afford illegal payments, obtain information about documentary
accessible, if there is an independent
requirements for property registration
it can also reduce access to land admin- and specific complaint mechanism to
is by having an in-person interaction
istration services, hindering property respond to issues raised by land registry
with a public official.
registration and increasing land tenure users and whether statistics on property
informality. In addition to bribes, cor- transfers in the largest business city of an Property-specific and independent
ruption can take the form of land record economy are published.4 complaint mechanisms are not
fraud or alteration, land document forg- common around the globe, indicating
ery and multiple allocations of the same Since 2013, 25 economies have improved an area for improvement to increase
plot of land. Officials may also leverage transparency by launching websites, transparency.
their position to benefit from parties publishing fee schedules, setting time
with an interest in acquiring, disposing limits and implementing specific com- A transparent land administration
of and developing land.1 plaint mechanisms. Senegal introduced system reduces opportunities for
a comprehensive website for its land corruption.
Integral components of a transparent administration system, which includes a
and efficient land administration system list of procedures, required documents,
include easy access to clear and credible service standards and official fees to
information on property ownership, open complete any property transaction.5
public access to information on proce- Similarly, Qatar and Guyana have
dures and fees for public services as well as increased transparency in their land
active public dissemination of regulations administration systems by expanding
affecting land rights. These measures can web-based land administration portals
reduce corruption and increase account- to include dedicated and comprehensive
ability of land administration authorities.2 sections on the services provided.6, 7
52 DOING BUSINESS 2018

The documentary requirements for land transfer of ownershipshould be clearly


ACCESS TO INFORMATION registration should also be made available specified, including the timeframes for
DURING DUE DILIGENCE to the public. Parties involved in a property their completion. This allows the public
transaction can streamline their interac- to know beforehand what level of service
Information on the property, the parties tions with the agency in charge of prop- they can expect to receive, how much
and the transfer process is fundamental erty registration if they know beforehand it will cost and how long it will take.
for a property transaction to occur. what documents they will be required Moreover, by providing clear public guide-
Buyers and sellers will only be able to to submit. This greatly reduces the risk lines, governments set the standard for
make informed decisions when this infor- of unforeseen delays or obstacles to accountability of services offered by their
mation is widely available, either at a low submitting a property transferincluding land administration systems. Land registry
cost or free of charge. The parties should the incidence of informal payments. services that lack established timeframes
know the costs, required documents and When the list of required documents for completion can foster corruption in the
the expected duration of the transfer pro- is public and complete, for example, form of bribes. An official might purposely
cess before the transaction takes place. the likelihood that the parties would be delay registration, for example, to encour-
Although these conditions are necessary requested to come back with additional age clients to make facilitation payments
for a sound land administration, whether documents is reduced, expediting the to accelerate the process. Furthermore, in
an agency can deliver its services with registration process. the absence of enforced time limits, land
efficiency and accountability depends on registry users are unable to monitor the
other variables such as the capacity and Transparency of documentary require- status of their transactions.
reliability of its infrastructure. ments may also simplify a transaction by
potentially reducing the need to resort Service standards at land registries are
Around the world, 158 economies publish to third-party professionals to prepare a rare. Land registry users are not aware
fee schedules for services offered at the property transfer application (figure 6.1). In of any specific time limits promulgated
land registry. If a fee schedule is public, 51 economies, the only way to obtain infor- by law in 122 economies covered by
it is also likely to be available online. In mation about documentary requirements Doing Business. In addition, economies
131 economies, this information can be for property registration is by having an that do not establish service standards,
accessed through a dedicated website. in-person interaction with a public official. such as specific time limits, tend to com-
Although the use of online platforms is In Zambia, for example, where the list of plete property transfers less efficiently
common in high-income economies required documents is not publicly avail- (figure 6.2).
where 80% publish fees on websites able, a lawyer is hired to complete most of
only a third of low-income economies have the property transfer steps for a commer- The Land Revenues Office charter,
such portals. One example is Zimbabwe. cial warehouse, costing an entrepreneur an published in June 2013 by Nepals
In 2016, the economy launched an official additional 2.5% of the property value. Department of Land Reform and
website that includes a list of documents Management, provides a good example
and fees required to complete a land To promote full transparency, in addi- of how to set effective time limits. The
transaction, as well as a specific time tion to document and fee schedules, all charter contains a comprehensive list of
frame for delivering legally-binding docu- services provided by land registriessuch services provided by the Land Revenue
ments proving property ownership. as title search, ownership certificate or Office, the list of documents needed to

FIGURE 6.1 Transparency in land systems can bring efficiency gains


Average cost to transfer property (% of property value) Average time to transfer property (days)
8 100
7
80
6
5 60
4
3 40

2
20
1
0 0
Documentary requirements Documentary requirements Documentary requirements Documentary requirements
not publicly available publicly available not publicly available publicly available

Source: Doing Business database.


REGISTERING PROPERTY 53

FIGURE 6.2 Economies that publish effective time limits tend to be more efficient in kept in the land registry. In those econo-
completing property transfers mies, parties must hire an authorized pro-
fessional to obtain ownership information,
Average time to complete property transfer (days)
making the process more burdensome.
70
In both cases, the agency in charge of
60 registering immovable property can reject
applications to access and retrieve owner-
50
ship information on a discretionary basis.
40 Public access should be embedded in land
30
administration systems.

20 Among the economies covered by Doing


10 Business, more than 70% of upper-middle
-income and high-income economies
0
make information on property ownership
Economies without service standards Economies with service standards
available to the public, whether for a nomi-
nal fee or free of charge. By contrast, only
Source: Doing Business database. 50% of low-income economies open their
records on land ownership to the public.
complete each service, the applicable its owners or creditorshelps to elimi- Globally, information about land owner-
fees and the effective deadline within nate uncertainty over property rights ship is restricted to intermediaries and
which the agency commits to deliver spe- or obligations that may encumber the interested parties in 31% of economies.
cific services. Similarly, the government property. In the absence of any public In 27 out of 190 economiesincluding
of Thailand established a one-day service records or any related rights to a prop- Chile, Poland and the United Statesthis
standard to register property transac- erty, the transaction costs can become information is freely available (figure 6.3).
tions. To comply with this commitment, overwhelming, risking that ownership
the number of staff is determined based becomes untraceable. Because cadastral maps do not usually
on the average number of transactions, contain any personal information about
preventing delays.8 In 127 of the 190 economies covered by the property owner, privacy concerns do
Doing Business, the information recorded not typically impact mapping agencies.
by the land registry is openly available to However, the number of economies
ACCESS TO INFORMATION the public. In the remaining economies, offering open access to maps is similar to
DURING A PROPERTY mainly because of privacy concerns, only the ones with open ownership informa-
TRANSACTION owners or third parties who prove legiti- tion.10 Overall, among the economies
mate interest can access the information covered by Doing Business, 33% do not
Land administration is defined by the
United Nations Economic Commission
FIGURE 6.3 Citizens in low-income economies have limited access to land
for Europe (UNECE) as the processes of
ownership information
determining, recording and disseminat-
ing information about the ownership, Share of economies by type of access to land records (%)
value and use of land when implementing 60
land management policies.9 One of the 50
major roles of a land registry is to make
40
land transactions public. By doing so,
it safeguards the interests of all parties 30

involved in sales or leases. 20

10
When parties engage in a prop-
erty transaction, it is essential that 0
Anyone who pays Freely accessible Only intermediaries Records not publicly
they obtain legally reliable information official fee to public and interested parties available

regarding the actual property involved Low income Lower middle income Upper middle income High income
in the transaction. The availability of
information on the propertyas well as Source: Doing Business database.
54 DOING BUSINESS 2018

make information on land boundaries (figure 6.4). Globally, 22 economies offer Ombudsman, an official responsible for
publicly available. Sweden, on the other complaint mechanisms in their cadastre following up on all complaints, whose duty
hand, has an online system allowing or mapping agency. Doing Business data is to report to the lands ministry as well as
anyone to freely access property owner- suggest that this is one of the areas the client within 30 days.
ship information and maps dating back with the most room for improvement
400 years.11 worldwide. Governments can keep their stakeholders
engaged by collecting and publishing sta-
An independent and specific complaint tistics on land transactions. Transaction
ACCESS TO INFORMATION mechanism is important in the fight statistics benefit regulators as well as the
AFTER COMPLETION OF A against corruption. A study by Transparency real estate sector, serving as a data analy-
PROPERTY TRANSACTION International conducted in Burundi, Kenya, sis tool for policy makers to monitor the
Rwanda, Tanzania and Uganda found that real estate market. Currently, 122 econo-
After property transactions are com- about 90% of respondents that encoun- mies covered by Doing Business publish
pleted, it is important to provide citizens tered a bribery incident did not report it statistics on land transactions. In Japan,
with a safe environment where they or make a complaint to any authority or for example, data on land transactions are
can register complaints. Unlike courts, official; the reasons differed from econ- published monthly at the municipal level.
an informal structure allows users to omy to economy. In Kenya, most of the In the United Arab Emirates, numbers on
be more forthcoming about possible respondents indicated that they did not land transactions in Dubai are compiled
abuses, relieving the courts of additional know where to report the incident, while daily and published on the land registrys
cases. In addition to allowing citizens in Tanzania most felt that no action would web portal.
to contribute to a better business envi- be taken to resolve their complaint.13
ronment, an independent and specific As of June 2017 it was possible to file a
mechanism for filing complaints would complaint online in only 19 economies REDUCING OPPORTUNITIES
also help governments to track issues covered by Doing Business. The Singapore FOR CORRUPTION THROUGH
and respond accordingly.12 Land Authority recently introduced a web TRANSPARENCY
portal to file complaints about any issues
Such complaint mechanisms promote related to their services. The Swedish Transparency in a land administration
three desired outcomes. First, the rights Land and Cadastral Authority introduced system provides a defense against
of citizens are safeguarded against any a new mechanism for filing complaints bribes intended to expedite the process
sub-standard servicewhether by mis- regarding errors identified on maps of land of registering property, changing a title,
take or faultprovided by the land reg- plots.14 Similarly, Guatemala and Vanuatu acquiring information on land or pro-
istry. Consequently, citizens can expect have successfully implemented alternative cessing cadastral surveys. Corruption in
the land registry to provide services in offline solutions. In Guatemala, an agency land administration can result in fraudu-
accordance with the applicable rules and within the public ministry investigates lent land transfers, undermine public
service guidelines. Second, citizens can claims related to the land registry. In confidence in existing land rights while
have more confidence in a land tenure 2014 Vanuatu appointed the first Lands reducing investment and formal land
governance system where information
is transparent and the officials providing
land transfer services are held account- FIGURE 6.4 Most economies do not provide an independent and specific complaint
able for their actions. Third, candid feed- mechanism for land registry issues
back can help improve the administrative
Share of economies with land registry complaint mechanism (%)
tasks performed by the land registry, 25
resulting in a higher quality of service.
20
Only 24 economies measured by Doing
15
Business have established complaint
mechanisms that improve the overall 10
quality of land registries; half of these
5
(12) are OECD high-income economies
or East Asia and the Pacific economies. 0
Such complaint mechanisms are not in East Asia OECD high Latin America Europe & Sub-Saharan Middle East South Asia
& Pacific income & Caribbean Central Asia Africa & North Africa
place in any of the economies of South
Asia or the Middle East and North Africa
Source: Doing Business database.
REGISTERING PROPERTY 55

registration.15 Such corrupt behaviors FIGURE 6.5 A more transparent land administration system is associated with a
spur inefficient land ownership, with lower incidence of bribery at the land registry
land being owned by those most able to
Reported incidence of bribery at land registry (%)
participate in corrupt activities.16
30

Furthermore, corruption and abuse of 25

power can hinder the development of the 20


real estate market. It can have adverse 15
consequences on the business climate
10
and economic activities by increasing the
costs of doing business, thus undermin- 5
ing private sector confidence. High costs, 0
together with inefficient procedures 00.9 11.9 22.9 33.9 44.9 56
Score on transparency of information index (06)
discourage people from registering land
transactions, steering them instead into Sources: Doing Business database; Transparency International data (https://www.transparency.org/gcb2013).
Note: The analysis is based on data collected for the 95 economies covered in 2013/14 by both Doing Business
the informal land market. Corruption and Transparency Internationals Global Corruption Barometer 2013. The relationship is significant at the 1% level
in land management can have a direct after controlling for income per capita.

negative impact on business operations.


confidence in them. Having well-defined 12. The registering property indicator set only
considers dispute resolution mechanisms that
To be successfully deployed, full-fledged rules and standardsin addition to a safe
(i) have been designed specifically to cover
land reforms are time-consuming, costly, environment to censure wrongdoingis the services provided by the agency in charge
demanding an immense effort from gov- essential to ensure quality and efficiency of land registration and (ii) are managed by
a body that is independent from the agency
ernments and stakeholders. But a trans- in the administration of land tenure rights.
in charge. These requirements are essential
parent land administration systemone in constituting an efficient, fair and legitimate
in which all land-related information is governance system over land tenure rights.
13. Transparency International 2014.
publicly available, all procedures regarding NOTES 14. For more on Swedens mechanism for filing
property transactions are clearly docu- complaints regarding errors identified on maps
mented and information on fees for public This case study was written by Yuriy Valentinovich of land plots, see http://www.sla.gov.sg/.
Avramov, Albert Nogus i Comas, Laura Diniz, 15. Transparency International 2013.
services is easy to accessminimizes
Brendan Meighan, Esperanza Pastor Nunes and 16. Sreide and Williams 2014.
the opportunities for informal payments Geyi Zheng. 17. Peisakhin 2012; Rose-Ackerman 2004.
and abuses of the system. Indeed, cross- 1. Kakai 2012; Obala and Mattingly 2014.
country data show that the greater the 2. Zakout, Wehrmann and Trhnen 2006.
quality and transparency of a land admin- 3. For more information on the transparency of
information index, see the data notes.
istration system, the lower the incidence 4. In 11 economies with a population of more
of bribery at the land registry (figure 6.5). than 100 million as of 2013, Doing Business
also collects data for the second largest
business city.
5. For more on Senegals land administration
CONCLUSION system, see http://www.impotsetdomaines
.gouv.sn/fr/demarches-affaires-domaniales
-cadastres.
Transparency is one of the most impor- 6. For more on Qatars web portal, see https://
tant tools for combating corruptionit is sak.gov.qa/.
the basic pillar of enhancing the quality 7. For more on Guyanas efforts to increase
transparency in land administration, see
of land administration.17 Moreover, rather http://minbusiness.gov.gy/doing-business/3
than serving as a complementary tool, -how-to-get-property/.
transparency should be considered as 8. Zakout, Wehrmann and Trhnen 2006.
9. UNECE 1996.
a key component when designing land 10. According to Doing Business data, 129
policies. It is crucial that citizens have economies provide for open access to maps
complete access to official land informa- recorded at the agency in charge of surveying
privately held land plots, while 127 economies
tion, regulations and applicable fees. By provide for open access to ownership
establishing mechanisms that shield information recorded at the land registry.
citizens from informal payments or other 11. For more information on Swedens mapping,
cadastral and land registration authority, see
abuses, governments not only strengthen http://www.lantmateriet.se.
institutions but also increase the publics
Doing Business 2018

Resolving
Insolvency
The challenges of successfully implementing
insolvency reforms

Since 2013/14, 19 economies have Access to finance is key to the development of the private sector. Lenders need tools to
introduced reorganization procedures assess not only the risk of non-repayment but also what happens if a debtor cannot repay
and another nine economies have debts as they mature. A good insolvency frameworkone with clear rules, that efficiently
improved their existing procedures. rehabilitates viable companies and liquidates non-viable onesprovides entrepreneurs
However, making them workable in and lenders with tools to evaluate the consequences of a worst-case scenario.
practice can be challenging.

France introduced a restructuring


Existing literature shows that legal pro- may decrease the failure rate of insolvent
procedurethe procdure de
tection of creditors and efficient enforce- firms. Research on the 1999 Colombian
sauvegarde (safeguard procedure)
ment are conducive to larger and more bankruptcy reform shows that by reducing
in 2005 to enable debtors to prevent
economic and financial difficulties. developed capital markets and that there reorganization costs through, for example,
Today, the procedure facilitates is a link between insolvency reforms and streamlining the reorganization process
business survival in three out of four access to credit.1 The specific features of and establishing mandatory deadlines on
initiated cases. an economys insolvency regime and its the length of proceedings, the new law
enforcement are important aspects for enabled viable companies to reorganize
Slovenia brought its legal framework the legal protection of creditors. Several and inefficient ones to liquidate (this was
closer to international good studies show that reforms strengthening not possible before the reform).6
practices in 2013. Greater access to the insolvency framework may reduce the
the reorganization procedures for cost of credit, increase the level of credit Doing Business tracks insolvency reforms
creditors has been accompanied by and lower interest rates on large loans.2 A across 190 economies. Since Doing
an impressive survival rate of viable study on the 2005 Brazilian bankruptcy Business 2005, 110 economies have
companies. reform found a reduction in the cost of introduced 205 changes aimed at facili-
debt together with a significant increase tating the efficient resolution of corporate
Although it took some time for
stakeholders in Thailand to get in the amount of total and long-term insolvency. This case study uses the
accustomed to reorganization debt.3 A more recent study found that the specific examples of France, Slovenia and
procedures, filings at the Central same reform led to an increase in secured Thailand to illustrate successful insol-
Bankruptcy Court increased steadily loans, as well as an increase in invest- vency reforms that can inspire similar
from 1% of total insolvency cases in ment and value of output in the years efforts elsewhere.
2011 to almost 9% in 2016. after the reform in Brazilian municipali-
ties with less-congested courts.4 Another
study shows that, across a sample of HOW HAVE ECONOMIES
Organisation for Economic Co-operation REFORMED THEIR
and Development (OECD) countries, INSOLVENCY SYSTEMS?
efficient bankruptcy procedures are asso-
ciated with a higher proportion of new Insolvency laws have traditionally focused
bank loans to large firms.5 on enabling the swift liquidation of
insolvent companies while organizing the
Other studies show that insolvency repayment of creditors. The focus of mod-
reforms that introduce or promote reorga- ern insolvency regimes has been to offer
nization procedures through the adoption restructuring tools to companies that are
of several international good practices economically viable but face temporary
RESOLVING INSOLVENCY 57

financial distress in order to maintain the selected for this case study because they Many companies, however, still ended up
business activity. Recent reform efforts implemented insolvency reforms that stopping operations and being liquidated,
around the world have introduced this brought them closer to internationally mainly because they began the reorgani-
modern feature to insolvency frameworks -recognized good practicesparticularly zation process when their financial situa-
while also allowing the speedy liquidation through the introduction and improve- tion was already severely compromised.
of nonviable businesses. ment of restructuring procedures (table In response, the government amended
7.1). There is also a significant amount the insolvency law in 2005 to focus on
In 2013/14, the resolving insolvency indica- of information available on the evolu- preventing firms economic and financial
tors started measuring whether insolvency tion of court procedures following these difficulties. A new restructuring toolthe
laws complied with certain international reforms. Business reorganization has procdure de sauvegarde (safeguard proce-
standards, including access to reorganiza- become an increasingly utilized option dure)was introduced. It allowed debt-
tion proceedings for debtors and creditors. for viable firms in financial distress in all ors that are facing difficulties (but which
Since then, the most common type of three countries. have not yet ceased payments) to apply
reform recorded by the indicators has for court protection while they negotiate
been the introduction of or improvements The case of France a restructuring plan with creditors.
to reorganization procedures. During this Since the 1980s France has regularly
period, 19 economies introduced reorgani- assessed and updated its insolvency Contrary to initial expectations, the safe-
zation procedures and another nine econo- legal framework to encourage business guard procedure was not widely used.
mies improved their existing procedures.7 rescue. In the mid-1980swhen the When the procedure became available
number of firms declaring bankruptcy for the first time in 2006, only 509 safe-
Providing creditors with greater access to doubled compared to the previous guard applications were filed (compared
and participation in insolvency proceedings decadeliquidation was the only to 16,046 judicial reorganizations and
has been another common area of reform. option available to companies in finan- 31,045 judicial liquidations).8 One reason
Economies including Cyprus, Jamaica, cial distress. The number of business was that the criteria required to initiate
Kazakhstan, Mexico, Mozambique, St. liquidations rose from 11,000 in 1970 the safeguard procedure were too strict.
Vincent and the Grenadines, Switzerland to 25,000 in 1984. Members of the Debtors had to demonstrate that they
and Uganda have implemented reforms in legislature realized that some of these were facing difficulties that would result
this direction. Enabling creditors meaning- companies could have been saved had in insolvency, which was challenging.
ful participation in the process can make they been given the tools to restructure. Another reason was that the law did not
them more cooperative and less litigious, The legislature subsequently adopted clearly stipulate which partythe com-
and it can result in shorter proceedings. three laws in 1985 with the objective of pany managers or the court-appointed
saving viable businesses. A reorganiza- administratorwas responsible for the
Many factors, however, can make it tion procedure, open to debtors in ces- preparation of the safeguard plan, an
challenging to implement insolvency sation of payments that had a prospect issue which could deter managers from
reforms. Doing so requires not only the of survival, was introduced. starting the proceedings.
adoption of an insolvency law or amend-
ments to existing legislation but also TABLE 7.1 France, Slovenia and Thailand successfully implemented insolvency
changes to regulation to make the law reforms
workable in practice. An insolvency law
Country Motivation Reform content Outcome
often requires setting up new structures
France High number of bankruptcy Starting in 1985, introduced Increased number of
under the regulatory framework such cases; no possibility for restructuring procedures with focus initiated and successful
as, for example, a professional body companies to reorganize on preventing firms economic and reorganization cases
prior to the reform financial difficulties
of insolvency administrators. Successful
implementation also requires the buy-in Slovenia High number of insolvent Starting in 2008, introduced Increased number of
companies as a result of the preventive restructuring procedure initiated and successful
and active participation of the judiciary. 2008 global financial crisis; for medium and large-size reorganization cases
features of restructuring companies and simplified
procedures not suited; reorganization procedure for micro
no preventive procedures and small-size companies; improved
WHAT DID SUCCESSFUL available access to reorganization proceedings
for creditors
REFORMERS DO
Thailand High number of non- Starting in 1998, introduced Increased number of
DIFFERENTLY? performing loans in the reorganization procedure for initiated and successful
context of the 1997 Asian corporate debtors; created reorganization cases
financial crisis; no possibility specialized bankruptcy court
Doing Business has recorded several for companies to reorganize
notable insolvency reforms. However, prior to the reform
France, Slovenia and Thailand were Source: Doing Business database.
58 DOING BUSINESS 2018

The insolvency law was amended again FIGURE 7.1 A significant number of companies undergoing restructuring proceedings
in 2008 to make the safeguard proce- in France continue operating at the end of proceedings
dure more accessible and attractive to
debtors by simplifying the eligibility Companies continuing to operate
after specified procedure (%)
criteria. Debtors had only to demonstrate
60
difficultieseconomic, financial, or legal
that they could not overcome, without 50
having to define or qualify the gravity or
extent of those difficulties. The 2008 40
amendment also made the procedure
more attractive by clarifying that the man- 30
agers of the company were responsible
for preparing the safeguard plan with the 20
assistance of the court-appointed admin-
istrator. Furthermore, in 2011 France 10
introduced a procedurethe sauvegarde
0
financire acclre (accelerated financial
2007 2008 2009 2010 2011 2012 2013 2014
safeguard)under which a debtor can
reach an out-of-court arrangement with Safeguard procedure Judicial reorganization

a majority of its financial creditors and


then initiate summary court proceedings Source: Deloitte and Altares 2016.
to validate the agreement without nega- Note: Companies that continue operating include companies that adopted a reorganization or safeguard plan, or
that were sold as a whole.
tively impacting non-financial creditors.

These changes led to a significant increase measured by the rate of new firm entry and financial claims, as well as a new simpli-
in the number of new safeguard pro- entrepreneurship support.9 fied compulsory settlement procedure to
cedures filed, to 1,386 cases in 2009. offer a reorganization option for micro
Since then the number of filings has The case of Slovenia and small companies. A change was also
risen steadily, to 1,620 new cases in The early 2000s were a period of sig- made to the existing compulsory settle-
2014. Not only did the use of safeguard nificant reform in Slovenia as the country ment procedure to enable creditors to
procedures increase, but three out of prepared to join the European Union initiate the reorganization of companies
four cases terminated with an agreement in 2004. A new insolvency law was for the first time.
with creditors to enable the company to adopted in 2007, but it was insufficient
continue operating (figure 7.1). However, to cope with the challenging economic The procedures quickly became a popu-
the increased use of the safeguard proce- and financial conditions brought on by lar option for debtors and creditors. In
dure was accompanied by a significant the global financial crisis of 2008; many the first two years following the reform,
number of filings for liquidation, which in companies became insolvent. Firms suf- the proportion of companies using one of
2014 amounted to 69% of all insolvency fered from over-indebtedness and had the three procedures more than doubled,
cases filed. difficulties repaying their loans, leading to rising from 6% of total insolvency
an increase in corporate non-performing proceedings in 2013 to 14% in 2015.11
By allowing viable companies to restruc- loans to around 20% of total loans.10 Microenterprises, however, underwent
ture and continue operating as going con- Firms in Slovenia needed effective cor- corporate liquidation proceedings in the
cerns, the amendments to the insolvency porate restructuring procedures to guide vast majority of cases (96%) in 2016.
law aimed to support entrepreneurial risk- the restructuring of their debt. Microenterprises have less capacity
taking and encourage enterprise creation. to face a reorganization and to secure
Insolvency reforms may have contributed To address these needs and to bring the resources to enable them to operate in
in part to the surge in new businesses legal framework closer to international a situation of financial distress. Despite
in France525,000 companies were good practices, the government modified these challenges, microenterprises have
created in 2015, twice as many as in the corporate restructuring framework in also benefited from the restructuring
2000. This growth underscores the con- 2013. The changes included the creation options. Indeed, the number of simplified
nection made in the literature between of a new pre-insolvency restructuring compulsory settlement proceedings for
sound insolvency systems and the procedure for distressed medium and the benefit of microenterprises increased
level of entrepreneurship development as large-size companies to restructure their from 59 cases in 2014 to 85 in 2016.
RESOLVING INSOLVENCY 59

Creditors have progressively taken FIGURE 7.2 Corporate reorganizations in Slovenia have become more successful
advantage of the enabled access to com- over time
pulsory settlement proceedings granted
Procedures (number)
to them in 2013; by 2016 they initiated
almost one-third of all cases. During the 100

same period, the number of successfully 90


terminated reorganization proceedings 80
increased significantly. In 2016, most 70
ended with an approved settlement 60
(figure 7.2).
50
40
One of the companies that benefited
from the restructuring procedures was 30

Pivovarna Lako, Slovenias largest brewer. 20


By the end of 2014, the companys total 10
financial liabilities stood at 226.8 million 0
euros (about $268 million). It negotiated a 2013 2014 2015 2016
restructuring plan with its creditors, which Rejected compulsory settlement and simpified compulsory settlement/conversion to bankruptcy
included a two-year debt rescheduling, Approved compulsory settlement and simplified compulsory settlement
the sale of shares in other companies and
an intensive search for additional capital.
Source: Slovenia Ministry of Justice 2017.
Following the agreement, the company
was bought by Heineken International
BV, which committed to provide financial regimes may encourage entrepreneur- plan with creditors. A specialized bank-
stability to the company. Following the ship and accelerate the speed of adjust- ruptcy court was established in 1999
sale of its assets in various corporations ment of non-performing loans.12 to adjudicate cases. Also, the Business
and entering into long-term loan agree- Reorganization Office (within the Legal
ments with Heineken, the company was The case of Thailand Execution Department) was set up to
able to repay its creditors in full in October The 1997 Asian financial crisis prompted administer new reorganization cases.
2015. Its value increased, the brewery a major insolvency reform in Thailand.
was able to continue operating, saving Non-performing loans had been increas- Considerable time was needed in Thailand
hundreds of jobs. ing before the crisis, reaching a peak of for stakeholders to become accustomed
42.9% of total loans in 1998. Thailands to reorganization procedures. Finding
Apart from increasing the likelihood of antiquated insolvency law needed to be expertise within Thailand to prepare
business survivalas shown by the ris- revised and given the features necessary reorganization plans proved challenging; it
ing number of successfully-terminated to perform. The 1940 Thai Bankruptcy required the capacity to negotiate a plan
compulsory settlement and simplified Act established the procedure of judicial with multiple creditors in a short period of
settlement proceduresthe insolvency liquidation for debtors unable to meet time to return the company to profitability.
reform may have contributed to broader their financial commitments. It relied on Managers of companies in financial dif-
positive economic effects. First, the an agency within the Ministry of Justice ficulties found it challenging to formulate
level of entrepreneurship and company the Legal Execution Departmentto a reorganization plan effectively. Debtors
formation in Slovenia increased. One direct the proceedings. The only aim of turned to large companies with foreign
year after the reform was introduced, the law was to organize the repayment of human capital that had expertise in draft-
6,243 new businesses were registered in creditors through liquidation procedures; ing such plans. However, this approach
Slovenia, the highest number in a decade it did not offer a channel for viable com- was expensive, making reorganization
(and similar to pre-crisis levels). Second, panies to survive. procedures accessible to only a small
progress has been made in addressing number of large debtors.
Slovenias high level of non-performing Amendments brought by the Bankruptcy
loans, which decreased from 15% of total Act of 1998 built on the existing legal and As a result, in the years following the
loans in 2012 to 7.9% in 2016. While institutional framework. They introduced reform, the number of annual applica-
these results do not establish a causal a reorganization procedure for corporate tions for reorganization was modest,
relationship with the insolvency reform, entities, giving insolvent debtors the averaging 30 to 70 (compared to approx-
they suggest that sound insolvency chance to negotiate a reorganization imately 700 annual applications for
60 DOING BUSINESS 2018

liquidation).13 Realizing that the benefits The connection between the insolvency business, compared to 12.2% of firms in
of the procedure had to be explained to reform and the likelihood of business the region and 26.5% in all economies.
stakeholders, the government undertook survival is reflected in Doing Business While no causal relationship can be
outreach efforts. As local firms gained data. Resolving simple reorganization established between these results and
the necessary expertise to advise debtors cases in Bangkok has become easier over the bankruptcy reform in Thailand, they
during the reorganization process, time. Companies are now more likely to do show that access to credit improved
reorganization practices progressively continue operating at the end of reorga- in the years following the reform.
became more widespread in Bangkok. nization procedures. Also, today it takes
Consequently, all parties were able to 18 months on average, half the time it
experience the advantages of the new took in 2010, for a small company to go CONCLUSION
mechanism, enabling them to make use through reorganization, counted up to
of it to save viable businesses. Together the moment the reorganization plan is The successful implementation of insol-
with a greater understanding of the law, approved by creditors. vency reforms is not easy. Many factors
reorganization filings rose to 3.5% of must come into play for an insolvency
total insolvency cases in 2014 (from 1.1% Studies on the effect of insolvency reform to yield positive effects in both
in 2011).14 The share almost doubled in reforms that accelerate the procedures insolvency practice and the economy.
2015 and continued to rise in 2016, when find that they increase the aggregate Even in economies with strong legal
8.5% of insolvency petitions received by level of credit. Other studies suggest frameworks and institutions, insolvency
the judiciary were reorganization cases that where insolvency regimes are most reforms take time. It is a complex area
(figure 7.3). effective, creditors are more willing to of law, which is why different agencies
lend because they are more likely to including the judiciary as well as insol-
The rising use of reorganization proceed- recoup a larger share of a troubled loan.15 vency administratorsneed to be trained
ings in Thailand has driven an increase Following the reform in Thailand, domes- and given the means to carry out the tasks
in the rate of successful reorganizations tic credit to the private sector rose from envisioned in the law.
(that is, cases that end up with the 93% of GDP in 2001 to 147% of GDP in
approval of the reorganization plan, 2016.16 Banks are more willing to lend in Lessons can be drawn from reforms
regardless of whether they continue Thailand than in other parts of East Asia implemented worldwide. The French
operating in the longer term). The Central and the Pacific. Data from the World and Slovenian examples show the
Bankruptcy Courts reorganization plan Bank Enterprise Surveys show that only importance of constantly assessing the
approval rate reached 25% in 2016, up 2.4% of firms in Thailand identify access insolvency system. Insolvency law is
from 20% in 2015. to finance as a major constraint to doing not a static field. Rather, it serves the
economic system and needs to adapt as
the structure of the economy evolves.
FIGURE 7.3 Distressed businesses in Bangkok are more likely to pursue
reorganization today than seven years ago Implementing and refining insolvency
reform takes time; a quick fix will not
New reorganization cases as a share bring positive long-term results. The
of total insolvency cases (%)
example of Thailand illustrates the
10
importance of utilizing the existing
9
infrastructure to drive changethe focus
8
should be on building on existing laws
7 and institutions and creating new ones
6 only when the existing system cannot
5 be adapted. A new framework requires
4 training along with patience. Amending
3
the law should not be seen as a goal
in itself, but rather as a first step to be
2
followed by the thorough implementation
1
of the amended law.
0
2009 2010 2011 2012 2013 2014 2015 2016
All in all, the three examples suggest that
sound insolvency reforms can have a
positive impact on an economy. Providing
Source: Thailand Office of the Judiciary 2016. corporate debtors with the option to
RESOLVING INSOLVENCY 61

reorganize increases the chances of


debt recovery by creditors, positively
influencing their willingness to lend. The
availability of reorganization procedures
also increases the likelihood that viable
firms will continue operating despite
financial difficulties, thus decreasing the
failure rate of firms, preserving jobs and
encouraging entrepreneurship.

NOTES
This case study was written by Faiza El Fezzazi El
Maziani, Raman Maroz and Mara A. Quesada.
1. La Porta and others 1997; La Porta and others
1998; Klapper 2011.
2. Visaria 2009; Funchal 2008; Rodano, Serrano-
Velarde and Tarantino 2011.
3. Araujo, Ferreira and Funchal 2012.
4. Ponticelli and Alencar 2016.
5. Neira 2017.
6. Foley 1999; Dewaelheyns and Van Hulle
2006. For Colombia, Gin and Love 2008.
7. The 19 economies that have introduced
reorganization procedures are Brunei
Darussalam, Cabo Verde, Cyprus, the
Dominican Republic, Grenada, India, Jamaica,
Kenya, Kosovo, Liberia, Malawi, Mozambique,
Panama, St. Kitts and Nevis, St. Vincent and
the Grenadines, the Seychelles, Trinidad
and Tobago, Uganda, and the United Arab
Emirates. The nine economies that improved
their existing reorganization procedures are
Chile, Georgia, Kazakhstan, Kenya, Mexico,
Romania, Slovenia, Thailand, and Switzerland.
8. Deloitte and Altares 2016.
9. Lee and others 2011; Peng, Yamakawa and Lee
2010.
10. IMF 2015.
11. Slovenia, Ministry of Justice 2017.
12. Carpus-Carcea and others 2015.
13. Wisitsora-at 2015.
14. Thailand, Office of the Judiciary 2016.
15. Visaria 2009; Funchal 2008.
16. These data are from the World Development
Indicators database (http://data.worldbank
.org/indicator), World Bank.
Doing Business 2018

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Doing Business 2018

Data
Notes
The indicators presented and analyzed in Doing Business measure business regulation
and the protection of property rightsand their effect on businesses, especially
small and medium-size domestic rms. First, the indicators document the complexity
of regulation, such as the number of procedures to start a business or to register a
transfer of commercial property. Second, they gauge the time and cost to achieve
a regulatory goal or comply with regulation, such as the time and cost to enforce a
contract, go through bankruptcy or trade across borders. Third, they measure the
extent of legal protections of property, for example, the protections of minority
investors against looting by company directors or the range of assets that can be
used as collateral according to secured transactions laws. Fourth, a set of indicators
documents the tax burden on businesses. Finally, a set of data covers different aspects
of employment regulation. The 11 sets of indicators measured in Doing Business were
added over time, and the sample of economies and cities expanded (table 8.1).

METHODOLOGY numerous rounds of verication, leading


to revisions or expansions of the informa-
The Doing Business data are collected in tion collected.
a standardized way. To start, the Doing
Business team, with expert advisers, The Doing Business methodology offers
designs a questionnaire. The question- several advantages. It is transparent, using
naire uses a simple business case to factual information about what laws and
ensure comparability across economies regulations say and allowing multiple inter-
and over timewith assumptions about actions with local respondents to clarify
the legal form of the business, its size, its potential misinterpretations of questions.
location and the nature of its operations. Having representative samples of respon-
dents is not an issue; Doing Business is not
Questionnaires are administered to more a statistical survey, and the texts of the
than 13,000 local experts, including law- relevant laws and regulations are collected
yers, business consultants, accountants, and answers checked for accuracy. The
freight forwarders, government officials methodology is easily replicable, so data
and other professionals routinely admin- can be collected in a large sample of econo-
istering or advising on legal and regulatory mies. Because standard assumptions are
requirements (table 8.2). These experts used in the data collection, comparisons
have several rounds of interaction with and benchmarks are valid across econo-
the Doing Business team, involving confer- mies. Finally, the data not only highlight
ence calls, written correspondence and the extent of specic regulatory obstacles
visits by the team. For Doing Business 2018 to business but also identify their source
team members visited 26 economies to and point to what might be reformed. Doing
verify data and recruit respondents. The Business 2018 has no major methodological
data from questionnaires are subjected to change at the indicators level.
68 DOING BUSINESS 2018

TABLE 8.1 Topics and economies covered by each Doing Business report
Topic DB 2004 DB 2005 DB 2006 DB 2007 DB 2008 DB 2009 DB 2010 DB 2011 DB 2012 DB 2013 DB 2014 DB 2015 DB 2016 DB 2017 DB 2018
Getting
electricity
Dealing with
construction permits
Trading across
borders
Paying
taxes
Protecting minority
investors
Registering
property
Getting
credit
Resolving
insolvency
Enforcing
contracts
Labor market
regulation
Starting
a business
Number of
133 145 155 175 178 181 183 183 183 185 189 189 189 190 190
economies
Note: Data for the economies added to the sample each year are back-calculated to the previous year. The exceptions are Kosovo and Montenegro, which were added to the sample
after they became members of the World Bank Group. Eleven cities (though no additional economies) were added to the sample starting in Doing Business 2015. The data for all sets
of indicators in Doing Business 2018 are for June 2017.1

when interpreting the data. First, for of the economy. (The exceptions are 11
LIMITS TO WHAT IS most economies the collected data refer economies which had a population of
MEASURED to businesses in the largest business more than 100 million in 2013, where
city (which in some economies differs Doing Business now also collects data
The Doing Business methodology has ve from the capital) and may not be rep- for the second largest business city.)2
limitations that should be considered resentative of regulation in other parts To address this limitation, subnational
Doing Business indicators were created
TABLE 8.2 How many experts does Doing Business consult? (box 8.1). Second, the data often focus
on a specic business formgenerally
Economies with given number
of respondents (%) a limited liability company (or its legal
Indicator set Respondents 12 35 6+ equivalent) of a specified sizeand may
Starting a business 2,235 10 22 68
not be representative of the regulation
on other businesses (for example, sole
Dealing with construction permits 1,316 14 41 45
proprietorships). Third, transactions
Getting electricity 1,121 17 42 41
described in a standardized case scenario
Registering property 1,282 20 35 45 refer to a specic set of issues and may
Getting credit 1,764 7 26 67 not represent the full set of issues that
Protecting minority investors 1,450 16 36 48 a business encounters. Fourth, the mea-
Paying taxes 1,685 8 29 63 sures of time involve an element of judg-
ment by the expert respondents. When
Enforcing contracts 1,412 14 41 45
sources indicate different estimates, the
Trading across borders 1,259 18 41 41
time indicators reported in Doing Business
Resolving insolvency 1,325 19 35 46 represent the median values of several
Labor market regulation 1,230 17 37 46 responses given under the assumptions
Total 16,079 15 35 50 of the standardized case.
DATA NOTES 69

BOX 8.1Benchmarking regulation and learning from good practices at the local level: the relevance of
subnational Doing Business studies
Policy makers are increasingly interested in how the business environment differs between locations within the same economy.
Substantial differences between locations that 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. By expanding the Doing
Business analysis beyond an economys largest business city, subnational Doing Business studies (which are undertaken at the
request of governments) capture these differences at the local level, allowing policy makers to effectively target bottlenecks and
improve the business environment across their economy.

Subnational studies show that there can be substantial variation in regulations or in the implementation of national laws across
locations within an economy (as in Kazakhstan, for example). Similarly, there can be variations within locations across econo-
mies (as in Bulgaria, Hungary and Romania). Some economies experience more variation than others. A study completed in
2017 benchmarking five different provinces in Afghanistan, for example, showed that dealing with construction permits takes
as few as 96 days in Kandahar but almost four times as long in Kabul. Similarly, registering a property transfer takes 75 days in
Kandahar, but more than three times as long in Kabul.

What is the main lesson? Afghan policy makers do not have to look very far to improve business processes in Kabul. Reforming legisla-
tion is not always necessary. In some cases, the answer may be a staffing increase or a reduction in the paperwork required. Looking at
how processes work in other locationsin this case, Kandaharcan assist policy makers in replicating these good practices.

Furthermore, because the data produced by subnational Doing Business studies are comparable across locations within an economy
and internationally, policy makers can benchmark their results both locally and globally. This allows them to see how their overall
performance in Doing Business would improve if the largest business city were to adopt all of the good practices documented within
their borders. Six economies completed subnational studies in 2017: Afghanistan (five locations), Colombia (32 locations), three EU
member states (22 cities in Bulgaria, Hungary and Romania) and Kazakhstan (eight locations). These studies show that if the latter
four economies were to adopt local good practices across the getting electricity indicators, for example, their overall performance on
the indicators would improve.

Subnational studies cover all regions of the world and economies of varying income levels, including fragile and conflict-affected
states such as Afghanistan, which completed a subnational Doing Business study in 2017 (see map). Ongoing studies include
those in Nigeria (36 states and the Federal Capital Territory of Abuja) and four EU member states (Croatia, the Czech Republic,
Portugal and the Slovak Republic). Since 2005 subnational reports have covered 485 locations in 71 economies. Seventeen
economiesincluding the Arab Republic of Egypt, Mexico, Nigeria, the Philippines and the Russian Federationhave under-
taken two or more rounds of subnational data collection to measure progress over time.

Subnational studies cover a large number of cities across all regions of the world

79 cities
in Europe and Central Asia
63 cities in OECD
high-income economies

30 cities
in the Middle East
and North Africa

46 cities 76 cities
in South Asia in East Asia
and the Pacific

82 cities
109 cities in Sub-Saharan Africa
in Latin America
and the Caribbean

IBRD 43044 |
JULY 2017 ECONOMIES WITH ONE SUBNATIONAL OR REGIONAL STUDY
This map was produced by the
Cartography Unit of the World Bank
Group. The boundaries, colors, ECONOMIES WITH MORE THAN ONE SUBNATIONAL OR REGIONAL STUDY
denominations and any other information
shown on this map do not imply, on the
part of the World Bank Group, any
judgment on the legal status of any
territory, or any endorsement or
acceptance of such boundaries.

Source: Subnational Doing Business database.


Note: Subnational reports are available on the Doing Business website at http://www.doingbusiness.org/subnational.
70 DOING BUSINESS 2018

Economy characteristics
Gross national income per capita
Doing Business 2018 reports 2016 income per capita as published in the World Banks World Development Indicators 2017. Income
is calculated using the Atlas method (in current U.S. dollars). For cost indicators expressed as a percentage of income per
capita, 2016 gross national income (GNI) per capita in current U.S. dollars is used as the denominator. GNI data based on the
Atlas method were not available for Bahrain; Brunei Darussalam; Djibouti; Eritrea; the Islamic Republic of Iran; Kuwait; Libya;
Myanmar; Oman; Papua New Guinea; Puerto Rico (territory of the United States); Qatar; San Marino; Somalia; South Sudan;
the Syrian Arab Republic; Taiwan, China; Timor-Leste; Vanuatu; and Repblica Bolivariana de Venezuela. In these cases, GDP or
GNP per capita data and growth rates from other sources, such as the International Monetary Funds World Economic Outlook
database and the Economist Intelligence Unit, were used.

Region and income group


Doing Business uses the World Bank regional and income group classications, available at https://datahelpdesk.worldbank
.org/knowledgebase/articles/906519. Regional averages presented in gures and tables in the Doing Business report include
economies from all income groups (low, lower middle, upper middle and high income), though high-income OECD economies
are assigned the regional classication OECD high income.

Population
Doing Business 2018 reports midyear 2016 population statistics as published in the World Banks World Development Indicators 2017.

Finally, the methodology assumes that a more than 118,000 data points, each of formally operate an industrial or commer-
business has full information on what is which is made available on the Doing cial business, as well as the time and cost to
required and does not waste time when Business website. Historical data for each complete these procedures and the paid-in
completing procedures. In practice, com- indicator and economy are available on the minimum capital requirement (gure 8.1).
pleting a procedure may take longer if the website, beginning with the rst year the These procedures include the processes
business lacks information or is unable indicator or economy was included in the entrepreneurs undergo when obtaining
to follow up promptly. Alternatively, report. To provide a comparable time series all necessary approvals, licenses, permits
the business may choose to disregard for research, the data set is back-calculated and completing any required notications,
some burdensome procedures. For both to adjust for changes in methodology and verications or inscriptions for the compa-
reasons the time delays reported in Doing any revisions in data due to corrections. ny and employees with relevant authorities.
Business 2018 would differ from the recol- The website also makes available all origi- The ranking of economies on the ease of
lection of entrepreneurs reported in the nal data sets used for background papers. starting a business is determined by sorting
World Bank Enterprise Surveys or other The correction rate between Doing Business their distance to frontier scores for starting
rm-level surveys. 2017 and Doing Business 2018 is 8.8%.3 a business. These scores are the simple
average of the distance to frontier scores
Governments submit queries on the data for each of the component indicators
DATA CHALLENGES AND and provide new information to Doing (gure 8.2). The distance to frontier score
REVISIONS Business. During the Doing Business 2018 shows the distance of an economy to the
production cycle the team received 181 frontier, which is derived from the most
Most laws and regulations underlying such queries from governments. In addi- efficient practice or highest score achieved
the Doing Business data are available tion, the team held multiple video confer- on each indicator.
on the Doing Business website at http:// ences with government representatives
www.doingbusiness.org. All the sample in 65 economies and in-person meetings Two types of local limited liability compa-
questionnaires and the details underlying with government representatives from nies are considered under the starting a
the indicators are also published on the 44 economies. business methodology. They are identical
website. Questions on the methodology in all aspects, except that one company
and challenges to data can be submitted is owned by ve married women and
through email at rru@worldbank.org. STARTING A BUSINESS other by ve married men. The distance
to frontier score for each indicator is the
Doing Business publishes 24,120 indicators Doing Business records all procedures average of the scores obtained for each
(120 indicators per economy) each year. To officially required, or commonly done in of the component indicators for both of
create these indicators, the team measures practice, for an entrepreneur to start up and these standardized companies.
DATA NOTES 71

FIGURE 8.1 What are the time, cost, paid-in minimum capital and number of procedures production or sale to the public of
to get a local limited liability company up and running? goods or services. The business does
not perform foreign trade activities and
Cost does not handle products subject to a
(% of income per capita)
special tax regime, for example, liquor
Formal operation or tobacco. It is not using heavily pol-
luting production processes.
Paid-in
$ Leases the commercial plant or offices
minimum Number of
capital procedures and is not a proprietor of real estate.
The amount of the annual lease for
the office space is equivalent to one
income per capita.
Entrepreneur The size of the entire office space is
Time
Preregistration Registration Postregistration (days) approximately 929 square meters
(10,000 square feet).
Does not qualify for investment
incentives or any special benets.
After a study of laws, regulations and be completed and whether procedures Has at least 10 and up to 50 employ-
publicly available information on busi- may be carried out simultaneously. It is ees one month after the commence-
ness entry, a detailed list of procedures assumed that any required information ment of operations, all of them
is developed, along with the time and is readily available and that the entre- domestic nationals.
cost to comply with each procedure preneur will pay no bribes. If answers Has a turnover of at least 100 times
under normal circumstances and the by local experts differ, inquiries continue income per capita.
paid-in minimum capital requirement. until the data are reconciled. Has a company deed that is 10 pages
Subsequently, local incorporation law- long.
yers, notaries and government officials To make the data comparable across
review and verify the data. economies, several assumptions about The owners:
the businesses and the procedures Have reached the legal age of majority
Information is also collected on the are used. and are capable of making decisions
sequence in which procedures are to as an adult. If there is no legal age of
Assumptions about the business majority, they are assumed to be 30
FIGURE 8.2 Starting a business: The business: years old.
getting a local limited liability company Is a limited liability company (or its Are sane, competent, in good health
up and running legal equivalent). If there is more and have no criminal record.
Rankings are based on distance to
than one type of limited liability Are married, the marriage is
frontier scores for four indicators company in the economy, the lim- monogamous and registered with
25% Time 25% Cost ited liability form most common the authorities.
Preregistration, As % of income among domestic firms is chosen. Where the answer differs according
registration and per capita, no Information on the most common to the legal system applicable to the
postregistration bribes included
(in calendar days) form is obtained from incorporation woman or man in question (as may
12.5% 12.5%
lawyers or the statistical office. be the case in economies where there
women men
Operates in the economys largest is legal plurality), the answer used will
12.5% 12.5% business city. For 11 economies the be the one that applies to the majority
men women
12.5% 25%
data are also collected for the second of the population.
women Paid-in largest business city (table 8A.1 at the
minimum
12.5% capital
men
end of the data notes). Procedures
Is 100% domestically owned and A procedure is dened as any interaction
25% Paid-in has five owners, none of whom is a of the company founders with external
25% Procedures minimum capital
Procedures are Funds deposited in a legal entity. parties (for example, government agen-
completed when bank or with a notary Has start-up capital of 10 times cies, lawyers, auditors or notaries) or
final document before registration (or
is received up to three months after income per capita. spouses (if legally required). Interactions
incorporation), as % Performs general industrial or between company founders or company
of income per capita
commercial activities, such as the officers and employees are not counted
72 DOING BUSINESS 2018

as procedures. Procedures that must be Only procedures required for all busi- TABLE 8.3 What do the starting
completed in the same building but in dif- nesses are included. Industry-specic abusiness indicators measure?
ferent offices or at different counters are procedures are excluded. For example,
Procedures to legally start and formally
counted as separate procedures. If found- procedures to comply with environmental operate a company (number)
ers have to visit the same office several regulations are included only when they Preregistration (for example, name verification or
times for different sequential procedures, apply to all businesses conducting gen- reservation, notarization)
each is counted separately. The founders eral commercial or industrial activities. Registration in the economys largest business city a
are assumed to complete all procedures Procedures that the company undergoes Postregistration (for example, social security
themselves, without middlemen, facilita- to connect to electricity, water, gas and registration, company seal)
tors, accountants or lawyers, unless the waste disposal services are not included Obtaining approval from spouse to start a
use of such a third party is mandated by in the starting a business indicators. business or to leave the home to register the
company
law or solicited by the majority of entrepre-
Obtaining any gender specific document for
neurs. If the services of professionals are Time company registration and operation or national
required, procedures conducted by such Time is recorded in calendar days. The identification card
professionals on behalf of the company measure captures the median duration Time required to complete each procedure
are counted as separate procedures. Each that incorporation lawyers or notaries indi- (calendar days)

electronic procedure is counted as a sepa- cate is necessary in practice to complete a Does not include time spent gathering
information
rate procedure. Approvals from spouses procedure with minimum follow-up with
to own a business or leave the home are government agencies and no unofficial Each procedure starts on a separate day
(two procedures cannot start on the same day)
considered procedures if required by law payments. It is assumed that the mini- though procedures that can be fully completed
or if by failing to obtain such approval the mum time required for each procedure is online are an exception to this rule

spouse will suffer consequences under the one day, except for procedures that can Registration process considered completed once
final incorporation document is received or
law, such as the loss of right to nancial be fully completed online, for which the company can officially start operating
maintenance. Obtaining permissions minimum time required is recorded as No prior contact with officials takes place
only required by one gender for company half a day. Although procedures may take
Cost required to complete each procedure
registration and operation, or getting addi- place simultaneously, they cannot start (% of income per capita)
tional documents only required by one on the same day (that is, simultaneous Official costs only, no bribes
gender for a national identication card procedures start on consecutive days). A
No professional fees unless services required by
are considered additional procedures. In registration process is considered com- law or commonly used in practice
that case, only procedures required for one pleted once the company has received the Paid-in minimum capital (% of income per
spouse but not the other are counted. Both nal incorporation document or can offi- capita)
pre- and postincorporation procedures cially commence business operations. If Funds deposited in a bank or with a third party
that are officially required or commonly a procedure can be accelerated legally for (for example a notary) before registration or up
to three months after incorporation
done in practice for an entrepreneur to an additional cost, the fastest procedure is
a. F or 11 economies the data are also collected for
formally operate a business are recorded chosen if that option is more benecial to the second largest business city
(table 8.3). the economys distance to frontier score.
When obtaining a spouses approval, it
Procedures required for official correspon- is assumed that permission is granted at all official fees and fees for legal or
dence or transactions with public agencies no additional cost unless the permission professional services if such services
are also included. For example, if a company needs to be notarized. It is assumed that are required by law or commonly used
seal or stamp is required on official docu- the entrepreneur does not waste time and in practice. Fees for purchasing and
ments, such as tax declarations, obtaining commits to completing each remaining legalizing company books are included
the seal or stamp is counted. Similarly, if a procedure without delay. The time that if these transactions are required by law.
company must open a bank account in order the entrepreneur spends on gathering Although value added tax registration
to complete any subsequent procedure information is not measured. It is assumed can be counted as a separate procedure,
such as registering for value added tax that the entrepreneur is aware of all entry value added tax is not part of the incor-
or showing proof of minimum capital requirements and their sequence from the poration cost. The company law, the
depositthis transaction is included as a beginning but has had no prior contact commercial code and specic regulations
procedure. Shortcuts are counted only if with any of the officials involved. and fee schedules are used as sources
they fulll four criteria: they are legal, they for calculating costs. In the absence of
are available to the general public, they are Cost fee schedules, a government officers
used by the majority of companies, and Cost is recorded as a percentage of the estimate is taken as an official source.
avoiding them causes delays. economys income per capita. It includes In the absence of a government officers
DATA NOTES 73

estimate, estimates by incorporation The aggregate gap on the overall distance construction permits. These scores are
experts are used. If several incorporation to frontier of the indicator set is used to the simple average of the distance to
experts provide different estimates, the assess the impact of data changes. Any frontier scores for each of the component
median reported value is applied. In all data update that leads to a change of 2% indicators (gure 8.3).
cases the cost excludes bribes. or more on the distance to frontier gap is
classied as a reform (for more details, EFFICIENCY OF CONSTRUCTION
Paid-in minimum capital see the chapter on the distance to frontier PERMITTING
The paid-in minimum capital requirement and ease of doing business ranking). For Doing Business divides the process of
reects the amount that the entrepreneur example, if the implementation of a new building a warehouse into distinct pro-
needs to deposit in a bank or with a one-stop shop for company registration cedures in the questionnaire and solicits
third-party (for example, a notary) before reduces time and procedures in a way data for calculating the time and cost to
registration or up to three months after that the overall gap decreases by 2% or complete each procedure (gure 8.4).
incorporation. It is recorded as a percent- more, the change is classied as a reform. These procedures include, but are not
age of the economys income per capita. On the contrary, minor fee updates or limited to:
The amount is typically specied in the other small changes in the indicators that
commercial code or the company law. have an aggregate impact of less than 2% Obtaining all plans and surveys
The legal provision needs to be adopted, on the gap are not classied as a reform, required by the architect and the engi-
enforced and fully implemented. Any but the data is updated accordingly. neer to start the design of the building
legal limitation of the companys opera- plans (for example, topographical
tions or decisions related to the payment The data details on starting a business can surveys, location maps or soil tests).
of the minimum capital requirement is be found for each economy at http://www Obtaining and submitting all rel-
recorded. In case the legal minimum cap- .doingbusiness.org. This methodology was evant project-specific documents (for
ital is provided per share, it is multiplied developed by Djankov and others (2002) example, building plans, site maps
by the number of shareholders owning and is adopted here with minor changes. and certificates of urbanism) to the
the company. Many economies require authorities.
minimum capital but allow businesses Hiring external third-party supervi-
to pay only a part of it before registra- DEALING WITH sors, consultants, engineers or
tion, with the rest to be paid after the CONSTRUCTION PERMITS inspectors (if necessary).
rst year of operation. In Turkey in June Obtaining all necessary clearances,
2017, for example, the minimum capital Doing Business records all procedures licenses, permits and certicates.
requirement was 10,000 Turkish liras, required for a business in the construc-
of which one-fourth needed to be paid tion industry to build a warehouse, along
before registration. The paid-in minimum with the time and cost to complete each
capital recorded for Turkey is therefore procedure. In addition, Doing Business
2,500 Turkish liras, or 7.8% of income measures the building quality control FIGURE 8.3 Dealing with construction
permits: efficiency and quality of building
per capita. index, evaluating the quality of build-
regulation
ing regulations, the strength of quality
REFORMS control and safety mechanisms, liability Rankings are based on distance to
frontier scores for four indicators
The starting a business indicator set and insurance regimes, and professional
tracks changes related to the ease of certication requirements. Information Days to comply Cost to comply
with formalities with formalities,
incorporating and operating a limited lia- is collected through a questionnaire to build a as % of
bility company every year. Depending on administered to experts in construction warehouse warehouse value

the impact on the data, certain changes licensing, including architects, civil engi-
are classied as reforms and listed in the neers, construction lawyers, construc-
summaries of Doing Business reforms in tion rms, utility service providers, and 25% 25%
Time Cost
2016/2017 section of the report in order public officials who deal with building
25% 25%
to acknowledge the implementation of regulations, including approvals, permit Procedures Building
quality
signicant changes. Reforms are divided issuance, and inspections. control
index
into two types: those that make it easier
to do business and those changes that The ranking of economies on the ease Steps to comply Quality of building
with formalities; regulation and its
make it more difficult to do business. The of dealing with construction permits is completed when implementation
starting a business indicator set uses one determined by sorting their distance final document is
received
criterion to recognize a reform. to frontier scores for dealing with
74 DOING BUSINESS 2018

Will have road access and be located


FIGURE 8.4 What are the time, cost and number of procedures to comply with
formalities to build a warehouse? in the periurban area of the economys
largest business city (that is, on the
Cost fringes of the city but still within its
(% of warehouse value)
official limits). For 11 economies the
Completed data are also collected for the second
warehouse largest business city.
Will not be located in a special eco-
Number of nomic or industrial zone.
procedures Will be located on a land plot of
approximately 929 square meters
A business in the (10,000 square feet) that is 100%
construction owned by BuildCo and is accurately
industry Time
(days)
registered in the cadastre and land
Preconstruction Construction Postconstruction
and utilities registry where freehold titles exist.
However, when the land is owned
by the government and leased by
Submitting all required notications Has 60 builders and other employees, BuildCo., it is assumed that BuildCo.
for the start and end of construction all of them nationals with the techni- will register the land in the cadastre
and for inspections. cal expertise and professional experi- or land registry or both, whichever
Requesting and receiving all neces- ence necessary to obtain construction is applicable, at the completion of
sary inspections (unless completed by permits and approvals. the warehouse.
a hired private, third-party inspector). Has a licensed architect and a Is valued at 50 times income per capita.
licensed engineer, both registered Will be a new construction (with no
Doing Business also records procedures with the local association of archi- previous construction on the land),
for obtaining connections for water and tects or engineers, where applicable. with no trees, natural water sources,
sewerage. Procedures necessary to regis- BuildCo is not assumed to have any natural reserves, or historical monu-
ter the warehouse so that it can be used other employees who are technical or ments of any kind on the plot.
as collateral or transferred to another licensed specialists, such as geologi- Will have complete architectural and
entity are also counted. cal or topographical experts. technical plans prepared by a licensed
Has paid all taxes and taken out all architect and a licensed engineer. If
To make the data comparable across necessary insurance applicable to its preparation of the plans requires such
economies, several assumptions about general business activity (for example, steps as obtaining further documen-
the construction company, the ware- accidental insurance for construction tation or getting prior approvals from
house project and the utility connections workers and third-person liability). external agencies, these are counted
are used. Owns the land on which the ware- as procedures.
house will be built and will sell the Will include all technical equipment
Assumptions about the warehouse upon its completion. required to be fully operational.
construction company Will take 30 weeks to construct
The construction company (BuildCo): Assumptions about the (excluding all delays due to adminis-
Is a limited liability company (or its warehouse trative and regulatory requirements).
legal equivalent). The warehouse:
Operates in the economys largest Will be used for general storage Assumptions about the utility
business city. For 11 economies the activities, such as storage of books or connections
data are also collected for the second stationery. The warehouse will not be The water and sewerage connections:
largest business city (table 8A.1). used for any goods requiring special Will be 150 meters (492 feet) from
Is 100% domestically and privately conditions, such as food, chemicals, the existing water source and sewer
owned. or pharmaceuticals. tap. If there is no water delivery infra-
Has ve owners, none of whom is Will have two stories, both above structure in the economy, a borehole
legal entity. ground, with a total constructed area of will be dug. If there is no sewerage
Is fully licensed and insured to carry approximately 1,300.6 square meters infrastructure, a septic tank in the
out construction projects, such as (14,000 square feet). Each floor will be smallest size available will be installed
building warehouses. 3 meters (9 feet, 10 inches) high. or built.
DATA NOTES 75

Will not require water for re protection Time TABLE 8.4 What do the indicators on
reasons; a fire extinguishing system Time is recorded in calendar days. The the efficiency of construction permitting
(dry system) will be used instead. If a measure captures the median duration measure?
wet re protection system is required that local experts indicate is necessary
Procedures to legally build a warehouse
by law, it is assumed that the water to complete a procedure in practice. It is (number)
demand specied below also covers assumed that the minimum time required Submitting all relevant documents and obtaining
the water needed for re protection. for each procedure is one day, except for all necessary clearances, licenses, permits and
certificates
Will have an average water use of procedures that can be fully completed
Submitting all required notifications and receiving
662 liters (175 gallons) a day and an online, for which the time required is all necessary inspections
average wastewater ow of 568 liters recorded as half a day. Although proce-
Obtaining utility connections for water and
(150 gallons) a day. Will have a peak dures may take place simultaneously, sewerage
water use of 1,325 liters (350 gallons) they cannot start on the same day (that Registering the warehouse after its completion
a day and a peak wastewater ow of is, simultaneous procedures start on con- (if required for use as collateral or for transfer of
the warehouse)
1,136 liters (300 gallons) a day. secutive days), again with the exception
Will have a constant level of water of procedures that can be fully completed Time required to complete each procedure
(calendar days)
demand and wastewater flow online. If a procedure can be accelerated
Does not include time spent gathering
throughout the year. legally for an additional cost, the fastest information
Connection pipes will be 1 inch in procedure is chosen if that option is more
Each procedure starts on a separate day
diameter for water and 4 inches in benecial to the economys distance to though procedures that can be fully completed
diameter for sewerage. frontier score. It is assumed that BuildCo online are an exception to this rule
does not waste time and commits to Procedure is considered completed once final
document is received
Procedures completing each remaining procedure
A procedure is any interaction of the without delay. The time that BuildCo No prior contact with officials

building companys employees, manag- spends on gathering information is not Cost required to complete each procedure
(% of warehouse value)
ers, or any party acting on behalf of the taken into account. It is assumed that
Official costs only, no bribes
company with external parties, including BuildCo follows all building requirements
government agencies, notaries, the land and their sequence as required.
registry, the cadastre, utility companies, BUILDING QUALITY CONTROL
and public inspectorsand the hiring of Cost The building quality control index is
external private inspectors and techni- Cost is recorded as a percentage of the based on six indicesthe quality of
cal experts where needed. Interactions warehouse value (assumed to be 50 building regulations, quality control
between company employees, such as times income per capita). Only official before, during and after construction,
development of the warehouse plans and costs are recorded. All fees associated liability and insurance regimes, and
inspections by the in-house engineer, are with completing the procedures to legally professional certications indices
not counted as procedures. However, build a warehouse are recorded, including (table 8.5). The indicator is based on
interactions with external parties that those associated with obtaining land use the same case study assumptions as the
are required for the architect to prepare approvals and preconstruction design measures of efficiency.
the plans and drawings (such as obtain- clearances; receiving inspections before,
ing topographic or geological surveys), during and after construction; obtain- Quality of building regulations
or to have such documents approved ing utility connections; and registering index
or stamped by external parties, are the warehouse at the property registry. The quality of building regulations index
counted as procedures. Procedures that Nonrecurring taxes required for the has two components:
the company undergoes to connect the completion of the warehouse project are
warehouse to water and sewerage are also recorded. Sales taxes (such as value Whether building regulations are eas-
included. All procedures that are legally added tax) or capital gains taxes are not ily accessible. A score of 1 is assigned
required and that are done in practice recorded. Nor are deposits that must be if building regulations (including the
by the majority of companies to build a paid up front and are later refunded. The building code) or regulations dealing
warehouse are counted, even if they may building code, information from local with construction permits are avail-
be avoided in exceptional cases. This experts, and specic regulations and able on a website that is updated as
includes obtaining technical conditions fee schedules are used as sources for new regulations are passed; 0.5 if the
for electricity or clearance of the electrical costs. If several local partners provide building regulations are available free
plans only if they are required to obtain a different estimates, the median reported of charge (or for a nominal fee) at the
building permit (table 8.4). value is used. relevant permit-issuing authority; 0 if
76 DOING BUSINESS 2018

TABLE 8.5 What do the indicators on none of these sources specify any of Rwanda, for example, the city hall in Kigali
building quality control measure? these requirements or if these sources must review the building permit applica-
specify fewer than the three require- tion, including the plans and drawings, and
Quality of building regulations index (02)
ments mentioned above. both a licensed architect and a licensed
Accessibility of building regulations (01)
engineer are part of the team that reviews
Clarity of requirements for obtaining a building The index ranges from 0 to 2, with the plans and drawings. Rwanda therefore
permit (01)
higher values indicating clearer and receives a score of 1 on the quality control
Quality control before construction index
(01) more transparent building regulations. before construction index.
In New Zealand, for example, all relevant
Whether licensed or technical experts approve
building plans (01) legislation can be found on an official Quality control during
Quality control during construction index government website (a score of 1). The construction index
(03) legislation species the list of required The quality control during construction
Types of inspections legally mandated during documents to submit, the fees to be paid, index has two components:
construction (02) and all required preapprovals of the draw- Whether inspections are mandated
Implementation of legally mandated inspections ings or plans by the relevant agencies (a by law during the construction pro-
in practice (01)
score of 1). Adding these numbers gives cess. A score of 2 is assigned if (i) a
Quality control after construction index
(03)
New Zealand a score of 2 on the quality government agency is legally man-
of building regulations index. dated to conduct technical inspec-
Final inspection legally mandated after
construction (02) tions at different stages during the
Implementation of legally mandated final Quality control before construction or an in-house engineer
inspection in practice (01) construction index (that is, an employee of the building
Liability and insurance regimes index (02) The quality control before construction company), an external supervising
Parties held legally liable for structural flaws after index has one component: engineer or rm is legally mandated
building occupancy (01) Whether by law, a licensed architect to conduct technical inspections at
Parties legally mandated to obtain insurance to or licensed engineer is part of the different stages during the construc-
cover structural flaws after building occupancy or committee or team that reviews and tion of the building and is required to
insurance is commonly obtained in practice (01)
approves building permit applications submit a detailed inspections report
Professional certifications index (04)
and whether that person has the at the completion of the construc-
Qualification requirements for individual who authority to refuse an application if tion; and (ii) it is legally mandated
approves building plans (02)
the plans are not in conformity with to conduct risk-based inspections. A
Qualification requirements for individual who
supervises construction or conducts inspections regulations. A score of 1 is assigned score of 1 is assigned if a government
(02) if the national association of archi- agency is legally mandated to conduct
Building quality control index (015) tects or engineers (or its equivalent) only technical inspections at different
Sum of the quality of building regulations, quality must review the building plans, if an stages during the construction or
control before construction, quality control during independent rm or expert who is a if an in-house engineer (that is, an
construction, quality control after construction,
liability and insurance regimes, and professional licensed architect or engineer must employee of the building company),
certifications indices review the plans, if the architect or an external supervising engineer
engineer who prepared the plans or an external inspections rm is
the building regulations must be pur- must submit an attestation to the legally mandated to conduct technical
chased or if they are not made easily permit-issuing authority stating that inspections at different stages during
accessible anywhere. the plans are in compliance with the the construction of the building and is
Whether the requirements for obtain- building regulations or if a licensed required to submit a detailed inspec-
ing a building permit are clearly architect or engineer is part of the tions report at the completion of the
specied. A score of 1 is assigned if committee or team that approves the construction. A score of 0 is assigned
the building regulations (including plans at the relevant permit-issuing if a government agency is legally
the building code) or any acces- authority; 0 if no licensed architect or mandated to conduct unscheduled
sible website, brochure, or pamphlet engineer is involved in the review of inspections, or if no technical inspec-
clearly species the list of required the plans to ensure their compliance tions are mandated by law.
documents to submit, the fees to be with building regulations. Whether inspections during con-
paid, and all required preapprovals struction are implemented in practice.
of the drawings (example: electrical, The index ranges from 0 to 1, with higher A score of 1 is assigned if the legally
water and sewerage, environmental) values indicating better quality control mandated inspections during con-
or plans by the relevant agencies; 0 if in the review of the building plans. In struction always occur in practice; 0
DATA NOTES 77

if the legally mandated inspections do with the approved plans and existing liabilityinsurance policy to cover
not occur in practice, if the inspections building regulations; 0 if the legally possible structural aws or problems
occur most of the time but not always, mandated nal inspection does not in the building once it is in use. A
if inspections are not mandated by occur in practice, if the legally man- score of 1 is assigned if the architect
law regardless of whether they com- dated nal inspection occurs most of or engineer who designed the plans
monly occur in practice. the time but not always, or if a nal for the building, the professional or
inspection is not mandated by law agency that conducted the technical
The index ranges from 0 to 3, with higher regardless of whether or not it com- inspections, the construction com-
values indicating better quality control monly occurs in practice. pany, or the project owner or investor
during the construction process. In is required by law to obtain either a
Antigua and Barbuda, for example, the The index ranges from 0 to 3, with decennial liability insurance policy
Development Control Authority is legally higher values indicating better quality or a latent defect liability insurance
mandated to conduct phased inspections control after the construction process. to cover possible structural aws or
under the Physical Planning Act of 2003 In Haiti, for example, the Municipality problems in the building once it is in
(a score of 1). However, the Development of Port-au-Prince is legally mandated use or if a decennial liability insurance
Control Authority rarely conducts these to conduct a nal inspection under the policy or a latent defect liability insur-
inspections in practice (a score of 0). National Building Code of 2012 (a score ance is commonly obtained in practice
Adding these numbers gives Antigua and of 2). However, the nal inspection by the majority of any of these parties
Barbuda a score of 1 on the quality control does not occur in practice (a score of even if not required by law. A score of
during construction index. 0). Adding these numbers gives Haiti 0 is assigned if no party is required
a score of 2 on the quality control after by law to obtain either a decennial
Quality control after construction index. liability insurance or a latent defect
construction index liability insurance and such insurance
The quality control after construction Liability and insurance regimes is not commonly obtained in practice
index has two components: index by any party, if the requirement to
Whether a nal inspection is mandated The liability and insurance regimes index obtain an insurance policy is stipu-
by law in order to verify that the build- has two components: lated in a contract, if any party must
ing was built in compliance with the Whether any parties involved in the obtain a professional insurance or an
approved plans and existing building construction process are held legally all risk insurance to cover the safety
regulations. A score of 2 is assigned liable for latent defects such as struc- of workers or any other defects dur-
if an in-house supervising engineer tural aws or problems in the building ing construction but not a decennial
(that is, an employee of the building once it is in use. A score of 1 is assigned liability insurance or a latent defect
company), an external supervising if at least two of the following parties liability insurance that would cover
engineer or an external inspections rm are held legally liable for structural defects after the building is in use, or
is legally mandated to verify that the aws or problems in the building once if any party is required to pay for any
building has been built in accordance it is in use: the architect or engineer damages caused on their own without
with the approved plans and existing who designed the plans for the build- having to obtain an insurance policy.
building regulations, or if a government ing, the professional or agency that
agency is legally mandated to conduct a conducted technical inspections, or The index ranges from 0 to 2, with higher
nal inspection upon completion of the the construction company; 0.5 if only values indicating more stringent latent
building; 0 if no nal inspection is man- one of the parties is held legally liable defect liability and insurance regimes.
dated by law after construction and no for structural aws or problems in the In Madagascar, for example, under
third party is required to verify that the building once it is in use; 0 if no party article 1792 of the Civil Code both the
building has been built in accordance is held legally liable for structural aws architect who designed the plans and the
with the approved plans and existing or problems in the building once it is construction company are legally held
building regulations. in use, if the project owner or investor liable for latent defects for a period of 10
Whether the nal inspection is imple- is the only party held liable, if liability years after the completion of the building
mented in practice. A score of 1 is is determined in court, or if liability is (a score of 1). However, there is no legal
assigned if the legally mandated nal stipulated in a contract. requirement for any party to obtain a
inspection after construction always Whether any parties involved in decennial liability insurance policy to
occurs in practice or if a supervis- the construction process is legally cover structural defects, nor do most par-
ing engineer or rm attests that the required to obtain a latent defect ties obtain such insurance in practice (a
building has been built in accordance liabilityor decennial (10 years) score of 0). Adding these numbers gives
78 DOING BUSINESS 2018

Madagascar a score of 1 on the liability order of engineers or pass a qualifi- If an economy issued no building permits
and insurance regimes index. cation exam. A score of 1 is assigned between June 2016 and June 2017 or if
if national or state regulations man- the applicable building legislation in the
Professional certifications index date that the professional must have economy is not being implemented, the
The professional certifications index has a university degree (a minimum of a economy receives a no practice mark
two components: bachelors) in engineering and must on the procedures, time and cost indica-
The qualification requirements of the also either have a minimum number tors. In addition, a no practice economy
professional responsible for verify- of years of practical experience or be receives a score of 0 on the building qual-
ing that the architectural plans or a registered member of the national ity control index even if its legal framework
drawings are in compliance with the order (association) of engineers or includes provisions related to building
building regulations. A score of 2 is pass a qualification exam. A score quality control and safety mechanisms.
assigned if national or state regula- of 0 is assigned if national or state
tions mandate that the professional regulations mandate that the profes- REFORMS
must have a minimum number of sional must meet only one of the The dealing with construction permits
years of practical experience, must requirements, if they mandate that indicator set tracks changes related to
have a university degree (a minimum the professional must meet two of the efficiency and quality of construc-
of a bachelors) in architecture or the requirements but neither of the tion permitting systems every year.
engineering, and must also either be two is to have a university degree, Depending on the impact on the data
a registered member of the national or if no national or state regulation certain changes are classified as reforms
order (association) of architects or determines the professionals quali- and listed in the summaries of Doing
engineers or pass a qualification fication requirements. Business reforms in 2016/2017 section
exam. A score of 1 is assigned if of the report in order to acknowledge the
national or state regulations man- The index ranges from 0 to 4, with higher implementation of significant changes.
date that the professional must have values indicating greater professional Reforms are divided into two types:
a university degree (a minimum of a certication requirements. In Albania, those that make it easier to do business
bachelors) in architecture or engi- for example, the professional conducting and those changes that make it more
neering and must also either have a technical inspections during construc- difficult to do business. The dealing with
minimum number of years of practi- tion must have a minimum number of construction permits indicator set uses
cal experience or be a registered years of experience, a relevant university only one criterion to recognize a reform.
member of the national order (asso- degree and must be a registered architect
ciation) of architects or engineers or or engineer (a score of 2). However, the The aggregate gap on the overall distance
pass a qualification exam. A score professional responsible for verifying that to frontier of the indicator set is used to
of 0 is assigned if national or state the architectural plans or drawings are assess the impact of data changes. Any
regulations mandate that the profes- in compliance with building regulations data update that leads to a change of
sional must meet only one of the must only have a minimum number of 2% or more on the distance to frontier
above requirements, if they mandate years of experience and a university gap is classied as a reform (for more
that the professional must meet two degree in architecture or engineering (a details, see the chapter on the distance to
of the requirements but neither of the score of 1). Adding these numbers gives frontier and ease of doing business rank-
two is to have a university degree, or Albania a score of 3 on the professional ing). For example, if the implementation
if no national or state regulation certications index. of a new electronic permitting system
determines the professionals quali- reduces time in a way that the overall gap
fication requirements. Building quality control index decreases by 2% or more, such a change
The qualification requirements of the The building quality control index is the is classied as a reform. On the contrary,
professional who conducts the tech- sum of the scores on the quality of build- minor fee updates or other smaller
nical inspections during construction. ing regulations, quality control before changes in the indicators that have an
A score of 2 is assigned if national or construction, quality control during con- aggregate impact of less than 2% on the
state regulations mandate that the struction, quality control after construc- gap are not classied as a reform, but
professional must have a minimum tion, liability and insurance regimes, and their impact is still reected on the most
number of years of practical experi- professional certications indices. The updated indicators for this indicator set.
ence, must have a university degree index ranges from 0 to 15, with higher
(a minimum of a bachelors) in values indicating better quality control The data details on dealing with construc-
engineering, and must also either be and safety mechanisms in the construc- tion permits can be found for each economy
a registered member of the national tion regulatory system. at http://www.doingbusiness.org.
DATA NOTES 79

limiting outages (such as a requirement FIGURE 8.6 Getting electricity:


GETTING ELECTRICITY to compensate customers or pay nes efficiency, reliability and transparency
when outages exceed a certain cap).
Doing Business records all procedures
Rankings are based on distance to
required for a business to obtain a perma- The ranking of economies on the ease of frontier scores for four indicators
nent electricity connection and supply for getting electricity is determined by sort-
Days to obtain Cost to obtain a
a standardized warehouse (gure 8.5). ing their distance to frontier scores for an electricity connection, as % of
connection income per capita
These procedures include applications getting electricity. These scores are the
and contracts with electricity utilities, simple average of the distance to frontier
all necessary inspections and clearances scores for all the component indicators
25% 25%
from the distribution utility and other except the price of electricity (gure 8.6). Time Cost
agencies, and the external and nal con- 25% 25%
nection works. The questionnaire divides Data on the reliability of supply are col- Procedures Reliability
of supply and

the process of getting an electricity lected from the electricity distribution transparency
of tariffs

connection into distinct procedures and utilities or regulators, depending upon the
solicits data for calculating the time and specic technical nature of the data. The Steps to file a connection Power outages
application, prepare and regulatory
cost to complete each procedure. rest of the information, including data on a design, complete mechanisms in
transparency of tariffs and procedures works, obtain approvals, place to monitor
go through inspections, and reduce them;
In addition, Doing Business measures the for obtaining electricity connection, are install a meter and transparency of
sign a supply tariffs
reliability of supply and transparency of collected from all market playersthe contract
tariffs index (included in the aggregate electricity distribution utility, electric-
distance to frontier score and ranking ity regulatory agencies and independent
on the ease of doing business) and the professionals such as electrical engineers, Note: The price of electricity is measured but does
not count for the rankings.
price of electricity (omitted from these electrical contractors and construc-
aggregate measures). The reliability of tion companies. The distribution utility
supply and transparency of tariffs index consulted is the one serving the area (or Assumptions about the
encompasses quantitative data on the areas) where warehouses are most warehouse
duration and frequency of power outages commonly located. If there is a choice of The warehouse:
as well as qualitative information on the distribution utilities, the one serving the Is owned by a local entrepreneur.
mechanisms put in place by the utility for largest number of customers is selected. Is located in the economys largest
monitoring power outages and restoring business city. For 11 economies the
power supply, the reporting relationship To make the data comparable across data are also collected for the second
between the utility and the regulator for economies, several assumptions about largest business city (table 8A.1).
power outages, the transparency and the warehouse, the electricity connection Is located in an area where similar
accessibility of tariffs and whether the and the monthly consumption are used. warehouses are typically located. In
utility faces a nancial deterrent aimed at this area a new electricity connection
is not eligible for a special invest-
FIGURE 8.5 Doing Business measures the connection process at the level of ment promotion regime (offering
distribution utilities special subsidization or faster service,
for example).
Is located in an area with no physical
constraints. For example, the property
is not near a railway.
Is a new construction and is being
connected to electricity for the
Generation Transmission rst time.
Has two stories, both above
ground, with a total surface area of
Distribution
approximately 1,300.6 square meters
u New connections
u Network operation and maintenance
(14,000 square feet). The plot of
u Metering and billing land on which it is built is 929 square
Customer
meters (10,000 square feet).
Is used for storage of goods.
80 DOING BUSINESS 2018

Assumptions about the Procedures TABLE 8.6 What do the getting


electricity connection A procedure is dened as any interac- electricity indicators measure?
The electricity connection: tion of the companys employees or its
Procedures to obtain an electricity
Is a permanent one. main electrician or electrical engineer connection (number)
Is a three-phase, four-wire Y con- (that is, the one who may have done the Submitting all relevant documents and obtaining
nection with a subscribed capacity internal wiring) with external parties, all necessary clearances and permits
of 140-kilo-volt-ampere (kVA) with such as the electricity distribution utility, Completing all required notifications and
a power factor of 1, when 1 kVA = electricity supply utilities, government receiving all necessary inspections
1 kilowatt (kW). agencies, electrical contractors and Obtaining external installation works and
possibly purchasing material for these works
Has a length of 150 meters. The electrical firms. Interactions between
connection is to either the low- or company employees and steps related Concluding any necessary supply contract and
obtaining final supply
medium-voltage distribution net- to the internal electrical wiring, such
Time required to complete each procedure
work and is either overhead or under- as the design and execution of the (calendar days)
ground, whichever is more common internal electrical installation plans, are
Is at least one calendar day
in the area where the warehouse not counted as procedures. Procedures
Each procedure starts on a separate day
is located. that must be completed with the same
Requires works that involve the utility but with different departments are Does not include time spent gathering
information
crossing of a 10-meter wide road (by counted as separate procedures (table
Reflects the time spent in practice, with little
excavation, overhead lines) but are 8.6). follow-up and no prior contact with officials
all carried out on public land. There is Cost required to complete each procedure
no crossing of other owners private The companys employees are assumed (% of income per capita)
property because the warehouse has to complete all procedures themselves Official costs only, no bribes
access to a road. unless the use of a third party is mandated Value added tax excluded
Includes only negligible length in the (for example, if an electrician registered
Reliability of supply and transparency of
customers private domain. with the utility is the only party allowed tariffs index (08)
Does not require work to install the to submit an application). If the company Duration and frequency of power outages (03)
internal wiring of the warehouse. can, but is not required to request the ser-
Tools to monitor power outages (01)
This has already been completed vices of professionals (such as a private
Tools to restore power supply (01)
up to and including the customers rm), procedures will be counted for each
service panel or switchboard and the interaction commonly done in practice. Regulatory monitoring of utilities performance (01)

meter base. Financial deterrents aimed at limiting outages (01)


Time Transparency and accessibility of tariffs (01)
Assumptions about the monthly Time is recorded in calendar days. The Price of electricity (cents per kilowatt-hour)
consumption for March measure captures the median duration Price based on monthly bill for commercial
It is assumed that the warehouse that the electricity utility and experts warehouse in case study
operates 30 days a month from 9:00 indicate is necessary in practice, rather Note: While Doing Business measures the price of
electricity, it does not include these data when calculating
a.m. to 5:00 p.m. (8 hours a day), than required by law, to complete a the distance to frontier score for getting electricity or
with equipment utilized at 80% of procedure with minimum follow-up and the ranking on the ease of getting electricity.
capacity on average and that there no extra payments. It is assumed that
are no electricity cuts (assumed for the minimum time required for each Cost
simplicity reasons). procedure is one day. Although proce- Cost is recorded as a percentage of the
The monthly energy consumption is dures may take place simultaneously, economys income per capita and is
26,880 kilowatt-hours (kWh); hourly they cannot start on the same day (that exclusive of value added tax. All the fees
consumption is 112 kWh. is, simultaneous procedures start on and costs associated with completing
If multiple electricity suppliers exist, consecutive days). It is assumed that the procedures to connect a warehouse
the warehouse is served by the the company does not waste time and to electricity are recorded, including
cheapest supplier. commits to completing each remain- those related to obtaining clearances
Tariffs effective in March of the cur- ing procedure without delay. The time from government agencies, applying for
rent year are used for calculation of that the company spends on gathering the connection, receiving inspections
the price of electricity for the ware- information is not taken into account. It of both the site and the internal wiring,
house. Although March has 31 days, is assumed that the company is aware of purchasing material, getting the actual
for calculation purposes only 30 days all electricity connection requirements connection works and paying a security
are used. and their sequence from the beginning. deposit. Information from local experts
DATA NOTES 81

and specic regulations and fee sched- vary depending on the credit standing of transparency of tariffs index if it satisfies
ules are used as sources. If several local the company. The best possible credit two conditions. First, the utility must col-
partners provide different estimates, standing and thus the lowest possible lect data on all types of outages (measur-
the median reported value is used. In all commission are assumed. Where a bond ing the average total duration of outages
cases the cost excludes bribes. can be put up, the value recorded for the per customer and the average number
deposit is the annual commission times of outages per customer). Second, the
Security deposit the ve years assumed to be the length SAIDI value must be below a threshold of
Utilities may require security deposits as of the contract. If both options exist, the 100 hours and the SAIFI value must be
a guarantee against the possible failure cheaper alternative is recorded. under 100 outages.
of customers to pay their consumption
bills. For this reason, the security deposit In Hong Kong SAR, China, a customer An economy is not eligible to obtain
for a new customer is most often calcu- requesting a 140-kVA electricity con- a score if outages are too frequent or
lated as a function of the customers nection in March 2017 would have had long-lasting for the electricity supply
estimated consumption. to put up a security deposit of 63,600 to be considered reliablethat is, if the
Hong Kong dollars (~$7,850) in cash or SAIDI or the SAIFI values exceed the
Doing Business does not record the full check, and the deposit would have been determined thresholds. An economy
amount of the security deposit. If the returned only at the end of the contract. is also not eligible to obtain a score on
deposit is based on the customers The customer could instead have invested the index if data on power outages are
actual consumption, this basis is the one this money at the prevailing lending rate of not collected or collected partially (for
assumed in the case study. Rather than 5.0%. Over the ve years of the contract, example, planned outages or load shed-
the full amount of the security deposit, this would imply a present value of lost ding are not included in the calculation
Doing Business records the present value interest earnings of 13,760 Hong Kong of the SAIDI and SAIFI indices), and if
of the losses in interest earnings expe- dollars ($1,700). In contrast, if the cus- the minimum outage time considered
rienced by the customer because the tomer chose to settle the deposit with a for calculation of the SAIDI and SAIFI
utility holds the security deposit over a bank guarantee at an annual rate of 1.5%, indices is over 5 minutes.
prolonged period, in most cases until the the amount lost over the ve years would
end of the contract (assumed to be after be just 4,770 Hong Kong dollars ($590). For all economies that meet the criteria
ve years). In cases where the security as determined by Doing Business, a score
deposit is used to cover the rst monthly Reliability of supply and on the reliability of supply and transpar-
consumption bills, it is not recorded. To transparency of tariffs index ency of tariffs index is calculated on the
calculate the present value of the lost Doing Business uses the system average basis of the following six components:
interest earnings, the end-2016 lending interruption duration index (SAIDI)
rates from the International Monetary and the system average interruption What the SAIDI and SAIFI values are.
Funds International Financial Statistics frequency index (SAIFI) to measure the If SAIDI and SAIFI are 12 (equivalent
are used. In cases where the security duration and frequency of power out- to an outage of one hour each month)
deposit is returned with interest, the dif- ages in the largest business city of each or below, a score of 1 is assigned. If
ference between the lending rate and economy (for 11 economies the data SAIDI and SAIFI are 4 (equivalent
the interest paid by the utility is used to are also collected for the second largest to an outage of one hour each quar-
calculate the present value. business city; table 8A.1). SAIDI is the ter) or below, 1 additional point is
average total duration of outages over assigned. Finally, if SAIDI and SAIFI
In some economies, the security deposit the course of a year for each customer are 1 (equivalent to an outage of one
can be put up in the form of a bond: the served, while SAIFI is the average num- hour per year) or below, 1 more point
company can obtain from a bank or an ber of service interruptions experienced is assigned.
insurance company a guarantee issued by a customer in a year. Annual data What tools are used by the distribu-
on the assets it holds with that nancial (covering the calendar year) are collected tion utility to monitor power out-
institution. In contrast to the scenario in from distribution utility companies and ages. A score of 1 is assigned if the
which the customer pays the deposit in national regulators on SAIDI and SAIFI. utility uses automated tools, such as
cash to the utility, in this case the com- Both SAIDI and SAIFI estimates should an Outage/Incident Management
pany does not lose ownership control include planned and unplanned outages, System (OMS/IMS) or Supervisory
over the full amount and can continue as well as load shedding. Control and Data Acquisition
using it. In return, the company will pay (SCADA) system; 0 if it relies solely
the bank a commission for obtaining An economy is eligible to obtain a on calls from customers, and records
the bond. The commission charged may score on the reliability of supply and and monitors outages manually.
82 DOING BUSINESS 2018

What tools are used by the distribu- electricity service (a score of 1). The when calculating the distance to frontier
tion utility to restore power supply. A Office of Gas and Electricity Markets, an score for getting electricity or the ranking
score of 1 is assigned if the utility uses independent national regulatory authority, on the ease of getting electricity. The data
automated tools, such as an OMS/ actively reviews the utilitys performance are available on the Doing Business website
IMS or SCADA system; 0 if it relies in providing reliable electricity service (http://www.doingbusiness.org) and are
solely on manual resources for service (a score of 1) and requires the utility to based on standardized assumptions to
restoration, such as eld crews or compensate customers if outages last ensure comparability across economies.
maintenance personnel. longer than a maximum period dened
Whether a regulatorthat is, an entity by the regulator (a score of 1). Customers The price of electricity is measured in
separate from the utilitymonitors are notied of a change in tariffs ahead U.S. cents per kilowatt-hour. A monthly
the utilitys performance on reliability of the next billing cycle and can easily electricity consumption is assumed, for
of supply. A score of 1 is assigned if the check effective tariffs online (a score of 1). which a monthly bill is then computed for
regulator performs periodic or real-time Adding these numbers gives the United a warehouse based in the largest business
reviews; 0 if it does not monitor power Kingdom a total score of 8 on the reliability city of the economy for the month of March
outages and does not require the utility of supply and transparency of tariffs index. (for 11 economies the data are also col-
to report on reliability of supply. lected for the second largest business city;
Whether nancial deterrents exist to On the other hand, several economies table 8A.1). As noted, the warehouse uses
limit outages. A score of 1 is assigned receive a score of 0 on the reliability of electricity 30 days a month, from 9:00 a.m.
if the utility compensates customers supply and transparency of tariffs index. to 5:00 p.m., so different tariff schedules
when outages exceed a certain cap, if The reason may be that outages occur may apply if a time-of-use tariff is available.
the utility is ned by the regulator when more than once a month and none of the
outages exceed a certain cap or if both mechanisms and tools measured by the REFORMS
these conditions are met; 0 if no deter- index are in place. An economy may also The getting electricity indicator set tracks
rent mechanism of any kind is available. receive a score of 0 if either the SAIDI or changes related to the efficiency of the
Whether electricity tariffs are transpar- SAIFI value (or both) exceeds the thresh- connection process, as well as the reli-
ent and easily available. A score of 1 is old of 100, or not all outages were con- ability of power supply and transparency
assigned if effective tariffs are available sidered when calculating the indices. In of tariffs. Depending on the impact on
online and customers are notified of a Suriname, for example, the utility does not the data, certain changes are classied
change in tariff a full billing cycle (that include load shedding in the calculation of as reforms and listed in the summaries
is, one month) ahead of time; 0 if not. SAIDI and SAIFI indices. Thus, based on of Doing Business reforms in 2016/2017
the criteria established, Suriname cannot section of the report in order to acknowl-
The index ranges from 0 to 8, with higher receive a score on the index even though edge the implementation of signicant
values indicating greater reliability of the utility uses automated systems for changes. Reforms are divided into two
electricity supply and greater transpar- monitoring outages and restoration of types: those that make it easier to do
ency of tariffs. In the United Kingdom, for power supply and there is a transparency business and those changes that make it
example, the distribution utility company of electricity tariffs. more difficult to do business. The getting
UK Power Networks uses SAIDI and SAIFI electricity indicator set uses two criteria
metrics to monitor and collect data on If an economy issued no new electricity to recognize a reform.
power outages. In 2016, the average total connections to an electrical grid between
duration of power outages in London was June 2016 and June 2017, or if electricity First, the aggregate gap on the overall
0.326 hours per customer and the aver- is not provided during that period, the distance to frontier of the indicator set is
age number of outages experienced by economy receives a no practice mark used to assess the impact of data changes.
a customer was 0.166. Both SAIDI and on the procedures, time and cost indica- Any data update that leads to a change of
SAIFI are below the threshold and indicate tors. In addition, a no practice economy 2% or more on the distance to frontier gap
that there was less than one outage a year receives a score of 0 on the reliability of is classified as a reform (for more details,
per customer, for a total duration of less supply and transparency of tariff index see the chapter on the distance to frontier
than one hour. So the economy not only even if, for example, there is regulatory and ease of doing business ranking). For
meets the eligibility criteria for obtaining oversight of utilities on power interrup- example, if the implementation of a new
a score on the index, it also receives a tions, among others. single window at the utility reduces the
score of 3 on the rst component of the time to process new connection requests
index. The utility uses the automatic GE Price of electricity in a way that the overall gap decreases by
PowerOn Control System to identify faults Doing Business measures the price of 2% or more, such a change is classified
in the network (a score of 1) and restore electricity but does not include these data as a reform. On the other hand, minor
DATA NOTES 83

fee updates from the utility or other small reliability of infrastructure, transparency FIGURE 8.7 Registering property:
changes that have an aggregate impact of information, geographic coverage, land efficiency and quality of land
of less than 2% on the gap are not clas- dispute resolution and equal access to administration system
sified as a reform, but their impact is still property rights.
Rankings are based on distance to
reflected in the most updated indicators frontier scores for four indicators
for this topic. The ranking of economies on the ease
Days to transfer Cost to transfer
of registering property is determined by property between two property, as % of
local companies property value
Second, to be considered a reform, changes sorting their distance to frontier scores
in the data must be tied to an initiative led for registering property. These scores
by the utility or by the governmentand are the simple average of the distance to
25% 25%
not an exogenous event. For example, if frontier scores for each of the component Time Cost
outages increase considerably from one indicators (gure 8.7). 25% 25%
year to the next due to inclement weather, Procedures Quality
of land
administration
this cannot be considered a reform that EFFICIENCY OF TRANSFERRING index

makes doing business harder. Similarly, PROPERTY


Steps to transfer Reliability,
if the cost of electricity-related materi- As recorded by Doing Business, the pro- property so that it transparency and
als (such as cabling or transformers) cess of transferring property starts with can be sold or used coverage of land
as collateral administration system;
decreases due to a currency appreciation, obtaining the necessary documents, such protection against land
this cannot be considered a reform that as a copy of the sellers title if necessary, disputes; equal access
to property rights
makes doing business easier. However, and conducting due diligence if required.
if a utility establishes a one-stop shop to The transaction is considered complete
streamline the connection process or if it when it is opposable to third parties and
installs an automated system to improve when the buyer can use the property, use Assumptions about the property
monitoring of power outages and restora- it as collateral for a bank loan or resell it The property:
tion of electricity services, these actions (gure 8.8). Every procedure required by Has a value of 50 times income per
would be considered reforms that made law or necessary in practice is included, capita, which equals the sale price.
doing business easier. whether it is the responsibility of the sell- Is fully owned by the seller.
er or the buyer or must be completed by a Has no mortgages attached and has
The data details on getting electricity third party on their behalf. Local property been under the same ownership for
can be found for each economy at http:// lawyers, notaries and property registries the past 10 years.
www.doingbusiness.org. The initial meth- provide information on procedures as Is registered in the land registry
odology was developed by Geginat and well as the time and cost to complete or cadastre, or both, and is free of
Ramalho (2015) and is adopted here with each of them. title disputes.
minor changes. Is located in a periurban commercial
To make the data comparable across zone, and no rezoning is required.
economies, several assumptions about Consists of land and a building. The
REGISTERING PROPERTY the parties to the transaction, the prop- land area is 557.4 square meters
erty and the procedures are used. (6,000 square feet). A two-story
Doing Business records the full sequence warehouse of 929 square meters
of procedures necessary for a business Assumptions about the parties (10,000 square feet) is located on the
(the buyer) to purchase a property from The parties (buyer and seller): land. The warehouse is 10 years old,
another business (the seller) and to Are limited liability companies (or the is in good condition, has no heating
transfer the property title to the buyers legal equivalent). system and complies with all safety
name so that the buyer can use the Are located in the periurban area of standards, building codes and other
property for expanding its business, use the economys largest business city. legal requirements. The property,
the property as collateral in taking new For 11 economies the data are also col- consisting of land and building, will be
loans or, if necessary, sell the property to lected for the second largest business transferred in its entirety.
another business. It also measures the city (table 8A.1). Will not be subject to renovations
time and cost to complete each of these Are 100% domestically and privately or additional construction following
procedures. Doing Business also measures owned. the purchase.
the quality of the land administration sys- Have 50 employees each, all of whom Has no trees, natural water sources,
tem in each economy. The quality of land are nationals. natural reserves or historical monu-
administration index has ve dimensions: Perform general commercial activities. ments of any kind.
84 DOING BUSINESS 2018

FIGURE 8.8 What are the time, cost and number of procedures required to transfer TABLE 8.7 What do the indicators on
property between two local companies? the efficiency of transferring property
measure?
Cost
(% of property value) Procedures to legally transfer title on
immovable property (number)
Buyer can use
the property, Preregistration procedures (for example, checking
resell it or for liens, notarizing sales agreement, paying
use it as property transfer taxes)
collateral
Number of
procedures
Registration procedures in the economy's largest
Land & two-story business city a
warehouse
Postregistration procedures (for example, filling
Seller with property title with municipality)
registered and no
title disputes Time Time required to complete each procedure
Preregistration Registration Postregistration (days)
Does not include time spent gathering
information
Each procedure starts on a separate day
Will not be used for special purposes, to complete a procedure. It is assumed though procedures that can be fully completed
online are an exception to this rule
and no special permits, such as for that the minimum time required for each
residential use, industrial plants, procedure is one day, except for proce- Procedure is considered completed once final
document is received
waste storage or certain types of agri- dures that can be fully completed online,
No prior contact with officials
cultural activities, are required. for which the time required is recorded
Has no occupants, and no other party as half a day. Although procedures may Cost required to complete each procedure
(% of property value)
holds a legal interest in it. take place simultaneously, they cannot
Official costs only (such as administrative fees,
start on the same day, again with the duties and taxes)
Procedures exception of procedures that can be Value Added Tax, Capital Gains Tax and illicit
A procedure is dened as any interaction fully completed online. It is assumed payments are excluded
of the buyer or the seller, their agents (if that the buyer does not waste time and a. F or 11 economies the data are also collected for the
an agent is legally or in practice required) commits to completing each remaining second largest business city.

with external parties, including govern- procedure without delay. If a procedure


ment agencies, inspectors, notaries and can be accelerated for an additional cost, seller are included. If cost estimates dif-
lawyers. Interactions between company the fastest legal procedure available and fer among sources, the median reported
officers and employees are not consid- used by the majority of property owners value is used.
ered. All procedures that are legally or in is chosen. If procedures can be under-
practice required for registering property taken simultaneously, it is assumed that QUALITY OF LAND
are recorded, even if they may be avoided they are. It is assumed that the parties ADMINISTRATION
in exceptional cases (table 8.7). If a pro- involved are aware of all requirements The quality of land administration index
cedure can be accelerated legally for an and their sequence from the beginning. is composed of ve other indices: the
additional cost, the fastest procedure is Time spent on gathering information is reliability of infrastructure, transparency
chosen if that option is more benecial to not considered. If time estimates differ of information, geographic coverage,
the economys distance to frontier score among sources, the median reported land dispute resolution and equal access
and if it is used by the majority of prop- value is used. to property rights (table 8.8). Data are
erty owners. Although the buyer may collected for each economys largest
use lawyers or other professionals where Cost business city. For 11 economies the data
necessary in the registration process, it is Cost is recorded as a percentage of are also collected for the second largest
assumed that the buyer does not employ the property value, assumed to be business city.
an outside facilitator in the registration equivalent to 50 times income per capita.
process unless legally or in practice Only official costs required by law are Reliability of infrastructure
required to do so. recorded, including fees, transfer taxes, index
stamp duties and any other payment to The reliability of infrastructure index has
Time the property registry, notaries, public six components:
Time is recorded in calendar days. The agencies or lawyers. Other taxes, such How land titles are kept at the registry
measure captures the median dura- as capital gains tax or value added tax, of the largest business city of the
tion that property lawyers, notaries or are excluded from the cost measure. economy. A score of 2 is assigned if the
registry officials indicate is necessary Both costs borne by the buyer and the majority of land titles are fully digital;
DATA NOTES 85

TABLE 8.8 What do the indicators on the quality of land administration measure? users to check the plans and cadastral
information on parcels along with satel-
Reliability of infrastructure index (08)
lite images (a score of 1). Databases
Type of system for archiving information on land ownership about land ownership and maps are
Availability of electronic database to check for encumbrances linked to each other through the TAKBIS
Type of system for archiving maps system, an integrated information system
Availability of geographic information system for the land registry offices and cadastral
offices (a score of 1). Finally, there is a
Link between property ownership registry and mapping system
unique identifying number for properties
Transparency of information index (06)
(a score of 1). Adding these numbers
Accessibility of information on land ownership
gives Turkey a score of 8 on the reliability
Accessibility of maps of land plots of infrastructure index.
Publication of fee schedules, lists of registration documents, service standards
Availability of a specific and separate mechanism for complaints Transparency of information
Publication of statistics about the number of property transactions
index
The transparency of information index
Geographic coverage index (08)
has 10 components:
Coverage of land registry at the level of the largest business city and the economya Whether information on land owner-
Coverage of mapping agency at the level of the largest business city and the economya ship is made publicly available. A
Land dispute resolution index (08) score of 1 is assigned if information
Legal framework for immovable property registration on land ownership is accessible by
Mechanisms to prevent and resolve land disputes anyone; 0 if access is restricted.
Whether the list of documents required
Equal access to property rights (-20)
for completing the registration of
Unequal ownership rights to property between unmarried men and women
property transactions is made publicly
Unequal ownership rights to property between married men and women available. A score of 0.5 is assigned
Quality of land administration index (030) if the list of documents is accessible
Sum of the reliability of infrastructure, transparency of information, geographic coverage, land dispute online or on a public board; 0 if it is not
resolution indices and equal access to property rights
made available to the public or if it can
a. F or 11 economies the data are also collected for the second largest business city. be obtained only in person.
Whether the fee schedule for com-
1 if the majority are scanned; 0 if the kept in a single database or in linked pleting the registration of property
majority are kept in paper format. databases; 0 if there is no connection transactions is made publicly avail-
Whether there is an electronic data- between the different databases. able. A score of 0.5 is assigned if the
base for checking for encumbrances. How immovable property is identied. fee schedule is accessible online or on
A score of 1 is assigned if yes; 0 if no. A score of 1 is assigned if there is a a public board or is free of charge; 0 if
How maps of land plots are kept at unique number to identify properties it is not made available to the public
the mapping agency of the largest for the majority of land plots; 0 if there or if it can be obtained only in person.
business city of the economy. A score are multiple identiers. Whether the agency in charge of
of 2 is assigned if the majority of maps immovable property registration
are fully digital; 1 if the majority are The index ranges from 0 to 8, with higher commits to delivering a legally
scanned; 0 if the majority are kept in values indicating a higher quality of binding document that proves prop-
paper format. infrastructure for ensuring the reliabil- erty ownership within a specic time
Whether there is a geographic ity of information on property titles and frame. A score of 0.5 is assigned if the
information systeman electronic boundaries. In Turkey, for example, the service standard is accessible online
database for recording boundar- land registry offices in Istanbul maintain or on a public board; 0 if it is not made
ies, checking plans and providing titles in a fully digital format (a score of available to the public or if it can be
cadastral information. A score of 1 is 2) and have a fully electronic database obtained only in person.
assigned if yes; 0 if no. to check for encumbrances (a score of Whether there is a specic and sepa-
How the land ownership registry 1). The Cadastral Directorate offices in rate mechanism for ling complaints
and mapping agency are linked. A Istanbul have digital maps (a score of about a problem that occurred at
score of 1 is assigned if information 2), and the Geographical Information the agency in charge of immovable
about land ownership and maps are Directorate has a public portal allowing property registration. A score of 1
86 DOING BUSINESS 2018

is assigned if there is a specic and score of 0.5) and the service standards registered at the land registry in Seoul
separate mechanism for filing a (a score of 0.5). And anyone facing a (a score of 2) and in the economy as
complaint; 0 if there is only a general problem at the land registry can le a a whole (a score of 2). In addition, all
mechanism or no mechanism. complaint or report an error by lling out privately held land plots are mapped in
Whether there are publicly available a specic form online (a score of 1). In Seoul (a score of 2) and in the economy
official statistics tracking the number addition, the Kadaster makes statistics as a whole (a score of 2). Adding these
of transactions at the immovable about land transactions available to the numbers gives Korea a score of 8 on the
property registration agency. A score public, reporting a total of 214,793 prop- geographic coverage index.
of 0.5 is assigned if statistics are erty transfers in Amsterdam in 2016 (a
published about property transfers in score of 0.5). Moreover, anyone who pays Land dispute resolution index
the largest business city in the past a fee can consult online cadastral maps The land dispute resolution index assess-
calendar year at the latest on June (a score of 0.5). It is also possible to get es the legal framework for immovable
1st of the following year; 0 if no such public access to the fee schedule for map property registration and the accessibility
statistics are made publicly available. consultation (a score of 0.5), the service of dispute resolution mechanisms. The
Whether maps of land plots are made standards for delivery of an updated plan index has eight components:
publicly available. A score of 0.5 is (a score of 0.5) and a specic mechanism Whether the law requires that all
assigned if maps are accessible by for ling a complaint about a map (a score property sale transactions be reg-
anyone; 0 if access is restricted. of 0.5). Adding these numbers gives the istered at the immovable property
Whether the fee schedule for access- Netherlands a score of 6 on the transpar- registry to make them opposable to
ing maps is made publicly available. ency of information index. third parties. A score of 1.5 is assigned
A score of 0.5 is assigned if the fee if yes; 0 if no.
schedule is accessible online or on a Geographic coverage index Whether the formal system of
public board or free of charge; 0 if it is The geographic coverage index has immovable property registration is
not made available to the public or if it four components: subject to a guarantee. A score of 0.5
can be obtained only in person. How complete the coverage of the is assigned if either a state or private
Whether the mapping agency commits land registry is at the level of the guarantee over immovable property
to delivering an updated map within largest business city. A score of 2 is registration is required by law; 0 if no
a specic time frame. A score of 0.5 assigned if all privately held land plots such guarantee is required.
is assigned if the service standard is in the city are formally registered at Whether there is a specic compen-
accessible online or on a public board; the land registry; 0 if not. sation mechanism to cover for losses
0 if it is not made available to the public How complete the coverage of the incurred by parties who engaged in
or if it can be obtained only in person. land registry is at the level of the good faith in a property transaction
Whether there is a specic and sepa- economy. A score of 2 is assigned based on erroneous information
rate mechanism for ling complaints if all privately held land plots in the certied by the immovable property
about a problem that occurred at economy are formally registered at registry. A score of 0.5 is assigned if
the mapping agency. A score of the land registry; 0 if not. yes; 0 if no.
0.5 is assigned if there is a specic How complete the coverage of the Whether the legal system requires
and separate mechanism for ling a mapping agency is at the level of the verication of the legal validity of the
complaint; 0 if there is only a general largest business city. A score of 2 is documents necessary for a property
mechanism or no mechanism. assigned if all privately held land plots transaction. A score of 0.5 is assigned
in the city are mapped; 0 if not. if there is a review of legal validity,
The index ranges from 0 to 6, with higher How complete the coverage of the either by the registrar or by a profes-
values indicating greater transparency mapping agency is at the level of the sional (such as a notary or a lawyer);
in the land administration system. In the economy. A score of 2 is assigned 0 if there is no review.
Netherlands, for example, anyone who if all privately held land plots in the Whether the legal system requires
pays a fee can consult the land ownership economy are mapped; 0 if not. verication of the identity of the par-
database (a score of 1). Information can ties to a property transaction. A score
be obtained at the office, by mail or online The index ranges from 0 to 8, with of 0.5 is assigned if there is verication
using the Kadaster website (http://www higher values indicating greater geo- of identity, either by the registrar or by
.kadaster.nl). Anyone can also get infor- graphic coverage in land ownership a professional (such as a notary or a
mation online about the list of documents registration and cadastral mapping. In lawyer); 0 if there is no verication.
to submit for property registration (a score the Republic of Korea, for example, all Whether there is a national database
of 0.5), the fee schedule for registration (a privately held land plots are formally to verify the accuracy of identity
DATA NOTES 87

documents. A score of 1 is assigned if (a score of 0.5). Adding these numbers gives Tonga a score of -2 on the equal
such a national database is available; gives Lithuania a score of 8 on the land access to property rights indexwhich
0 if not. dispute resolution index. indicates unequal property rights
How much time it takes to obtain a between men and women.
decision from a court of rst instance Equal access to property rights
(without an appeal) in a standard land index Quality of land administration
dispute between two local businesses The equal access to property rights index index
over tenure rights worth 50 times has two components: The quality of land administration index is
income per capita and located in the Whether unmarried men and unmar- the sum of the scores on the reliability of
largest business city. A score of 3 is ried women have equal ownership infrastructure, transparency of informa-
assigned if it takes less than one year; rights to property. A score of -1 is tion, geographic coverage, land dispute
2 if it takes between one and two assigned if there are unequal owner- resolution and equal access to property
years; 1 if it takes between two and ship rights to property; 0 if there indices. The index ranges from 0 to 30
three years; 0 if it takes more than is equality. with higher values indicating better qual-
three years. Whether married men and married ity of the land administration system.
Whether there are publicly avail- women have equal ownership rights
able statistics on the number of to property. A score of -1 is assigned if If private sector entities were unable to
land disputes in the rst instance. A there are unequal ownership rights to register property transfers in an economy
score of 0.5 is assigned if statistics property; 0 if there is equality. between June 2016 and June 2017, the
are published about land disputes economy receives a no practice mark on
in the economy in the past calendar Ownership rights cover the ability to the procedures, time and cost indicators.
year; 0 if no such statistics are made manage, control, administer, access, A no practice economy receives a score
publicly available. encumber, receive, dispose of and of 0 on the quality of land administration
transfer property. Each restriction is con- index even if its legal framework includes
The index ranges from 0 to 8, with sidered if there is a differential treatment provisions related to land administration.
higher values indicating greater protec- for men and women in the law consider-
tion against land disputes. In Lithuania, ing the default marital property regime. REFORMS
for example, according to the Civil Code For customary land systems, equality is The registering property indicator set
and the Law on the Real Property Register, assumed unless there is a general legal tracks changes related to the efficiency
property transactions must be registered provision stating a differential treatment. and quality of land administration sys-
at the land registry to make them oppos- tems every year. Depending on the
able to third parties (a score of 1.5). The The index ranges from -2 to 0, with impact on the data, certain changes are
property transfer system is guaranteed higher values indicating greater inclu- classied as reforms and listed in the
by the state (a score of 0.5) and has a siveness of property rights. In Mali, for summaries of Doing Business reforms in
compensation mechanism to cover losses example, unmarried men and unmarried 2016/2017 section of the report in order
incurred by parties who engaged in good women have equal ownership rights to to acknowledge the implementation of
faith in a property transaction based on property (a score of 0). The same applies signicant changes. Reforms are divided
an error by the registry (a score of 0.5). to married men and women who can use into two types: those that make it easier
A notary veries the legal validity of the their property in the same way (a score to do business and those changes that
documents in a property transaction (a of 0). Adding these numbers gives Mali a make it more difficult to do business. The
score of 0.5) and the identity of the parties score of 0 on the equal access to property registering property indicator set uses
(a score of 0.5), in accordance with the rights indexwhich indicates equal prop- two criteria to recognize a reform.
Law on the Notary Office (Law I-2882). erty rights between men and women. On
Lithuania has a national database to the contrary in Tonga, unmarried men First, the aggregate gap on the overall
verify the accuracy of identity documents and unmarried women do not have equal distance to frontier of the indicator set is
(a score of 1). In a land dispute between ownership rights to property according used to assess the impact of data changes.
two Lithuanian companies over the tenure to the Land Act [Cap 132], Sections Any data update that leads to a change of
rights of a property worth $770,000, the 7, 45 and 82 (a score of -1). The same 2% or more in the distance to frontier gap
Vilnius District Court gives a decision in applies to married men and women who is classied as a reform (for more details,
less than one year (a score of 3). Finally, are not permitted to use their property see the chapter on the distance to fron-
statistics about land disputes are col- in the same way according to the Land tier and ease of doing business ranking).
lected and published; there were a total of Act [Cap 132], Sections 7, 45 and 82 For example, if the implementation of
549 land disputes in the country in 2016 (a score of -1). Adding these numbers a new electronic property registration
88 DOING BUSINESS 2018

system reduces time in a way that the FIGURE 8.9 Do lenders have credit information on entrepreneurs seeking credit? Is
overall gap decreases by 2% or more, the law favorable to borrowers and lenders using movable assets as collateral?
such change is classied as a reform. On
the contrary, minor fee updates or other
smaller changes in the indicators that
have an aggregate impact of less than Credit inf
ormat
ion
2% on the gap are not classied as a
reform, but their impact is still reected Potential Can movable assets be
borrower used as collateral?
in the most updated indicators for this
indicator set. Movable Collateral Lender Credit bureaus
asset registry and registries

Second, the overall score on the quality of What types can be Can lenders
used as collateral? access credit
land administration is also considered as information on
a criterion. Any change of 1 point or more borrowers?
on the overall quality score is acknowl-
edged as a reform. For instance, the
completion of the geographic coverage
of the land registry of the business city
(2 points) is considered as a reform.
lawyers and veried through analysis Both cases examine the same set of
The data details on registering property of laws and regulations as well as legal provisions relating to the use of
can be found for each economy at http:// public sources of information on collat- movable collateral.
www.doingbusiness.org. eral and bankruptcy laws. Questionnaire
responses are veried through sev- Several assumptions about the secured
eral rounds of follow-up communication borrower (ABC) and lender (BizBank)
GETTING CREDIT with respondents as well as by contact- are used:
ing third parties and consulting public ABC is a domestic limited liability com-
Doing Business measures the legal rights sources. The questionnaire data are pany (or its legal equivalent).
of borrowers and lenders with respect conrmed through teleconference calls ABC has up to 50 employees.
to secured transactions through one set or on-site visits in all economies. ABC has its headquarters and only
of indicators and the reporting of credit base of operations in the economys
information through another. The rst set Strength of legal rights index largest business city. For 11 economies
of indicators measures whether certain The strength of legal rights index mea- the data are also collected for the
features that facilitate lending exist within sures the degree to which collateral
the applicable collateral and bankruptcy and bankruptcy laws protect the rights
FIGURE 8.10 Getting credit: collateral
laws. The second set measures the cover- of borrowers and lenders and thus
rules and credit information
age, scope and accessibility of credit infor- facilitate lending (table 8.9). For each
mation available through credit reporting economy it is rst determined whether Rankings are based on distance to frontier
scores for the sum of two indicators
service providers such as credit bureaus or a unitary secured transactions system
credit registries (gure 8.9). The ranking exists. Then two case scenarios, case A Regulations on nonpossessory security
of economies on the ease of getting credit and case B, are used to determine how interests in movable property

is determined by sorting their distance to a nonpossessory security interest is cre-


frontier scores for getting credit. These ated, publicized and enforced according 100%
scores are the distance to frontier score to the law. Special emphasis is given Sum of strength of
legal rights index (012)
for the sum of the strength of legal rights to how the collateral registry operates and
depth of credit
index and the depth of credit information (if registration of security interests is information index
index (gure 8.10). possible). The case scenarios involve a (08)

secured borrower, company ABC, and a


LEGAL RIGHTS OF BORROWERS secured lender, BizBank. Scope, quality and accessibility of credit
information through credit bureaus and registries
AND LENDERS
The data on the legal rights of borrow- In some economies the legal framework
Note: Credit bureau coverage and credit registry
ers and lenders are gathered through a for secured transactions will allow only coverage are measured but do not count for the
rankings.
questionnaire administered to nancial case A or case B (not both) to apply.
DATA NOTES 89

second largest business city (table The strength of legal rights index The collateral registry has modern
8A.1). includes 10 aspects related to legal features such as those that allow
Both ABC and BizBank are 100% rights in collateral law and 2 aspects in secured creditors (or their represen-
domestically owned. bankruptcy law. A score of 1 is assigned tatives) to register, search, amend or
for each of the following features cancel security interests online.
The case scenarios also involve assump- of the laws: Secured creditors are paid first (for
tions. In case A, as collateral for the loan, The economy has an integrated or example, before tax claims and employ-
ABC grants BizBank a nonpossessory unied legal framework for secured ee claims) when a debtor defaults
security interest in one category of mov- transactions that extends to the outside an insolvency procedure.
able assets, for example, its machinery creation, publicity and enforcement of Secured creditors are paid first (for
or its inventory. ABC wants to keep four functional equivalents to security example, before tax claims and employ-
both possession and ownership of the interests in movable assets: duciary ee claims) when a business is liquidated.
collateral. In economies where the law transfers of title; nancial leases; Secured creditors are subject to an
does not allow nonpossessory security assignments or transfers of receiv- automatic stay on enforcement pro-
interests in movable property, ABC and ables; and sales with retention of title. cedures when a debtor enters a court-
BizBank use a duciary transfer-of-title The law allows a business to grant supervised reorganization procedure,
arrangement (or a similar substitute for a nonpossessory security right in a but the law protects secured credi-
nonpossessory security interests). single category of movable assets tors rights by providing clear grounds
(such as machinery or inventory), for relief from the automatic stay (for
In case B, ABC grants BizBank a busi- without requiring a specic descrip- example, if the movable property is in
ness charge, enterprise charge, oating tion of the collateral. danger) and setting a time limit for it.
charge or any charge that gives BizBank The law allows a business to grant The law allows parties to agree in the
a security interest over ABCs combined a nonpossessory security right in collateral agreement that the lender
movable assets (or as much of ABCs substantially all its movable assets, may enforce its security right out
movable assets as possible). ABC keeps without requiring a specic descrip- of court; the law allows public and
ownership and possession of the assets. tion of the collateral. private auctions and also permits the
A security right can be given over future secured creditor to take the asset in
The strength of legal rights index covers or after-acquired assets and extends satisfaction of the debt.
functional equivalents to security inter- automatically to the products, proceeds
ests in movable assets (such as nancial or replacements of the original assets. The index ranges from 0 to 12, with
leases and sales with retention of title) A general description of debts and higher scores indicating that collateral
only in its rst component, to assess how obligations is permitted in the col- and bankruptcy laws are better designed
integrated or unied the economys legal lateral agreement and in registration to expand access to credit.
framework for secured transactions is. documents, all types of debts and
obligations can be secured between REFORMS
the parties, and the collateral agree- The strength of legal rights index tracks
TABLE 8.9 What do the getting credit ment can include a maximum amount changes related to secured transactions
indicators measure? for which the assets are encumbered. and insolvency every year. Depending
A collateral registry or registration on the impact on the data, certain
Strength of legal rights index (012)
institution for security interests changes are classied as reforms
Protection of rights of borrowers and lenders
through collateral laws (010) granted over movable property by and listed in the summaries of Doing
incorporated and nonincorporated Business reforms in 2016/2017 section
Protection of secured creditors rights through
bankruptcy laws (02) entities is in operation, unied geo- of the report in order to acknowledge
Depth of credit information index (08) graphically and with an electronic the implementation of signicant
Scope and accessibility of credit information
database indexed by debtors names. changes. Reforms are divided in two
distributed by credit bureaus and credit registries The collateral registry is a notice- types: those that make it easier to do
(08)
based registrya registry that les business and those changes that make
Credit bureau coverage (% of adults) only a notice of the existence of a it more difficult to do business. The
Number of individuals and firms listed in the largest security interest (not the underlying strength of legal rights index uses the
credit bureau as percentage of adult population
documents) and does not perform a following criteria to recognize a reform.
Credit registry coverage (% of adults) legal review of the transaction. The
Number of individuals and firms listed in a credit registry also publicizes functional All changes in laws and regulations that
registry as percentage of adult population
equivalents to security interests. have any impact on the economys score
90 DOING BUSINESS 2018

on the existence of a secured transac- Depth of credit information credit information, from either a credit
tion legal framework which regulates index bureau or a credit registry, to facilitate
the creation, publicity and enforcement The depth of credit information index lending decisions. If the credit bureau
of nonpossessory security interests and measures rules and practices affecting or registry is not operational or covers
their functional equivalents. Each year, the coverage, scope and accessibility less than 5% of the adult population, the
new laws and amendments are evalu- of credit information available through score on the depth of credit information
ated to see if they facilitate obtaining either a credit bureau or a credit registry. index is 0.
credit by small and medium enterpris-
es, allowing for maximum exibility in A score of 1 is assigned for each of the fol- In Lithuania, for example, both a credit
the choice of assets which can be used lowing eight features of the credit bureau bureau and a credit registry operate. Both
as collateral. Guidelines, model rules, or credit registry (or both): distribute data on rms and individuals
principles, recommendations and case Data on rms and individuals are (a score of 1). Although the credit registry
law are excluded. distributed. does not distribute data on on-time
Both positive credit information (for repayments, the credit bureau distributes
Reforms impacting the strength of example, original loan amounts, out- full positive and negative credit informa-
legal rights index include amendments standing loan amounts and a pattern tion (a score of 1). While the credit regis-
to or the introduction of a secured of on-time repayments) and negative try does not distribute data from retailers
transactions act, insolvency code, or information (for example, late pay- or utilities, the credit bureau does (a
civil code as well as the establishment ments and the number and amount of score of 1). Both distribute at least two
or modernization of any of the features defaults) are distributed. years of historical data (a score of 1).
of a collateral registry as measured by Data from retailers or utility compa- Although the credit registry has a thresh-
the indicators. For example, introducing nies are distributed in addition to data old of 290, the credit bureau distributes
a law which provides for a collateral from nancial institutions. data on loans of any value (a score of 1).
registry and actually establishing that At least two years of historical data Borrowers have the right to access their
collateral registrywhich is geo- are distributed. Credit bureaus and data in both the credit bureau and the
graphically centralized, unied for all registries that erase data on defaults credit registry free of charge once a year
types of movable assets and for both as soon as they are repaid or distrib- (a score of 1). Both entities provide data
incorporated and non-incorporated ute negative information more than 10 users access to databases through a web
entities searchable by debtors name years after defaults are repaid receive interface (a score of 1). Although the cred-
would represent a reform with a 1 a score of 0 for this component. it registry does not provide credit scores,
point increase and would therefore be Data on loan amounts below 1% of the credit bureau does (a score of 1).
acknowledged in the report. income per capita are distributed. Adding these numbers gives Lithuania a
By law, borrowers have the right to score of 8 on the depth of credit informa-
CREDIT INFORMATION access their data in the largest credit tion index.
The data on the reporting of credit bureau or registry in the economy.
information are built in two stages. First, Credit bureaus and registries that Credit bureau coverage
banking supervision authorities and charge more than 1% of income Credit bureau coverage reports the
public information sources are surveyed per capita for borrowers to inspect number of individuals and rms listed in
to confirm the presence of a credit their data receive a score of 0 for a credit bureaus database as of January 1,
reporting service provider, such as a this component. 2017, with information on their borrowing
credit bureau or credit registry. Second, Banks and other nancial institu- history within the past ve years, plus the
when applicable, a detailed question- tions have online access to the credit number of individuals and rms that have
naire on the credit bureaus or credit information (for example, through a had no borrowing history in the past ve
registrys structure, laws and associated web interface, a system-to-system years but for which a lender requested
rules is administered to the entity itself. connection or both). a credit report from the bureau in the
Questionnaire responses are veried Bureau or registry credit scores are period between January 2, 2016, and
through several rounds of follow-up offered as a value-added service to January 1, 2017. The number is expressed
communication with respondents as help banks and other nancial insti- as a percentage of the adult population
well as by contacting third parties and tutions assess the creditworthiness (the population age 15 and above in 2016
consulting public sources. The ques- of borrowers. according to the World Banks World
tionnaire data are conrmed through Development Indicators). A credit bureau
teleconference calls or on-site visits in The index ranges from 0 to 8, with higher is dened as a private rm or nonprot
all economies. values indicating the availability of more organization that maintains a database
DATA NOTES 91

on the creditworthiness of borrowers to acknowledge the implementation of Third, occasionally the credit information
(individuals or rms) in the nancial sys- signicant changes. Reforms are divided index will acknowledge legislative chang-
tem and facilitates the exchange of credit into two types: those that make it easier to es with no current impact on the data as
information among creditors. (Many do business and those changes that make reforms. This option is typically reserved
credit bureaus support banking and it more difficult to do business. The credit to legislative changes of exceptional mag-
overall nancial supervision activities in information index uses three criteria to nitude, such as the introduction of laws
practice, though this is not their primary recognize a reform. allowing the operation of credit bureaus
objective.) Credit investigative bureaus or laws on personal data protection.
that do not directly facilitate informa- First, all changes in laws, regulations and
tion exchange among banks and other practices that have any impact on the The data details on getting credit can
nancial institutions are not considered. economys score on the credit information be found for each economy at http://
If no credit bureau operates, the coverage index are classied as reforms. Examples www.doingbusiness.org. The initial method-
value is 0.0%. of reforms impacting the index include ology was developed by Djankov, McLiesh
measures to distribute positive credit and Shleifer (2007) and is adopted here
Credit registry coverage data in addition to negative data, the with minor changes.
Credit registry coverage reports the distribution of credit data from utilities
number of individuals and rms listed in a or retailers or the introduction of credit
credit registrys database as of January 1, scores as a value-added service. Any PROTECTING MINORITY
2017, with information on their borrowing change that improves the score of a given INVESTORS
history within the past ve years, plus the economy in any of the eight features of
number of individuals and rms that have the index is considered a reform. Some Doing Business measures the protection
had no borrowing history in the past ve reforms can have an impact in more than of minority investors from conicts of
years but for which a lender requested one feature. For example, the introduc- interest through one set of indicators and
a credit report from the registry in the tion of a new credit bureau covering more shareholders rights in corporate gover-
period between January 2, 2016, and than 5% of the adult population that nance through another (table 8.10). The
January 1, 2017. The number is expressed distributes information on rms and indi- data come from a questionnaire adminis-
as a percentage of the adult population viduals, as well as positive and negative tered to corporate and securities lawyers
(the population age 15 and above in 2016 data and provides online access to data and are based on securities regulations,
according to the World Banks World users, represents a 3 point increase in the company laws, civil procedure codes
Development Indicators). A credit regis- index. In contrast, the introduction of leg- and court rules of evidence. The ranking
try is dened as a database managed by islation that guarantees borrowers rights of economies on the strength of minor-
the public sector, usually by the central to access their data in the largest credit ity investor protections is determined by
bank or the superintendent of banks, that bureau or registry in the economy rep- sorting their distance to frontier scores
collects information on the creditworthi- resents a reform with a 1 point increase for protecting minority investors. These
ness of borrowers (individuals or rms) in the index. scores are the simple average of the
in the nancial system and facilitates the distance to frontier scores for the extent
exchange of credit information among Second, changes that increase the of conict of interest regulation index and
banks and other regulated nancial coverage of the largest credit bureau or the extent of shareholder governance
institutions (while their primary objec- registry in an economy above 5% of the index (gure 8.11).
tive is to assist banking supervision). If adult population may also be classied as
no credit registry operates, the coverage reforms. According to the getting credit PROTECTION OF SHAREHOLDERS
value is 0.0%. methodology, if the credit bureau or reg- FROM CONFLICTS OF INTEREST
istry is not operational or covers less than The extent of conict of interest regula-
REFORMS 5% of the adult population, the score on tion index measures the protection of
The depth of credit information index the depth of credit information index is shareholders against directors misuse
tracks changes related to the coverage, 0. The impact of the reform will depend of corporate assets for personal gain
scope and accessibility of credit informa- on the characteristics of the economys by distinguishing three dimensions
tion available through either a credit bureau credit reporting system as it relates to of regulation that address conicts of
or a credit registry every year. Depending the eight features of the index. Expanded interest: transparency of related-party
on the impact on the data, certain changes coverage that does not reach 5% of the transactions (extent of disclosure index),
are classied as reforms and listed in the adult population is not classied as a shareholders ability to sue and hold
summaries of Doing Business reforms in reform but the impact is still reected on directors liable for self-dealing (extent
2016/2017 section of the report in order the most updated statistics. of director liability index) and access to
92 DOING BUSINESS 2018

TABLE 8.10 What do the protecting minority investors indicators measure? system) on which 60% of the
shareholder-elected members have
Extent of disclosure index (010) Extent of shareholder rights index (010)
been appointed by Mr. James, who is
Review and approval requirements for related-party Shareholders rights and role in major corporate Buyers controlling shareholder and a
transactions decisions
member of Buyers board of directors.
Internal, immediate and periodic disclosure
requirements for related-party transactions Has not adopted any bylaws or articles
of association that go beyond the mini-
Extent of director liability index (010) Extent of ownership and control index (010)
mum requirements. Does not follow
Minority shareholders ability to sue and hold Governance safeguards protecting shareholders
interested directors liable for prejudicial related- from undue board control and entrenchment codes, principles, recommendations or
party transactions guidelines that are not mandatory.
Available legal remedies (damages, disgorgement Is a manufacturing company with its
of profits, disqualification, rescission of own distribution network.
transactions)
Ease of shareholder suits index (010) Extent of corporate transparency index (010)
Assumptions about the
Access to internal corporate documents Corporate transparency on significant owners,
executive compensation, annual meetings and transaction
Evidence obtainable during trial audits Mr. James owns 60% of Buyer and
Allocation of legal expenses elected two directors to Buyers ve-
Extent of conflict of interest regulation index Extent of shareholder governance index member board.
(010) (010) Mr. James also owns 90% of Seller,
Simple average of the extent of disclosure, extent Simple average of the extent of shareholder rights, a company that operates a chain of
of director liability and ease of shareholder suits extent of ownership and control and extent of
indices corporate transparency indices retail hardware stores. Seller recently
closed a large number of its stores.
Strength of minority investor protection index (010)
Mr. James proposes that Buyer pur-
Simple average of the extent of conflict of interest regulation and extent of shareholder governance indices
chase Sellers unused eet of trucks to
expand Buyers distribution of its food
evidence and allocation of legal expenses publicly traded companies listed on products, a proposal to which Buyer
in shareholder litigation (ease of share- that exchange is less than 10, or if there agrees. The price is equal to 10% of
holder suits index). To make the data is no stock exchange in the economy, it Buyers assets and is higher than the
comparable across economies, several is assumed that Buyer is a large private market value.
assumptions about the business and the company with multiple shareholders. The proposed transaction is part
transaction are used (gure 8.12). Has a board of directors and a of the companys ordinary course
chief executive officer (CEO) who of business and is not outside the
Assumptions about the business may legally act on behalf of Buyer authority of the company.
The business (Buyer): where permitted, even if this is not Buyer enters into the transaction. All
Is a publicly traded corporation listed specically required by law. required approvals are obtained, and
on the economys most important Has a supervisory board (applicable all required disclosures made (that is,
stock exchange. If the number of to economies with a two-tier board the transaction is not fraudulent).

FIGURE 8.11 Protecting minority FIGURE 8.12 How well are minority shareholders protected from conflicts of interest?
investors: shareholders rights in conflicts
of interest and corporate governance

Rankings are based on distance to Extent of disclosure Mr. James


frontier scores for two indicators Disclosure and approval requirements suit
Law 60% 90%
Extent of director liability ownership, ownership,
Ability to sue directors for damages sits on board sits on board
of directors of directors

50% 50% Ease of shareholder suits Company A Company B


Extent of Access by shareholders to documents (buyer) (seller)
Extent of
conflict of shareholder plus other evidence for trial Transaction
interest governance involving
regulation index Minority conflict of interest
index shareholders
DATA NOTES 93

The transaction causes damages to The index ranges from 0 to 10, with higher 0 is assigned if the approving body
Buyer. Shareholders sue Mr. James values indicating greater disclosure. In cannot be held liable or can be held
and the other parties that approved Poland, for example, the board of direc- liable only for fraud, bad faith or gross
the transaction. tors must approve the transaction and negligence; 1 if the approving body
Mr. James is not allowed to vote (a score can be held liable for negligence; 2
Extent of disclosure index of 2). Poland does not require an external if the approving body can be held
The extent of disclosure index has ve body to review the transaction (a score liable when the transaction is unfair or
components: of 0). Before the transaction Mr. James prejudicial to the other shareholders.
Which corporate body can provide must disclose his conict of interest to Whether Mr. James pays damages for
legally sufficient approval for the the other directors, but he is not required the harm caused to the company upon
transaction. A score of 0 is assigned if to provide specic information about it (a a successful claim by the shareholder
it is the CEO or the managing director score of 1). Buyer is required to disclose plaintiff. A score of 0 is assigned if no;
alone; 1 if the board of directors, the immediately all information affecting 1 if yes.
supervisory board or shareholders the stock price, including the conict of Whether Mr. James repays prots
must vote and Mr. James is permitted interest (a score of 2). In its annual report made from the transaction upon a
to vote; 2 if the board of directors or Buyer must also disclose the terms of the successful claim by the shareholder
the supervisory board must vote and transaction and Mr. Jamess ownership in plaintiff. A score of 0 is assigned if no;
Mr. James is not permitted to vote; Buyer and Seller (a score of 2). Adding 1 if yes.
3 if shareholders must vote and Mr. these numbers gives Poland a score of 7 Whether Mr. James is disqualied
James is not permitted to vote. on the extent of disclosure index. upon a successful claim by the
Whether it is required that an exter- shareholder plaintiff. A score of 0 is
nal body, for example, an external Extent of director liability index assigned if no; 1 if he is disqualied
auditor, review the transaction The extent of director liability index has that is, disallowed from representing
before it takes place. A score of 0 is seven components:5 or holding a managerial position in
assigned if no; 1 if yes. Whether shareholder plaintiffs are any company for a year or more.
Whether disclosure by Mr. James able to sue directly or derivatively for Whether a court can void the trans-
to the board of directors or the the damage the transaction causes to action upon a successful claim by a
supervisory board is required. A score the company. A score of 0 is assigned shareholder plaintiff. A score of 0 is
of 0 is assigned if no disclosure is if suits are unavailable or are available assigned if rescission is unavailable or
required; 1 if a general disclosure of only for shareholders holding more is available only in case of fraud, bad
the existence of a conict of interest than 10% of the companys share faith or gross negligence; 1 if rescis-
is required without any specics; 2 capital; 1 if direct or derivative suits sion is available when the transaction
if full disclosure of all material facts are available for shareholders holding is oppressive or prejudicial to the
relating to Mr. Jamess interest in the 10% of share capital. other shareholders; 2 if rescission
Buyer-Seller transaction is required. Whether a shareholder plaintiff is is available when the transaction is
Whether immediate disclosure of the able to hold Mr. James liable for the unfair or entails a conflict of interest.
transaction to the public, the regula- damage the Buyer-Seller transaction
tor or the shareholders is required.4 A causes to the company. A score of 0 is The index ranges from 0 to 10, with
score of 0 is assigned if no disclosure assigned if Mr. James cannot be held higher values indicating greater liability of
is required; 1 if disclosure on the terms liable or can be held liable only for directors. In Austria, for example, deriva-
of the transaction is required but not fraud, bad faith or gross negligence; tive suits are available for shareholders
on Mr. Jamess conict of interest; 2 if 1 if Mr. James can be held liable only holding 10% of share capital (a score of
disclosure on both the terms and Mr. if he inuenced the approval of the 1). Assuming that the prejudicial transac-
Jamess conict of interest is required. transaction or was negligent; 2 if Mr. tion was duly approved and disclosed, in
Whether disclosure in the annual James can be held liable when the order to hold Mr. James liable a plaintiff
report is required. A score of 0 is transaction is unfair or prejudicial to must prove that Mr. James inuenced
assigned if no disclosure on the trans- the other shareholders. the approving body or acted negligently
action is required; 1 if disclosure on the Whether a shareholder plaintiff is able (a score of 1). To hold the other directors
terms of the transaction is required to hold the approving body (the CEO, liable, a plaintiff must prove that they
but not on Mr. Jamess conict of members of the board of directors or acted negligently (a score of 1). If Mr.
interest; 2 if disclosure on both the members of the supervisory board) James is found liable, he must pay dam-
terms and Mr. Jamess conict of liable for the damage the transaction ages (a score of 1) and is required to dis-
interest is required. causes to the company. A score of gorge his prots (a score of 1). Mr. James
94 DOING BUSINESS 2018

can be neither ned and imprisoned nor recover their legal expenses from the shareholders rights and role in major
disqualied (a score of 0). The prejudicial company regardless of the outcome corporate decisions (extent of share-
transaction cannot be voided (a score of of their legal action. holder rights index), governance safe-
0). Adding these numbers gives Austria guards protecting shareholders from
a score of 5 on the extent of director The index ranges from 0 to 10, with undue board control and entrenchment
liability index. higher values indicating greater pow- (extent of ownership and control index)
ers of shareholders to challenge the and corporate transparency on owner-
Ease of shareholder suits index transaction. In Croatia, for example, ship stakes, compensation, audits and
The ease of shareholder suits index has a shareholder holding 10% of Buyers nancial prospects (extent of corporate
six components: shares can request that a government transparency index). The index also
Whether shareholders owning 10% of inspector review suspected misman- measures whether a subset of relevant
the companys share capital have the agement by Mr. James and the CEO rights and safeguards are available in
right to inspect the transaction docu- without ling suit in court (a score of 1). limited companies.
ments before ling suit or request that The plaintiff can access documents that
a government inspector investigate the defendant intends to rely on for his Assumptions about the business
the Buyer-Seller transaction without defense (a score of 1). The plaintiff must The business (Buyer) is a publicly
ling suit. A score of 0 is assigned if specically identify the documents traded corporation listed on the econ-
no; 1 if yes. being sought (for example, the Buyer- omys most important stock exchange.
What range of documents is available Seller purchase agreement of July If there is no stock exchange in the
to the shareholder plaintiff from the 15, 2015) and cannot simply request economy, it is assumed that Buyer is
defendant and witnesses during trial. categories (for example, all documents a large private company with multiple
A score of 1 is assigned for each of the related to the transaction) (a score of shareholders. Examples of company
following types of documents avail- 0). The plaintiff can examine the defen- forms that can be listed and have a
able: information that the defendant dant and witnesses during trial, without large number of shareholders include:
has indicated he intends to rely on for prior approval of the questions by the the Joint Stock Company (JSC), the
his defense; information that directly court (a score of 2). The standard of Public Limited Company (PLC), the
proves specic facts in the plaintiffs proof for civil suits is preponderance C Corporation, the Societas Europaea
claim; and any information relevant to of the evidence, while the standard (SE), the Aktiengesellschaft (AG)
the subject matter of the claim. for a criminal case is beyond a reason- and the Socit Anonyme/Sociedad
Whether the plaintiff can obtain cat- able doubt (a score of 1). The plaintiff Annima (SA).
egories of relevant documents from can recover legal expenses from the In 10 of the questions, the assessment
the defendant without identifying company only upon a successful out- is made assuming that Buyer is a
each document specically. A score come of the legal action (a score of 1). limited company. Buyer is instead a
of 0 is assigned if no; 1 if yes. Adding these numbers gives Croatia a limited liability company or its func-
Whether the plaintiff can directly score of 6 on the ease of shareholder tional equivalent: a distinct and sim-
examine the defendant and witnesses suits index. pler company form that cannot offer
during trial. A score of 0 is assigned shares to the public. Examples include
if no; 1 if yes, with prior approval of Extent of conflict of interest the Private Limited Company (Ltd),
the questions by the judge; 2 if yes, regulation index the Limited Liability Company (LLC),
without prior approval. The extent of conict of interest regula- the Sociedad de Responsabilidad
Whether the standard of proof for tion index is the average of the extent of Limitada (SRL), the Gesellschaft
civil suits is lower than that for a disclosure index, the extent of director mit beschrnkter Haftung (GmbH)
criminal case. A score of 0 is assigned liability index and the ease of shareholder and the Socit Responsabilit
if no; 1 if yes. suits index. The index ranges from 0 to Limite (SARL).
Whether shareholder plaintiffs can 10, with higher values indicating stronger
recover their legal expenses from the regulation of conicts of interest. Extent of shareholder rights
company. A score of 0 is assigned index
if no; 1 if plaintiffs can recover their SHAREHOLDERS RIGHTS IN For each component of the extent of
legal expenses from the company CORPORATE GOVERNANCE shareholder rights index, a score of 0 is
only upon a successful outcome of The extent of shareholder governance assigned if the answer is no; 1 if yes. The
their legal action or if payment of index measures shareholders rights in index has 10 components:
their attorney fees is contingent on a corporate governance by distinguishing Whether the sale of 51% of Buyers
successful outcome; 2 if plaintiffs can three dimensions of good governance: assets requires shareholder approval.
DATA NOTES 95

Whether shareholders representing Whether a potential acquirer must representing 5% can put items on
10% of Buyers share capital have the make a tender offer to all shareholders the meeting agenda.
right to call for an extraordinary meet- upon acquiring 50% of Buyer. Assuming that Buyer is a limited
ing of shareholders. Whether Buyer must pay declared company larger than a threshold set
Whether Buyer must obtain its share- dividends within a maximum period by law, whether its annual nancial
holders approval every time it issues set by law. statements must be audited by an
new shares. Whether a subsidiary cannot acquire external auditor.
Whether shareholders automatically shares issued by its parent company.
receive preemption or subscription Assuming that Buyer is a limited Extent of shareholder
rights every time Buyer issues company, whether it must have a governance index
new shares. mechanism to resolve disagreements The extent of shareholder governance
Whether the election and dismissal of among members. index is the average of the extent of
the external auditor must be approved Assuming that Buyer is a limited com- shareholder rights index, the extent of
by the shareholders. pany, whether a potential acquirer ownership and control index and the
Whether changes to rights associ- must make a tender offer to all mem- extent of corporate transparency index.
ated with a class of shares are only bers upon acquiring 50% of Buyer. The index ranges from 0 to 10, with
possible if the holders of the affected Assuming that Buyer is a limited com- higher values indicating stronger rights
shares approve those changes. pany, whether Buyer must distribute of shareholders in corporate governance.
Assuming that Buyer is a lim- prots within a maximum period
ited company, whether the sale set by law. REFORMS
of 51% of Buyers assets requires The protecting minority investors indica-
member approval. Extent of corporate tor set captures changes related to the
Assuming that Buyer is a limited com- transparency index regulation of related-party transactions as
pany, whether members representing For each component of the extent of well as corporate governance every year.
10% have the right to call for a meet- corporate transparency index, a score of Depending on the impact on the data, cer-
ing of members. 0 is assigned if the answer is no; 1 if yes. tain changes are listed in the summaries
Assuming that Buyer is a limited The index has 10 components: of Doing Business reforms in 2016/2017
company, whether all members must Whether Buyer must disclose direct section of the report in order to acknowl-
consent to add a new member. and indirect benecial ownership edge the implementation of signicant
Assuming that Buyer is a limited stakes representing 5%. changes. They are divided into two types:
company, whether members must Whether Buyer must disclose infor- reforms that make it easier to do business
rst offer their interest to the exist- mation about board members pri- and changes that make it more difficult
ing members before they can sell to mary employment and directorships to do business. The protecting minority
non-members. in other companies. investors indicator set uses the following
Whether Buyer must disclose the criteria to recognize a reform.
Extent of ownership and control compensation of individual managers.
index Whether a detailed notice of gen- All legislative and regulatory changes
For each component of the extent of eral meeting must be sent 21 calendar that impact the score assigned to a given
ownership and control index, a score of days before the meeting. economy on any of the 48 questions
0 is assigned if the answer is no; 1 if yes. Whether shareholders representing comprising the six indicators on minor-
The index has 10 components: 5% of Buyers share capital can ity investor protection are classied as a
Whether the same individual cannot put items on the general meeting reform. The change must be mandatory,
be appointed CEO and chair of the agenda. meaning that failure to comply allows
board of directors. Whether Buyers annual nancial shareholders to sue in court or for sanc-
Whether the board of directors must statements must be audited by an tions to be leveled by a regulatory body
include independent and nonexecu- external auditor. such as the company registrar, the capital
tive board members. Whether Buyer must disclose its market authority or the securities and
Whether shareholder can remove audit reports to the public. exchange commission. Guidelines, model
members of the board of directors Assuming that Buyer is a limited com- rules, principles, recommendations and
without cause before the end of pany, whether members must meet at duties to explain in case of non-compli-
their term. least once a year. ance are excluded. When a change exclu-
Whether the board of directors must Assuming that Buyer is a lim- sively affects companies that are listed
include a separate audit committee. ited company, whether members on the stock exchange, it will be captured
96 DOING BUSINESS 2018

only if the stock exchange has 10 or more The data details on protecting minority as the total tax and contribution rate at
equity listings. If the economy has no investors can be found for each economy at the 15th percentile of the overall distribu-
stock exchange or a stock exchange with http://www.doingbusiness.org. The initial tion for all years included in the analysis
less than 10 equity listings, the change methodology was developed by Djankov, La up to and including Doing Business 2015,
is taken into account only if it affects Porta and others (2008). which is 26.1%. All economies with a
companies irrespective of whether their total tax and contribution rate below this
shares are listed or not. threshold receive the same score as the
PAYING TAXES economy at the threshold.
Reforms impacting the protecting minor-
ity investors indicator set include amend- Doing Business records the taxes and The threshold is not based on any eco-
ments to or the introduction of a new mandatory contributions that a medium- nomic theory of an optimal tax rate
companies act, commercial code, securi- size company must pay in a given year as that minimizes distortions or maximizes
ties regulation, code of civil procedure, well as measures of the administrative efficiency in an economys overall tax
court rules, law, decree, order, supreme burden of paying taxes and contributions system. Instead, it is mainly empirical in
court decision, or stock exchange listing and complying with postling procedures nature, set at the lower end of the distri-
rule. The changes must affect the rights (gure 8.13). The project was developed bution of tax rates levied on medium-size
and duties of issuers, company managers, and implemented in cooperation with enterprises in the manufacturing sector
directors and shareholders in connec- PwC.6 Taxes and contributions measured as observed through the paying taxes
tion with related-party transactions or, include the prot or corporate income tax, indicators. This reduces the bias in the
more generally, the aspects of corporate social contributions and labor taxes paid total tax and contribution rate indicator
governance measured by the indicators. by the employer, property taxes, property toward economies that do not need to
For example, in a given economy, related- transfer taxes, dividend tax, capital gains levy signicant taxes on companies like
party transactions have to be approved tax, nancial transactions tax, waste col- the Doing Business standardized case
by the board of directors including board lection taxes, vehicle and road taxes, and study company because they raise public
members who have a personal nancial any other small taxes or fees. revenue in other waysfor example,
interest in seeing the transaction suc- through taxes on foreign companies,
ceed. This economy introduces a law The ranking of economies on the ease through taxes on sectors other than
requiring that related-party transactions of paying taxes is determined by sorting manufacturing or from natural resources
be approved instead by a general meet- their distance to frontier scores for paying (all of which are outside the scope of
ing of shareholders and that excludes taxes. These scores are the simple aver- the methodology).
shareholders with conicting interests age of the distance to frontier scores for
from participating in the vote. This law each of the component indicators (gure Doing Business measures all taxes and
would result in a 2-point increase on the 8.14), with a threshold and a nonlinear contributions that are government man-
corresponding question in the extent of transformation applied to one of the com- dated (at any levelfederal, state or local)
disclosure index and would therefore be ponent indicators, the total tax and con- and that apply to the standardized busi-
acknowledged in the report. tribution rate.7 The threshold is dened ness and have an impact in its nancial

FIGURE 8.13 What are the time, total tax and contribution rate and number of payments necessary for a local medium-size
company to pay all taxes and how efficient is it for a local medium-size company to comply with postfiling processes?

Total tax and contribution rate Time Postfiling index

Hours
per year To prepare, file and
pay value added or
sales tax, profit tax
% of profit and labor taxes and
before all taxes contributions

Number of payments Efficiency of postfiling processes


(per year)
DATA NOTES 97

FIGURE 8.14 Paying taxes: tax compliance included. For example, value added taxes Is 100% domestically owned and
for a local manufacturing company (VAT) are generally excluded (provided has five owners, all of whom are
that they are not irrecoverable) because natural persons.
Rankings are based on distance to
frontier scores for four indicators they do not affect the accounting prots At the end of 2015, has a start-up
of the businessthat is, they are not capital of 102 times income per capita.
Number of hours per Firm tax liability as reected in the income statement. They Performs general industrial or com-
year to prepare, file % of profits before
returns and pay taxes all taxes borne are, however, included for the purpose mercial activities. Specically, it pro-
of the compliance measures (time and duces ceramic owerpots and sells
25% payments), as they add to the burden of them at retail. It does not participate
Total tax and complying with the tax system. in foreign trade (no import or export)
25% contribution
Time rate and does not handle products subject
25% 25%
Postfiling Payments Doing Business uses a case scenario to to a special tax regime, for example,
index
measure the taxes and contributions liquor or tobacco.
paid by a standardized business and the At the beginning of 2016, owns two
Distance to frontier score Number of complexity of an economys tax compli- plots of land, one building, machinery,
on: number of hours to tax payments ance system. This case scenario uses a office equipment, computers and one
comply with VAT refund, per year
number of weeks to obtain set of nancial statements and assump- truck and leases one truck.
VAT refund, number of tions about transactions made over the Does not qualify for investment
hours to comply with
corporate income tax course of the year. In each economy incentives or any benefits apart
audit, number of weeks to tax experts from a number of different from those related to the age or size
complete a corporate
income tax audit rms (in many economies these include of the company.
PwC) compute the taxes and manda- Has 60 employees4 managers,
Note: All economies below the threshold receive tory contributions due in their jurisdiction 8 assistants and 48 workers. All
the same score in the total tax and contribution
rate component as the economies at the threshold. based on the standardized case study are nationals, and one manager is
If both VAT and corporate income tax apply, the
postfiling index is the simple average of the distance facts. Information is also compiled on also an owner. The company pays
to frontier scores for each of the four components: the frequency of ling and payments, for additional medical insurance for
time to comply with VAT refund, time to obtain VAT
refund, time to comply with corporate income tax the time taken to comply with tax laws employees (not mandated by any
audit and time to complete a corporate income tax in an economy, the time taken to request law) as an additional benefit. In addi-
audit. If only VAT or corporate income tax applies,
the postfiling index is the simple average of the and process a VAT refund claim and the tion, in some economies reimbursable
scores for only the two components pertaining to the
applicable tax. If neither VAT nor corporate income time taken to comply with and complete business travel and client entertain-
tax applies, the postfiling index is not included in the a corporate income tax audit. To make ment expenses are considered fringe
ranking of the ease of paying taxes.
the data comparable across economies, benets. When applicable, it is
several assumptions about the business assumed that the company pays the
statements. In doing so, Doing Business and the taxes and contributions are used. fringe benet tax on this expense or
goes beyond the traditional denition of that the benet becomes taxable
a tax. As dened for the purposes of gov- Assumptions about the business income for the employee. The case
ernment national accounts, taxes include The business: study assumes no additional salary
only compulsory, unrequited payments Is a limited liability, taxable com- additions for meals, transportation,
to general government. Doing Business pany. If there is more than one type education or others. Therefore, even
departs from this denition because it of limited liability company in the when such benets are frequent, they
measures imposed charges that affect economy, the limited liability form are not added to or removed from the
business accounts, not government most common among domestic rms taxable gross salaries to arrive at the
accounts. One main difference relates to is chosen. The most common form is labor tax or contribution calculation.
labor contributions. The Doing Business reported by incorporation lawyers or Has a turnover of 1,050 times income
measure includes government-mandated the statistical office. per capita.
contributions paid by the employer to a Started operations on January 1, 2015. Makes a loss in the first year
requited private pension fund or workers At that time the company purchased of operation.
insurance fund. It includes, for example, all the assets shown in its balance Has a gross margin (pretax) of 20%
Australias compulsory superannuation sheet and hired all its workers. (that is, sales are 120% of the cost of
guarantee and workers compensation Operates in the economys largest goods sold).
insurance. For the purpose of calculat- business city. For 11 economies the Distributes 50% of its net prots as
ing the total tax and contribution rate data are also collected for the second dividends to the owners at the end of
(dened below), only taxes borne are largest business city (table 8A.1). the second year.
98 DOING BUSINESS 2018

Sells one of its plots of land at a prot frequency of payment, the frequency of TABLE 8.11 What do the paying taxes
at the beginning of the second year. filing and the number of agencies involved indicators measure?
Is subject to a series of detailed for the standardized case study company
Tax payments for a manufacturing company
assumptions on expenses and transac- during the second year of operation (table in 2016 (number per year adjusted for
tions to further standardize the case. For 8.11). It includes taxes withheld by the electronic and joint filing and payment)
example, the owner who is also a man- company, such as sales tax, VAT and Total number of taxes and contributions paid,
including consumption taxes (value added tax,
ager spends 10% of income per capita employee-borne labor taxes. These taxes sales tax or goods and service tax)
on traveling for the company (20% of are traditionally collected by the company
Method and frequency of filing and payment
this owners expenses are purely pri- from the consumer or employee on behalf
Time required to comply with three major
vate, 20% are for entertaining custom- of the tax agencies. Although they do not taxes (hours per year)
ers, and 60% are for business travel). affect the income statements of the com-
Collecting information and computing the tax
All nancial statement variables are pany, they add to the administrative burden payable
proportional to 2012 income per capita of complying with the tax system and so Completing tax return forms, filing with proper
(this is an update from Doing Business are included in the tax payments measure. agencies
2013 and previous years reports, Arranging payment or withholding
where the variables were proportional The number of payments takes into Preparing separate mandatory tax accounting
to 2005 income per capita). For some account electronic filing. Where full elec- books, if required
economies a multiple of two or three tronic filing and payment is allowed and Total tax and contribution rate (% of profit
before all taxes)
times income per capita has been used it is used by the majority of medium-size
to estimate the nancial statement vari- businesses, the tax is counted as paid Profit or corporate income tax
ables.8 The 2012 income per capita was once a year even if filings and payments Social contributions and labor taxes paid by the
employer
not sufficient to bring the salaries of are more frequent. For payments made
all the case study employees up to the through third parties, such as tax on Property and property transfer taxes
minimum wage thresholds that exist in interest paid by a financial institution or Dividend, capital gains and financial transactions
taxes
these economies. fuel tax paid by a fuel distributor, only one
payment is included even if payments are Waste collection, vehicle, road and other taxes
Assumptions about the taxes more frequent. Postfiling index
and contributions Compliance time of a VAT refund process
All the taxes and contributions Where two or more taxes or contributions Time to receive a VAT refund
recorded are those paid in the second are led for and paid jointly using the Compliance time of correcting an error in the
year of operation (calendar year same form, each of these joint payments corporate income tax return including compliance
2016). A tax or contribution is consid- is counted once. For example, if manda- with an audit process if applicable

ered distinct if it has a different name tory health insurance contributions and Time to complete a corporate income tax audit
or is collected by a different agency. mandatory pension contributions are
Taxes and contributions with the led for and paid together, only one of extra time is included only if the regular
same name and agency, but charged these contributions would be included in accounting work is not enough to fulll
at different rates depending on the the number of payments. the tax accounting requirements. Filing
business, are counted as the same tax time includes the time to complete
or contribution. Time all necessary tax return forms and le
The number of times the company Time is recorded in hours per year. The the relevant returns at the tax author-
pays taxes and contributions in a indicator measures the time taken to ity. Payment time considers the hours
year is the number of different taxes prepare, le and pay three major types needed to make the payment online or
or contributions multiplied by the of taxes and contributions: the corporate in person. Where taxes and contributions
frequency of payment (or withhold- income tax, value added or sales tax, and are paid in person, the time includes
ing) for each tax. The frequency of labor taxes, including payroll taxes and delays while waiting.
payment includes advance payments social contributions. Preparation time
(or withholding) as well as regular includes the time to collect all informa- Total tax and contribution rate
payments (or withholding). tion necessary to compute the tax The total tax and contribution rate
payable and to calculate the amount pay- measures the amount of taxes and
Tax payments able. If separate accounting books must mandatory contributions borne by the
The tax payments indicator reflects the be kept for tax purposesor separate business in the second year of opera-
total number of taxes and contribu- calculations madethe time associated tion, expressed as a share of commer-
tions paid, the method of payment, the with these processes is included. This cial prot. Doing Business 2018 reports
DATA NOTES 99

the total tax and contribution rate for factor to be applied to the tax base. In The methodology for calculating the total
calendar year 2016. The total amount computing the total tax and contribu- tax and contribution rate is broadly con-
of taxes and contributions borne is tion rate, the actual tax or contribution sistent with the Total Tax Contribution
the sum of all the different taxes and payable is divided by commercial prot. framework developed by PwC and the
contributions payable after accounting Data for Iraq are provided as an example calculation within this framework for
for allowable deductions and exemp- (table 8.12). taxes borne. But while the work under-
tions. The taxes withheld (such as taken by PwC is usually based on data
personal income tax) or collected by Commercial prot is essentially net received from the largest companies in
the company and remitted to the tax prot before all taxes and contributions the economy, Doing Business focuses on
authorities (such as VAT, sales tax or borne. It differs from the conventional a case study for a standardized medium-
goods and service tax) but not borne prot before tax, reported in nancial size company.
by the company are excluded. The statements. In computing prot before
taxes included can be divided into ve tax, many of the taxes borne by a rm are Postfiling index
categories: prot or corporate income deductible. In computing commercial The postling index is based on four
tax, social contributions and labor taxes prot, these taxes are not deductible. componentstime to comply with VAT
paid by the employer (for which all Commercial prot therefore presents refund, time to obtain VAT refund, time
mandatory contributions are included, a clear picture of the actual prot of a to comply with corporate income tax
even if paid to a private entity such as a business before any of the taxes it bears audit and time to complete a corporate
requited pension fund), property taxes, in the course of the scal year. income tax audit. If both VAT and corpo-
turnover taxes and other taxes (such as rate income tax apply, the postling index
municipal fees and vehicle taxes). Fuel Commercial prot is computed as is the simple average of the distance to
taxes are no longer included in the total sales minus cost of goods sold, minus frontier scores for each of the four com-
tax and contribution rate because of the gross salaries, minus administrative ponents. If only VAT or corporate income
difficulty of computing these taxes in a expenses, minus other expenses, minus tax applies, the postling index is the
consistent way for all economies cov- provisions, plus capital gains (from the simple average of the scores for only the
ered. The fuel tax amounts are in most property sale) minus interest expense, two components pertaining to the appli-
cases very small, and measuring these plus interest income and minus com- cable tax. If neither VAT nor corporate
amounts is often complicated because mercial depreciation. To compute the income tax applies, the postling index is
they depend on fuel consumption. Fuel commercial depreciation, a straight-line not included in the ranking of the ease of
taxes continue to be counted in the depreciation method is applied, with paying taxes.
number of payments. the following rates: 0% for the land, 5%
for the building, 10% for the machinery, The definition of a tax audit includes any
The total tax and contribution rate is 33% for the computers, 20% for the interaction between the taxpayer and
designed to provide a comprehensive office equipment, 20% for the truck the tax authority post filing of the tax
measure of the cost of all the taxes a and 10% for business development return and payment of the tax liability
business bears. It differs from the statu- expenses. Commercial prot amounts due. Tax audit will include a correspon-
tory tax rate, which merely provides the to 59.4 times income per capita. dence between the taxpayer and the

TABLE 8.12 Computing the total tax and contribution rate for Iraq
Actual tax payable
Taxable base b a=rxb Commercial profit Total tax and
Statutory rate (ID) (ID) (ID) contribution rate
Corporate income tax (taxable income) 15 452,461,855 67,869,278 453,188,210 14.98%
Employer paidSocial security 12 511,191,307 61,342,957 453,188,210 13.54%
contributions (taxable wages)
Employee paidSocial security 5.00% 511,191,307 Not included
contributions (taxable wages)
Stamp duty on contracts Fixed fee Varies Small amount Small amount
Real Estate Ownership Transfer tax 0%6% Value of property 10,480,197 453,188,210 2.31%
Total 139,692,432 30.82%
Source: Doing Business database.
Note: Commercial profit is assumed to be 59.4 times income per capita. ID is Iraqi dinar.
* Profit before all taxes borne.
100 DOING BUSINESS 2018

tax authority examining the taxpayers TABLE 8.13 Computing the value of the VAT input tax credit for Albania
records and dealings to verify whether
VAT rate Output VAT Input VAT
such taxpayers have correctly assessed R R x Sales (R x A + R x B)
and reported their tax liability and ful-
Sales = 20% ALL 7,479,772.97
filled other obligations. ALL 37,398,864.84

The indicators are based on expanded Capital purchase (A) = 20% ALL 5,556,402.78
ALL 27,782,013.88
case study assumptions.
Raw material expenses (B) = 20% ALL 6,233,144.14
ALL 31,165,720.70
Assumptions about the VAT
refund process VAT refund ALL 4,309,773.95
In June 2016, TaxpayerCo. makes a (R x A + R x B) (R x Sales)
large capital purchase: one additional Source: Doing Business database.
machine for manufacturing pots. Note: ALL is Albanian lek.
The value of the machine is 65 times
income per capita of the economy. submitting the annual tax return, but refund due to a capital purchase
Sales are equally spread per month within the tax assessment period. triggers an audit in 50% or more of
(that is, 1,050 times income per cases. Time includes: time spent by
capita divided by 12). Time to comply with VAT refund TaxpayerCo. on gathering informa-
Cost of goods sold are equally Time is recorded in hours. The indicator tion and preparing any documenta-
expensed per month (that is, 875 has two parts: tion (information such as receipts,
times income per capita divided by 12). The process of claiming a VAT nancial statements, pay stubs) as
The seller of the machinery is regis- refund. Time includes: time spent required by the tax auditor; time spent
tered for VAT. by TaxpayerCo. on gathering VAT by TaxpayerCo. on submitting the
Excess input VAT incurred in June information from internal sources, documents requested by the auditor.
will be fully recovered after four including time spent on any additional
consecutive months if the VAT rate analysis of accounting information A total estimate of zero hours is recorded
is the same for inputs, sales and the and calculating the VAT refund if the process of claiming a VAT refund is
machine and the tax reporting period amount; time spent by TaxpayerCo. done automatically within the standard
is every month. on preparing the VAT refund claim; VAT return without the need to complete
Input VAT will exceed output VAT in time spent by TaxpayerCo. preparing any additional section or part of the return,
June 2016 (table 8.13). any additional documents that are no additional documents or tasks are
needed to substantiate the claim for required as a result of the input tax credit
Assumptions about the the VAT refund; time spent submit- and in 50% or more of similar cases the
corporate income tax audit ting the VAT refund claim and addi- company will not be subjected to an audit.
process tional documents if that submission is
An error in the calculation of the done separately from the submission An estimate of half an hour is recorded for
income tax liability (for example, use of the standard VAT return; time submission of documents if the submis-
of incorrect tax depreciation rates, spent making representation at the sion is done electronically and is a matter
or incorrectly treating an expense as tax office if required; and time spent of minutes. An estimate of zero hours
tax deductible) leads to an incorrect by TaxpayerCo. completing any other is recorded in the case of a eld audit if
income tax return and consequently mandatory activities or tasks associ- documents are submitted in person and
an underpayment of corporate ated with the VAT refund (table 8.13). at the taxpayers premises.
income tax. As a continuation of the methodology
TaxpayerCo. discovered the error and change in Doing Business 2017, the In Kosovo, for example, taxpayers spend
voluntarily notified the tax authority time spent submitting the VAT refund 35.5 hours complying with the process of
of the error in the corporate income and additional documentsif that claiming a VAT refund. Taxpayers must
tax return. submission is done separately from submit a special form for a VAT refund
The value of the underpaid income tax the submission of the standard VAT request in addition to the standard VAT
liability is 5% of the corporate income returnis added starting from Doing return. Taxpayers spend two hours gather-
tax liability due. Business 2018. ing information from internal sources and
TaxpayerCo. submits the corrected The process of a VAT audit. This is accounting records and 1 hour to prepare
information after the deadline for captured if a request for a VAT cash the form. Taxpayers must also prepare and
DATA NOTES 101

have available for review all purchase and Doing Business 2018. These include: time Bahrain. If an economy has a VAT and the
sales invoices for the past three months, a to start the tax audit and time waiting for purchase of a machine is not subject to
business explanation of VAT overpayment the release of the VAT refund payment. VAT, the economy will not be scored on
for large purchases or investments, bank time to comply with VAT refund and time
statements, any missing tax declaration Time also includes an average waiting to obtain VAT refund. This is the case in
and a copy of scal and VAT certicates. time to submit the refund claim. The Sierra Leone. If an economy has a VAT that
Taxpayers spend four hours preparing average waiting time to submit the was introduced in calendar year 2016 and
these additional documents and five hours refund claim is half a month if the VAT there is not sufficient data to assess the
and thirty minutes submitting these docu- refund claim is led monthly. The average refund process, the economy will not be
ments in person at the tax authority office. waiting time to submit the refund claim scored on time to comply with VAT refund
Taxpayers must also appear in person at is one month if the VAT refund claim is and time to obtain VAT refund.
the tax office to explain the VAT refund led bimonthly. The average waiting time
claim and the reasons for the excess input to submit the refund claim is one and If an economy has a VAT but the ability
VAT in the month of June. This takes three a half months if the VAT refund claim to claim a refund is restricted to specic
hours. Additionally, the claim for a VAT is led quarterly. The average waiting categories of taxpayers that do not include
refund would trigger a full audit at the time to submit the refund claim is three the case study company, the economy
taxpayers premises. Taxpayers spend 20 months if the VAT refund claim is led is assigned a score of 0 on the distance
hours preparing the documents requested semi-annually. The average waiting time to frontier score for time to comply with
by the auditor including purchase and sales to submit the refund claim is six months VAT refund and time to obtain VAT refund.
invoices, bills, bank transactions, records on if the VAT refund claim is led annually. In Bolivia, for example, only exporters
accounting software, tax returns and con- are eligible to request a VAT refund. As a
tracts. Taxpayers submit the documents to Time includes the mandatory carry forward result, Bolivia receives a score of 0 on the
the auditor in person at their premises (zero time before a VAT refund in cash can be distance to frontier score for time to comply
hours for submission). paid. The carry forward time is zero if there with VAT refund and time to obtain VAT
is no mandatory carry forward period. refund. If an economy has a VAT and the
Time to obtain VAT refund case study company is eligible to claim
Time is recorded in weeks. Time mea- In Albania, for example, it takes 37.0 weeks a refund but cash refunds do not occur in
sures the total waiting time to receive a to receive a VAT refund. The request for a practice, the economy is assigned a score
VAT refund from the moment the request VAT refund triggers an audit by the tax of 0 on the distance to frontier score for
has been submitted. If a request for a VAT authorities. It takes four weeks for the time to comply with VAT refund and time
cash refund due to a capital purchase will tax authority to start the audit. Taxpayers to obtain VAT refund. This is the case in
trigger an audit in 50% or more of cases spend 8.6 weeks interacting with the Central African Republic. If an economy has
time includes time to start the audit from auditor and wait four weeks until the nal a VAT but there is no refund mechanism
the moment of claiming the VAT refund, assessment is issued. Taxpayers only in place, the economy is assigned a score
time spent by TaxpayerCo. interacting receive the VAT refund after the audit is of 0 on the distance to frontier score for
with the auditor from the moment an completed. Taxpayers wait five weeks for time to comply with VAT refund and time
audit begins until there are no further the release of the VAT refund payment. In to obtain VAT refund. This is the case in
interactions between TaxpayerCo. and Albania the taxpayers must carry forward Sudan. If an economy has a VAT but input
the auditor (including the various rounds the VAT refund for three consecutive VAT tax on a capital purchase is a cost on the
of interactions between TaxpayerCo. and accounting periods (three months in the business, the economy is scored 0 on the
the auditor), the time spent waiting for case of Albania) before a refund in cash is distance to frontier score for time to comply
the tax auditor to issue the nal audit requested. The three months (13 weeks) with VAT refund and time to obtain VAT
decision from the moment TaxpayerCo. carry forward period is included in the refund. This is the case in Myanmar. As a
has submitted all relevant information total time to receive a VAT refund. The continuation of the methodology change
and documents and there are no further VAT return is led monthly and thus 0.5 in Doing Business 2017, the methodology
interactions between TaxpayerCo. and month (2.1 weeks) is included in the total for the cases of mandatory carry forward
the auditor and the time spent waiting for time to receive a VAT refund. of four months or more has been refined.
the release of the VAT refund payment All economies who mandate taxpayers
from the moment the final audit deci- If an economy does not have a VAT, the to carry forward the excess input VAT for
sion has been issued by the auditor. As a economy will not be scored on the two four months or more before a cash refund
continuation of the methodology change indicators for a VAT refund processtime can be requested are coded, starting from
in Doing Business 2017, two new time to comply with VAT refund and time to Doing Business 2018, on the time to comply
components are added starting from obtain VAT refund. This is the case in with VAT refund and time to obtain VAT
102 DOING BUSINESS 2018

refund assuming that there is still some stubs) as required by the tax auditor; In Switzerland, for example, taxpayers are
VAT credit remaining after the mandatory and time spent by TaxpayerCo. in subject to a single-issue audit conducted
carry forward has passed. submitting the documents requested at the taxpayers premises as a result of
by the auditor. amending a corporate income tax return
Time to comply with corporate per the case study scenario. Taxpayers
income tax audit An estimate of half an hour is recorded wait 30 days (4.28 weeks) until the tax
Time is recorded in hours. The indicator for submission of documents or payment authority starts the audit and interact for
has two parts: of the income tax liability due if the sub- a total of four days (0.57 weeks) with the
The process of notifying the tax mission or payment is done electronically auditor and wait for four weeks until the
authorities of the error, amending in several minutes. An estimate of zero nal assessment is issued by the auditor,
the return and making additional hours is recorded in the case of a eld resulting in a total of 8.86 weeks to com-
payment. Time includes: time spent audit if documents are submitted in per- plete a corporate income tax audit.
by TaxpayerCo. gathering information son and at the taxpayers premises.
and preparing the documents required If an economy does not levy corporate
to notify the tax authorities; time In the Slovak Republic, for example, income tax, the economy will not be
spent by TaxpayerCo. in submitting taxpayers would submit an amended cor- scored on the two indicators: time to
the documents; and time spent by porate income tax return electronically. It comply with corporate income tax audit
TaxpayerCo. in making the additional takes taxpayers one hour to correct the and time to complete a corporate income
tax payment if the payment is done error in the return, half an hour to submit tax audit. This is the case in Vanuatu.
separately from the submission of the the amended return online and half an
amended corporate income tax return. hour to make the additional payment An economy receives a no practice
As a continuation of the methodology online. Amending a corporate income mark on the payments, time, total tax
change in Doing Business 2017, the time tax return per the case study scenario in and contribution rate and postfiling index
spent in making the additional tax pay- the Slovak Republic would not trigger an indicators if the economy does not levy
ment was added starting from Doing audit. This brings the total compliance any taxes or mandatory contributions.
Business 2018 only if the payment is not time to two hours.
done separately from the submission REFORMS
of the amended return. Time to complete a corporate The paying taxes indicator set tracks
The process of complying with a income tax audit changes related to the different taxes and
corporate income tax audit. This is Time is recorded in weeks. Time includes mandatory contributions that a medium-
captured if self-reporting an error the time to start an audit from the moment size company must pay in a given year,
in the corporate income tax return the tax authority has been notified of the the administrative burden of paying taxes
resulting in an underpayment of the error in the corporate income tax return, and contributions and the administrative
corporate income tax due liability time spent by TaxpayerCo. interacting burden of complying with two postling
triggers an audit in 25% or more of with the auditor from the moment an processes (VAT refund, and tax audit)
cases. The threshold used for assess- audit begins until there are no further per calendar year. Depending on the
ing the corporate income tax audit is interactions between TaxpayerCo. and the impact on the data, certain changes are
lower than the threshold used in the auditor (including the various rounds of classied as reforms and listed in the
case of the VAT cash refund. This is interactions between TaxpayerCo. and the summaries of Doing Business reforms in
because the case study scenario of auditor), and time spent waiting for the tax 2016/2017 section of the report in order
self-reporting an error in the corpo- auditor to issue the nal tax assessment to acknowledge the implementation of
rate income tax return and resulting from the moment TaxpayerCo. has submit- signicant changes. Reforms are divided
in an underpayment of the tax liability ted all relevant information and documents into two types: those that make it easier
should only be an issue among a small and there are no further interactions to do business and those changes that
sample of companies selected for a between TaxpayerCo. and the auditor. As a make it more difficult to do business.
tax audit. On the contrary to the VAT continuation of the methodology change in The paying taxes indicator set uses one
cash refund, it is common that a one- Doing Business 2017, the time to start the tax criterion to recognize a reform.
time request for a VAT cash refund be audit is now taken into account.
exposed to a tax audit. Time includes: The aggregate gap on the overall distance
time spent by TaxpayerCo. on gather- Time to complete a corporate income to frontier of the indicator set is used to
ing information and preparing any tax audit is recorded as zero if in less assess the impact of data changes. Any
documentation (information such as than 25% of similar cases the case study data update that leads to a change of 2%
receipts, nancial statements, pay company will not go through an audit. or more on the distance to frontier gap is
DATA NOTES 103

classied as a reform (for more details, FIGURE 8.15 What makes up the time and cost to export to an overseas
see the chapter on the distance to trading partner?
frontier and ease of doing business rank-
ing). For example, if the implementation
of a new electronic system for ling
So Paulo
or paying one of the three major taxes Domestic transport: 8.6 hours, $763
(corporate income tax, VAT, labor taxes
and mandatory contributions) reduces Border compliance: 49 hours, $959
Shanghai
the time or the number of payments in
a way that the overall gap decreases by Documentary compliance: 12 hours, $226

2% or more, such change is classied as


a reform. Alternatively, minor updates Source: Doing Business database.
to tax rates or xed charges or other
smaller changes in the indicators that FIGURE 8.16 What makes up the time and cost to export to a regional
have an aggregate impact less than 2% trading partner?
on the gap are not classied as a reform,
but their impact is still reected on the
most updated indicators for this indica- Nairobi
I II
tor set. I
Domestic transport: 9 hours, $967
II I
I II
Border compliance: 21 hours, $143
The data details on paying taxes can be Kampala
found for each economy at http://www
Documentary compliance: 19 hours, $191
.doingbusiness.org. This methodology was
developed by Djankov and others (2010).
Source: Doing Business database.

TRADING ACROSS BORDERS the time and cost for documentary com- If an economy has no formal, large-scale,
pliance and border compliance to export private sector cross-border trade taking
Doing Business records the time and cost and import (gure 8.17). place as a result of government restric-
associated with the logistical process of tions, armed conict or a natural disaster,
exporting and importing goods. Doing Although Doing Business collects and
Business measures the time and cost publishes data on the time and cost for
(excluding tariffs) associated with three domestic transport, it does not use these FIGURE 8.17 Trading across borders:
sets of proceduresdocumentary com- data in calculating the distance to frontier time and cost to export and import
pliance, border compliance and domestic score for trading across borders or the
Rankings are based on distance to
transportwithin the overall process ranking on the ease of trading across frontier scores for eight indicators
of exporting or importing a shipment of borders. The main reason for this is that
Time for documentary Cost for documentary
goods. Figure 8.15, using the example the time and cost for domestic transport compliance and border compliance and border
of Brazil (as exporter) and China (as are affected by many external factors compliance when compliance when
exporting the product exporting the product
importer), shows the process of exporting such as the geography and topography of comparative of comparative
advantage advantage
a shipment from a warehouse in the origin of the transit territory, road capacity and
economy to a warehouse in an overseas general infrastructure, proximity to the
trading partner through a port. Figure 8.16, nearest port or border, and the location 25% 25%
using the example of Kenya (as exporter) of warehouses where the traded goods Time Cost
to export to export
and Uganda (as importer), shows the are storedand so are not directly
25% 25%
process of exporting a shipment from a inuenced by an economys trade policies Time Cost
to import to import
warehouse in the origin economy to a and reforms.
warehouse in a regional trading partner
through a land border. The ranking of The data on trading across borders Time for documentary Cost for documentary
compliance and border compliance and border
economies on the ease of trading across are gathered through a questionnaire compliance when compliance when
borders is determined by sorting their dis- administered to local freight forward- importing auto parts importing auto parts

tance to frontier scores for trading across ers, customs brokers, port authorities
Note: The time and cost for domestic transport and
borders. These scores are the simple aver- and traders. the number of documents to export and import are
age of the distance to frontier scores for measured but do not count for the rankings.
104 DOING BUSINESS 2018

it is considered a no practice economy. The exporting/importing rm hires Contributors are private sector experts
A no practice economy receives a and pays for a freight forwarder or in international trade logistics and are
distance to frontier score of 0 for all the customs broker (or both) and pays for informed about exchange rates and their
trading across borders indicators. all costs related to domestic transport, movements.
clearance and mandatory inspections
Assumptions of the case study by customs and other agencies, port Documentary compliance
To make the data comparable across or border handling, documentary Documentary compliance captures the
economies, several assumptions are compliance fees and the like. time and cost associated with compli-
made about the traded goods and the The mode of transport is the one most ance with the documentary requirements
transactions: widely used for the chosen export or of all government agencies of the origin
For each of the 190 economies cov- import product and the trading partner, economy, the destination economy and
ered by Doing Business, it is assumed as is the seaport or land border crossing. any transit economies (table 8.14). The
that a shipment is located in a ware- All electronic submissions of informa- aim is to measure the total burden of pre-
house in the largest business city of tion requested by any government paring the bundle of documents that will
the exporting economy and travels to agency in connection with the ship- enable completion of the international
a warehouse in the largest business ment are considered to be documents trade for the product and partner pair
city of the importing economy. For 11 obtained, prepared and submitted assumed in the case study. As a ship-
economies the data are also collected, during the export or import process. ment moves from Mumbai to New York
under the same case study assump- A port or border is dened as a place City, for example, the freight forwarder
tions, for the second largest business (seaport or land border crossing) must prepare and submit documents to
city (table 8A.1). where merchandise can enter or leave the customs agency in India, to the port
The import and export case studies an economy. authorities in Mumbai and to the cus-
assume different traded products. Government agencies considered rel- toms agency in New York City.
It is assumed that each economy evant are agencies such as customs,
imports a standardized shipment of 15 port authorities, road police, border The time and cost for documentary
metric tons of containerized auto parts guards, standardization agencies, compliance include the time and cost for
(HS 8708) from its natural import ministries or departments of agri- obtaining documents (such as time spent
partnerthe economy from which it culture or industry, national security to get the document issued and stamped);
imports the largest value (price times agencies, central banks and any other preparing documents (such as time spent
quantity) of auto parts. It is assumed government authorities. gathering information to complete the
that each economy exports the customs declaration or certicate of ori-
product of its comparative advantage Time gin); processing documents (such as time
(dened by the largest export value) Time is measured in hours, and 1 day spent waiting for the relevant authority
to its natural export partnerthe is 24 hours (for example, 22 days are to issue a phytosanitary certicate); pre-
economy that is the largest purchaser recorded as 22 24 = 528 hours). If cus- senting documents (such as time spent
of this product. Precious metal and toms clearance takes 7.5 hours, the data showing a port terminal receipt to port
gems, mineral fuels, oil products, live are recorded as is. Alternatively, suppose authorities); and submitting documents
animals, residues and waste of foods that documents are submitted to a cus- (such as time spent submitting a customs
and products as well as pharmaceuti- toms agency at 8:00 a.m., are processed declaration to the customs agency in per-
cals are excluded from the list of pos- overnight and can be picked up at 8:00 son or electronically).
sible export products, however, and in a.m. the next day. In this case the time for
these cases the second largest product customs clearance would be recorded as All electronic or paper submissions of
category is considered as needed. 24 hours because the actual procedure information requested by any government
A shipment is a unit of trade. Export took 24 hours. agency in connection with the shipment
shipments do not necessarily need to are considered to be documents obtained,
be containerized, while import ship- Cost prepared and submitted during the export
ments of auto parts are assumed to Insurance cost and informal payments for or import process. All documents pre-
be containerized. which no receipt is issued are excluded pared by the freight forwarder or customs
If government fees are determined by from the costs recorded. Costs are report- broker for the product and partner pair
the value of the shipment, the value is ed in U.S. dollars. Contributors are asked assumed in the case study are included
assumed to be $50,000. to convert local currency into U.S. dollars regardless of whether they are required
The product is new, not secondhand based on the exchange rate prevailing on by law or in practice. Any documents pre-
or used merchandise. the day they answer the questionnaire. pared and submitted so as to get access
DATA NOTES 105

TABLE 8.14 What do the indicators on the time and cost to export and import cover? time is the sum of the time spent at the
terminal in Almaty and the handling time
Documentary compliance
at the border.
Obtaining, preparing and submitting documents during transport, clearance, inspections and port or border
handling in origin economy
Doing Business asks contributors to
Obtaining, preparing and submitting documents required by destination economy and any transit economies
estimate the time and cost for clearance
Covers all documents required by law and in practice, including electronic submissions of information as and inspections by customs agencies
well as non-shipment-specific documents necessary to complete the trade
dened as documentary and physical
Border compliance
inspections for the purpose of calculating
Customs clearance and inspections by customs duties by verifying product classication,
Inspections by other agencies (if applied to more than 20% of shipments) conrming quantity, determining origin
Port or border handling at most widely used port or border of economy and checking the veracity of other infor-
Domestic transport mation on the customs declaration. (This
Loading and unloading of shipment at warehouse, dry port or border category includes all inspections aimed at
preventing smuggling.) These are clear-
Transport by most widely used mode between warehouse and terminal or dry port
ance and inspection procedures that take
Transport by most widely used mode between terminal or dry port and most widely used border or port
place in the majority of cases and thus are
Traffic delays and road police checks while shipment is en route considered the standard case. The time
and cost estimates capture the efficiency
to preferential treatmentfor example, that takes place at its port or border. The of the customs agency of the economy.
a certicate of originare included in time and cost for this segment include
the calculation of the time and cost for time and cost for customs clearance Doing Business also asks contributors
documentary compliance. Any docu- and inspection procedures conducted to estimate the total time and cost for
ments prepared and submitted because by other agencies. For example, the time clearance and inspections by customs
of a perception that they ease the passage and cost for conducting a phytosanitary and all other agencies for the specied
of the shipment are also included (for inspection would be included here. product. These estimates account for
example, freight forwarders may prepare inspections related to health, safety,
a packing list because in their experience The computation of border compliance phytosanitary standards, conformity and
this reduces the probability of physical or time and cost depends on where the the like, and thus capture the efficiency
other intrusive inspections). border compliance procedures take of agencies that require and conduct
place, who requires and conducts the these additional inspections.
In addition, any documents that are procedures and what is the probability
mandatory for exporting or importing that inspections will be conducted. If all If inspections by agencies other than
are included in the calculation of time customs clearance and other inspections customs are conducted in 20% or fewer
and cost. Documents that need to be take place at the port or border at the cases, the border compliance time and
obtained only once are not counted, same time, the time estimate for border cost measures take into account only
however. And Doing Business does not compliance takes this simultaneity into clearance and inspections by customs
include documents needed to produce account. It is entirely possible that the (the standard case). If inspections by
and sell in the domestic marketsuch border compliance time and cost could other agencies take place in more than
as certicates of third-party safety stan- be negligible or zero, as in the case of 20% of cases, the time and cost mea-
dards testing that may be required to sell trade between members of the European sures account for clearance and inspec-
toys domesticallyunless a government Union or other customs unions. tions by all agencies. Different types of
agency needs to see these documents inspections may take place with different
during the export process. If some or all customs or other inspec- probabilitiesfor example, scanning may
tions take place at other locations, the take place in 100% of cases while physi-
Border compliance time and cost for these procedures are cal inspection occurs in 5% of cases. In
Border compliance captures the time and added to the time and cost for those situations like this, Doing Business would
cost associated with compliance with that take place at the port or border. In count the time only for scanning because
the economys customs regulations and Kazakhstan, for example, all customs it happens in more than 20% of cases
with regulations relating to other inspec- clearance and inspections take place at while physical inspection does not. The
tions that are mandatory in order for the a customs post in Almaty that is not at border compliance time and cost for an
shipment to cross the economys border, the land border between Kazakhstan and economy do not include the time and
as well as the time and cost for handling China. In this case border compliance
106 DOING BUSINESS 2018

cost for compliance with the regulations assumed to be containerized. In the 2% or more, such change is classied
of any other economy. cases where cargo is containerized, the as a reform. Minor shipping fee updates
time and cost for transport and other or other small changes on the indicators
Domestic transport procedures are based on a shipment con- that have an aggregate impact of less
Domestic transport captures the time sisting of homogeneous cargo belonging than 2% on the gap are not classied
and cost associated with transporting to a single Harmonized System (HS) as a reform, yet, but their impact is still
the shipment from a warehouse in the classication code. This assumption is reected on the most updated indicators
largest business city of the economy to particularly important for inspections, for this indicator set.
the most widely used seaport or land because shipments of homogeneous
border of the economy. For 11 economies products are often subject to fewer and The data details on trading across borders
the data are also collected for the second shorter inspections than shipments of can be found for each economy at http://
largest business city (table 8A.1). This products belonging to various HS codes. www.doingbusiness.org. This methodology
set of procedures captures the time for was initially developed by Djankov and oth-
(and cost of) the actual transport; any In some cases the shipment travels from ers (2008) and was revised in 2015.
traffic delays and road police checks; as the warehouse to a customs post or termi-
well as time spent on loading or unload- nal for clearance or inspections and then
ing at the warehouse or border. For a travels onward to the port or border. In ENFORCING CONTRACTS
coastal economy with an overseas trad- these cases the domestic transport time is
ing partner, domestic transport captures the sum of the time for both transport seg- Doing Business measures the time and
the time and cost from the loading of the ments. The time and cost for clearance or cost for resolving a commercial dispute
shipment at the warehouse until the ship- inspections are included in the measures through a local rst-instance court (table
ment reaches the economys port (gure for border compliance, however, not in 8.15) and the quality of judicial processes
8.15). For an economy trading through a those for domestic transport. index, evaluating whether each economy
land border, domestic transport captures has adopted a series of good practices
the time and cost from the loading of the REFORMS that promote quality and efficiency in
shipment at the warehouse until the ship- The trading across borders indicator set the court system. The data are collected
ment reaches the economys land border records the time and cost associated through study of the codes of civil proce-
(gure 8.16). with the logistical process of export- dure and other court regulations as well
ing and importing goods every year. as questionnaires completed by local
The time and cost estimates are based on Depending on the impact on the data, litigation lawyers and judges. The ranking
the most widely used mode of transport certain changes are classied as reforms of economies on the ease of enforcing
(truck, train, riverboat) and the most and listed in the summaries of Doing contracts is determined by sorting their
widely used route (road, border posts) as Business reforms in 2016/17 section of distance to frontier scores for enforcing
reported by contributors. The time and the report in order to acknowledge the contracts. These scores are the simple
cost estimates are based on the mode and implementation of signicant changes. average of the distance to frontier scores
route chosen by the majority of contribu- Reforms are divided into two types: for each of the component indicators
tors. For the 11 economies for which data those that make it easier to do business (gure 8.18).
are collected for both the largest and the and those changes that make it more dif-
second largest business city, Doing Business ficult to do business. The trading across
allows the most widely used route and the borders indicator set uses a standard TABLE 8.15 What do the indicators on
most widely used mode of transport to be criterion to recognize a reform. the efficiency of resolving a commercial
different for the two cities. For example, dispute measure?
shipments from Delhi are transported The aggregate gap on the overall distance Time required to enforce a contract through
by train to Mundra port for export, while to frontier of the indicator set is used to the courts (calendar days)
shipments from Mumbai travel by truck to assess the impact of data changes. Any Time to file and serve the case
Nhava Sheva port to be exported. data update that leads to a change of 2% Time for trial and to obtain the judgment
or more on the distance to frontier gap is Time to enforce the judgment
In the export case study, as noted, Doing classied as a reform (for more details,
Cost required to enforce a contract through
Business does not assume a containerized see the chapter on the distance to frontier the courts (% of claim value)
shipment, and time and cost estimates and ease of doing business ranking). For Average attorney fees
may be based on the transport of 15 example, if the implementation of a single
Court costs
tons of noncontainerized products. In window system reduces time or cost in
Enforcement costs
the import case study auto parts are a way that the overall gap decreases by
DATA NOTES 107

FIGURE 8.18 Enforcing contracts: economys largest business city. For 11 FIGURE 8.19 What are the time and
efficiency and quality of commercial economies the data are also collected cost to resolve a commercial dispute
dispute resolution for the second largest business city through a local first-instance court?
(table 8A.1). Pursuant to a contract
Rankings are based on distance to
frontier scores for three indicators between the businesses, Seller sells
some custom-made furniture to Buyer Court
Days to resolve Attorney, court and worth 200% of the economys income
a commercial dispute enforcement costs as
through the courts % of claim value per capita or $5,000, whichever is
Time
greater. After Seller delivers the goods Cost
to Buyer, Buyer refuses to pay the con-
33.3% 33.3%
Time Cost tract price, alleging that the goods are
not of adequate quality. Because they Company A Company B
33.3% (Seller & Commercial (Buyer &
Quality of judicial were custom-made, Seller is unable to plaintiff) dispute defendant)
processes sell them to anyone else.
index Filing & Trial & Enforcement
Seller (the plaintiff) sues Buyer (the service judgment
defendant) to recover the amount
Use of good practices promoting
quality and efficiency under the sales agreement. The
dispute is brought before the court
located in the economys largest busi-
ness city with jurisdiction over com-
EFFICIENCY OF RESOLVING A mercial cases worth 200% of income
COMMERCIAL DISPUTE per capita or $5,000, whichever is Buyer does not appeal the judgment.
The data on time and cost are built by greater. As noted, for 11 economies Seller decides to start enforcing the
following the step-by-step evolution of the data are also collected for the judgment as soon as the time allo-
a commercial sale dispute (gure 8.19). second largest business city. cated by law for appeal lapses.
The data are collected for a specic court At the outset of the dispute, Seller Seller takes all required steps for
for each city covered, under the assump- decides to attach Buyers movable prompt enforcement of the judgment.
tions about the case described below. assets (for example, office equipment The money is successfully collected
The competent court is the one with and vehicles) because Seller fears that through a public sale of Buyers mov-
jurisdiction over disputes worth 200% Buyer may hide its assets or otherwise able assets (for example, office equip-
of income per capita or $5,000, which- become insolvent. ment and vehicles). It is assumed that
ever is greater. Whenever more than one The claim is disputed on the merits Buyer does not have any money in his
court has original jurisdiction over a case because of Buyers allegation that the bank account, making it impossible for
comparable to the standardized case quality of the goods was not adequate. the judgment to be enforced through
study, the data are collected based on the Because the court cannot decide the a seizure of the Buyers accounts.
court that would be used by litigants in case on the basis of documentary
the majority of cases. The name of the evidence or legal title alone, an expert Time
relevant court in each economy is pub- opinion is given on the quality of the Time is recorded in calendar days, count-
lished on the Doing Business website at goods. If it is standard practice in the ed from the moment Seller decides to le
http://www.doingbusiness.org /data economy for each party to call its own the lawsuit in court until payment. This
/exploretopics/enforcing-contracts. For expert witness, the parties each call includes both the days when actions take
the 11 economies for which the data are one expert witness. If it is standard place and the waiting periods in between.
also collected for the second largest busi- practice for the judge to appoint an The average duration of the following
ness city, the name of the relevant court independent expert, the judge does three different stages of dispute resolu-
in that city is given as well. so. In this case the judge does not tion is recorded: (i) filing and service; (ii)
allow opposing expert testimony. trial and judgment; and (iii) enforcement.
Assumptions about the case Following the expert opinion, the Time is recorded considering the case
The value of the claim is equal to judge decides that the goods deliv- study assumptions detailed above and
200% of the economys income per ered by Seller were of adequate only as applicable to the competent court.
capita or $5,000, whichever is greater. quality and that Buyer must pay the Time is recorded in practice, regardless of
The dispute concerns a lawful transac- contract price. The judge thus renders time limits set by law if such time limits
tion between two businesses (Seller a final judgment that is 100% in favor are not respected in the majority of cases.
and Buyer), both located in the of Seller.
108 DOING BUSINESS 2018

The filing and service phase includes: necessary to obtain an order from TABLE 8.16 What does the quality of
The time for Seller to try and obtain the court to attach and seize the judicial processes index measure?
payment out of court through a non- assets, if applicable).
Court structure and proceedings index (05)
litigious demand letter, including the The time it takes to advertise, orga-
Availability of specialized commercial court,
time to prepare the letter and the nize and hold the auction. If more division or section (01.5)
deadline that would be provided to than one auction would usually be
Availability of small claims court and/or simplified
Buyer to comply. required to fully recover the value procedure for small claims (01.5)
The time necessary for a local lawyer of claim in a case comparable to Availability of pretrial attachment (01)
to write the initial complaint and gath- the standardized case study, then
Criteria used to assign cases to judges (01)
er all supporting documents needed the time between multiple auction
Evidentiary weight of womans testimony (-10)
for filing, including authenticating or attempts is recorded.
notarizing them, if required. The time it takes for the winning Case management index (06)
The time necessary to file the com- party to fully recover the value Regulations setting time standards for key court
events (01)
plaint at the court. of the claim once the auction is
The time necessary for Buyer to be successfully completed. Regulations on adjournments and continuances
(01)
served, including the processing
Availability of performance measurement reports
time at the court and the waiting Cost (01)
periods between unsuccessful Cost is recorded as a percentage of the Availability of pretrial conference (01)
attempts, if more than one attempt is claim value, assumed to be equivalent to
Availability of electronic case management
usually required. 200% of income per capita or $5,000, system for judges (01)
whichever is greater. Three types of costs Availability of electronic case management
The trial and judgment phase includes: are recorded: average attorney fees, court system for lawyers (01)
The time between the moment the costs and enforcement costs. Court automation index (04)
case is served on Buyer and the Ability to file initial complaint electronically (01)
moment a pre-trial conference is held, Average attorney fees are the fees that
Ability to serve initial complaint electronically
if such pre-trial conference is part of Seller (plaintiff) must advance to a (01)
the case management techniques local attorney to represent Seller in the Ability to pay court fees electronically (01)
used by the competent court. standardized case, regardless of nal Publication of judgments (01)
The time between the pre-trial reimbursement. Court costs include all
Alternative dispute resolution index (03)
conference and the first hearing, if costs that Seller (plaintiff) must advance
Arbitration (01.5)
a pre-trial conference is part of the to the court, regardless of the nal cost
case management techniques used borne by Seller. Court costs include the Voluntary mediation and/or conciliation (01.5)
by the competent court. If not, the fees that the parties must pay to obtain Quality of judicial processes index (018)
time between the moment the case is an expert opinion, regardless of whether Sum of the court structure and proceedings, case
served on Buyer and the moment the they are paid to the court or to the expert management, court automation and alternative
dispute resolution indices
first hearing is held. directly. Enforcement costs are all costs
The time to conduct all trial activities, that Seller (plaintiff) must advance to
including exchanges of briefs and enforce the judgment through a public Court structure and proceedings
evidence, multiple hearings, wait- sale of Buyers movable assets, regardless index
ing times in between hearings and of the nal cost borne by Seller. Bribes are The court structure and proceedings
obtaining an expert opinion. not taken into account. index has ve components:
The time necessary for the judge to Whether a specialized commercial
issue a written final judgment once QUALITY OF JUDICIAL PROCESSES court, section or division dedicated
the evidence period has closed. The quality of judicial processes index solely to hearing commercial cases is
The time limit for appeal. measures whether each economy has in place. A score of 1.5 is assigned if
adopted a series of good practices in its yes; 0 if no.
The enforcement phase includes: court system in four areas: court struc- Whether a small claims court and/
The time it takes to obtain an enforce- ture and proceedings, case management, or a fast-track procedure for small
able copy of the judgment and contact court automation and alternative dispute claims is in place. A score of 1 is
the relevant enforcement office. resolution (table 8.16). assigned if such a court or procedure
The time it takes to locate, identify, is in place, it is applicable to all civil
seize and transport the losing partys cases and the law sets a cap on the
movable assets (including the time value of cases that can be handled
DATA NOTES 109

through this court or procedure. If Case management index if only one of these reports is available
small claims are handled by a stand- The case management index has six or if none are.
alone court, the point is assigned components: Whether a pretrial conference is
only if this court applies a simplied Whether any of the applicable laws or among the case management tech-
procedure. An additional score of 0.5 regulations on civil procedure contain niques used in practice before the
is assigned if parties can represent time standards for at least three of the competent court and at least three
themselves before this court or dur- following key court events: (i) service of the following issues are discussed
ing this procedure. If no small claims of process; (ii) rst hearing; (iii) ling during the pretrial conference: (i)
court or simplied procedure is in of the statement of defense; (iv) scheduling (including the time
place, a score of 0 is assigned. completion of the evidence period; frame for ling motions and other
Whether plaintiffs can obtain pretrial (v) ling of testimony by expert; and documents with the court); (ii) case
attachment of the defendants mov- (vi) submission of the nal judgment. complexity and projected length of
able assets if they fear the assets may A score of 1 is assigned if such time trial; (iii) possibility of settlement
be moved out of the jurisdiction or standards are available and respected or alternative dispute resolution;
otherwise dissipated. A score of 1 is in more than 50% of cases; 0.5 if (iv) exchange of witness lists; (v)
assigned if yes; 0 if no. they are available but not respected evidence; (vi) jurisdiction and other
Whether cases are assigned ran- in more than 50% of cases; 0 if there procedural issues; and (vii) narrowing
domly and automatically to judges are time standards for less than three down of contentious issues. A score
throughout the competent court. A of these key court events or for none. of 1 is assigned if a pretrial conference
score of 1 is assigned if the assign- Whether there are any laws regulat- in which at least three of these events
ment of cases is random and auto- ing the maximum number of adjourn- are discussed is held within the com-
mated; 0.5 if it is random but not ments or continuances that can petent court; 0 if not.
automated; 0 if it is neither random be granted, whether adjournments Whether judges within the compe-
nor automated. are limited by law to unforeseen tent court can use an electronic case
Whether a womans testimony carries and exceptional circumstances and management system for at least
the same evidentiary weight in court whether these rules are respected four of the following purposes: (i) to
as a mans. A score of -1 is assigned in more than 50% of cases. A score access laws, regulations and case
if the law differentiates between the of 1 is assigned if all three conditions law; (ii) to automatically generate a
evidentiary value of a womans testi- are met; 0.5 if only two of the three hearing schedule for all cases on their
mony and that of a man in any type conditions are met; 0 if only one of the docket; (iii) to send notications (for
of civil case, including family cases; 0 conditions is met or if none are. example, e-mails) to lawyers; (iv)
if it does not. Whether there are any performance to track the status of a case on their
measurement reports that can be docket; (v) to view and manage case
The index ranges from 0 to 5, with generated about the competent court documents (briefs, motions); (vi) to
higher values indicating a more sophis- to monitor the courts performance, to assist in writing judgments; (vii) to
ticated and streamlined court structure. track the progress of cases through the semiautomatically generate court
In Bosnia and Herzegovina, for example, court and to ensure compliance with orders; and (viii) to view court orders
a specialized commercial court is in established time standards. A score of and judgments in a particular case. A
place (a score of 1.5), and small claims 1 is assigned if at least two of the fol- score of 1 is assigned if an electronic
can be resolved through a dedicated lowing four reports are made publicly case management system that judges
division in which self-representation available: (i) time to disposition report can use for at least four of these pur-
is allowed (a score of 1.5). Plaintiffs (measuring the time the court takes poses is available; 0 if not.
can obtain pretrial attachment of the to dispose/adjudicate its cases); (ii) Whether lawyers can use an electronic
defendants movable assets if they fear clearance rate report (measuring the case management system for at least
dissipation during trial (a score of 1). number of cases resolved versus the four of the following purposes: (i) to
Cases are assigned randomly through number of incoming cases); (iii) age access laws, regulations and case law;
an electronic case management system of pending cases report (providing a (ii) to access forms to be submitted to
(a score of 1). A womans testimony snapshot of all pending cases accord- the court; (iii) to receive notications
carries the same evidentiary weight in ing to case type, case age, last action (for example, e-mails); (iv) to track the
court as a mans (a score of 0). Adding held and next action scheduled); and status of a case; (v) to view and man-
these numbers gives Bosnia and (iv) single case progress report (pro- age case documents (briefs, motions);
Herzegovina a score of 5 on the court viding a snapshot of the status of one (vi) to le briefs and documents with
structure and proceedings index. single case). A score of 0 is assigned the court; and (vii) to view court orders
110 DOING BUSINESS 2018

and decisions in a particular case. A fax or SMS (short message service), for through the internet (a score of 1). Adding
score of 1 is assigned if an electronic cases filed before the competent court. these numbers gives Estonia a score of 4
case management system that law- A score of 1 is assigned if electronic ser- on the court automation index.
yers can use for at least four of these vice is available and no further service of
purposes is available; 0 if not. process is required; 0 if not. Electronic Alternative dispute resolution
service is acknowledged regardless of index
The index ranges from 0 to 6, with higher the percentage of users, as long as no The alternative dispute resolution index
values indicating a more qualitative and additional in-person interactions are has six components:
efficient case management system. In required, and local experts have used it Whether domestic commercial arbi-
Australia, for example, time standards enough to be able to confirm that it is tration is governed by a consolidated
for at least three key court events are fully functional. law or consolidated chapter or section
established in applicable civil procedure Whether court fees can be paid of the applicable code of civil proce-
instruments and are respected in more electronically for cases filed before dure encompassing substantially all
than 50% of cases (a score of 1). The the competent court, either through a its aspects. A score of 0.5 is assigned
law stipulates that adjournments can dedicated platform or through online if yes; 0 if no.
be granted only for unforeseen and banking. A score of 1 is assigned if fees Whether commercial disputes of all
exceptional circumstances and this rule can be paid electronically and litigants kindsaside from those dealing with
is respected in more than 50% of cases are not required to follow-up with a public order, public policy, bankruptcy,
(a score of 0.5). A time to disposition hard copy of the receipt or produce a consumer rights, employment issues
report, a clearance rate report and an age stamped copy of the receipt; 0 if not. or intellectual propertycan be sub-
of pending cases report can be generated Electronic payment is acknowledged mitted to arbitration. A score of 0.5 is
about the competent court (a score of 1). regardless of the percentage of users, assigned if yes; 0 if no.
A pretrial conference is among the case as long as no additional in-person Whether valid arbitration clauses
management techniques used before the interactions are required, and local or agreements are enforced by local
District Court of New South Wales (a experts have used it enough to be able courts in more than 50% of cases. A
score of 1). An electronic case manage- to confirm that it is fully functional. score of 0.5 is assigned if yes; 0 if no.
ment system satisfying the criteria out- Whether judgments rendered by Whether voluntary mediation, con-
lined above is available to judges (a score local courts are made available to the ciliation or both are a recognized way
of 1) and to lawyers (a score of 1). Adding general public through publication in of resolving commercial disputes. A
these numbers gives Australia a score of official gazettes, in newspapers or on score of 0.5 is assigned if yes; 0 if no.
5.5 on the case management index, the the internet. A score of 1 is assigned Whether voluntary mediation,
highest score attained by any economy if judgments rendered in commercial conciliation or both are governed by
on this index. cases at all levels are made available a consolidated law or consolidated
to the general public; 0.5 if only judg- chapter or section of the applicable
Court automation index ments rendered at the appeal and code of civil procedure encompassing
The court automation index has four supreme court level are made available substantially all their aspects. A score
components: to the general public; 0 in all other of 0.5 is assigned if yes; 0 if no.
Whether the initial complaint can be instances. No points are awarded if Whether there are any nancial incen-
led electronically through a dedicated judgments need to be individually tives for parties to attempt mediation
platform (not e-mail or fax) within requested from the court, or if the case or conciliation (for example, if media-
the competent court. A score of 1 is number or parties details are required tion or conciliation is successful, a
assigned if such a platform is available in order to obtain a copy of a judgment. refund of court ling fees, an income
and litigants are not required to follow tax credit or the like). A score of 0.5 is
up with a hard copy of the complaint; 0 The index ranges from 0 to 4, with higher assigned if yes; 0 if no.
if not. Electronic filing is acknowledged values indicating a more automated,
regardless of the percentage of users, efficient and transparent court system. In The index ranges from 0 to 3, with higher
as long as no additional in-person Estonia, for example, the initial summons values associated with greater availability
interactions are required, and local can be led online (a score of 1), it can of alternative dispute resolution mecha-
experts have used it enough to be able be served on the defendant electronically nisms. In Israel, for example, arbitration
to confirm that it is fully functional. (a score of 1), and court fees can be paid is regulated through a dedicated statute
Whether the initial complaint can be electronically as well (a score of 1). In (a score of 0.5), all relevant commercial
served on the defendant electronically, addition, judgments in commercial cases disputes can be submitted to arbitration
through a dedicated system or by e-mail, at all levels are made publicly available (a score of 0.5), and valid arbitration
DATA NOTES 111

clauses are usually enforced by the with a 2-point increase in the index, while on the ease of resolving insolvency is
courts (a score of 0.5). Voluntary media- introducing incentives for the parties to determined by sorting their distance to
tion is a recognized way of resolving use mediation represents a reform with a frontier scores for resolving insolvency.
commercial disputes (a score of 0.5), it 0.5-point increase in the index. These scores are the simple average of
is regulated through a dedicated statute the distance to frontier scores for the
(a score of 0.5), and part of the ling fees Second, changes that have an impact on recovery rate and the strength of insol-
is reimbursed if the process is successful the time and cost to resolve a dispute may vency framework index (figure 8.20).
(a score of 0.5). Adding these numbers also be classied as reforms depending on
gives Israel a score of 3 on the alternative the magnitude of the changes. According to RECOVERY OF DEBT IN
dispute resolution index. the enforcing contracts methodology, any INSOLVENCY
updates in legislation leading to a change The recovery rate is calculated based on
Quality of judicial processes of 2% or more on the distance to frontier the time, cost and outcome of insolvency
index gap (for more details, see the chapter on proceedings in each economy. To make
The quality of judicial processes index is the distance to frontier and ease of doing the data on the time, cost and outcome
the sum of the scores on the court struc- business ranking) of the time and cost of insolvency proceedings comparable
ture and proceedings, case management, indicators is classied as a reform. Changes across economies, several assumptions
court automation and alternative dispute with lower impact are not classied as about the business and the case are used.
resolution indices. The index ranges from reforms but they are still reected on the
0 to 18, with higher values indicating bet- most updated indicators data. Assumptions about the business
ter and more efficient judicial processes. The business:
Third, legislative changes of exceptional Is a limited liability company.
REFORMS magnitude such as sizeable revisions of the Operates in the economys largest
The enforcing contracts indicator set applicable civil procedure, or enforcement business city. For 11 economies the
tracks changes related to the efficiency laws, that are anticipated to have a signifi- data are also collected for the second
and quality of commercial dispute resolu- cant impact on time and cost in the future. largest business city (table 8A.1).
tion systems every year. Depending on Is 100% domestically owned, with the
the impact on the data, certain changes The data details on enforcing contracts can founder, who is also chairman of the
are classied as reforms and listed in the be found for each economy at http://www supervisory board, owning 51% (no
summaries of Doing Business reforms in .doingbusiness.org. This methodology was other shareholder holds more than
2016/2017 section of the report. Reforms initially developed by Djankov and others 5% of shares).
are divided into two types: those that make (2003) and is adopted here with several Has downtown real estate, where it
it easier to do business and those changes changes. The quality of judicial processes runs a hotel, as its major asset.
that make it more difficult to do business. index was introduced in Doing Business Has a professional general manager.
The enforcing contracts indicator set uses 2016. The good practices tested in this index Has 201 employees and 50 suppliers,
three criteria to recognize a reform. were developed on the basis of internation- each of which is owed money for the
ally recognized good practices promoting last delivery.
First, changes in laws and regulations judicial efficiency.
that have any impact on the economys FIGURE 8.20 Resolving insolvency:
score on the quality of judicial processes recovery rate and strength of insolvency
index are classied as reforms. Examples RESOLVING INSOLVENCY framework
of reforms impacting the quality of judi-
cial processes index include measures Doing Business studies the time, cost Rankings are based on distance to
to introduce electronic ling of the initial and outcome of insolvency proceed- frontier scores for two indicators

complaint, the creation of a commercial ings involving domestic entities as well


court or division, or the introduction as the strength of the legal framework
of dedicated systems to resolve small applicable to judicial liquidation and
claims. Changes affecting the quality reorganization proceedings. The data for 50% 50%
Recovery Strength of
of judicial processes index can be dif- the resolving insolvency indicators are rate insolvency
framework
ferent in magnitude and scope and still derived from questionnaire responses by index
be considered a reform. For example, local insolvency practitioners and veried
implementing a new electronic case through a study of laws and regulations
management system for the use of as well as public information on insol-
judges and lawyers represents a reform vency systems. The ranking of economies
112 DOING BUSINESS 2018

Has a 10-year loan agreement debt enforcement procedure (foreclosure TABLE 8.17 What do the indicators on
with a domestic bank secured by or receivership) against the company. debt recovery in insolvency measure?
a mortgage over the hotels real
Time required to recover debt (years)
estate property. A universal business Assumptions about the parties
Measured in calendar years
charge (an enterprise charge) is also The bank wants to recover as much as
assumed in economies where such possible of its loan, as quickly and cheap- Appeals and requests for extension are included
collateral is recognized. If the laws ly as possible. The unsecured creditors Cost required to recover debt (% of debtors
estate)
of the economy do not specically will do everything permitted under the
provide for an enterprise charge but applicable laws to avoid a piecemeal sale Measured as percentage of estate value
contracts commonly use some other of the assets. The majority shareholder Court fees
provision to that effect, this provision wants to keep the company operating Fees of insolvency administrators
is specied in the loan agreement. and under his control. Management Lawyers fees
Has observed the payment schedule wants to keep the company operating Assessors and auctioneers fees
and all other conditions of the loan and preserve its employees jobs. All the
Other related fees
up to now. parties are local entities or citizens; no
Outcome
Has a market value, operating as a foreign parties are involved.
going concern, of 100 times income Whether the business continues operating as
a going concern or whether its assets are sold
per capita or $200,000, whichever is Time piecemeal
greater. The market value of the com- Time for creditors to recover their credit Recovery rate for secured creditors (cents
panys assets, if sold piecemeal, is 70% is recorded in calendar years (table 8.17). on the dollar)
of the market value of the business. The period of time measured by Doing Measures the cents on the dollar recovered by
Business is from the companys default secured creditors
Assumptions about the case until the payment of some or all of the Present value of debt recovered
The business is experiencing liquidity money owed to the bank. Potential delay Official costs of the insolvency proceedings are
problems. The companys loss in 2016 tactics by the parties, such as the ling deducted

reduced its net worth to a negative gure. of dilatory appeals or requests for exten- Depreciation of furniture is taken into account
It is January 1, 2017. There is no cash to sion, are taken into consideration. Outcome for the business (survival or not) affects
the maximum value that can be recovered
pay the bank interest or principal in full,
due the next day, January 2. The busi- Cost
ness will therefore default on its loan. The cost of the proceedings is recorded as or debt enforcement (foreclosure or
Management believes that losses will a percentage of the value of the debtors receivership) proceedings (gure 8.21).
be incurred in 2017 and 2018 as well. estate. The cost is calculated on the basis The calculation takes into account the out-
But it expects 2017 cash ow to cover all of questionnaire responses and includes come: whether the business emerges from
operating expenses, including supplier court fees and government levies; fees of the proceedings as a going concern or the
payments, salaries, maintenance costs insolvency administrators, auctioneers, assets are sold piecemeal. Then the costs
and taxes, though not principal or interest assessors and lawyers; and all other fees of the proceedings are deducted (1 cent
payments to the bank. and costs. for each percentage point of the value of
the debtors estate). Finally, the value lost
The amount outstanding under the Outcome as a result of the time the money remains
loan agreement is exactly equal to the Recovery by creditors depends on tied up in insolvency proceedings is taken
market value of the hotel business and whether the hotel business emerges into account, including the loss of value
represents 74% of the companys total from the proceedings as a going con- due to depreciation of the hotel furniture.
debt. The other 26% of its debt is held by cern or the companys assets are sold Consistent with international accounting
unsecured creditors (suppliers, employ- piecemeal. If the business continues practice, the annual depreciation rate for
ees, tax authorities). operating, 100% of the hotel value is furniture is taken to be 20%. The furniture
preserved. If the assets are sold piece- is assumed to account for a quarter of the
The company has too many creditors to meal, the maximum amount that total value of assets. The recovery rate is
negotiate an informal out-of-court work- can be recovered is 70% of the value the present value of the remaining pro-
out. The following options are available: a of the hotel. ceeds, based on end-2016 lending rates
judicial procedure aimed at the rehabilita- from the International Monetary Funds
tion or reorganization of the company to Recovery rate International Financial Statistics, supple-
permit its continued operation; a judicial The recovery rate is recorded as cents on mented with data from central banks and
procedure aimed at the liquidation or the dollar recovered by secured creditors the Economist Intelligence Unit.
winding-up of the company; or a judicial through judicial reorganization, liquidation
DATA NOTES 113

FIGURE 8.21 Recovery rate is a function of the time, cost and outcome of insolvency FIGURE 8.22 Strength of insolvency
proceedings against a local company framework index measures the quality
of insolvency laws that govern relations
between debtors, creditors and the court
Secured creditor Recovery rate
with unpaid claim Time Cost Outcome Commencement Management of
of proceedings debtors assets
index Court index
Reorganization, liquidation or
debt enforcement proceedings

If an economy had zero completed cases proceedings; 0.5 if they can initiate
a year over the past ve years involving a only one of these types (either liquida-
Creditors Debtor
judicial reorganization, judicial liquidation tion or reorganization); 0 if they can-
or debt enforcement procedure (fore- not initiate insolvency proceedings.
Creditor Reorganization
closure or receivership), the economy What standard is used for com- participation proceedings index
receives a no practice mark on the time, mencement of insolvency proceed- index

cost and outcome indicators. This means ings. A score of 1 is assigned if a


that creditors are unlikely to recover their liquidity test (the debtor is gener- Whether the debtor (or an insolvency
money through a formal legal process. ally unable to pay its debts as they representative on its behalf) can reject
The recovery rate for no practice mature) is used; 0.5 if the balance overly burdensome contracts. A score
economies is zero. In addition, a no sheet test (the liabilities of the debtor of 1 is assigned if yes; 0 if rejection of
practice economy receives a score of 0 exceed its assets) is used; 1 if both contracts is not possible or if the law
on the strength of insolvency framework the liquidity and balance sheet tests contains no provisions on this subject.
index even if its legal framework includes are available but only one is required Whether transactions entered into
provisions related to insolvency proceed- to initiate insolvency proceedings; before commencement of insolvency
ings (liquidation or reorganization). 0.5 if both tests are required; 0 if a proceedings that give preference
different test is used. to one or several creditors can be
STRENGTH OF INSOLVENCY avoided after proceedings are initi-
FRAMEWORK The index ranges from 0 to 3, with ated. A score of 1 is assigned if yes;
The strength of insolvency framework higher values indicating greater access
index is based on four other indices: to insolvency proceedings. In Bulgaria, for TABLE 8.18 What do the indicators
commencement of proceedings index, example, debtors can initiate both liqui- on the strength of the insolvency
management of debtors assets index, dation and reorganization proceedings (a framework measure?
reorganization proceedings index and score of 1), but creditors can initiate only Commencement of proceedings index (03)
creditor participation index (gure 8.22; liquidation proceedings (a score of 0.5). Availability of liquidation and reorganization to
table 8.18). Either the liquidity test or the balance debtors and creditors (02)
sheet test can be used to commence Standards for commencement of insolvency
Commencement of proceedings insolvency proceedings (a score of 1). proceedings (01)
index Adding these numbers gives Bulgaria a Management of debtors assets index (06)
The commencement of proceedings score of 2.5 on the commencement of Continuation and rejection of contracts during
index has three components: proceedings index. insolvency (02)
Whether debtors can initiate both Avoidance of preferential and undervalued
transactions (02)
liquidation and reorganization pro- Management of debtors assets
Post-commencement finance (02)
ceedings. A score of 1 is assigned if index
debtors can initiate both types of pro- The management of debtors assets index Reorganization proceedings index (03)
ceedings; 0.5 if they can initiate only has six components: Approval and content of reorganization plan (03)
one of these types (either liquidation Whether the debtor (or an insolvency Creditor participation index (04)
or reorganization); 0 if they cannot representative on its behalf) can con- Creditors participation in and rights during
initiate insolvency proceedings. tinue performing contracts essential liquidation and reorganization proceedings (04)
Whether creditors can initiate both to the debtors survival. A score of 1 Strength of insolvency framework index (016)
liquidation and reorganization pro- is assigned if yes; 0 if continuation of Sum of the commencement of proceedings,
ceedings. A score of 1 is assigned if contracts is not possible or if the law management of debtors assets, reorganization
proceedings and creditor participation indices
creditors can initiate both types of contains no provisions on this subject.
114 DOING BUSINESS 2018

0 if avoidance of such transactions is Reorganization proceedings Creditor participation index


not possible or if the law contains no index The creditor participation index has four
provisions on this subject. The reorganization proceedings index has components:
Whether undervalued transactions three components: Whether creditors appoint the
entered into before commencement Whether the reorganization plan is insolvency representative or approve,
of insolvency proceedings can be voted on only by the creditors whose ratify or reject the appointment of the
avoided after proceedings are initi- rights are modied or affected by the insolvency representative. A score of 1
ated. A score of 1 is assigned if yes; plan. A score of 1 is assigned if yes; 0.5 is assigned if yes; 0 if no.
0 if avoidance of such transactions is if all creditors vote on the plan, regard- Whether creditors are required
not possible or if the law contains no less of its impact on their interests; 0 to approve the sale of substantial
provisions on this subject. if creditors do not vote on the plan or assets of the debtor in the course of
Whether the insolvency framework if reorganization is not available. insolvency proceedings. A score of 1 is
includes specic provisions that allow Whether creditors entitled to vote assigned if yes; 0 if no.
the debtor (or an insolvency represen- on the plan are divided into classes, Whether an individual creditor has the
tative on its behalf), after commence- each class votes separately and the right to access nancial information
ment of insolvency proceedings, to creditors within each class are treated about the debtor during insolvency
obtain nancing necessary to func- equally. A score of 1 is assigned if proceedings. A score of 1 is assigned
tion during the proceedings. A score the voting procedure has these three if yes; 0 if no.
of 1 is assigned if yes; 0 if obtaining features; 0 if the voting procedure Whether an individual creditor can
post-commencement nance is not does not have these three features or object to a decision of the court or
possible or if the law contains no if reorganization is not available. of the insolvency representative to
provisions on this subject. Whether the insolvency framework approve or reject claims against the
Whether post-commencement nance requires that dissenting creditors debtor brought by the creditor itself
receives priority over ordinary unse- receive as much under the reorganiza- and by other creditors. A score of 1 is
cured creditors during distribution tion plan as they would have received assigned if yes; 0 if no.
of assets. A score of 1 is assigned in liquidation. A score of 1 is assigned
if yes; 0.5 if post-commencement if yes; 0 if no such provisions exist or if The index ranges from 0 to 4, with higher
nance is granted superpriority over reorganization is not available. values indicating greater participation
all creditors, secured and unsecured; of creditors. In Iceland, for example, the
0 if no priority is granted to post- The index ranges from 0 to 3, with court appoints the insolvency representa-
commencement nance or if the law higher values indicating greater com- tive, without creditors approval (a score of
contains no provisions on this subject. pliance with internationally accepted 0). The insolvency representative decides
practices. Nicaragua, for example, has unilaterally on the sale of the debtors
The index ranges from 0 to 6, with higher no judicial reorganization proceedings assets (a score of 0). Any creditor can
values indicating more advantageous and therefore receives a score of 0 on inspect the records kept by the insolvency
treatment of the debtors assets from the the reorganization proceedings index. representative (a score of 1). And any
perspective of the companys stakehold- In Estonia, another example, only creditor is allowed to challenge a deci-
ers. In Mozambique, for example, debtors creditors whose rights are affected by sion of the insolvency representative to
can continue essential contracts (a score the reorganization plan are allowed to approve all claims if this decision affects
of 1) and reject burdensome ones (a vote (a score of 1). The reorganization the creditors rights (a score of 1). Adding
score of 1) during insolvency proceed- plan divides creditors into classes, these numbers gives Iceland a score of 2
ings. The insolvency framework allows each class votes separately and credi- on the creditor participation index.
avoidance of preferential transactions tors within the same class are treated
(a score of 1) and undervalued ones (a equally (a score of 1). But there are no Strength of insolvency
score of 1). But the insolvency framework provisions requiring that the return to framework index
contains no provisions allowing post- dissenting creditors be equal to what The strength of insolvency framework
commencement nance (a score of 0) they would have received in liquidation index is the sum of the scores on the
or granting priority to such nance (a (a score of 0). Adding these numbers commencement of proceedings index,
score of 0). Adding these numbers gives gives Estonia a score of 2 on the reor- management of debtors assets index,
Mozambique a score of 4 on the man- ganization proceedings index. reorganization proceedings index and
agement of debtors assets index. creditor participation index. The index
DATA NOTES 115

ranges from 0 to 16, with higher values the changes. According to the resolving rankings of economies on these indica-
indicating insolvency legislation that is insolvency methodology any update in tors or include this indicator set in the
better designed for rehabilitating viable legislation leading to a change of 2% aggregate distance to frontier score or
rms and liquidating nonviable ones. or more on the distance to frontier gap ranking on the ease of doing business.
(for more details, see the chapter on the Detailed data collected on labor market
REFORMS distance to frontier and ease of doing busi- regulation are available on the Doing
The resolving insolvency indicator set ness ranking) of the recovery rate indicator Business website (http://www.doing
tracks changes related to the efficiency is classied as a reform. Changes with business.org). The data on labor market
and quality of insolvency framework lower impact are not classied as reforms regulation are based on a detailed ques-
every year. Depending on the impact but their impact is still reected on the tionnaire on employment regulations that
on the data, certain changes are most updated indicators. is completed by local lawyers and public
classied as reforms and listed in the officials. Employment laws and regula-
summaries of Doing Business reforms Third, occasionally the resolving insol- tions as well as secondary sources are
in 2016/2017 section of the report in vency indicator set will acknowledge reviewed to ensure accuracy.
order to acknowledge the implementa- legislative changes with no current impact
tion of signicant changes. Reforms on the data as reforms. This option is To make the data comparable across
are divided into two types: those that typically reserved to legislative changes economies, several assumptions about
make it easier to do business and those of exceptional magnitude such as sizeable the worker and the business are used.
changes that make it more difficult to revisions of corporate insolvency laws.
do business. The resolving insolvency Assumptions about the worker
indicator set uses three criteria to rec- This methodology was developed by The worker:
ognize a reform. Djankov, Hart and others (2008) and is Is a cashier in a supermarket or gro-
adopted here with several changes. The cery store, age 19, with one year of
First, all changes to laws and regulations strength of insolvency framework index work experience.10
that have any impact on the economys was introduced in Doing Business 2015. Is a full-time employee.
score on the strength of insolvency The good practices tested in this index were Is not a member of the labor union,
framework index are classied as reforms. developed on the basis of the World Banks unless membership is mandatory.
Examples of reforms impacting the Principles for Effective Insolvency and
strength of insolvency framework index Creditor/Debtor Regimes (World Bank Assumptions about the business
include changes in the commencement 2011b) and the United Nations Commission The business:
standard for insolvency proceedings, the on International Trade Laws Legislative Is a limited liability company (or the
introduction of reorganization procedures Guide on Insolvency Law (UNCITRAL equivalent in the economy).
for the rst time and measures to regu- 2004a). Operates a supermarket or grocery
late post-commencement credit and its store in the economys largest busi-
priority. Changes affecting the strength ness city. For 11 economies the data
of insolvency framework index can be LABOR MARKET are also collected for the second larg-
different in magnitude and scope and REGULATION est business city (table 8A.1).
still be considered a reform. For example, Has 60 employees.
implementing a post-commencement Doing Business studies the exibility of Is subject to collective bargaining
credit provision and designating it with regulation of employment, specically as agreements if such agreements cover
certain priorities represents a reform with it relates to the areas of hiring, working more than 50% of the food retail sec-
a potential 2-point increase in the index, hours and redundancy. Doing Business tor and apply even to rms that are
while changing the commencement also measures several aspects of job not party to them.
standard from the balance sheet test to quality such as the availability of mater- Abides by every law and regulation
the liquidity test represents a reform with nity leave, paid sick leave and the equal but does not grant workers more
a 0.5-point increase in the index. treatment of men and women at the benets than those mandated by law,
workplace (gure 8.23). regulation or (if applicable) collective
Second, changes that have an impact on bargaining agreements.
the time, cost or outcome of insolvency Doing Business 2018 presents the data for
proceedings may also be classied as the labor market regulation indicators in
reforms depending on the magnitude of an annex. The report does not present
116 DOING BUSINESS 2018

FIGURE 8.23 What do the labor market regulation indicators cover? Job quality
Doing Business introduced new data on
2. Working job quality in 2015. Doing Business 2018
hours covers the following eight questions on
job quality: (i) whether the law mandates
equal remuneration for work of equal
value; (ii) whether the law mandates
1. Hiring 3. Redundancy
nondiscrimination based on gender in
hiring; (iii) whether the law mandates
paid or unpaid maternity leave;12 (iv)
the minimum length of paid maternity
leave (in calendar days);13 (v) whether
employees on maternity leave receive
4. Job 100% of wages;14 (vi) the availability of
quality
five fully paid days of sick leave a year;
(vii) whether a worker is eligible for
an unemployment protection scheme
after one year of service; and (viii) the
minimum duration of the contribu-
Employment Data on redundancy cover eight ques- tion period (in months) required for
Data on employment cover three areas: tions: (i) whether redundancy is allowed unemployment protection.
hiring, working hours and redundancy as a basis for terminating workers; (ii)
(table 8.19). whether the employer needs to notify a REFORMS
third party (such as a government agency) The labor market regulation indicator
Data on hiring cover five questions: to terminate one redundant worker; (iii) set tracks changes in labor rules every
(i) whether xed-term contracts are whether the employer needs to notify year. Depending on the impact on the
prohibited for permanent tasks; (ii) a third party to terminate a group of data, certain changes are classied as
the maximum cumulative duration of nine redundant workers; (iv) whether reforms and listed in the summaries of
xed-term contracts; (iii) the length of the employer needs approval from a Doing Business reforms in 2016/2017
the maximum probationary period (in third party to terminate one redundant section of the report in order to acknowl-
months) for permanent employees; (iv) worker; (v) whether the employer needs edge the implementation of signicant
the minimum wage for a cashier, age 19, approval from a third party to terminate changes. Examples include a change
with one year of work experience; and a group of nine redundant workers; (vi) in the maximum duration of xed-
(v) the ratio of the minimum wage to the whether the law requires the employer term contracts, regulation of weekly
average value added per worker.11 to reassign or retrain a worker before holiday work, redundancy rules, notice
making the worker redundant; (vii) requirements and severance payments
Data on working hours cover eight whether priority rules apply for redun- for redundant workers, introduction of
questions: (i) the maximum number of dancies; and (viii) whether priority rules unemployment insurance and laws that
working days allowed per week; (ii) the apply for reemployment. mandate gender nondiscrimination in
premium for night work (as a percentage hiring and equal remuneration for work
of hourly pay); (iii) the premium for work Redundancy cost of equal value in line with ILO stan-
on a weekly rest day (as a percentage Redundancy cost measures the cost of dards. The introduction of a minimum
of hourly pay); (iv) the premium for advance notice requirements and sever- wage in the private sector is recognized
overtime work (as a percentage of hourly ance payments due when terminating a as a major reform and acknowledged in
pay); (v) whether there are restrictions redundant worker, expressed in weeks the reform summary. Changes in mini-
on night work; (vi) whether nonpregnant of salary. The average value of notice mum wages are reected in the Doing
and non-nursing women can work the requirements and severance payments Business data but not acknowledged in
same night hours as men; (vii) whether applicable to a worker with 1 year of ten- the reform summary. The introduction
there are restrictions on weekly holiday ure, a worker with 5 years and a worker of maternity leave or an increase in the
work; (viii) whether there are restrictions with 10 years is considered. One month is duration of maternity leave would be
on overtime work; and (ix) the average recorded as 4 and 1/3 weeks. acknowledged in the reform summary.
paid annual leave for workers with 1 year Occasionally the labor market regula-
of tenure, 5 years of tenure and 10 years tion indicator set will acknowledge
of tenure. legislative changes in areas not directly
DATA NOTES 117

that the transaction was duly disclosed and


TABLE 8.19 What do the labor market regulation indicators measure? approved. Doing Business does not measure
director liability in the event of fraud.
Employment
6. PwC refers to the network of member rms of
Hiring PricewaterhouseCoopers International Limited
(PwCIL) or, as the context requires, individual
Whether fixed-term contracts are prohibited for permanent tasks member rms of the PwC network. Each
Maximum duration of fixed-term contracts (in months), including renewals member rm is a separate legal entity and does
not act as agent of PwCIL or any other member
Maximum probationary period (in months) for permanent employees rm. PwCIL does not provide any services to
Minimum wage for a cashier, age 19, with one year of work experience (US$/month) clients. PwCIL is not responsible or liable for
the acts or omissions of any of its member
Ratio of minimum wage to value added per worker rms nor can it control the exercise of their
Working hours professional judgment or bind them in any way.
No member rm is responsible or liable for the
Maximum number of working days per week acts or omissions of any other member rm nor
Premium for night work, work on weekly rest day and overtime work (% of hourly pay) can it control the exercise of another member
rms professional judgment or bind another
Whether there are restrictions on night work, weekly holiday work and overtime work member rm or PwCIL in any way.
Whether nonpregnant and nonnursing women can work the same night hours as men 7. The nonlinear distance to frontier score for the
total tax and contribution rate is equal to the
Paid annual vacation days for workers with 1 year of tenure, 5 years of tenure and 10 years of tenure. distance to frontier score for the total tax and
contribution rate to the power of 0.8.
Redundancy
8. The economies for which a multiple of three
Length of maximum probationary period (in months) for permanent employees times income per capita has been used are
Honduras, Mozambique, West Bank and
Whether redundancy is allowed as grounds for termination
Gaza, and Zimbabwe. Those for which a
Whether third-party notification is required for termination of a redundant worker or group of workers multiple of two times income per capita
has been used are Belize, Benin, Bosnia and
Whether third-party approval is required for termination of a redundant worker or group of workers
Herzegovina, Burkina Faso, the Central African
Whether employer is obligated to reassign or retrain workers prior to making them redundant and to Republic, Chad, Fiji, Guatemala, Haiti, Kenya,
follow priority rules for redundancy and reemployment Lesotho, Madagascar, the Federated States of
Micronesia, Morocco, Nepal, Nicaragua, Niger,
Redundancy cost (weeks of salary)
Nigeria, the Philippines, the Solomon Islands,
Notice requirements and severance payments due when terminating a redundant worker, expressed in South Africa, South Sudan, Tanzania, Togo,
weeks of salary Vanuatu and Zambia.
9. To identify the trading partners and export
Job quality
product for each economy, Doing Business
Whether the law mandates equal remuneration for work of equal value collected data on trade ows for the most
recent four-year period from international
Whether the law mandates nondiscrimination based on gender in hiring
databases such as the United Nations
Whether the law mandates paid or unpaid maternity leave Commodity Trade Statistics Database (UN
Comtrade). For economies for which trade ow
Minimum length of paid maternity leave (calendar days) data were not available, data from ancillary
Whether employees on maternity leave receive 100% of wages government sources (various ministries and
departments) and World Bank Group country
Availability of five fully paid days of sick leave a year offices were used to identify the export product
Whether unemployment protection is available after one year of employment and natural trading partners.
10. The case study assumption that the worker is
Minimum duration of contribution period (in months) required for unemployment protection 19 years old with one year of work experience
is considered only for the calculation of the
minimum wage. For all other questions where
the tenure of the worker is relevant, Doing
Business collects data for workers with 1, 5 and
measured by the indicators. This option 10 years of tenure.
is reserved for legislative changes of NOTES 11. The average value added per worker is the
exceptional magnitude, such as the ratio of an economys GNI per capita to the
1. The data for paying taxes refer to January- working-age population as a percentage of the
introduction of a new labor code. total population.
December 2016.
2. These are Bangladesh, Brazil, China, India, 12. If no maternity leave is mandated by law,
The data details on labor market regulation Indonesia, Japan, Mexico, Nigeria, Pakistan, parental leave is measured if applicable.
the Russian Federation and the United States. 13. The minimum number of days that legally
can be found for each economy at http:// have to be paid by the government, the
3. This correction rate reects changes that
www.doingbusiness.org. The Doing Business exceed 5% up or down. employer or both. If no maternity leave is
website also provides historical data sets. The 4. This matter is usually regulated by stock mandated by law, parental leave is measured
exchange or securities laws. Points are awarded if applicable.
methodology was developed by Botero and 14. If no maternity leave is mandated by law,
only to economies with more than 10 listed
others (2004). Doing Business 2018 does firms in their most important stock exchange. parental leave is measured if applicable.
not present rankings of economies on the 5. When evaluating the regime of liability for
labor market regulation indicators. company directors for a prejudicial related-
party transaction, Doing Business assumes
118 DOING BUSINESS 2018

TABLE 8A.1 Cities covered in each economy by the Doing Business report
Economy City or cities Economy City or cities Economy City or cities Economy City or cities Economy City or cities
Afghanistan Kabul Congo, Rep. Brazzaville Iran, Islamic Tehran Morocco Casablanca Somalia Mogadishu
Rep.
Albania Tirana Costa Rica San Jos Iraq Baghdad Mozambique Maputo South Africa Johannesburg
Algeria Algiers Cte dIvoire Abidjan Ireland Dublin Myanmar Yangon South Juba
Sudan
Angola Luanda Croatia Zagreb Israel Tel Aviv Namibia Windhoek Spain Madrid
Antigua and St. Johns Cyprus Nicosia Italy Rome Nepal Kathmandu Sri Lanka Colombo
Barbuda
Argentina Buenos Aires Czech Prague Jamaica Kingston Netherlands Amsterdam St. Kitts and Basseterre
Republic Nevis
Armenia Yerevan Denmark Copenhagen Japan Tokyo, Osaka New Zealand Auckland St. Lucia Castries
Australia Sydney Djibouti Djibouti Ville Jordan Amman Nicaragua Managua St. Vincent Kingstown
and the
Grenadines
Austria Vienna Dominica Roseau Kazakhstan Almaty Niger Niamey Sudan Khartoum
Azerbaijan Baku Dominican Santo Kenya Nairobi Nigeria Lagos, Kano Suriname Paramaribo
Republic Domingo
Bahamas, Nassau Ecuador Quito Kiribati Tarawa Norway Oslo Swaziland Mbabane
The
Bahrain Manama Egypt, Arab Cairo Korea, Rep. Seoul Oman Muscat Sweden Stockholm
Rep.
Bangladesh Dhaka, El Salvador San Salvador Kosovo Pristina Pakistan Karachi, Switzerland Zurich
Chittagong Lahore
Barbados Bridgetown Equatorial Malabo Kuwait Kuwait City Palau Koror Syrian Arab Damascus
Guinea Republic
Belarus Minsk Eritrea Asmara Kyrgyz Bishkek Panama Panama City Taiwan, Taipei
Republic China
Belgium Brussels Estonia Tallinn Lao PDR Vientiane Papua New Port Moresby Tajikistan Dushanbe
Guinea
Belize Belize City Ethiopia Addis Ababa Latvia Riga Paraguay Asuncin Tanzania Dar es Salaam
Benin Cotonou Fiji Suva Lebanon Beirut Peru Lima Thailand Bangkok
Bhutan Thimphu Finland Helsinki Lesotho Maseru Philippines Quezon City Timor-Leste Dili
Bolivia La Paz France Paris Liberia Monrovia Poland Warsaw Togo Lom
Bosnia and Sarajevo Gabon Libreville Libya Tripoli Portugal Lisbon Tonga Nukualofa
Herzegovina
Botswana Gaborone Gambia, The Banjul Lithuania Vilnius Puerto Rico San Juan Trinidad Port of Spain
(U.S.) and Tobago
Brazil So Paulo, Georgia Tbilisi Luxembourg Luxembourg Qatar Doha Tunisia Tunis
Rio de Janeiro
Brunei Bandar Seri Germany Berlin Macedonia, Skopje Romania Bucharest Turkey Istanbul
Darussalam Begawan FYR
Bulgaria Sofia Ghana Accra Madagascar Antananarivo Russian Moscow, Uganda Kampala
Federation St. Petersburg
Burkina Ouagadougou Greece Athens Malawi Blantyre Rwanda Kigali Ukraine Kiev
Faso
Burundi Bujumbura Grenada St. Georges Malaysia Kuala Lumpur Samoa Apia United Arab Dubai
Emirates
Cabo Verde Praia Guatemala Guatemala Maldives Mal San Marino San Marino United London
City Kingdom
Cambodia Phnom Penh Guinea Conakry Mali Bamako So Tom So Tom United New York City,
and Prn- States Los Angeles
cipe
Cameroon Douala Guinea- Bissau Malta Valletta Saudi Riyadh Uruguay Montevideo
Bissau Arabia
Canada Toronto Guyana Georgetown Marshall Majuro Senegal Dakar Uzbekistan Tashkent
Islands
Central Bangui Haiti Port-au-Prince Mauritania Nouakchott Serbia Belgrade Vanuatu Port-Vila
African
Republic
Chad NDjamena Honduras Tegucigalpa Mauritius Port Louis Seychelles Victoria Venezuela, Caracas
RB
Chile Santiago Hong Kong Hong Kong Mexico Mexico City, Sierra Freetown Vietnam Ho Chi Minh
SAR, China SAR Monterrey Leone City
China Shanghai, Hungary Budapest Micronesia, Island of Singapore Singapore West Bank Ramallah
Beijing Fed. Sts. Pohnpei and Gaza
Colombia Bogot Iceland Reykjavik Moldova Chisinau Slovak Bratislava Yemen, Rep. Sanaa
Republic
Comoros Moroni India Mumbai, Delhi Mongolia Ulaanbaatar Slovenia Ljubljana Zambia Lusaka
Congo, Dem. Kinshasa Indonesia Jakarta, Montenegro Podgorica Solomon Honiara Zimbabwe Harare
Rep. Surabaya Islands
Doing Business 2018

Distance
to Frontier and Ease of
Doing Business Ranking
Doing Business presents results for two aggregate measures: the distance to frontier
score and the ease of doing business ranking, which is based on the distance to
frontier score. The ease of doing business ranking compares economies with one
another; the distance to frontier score benchmarks economies with respect to
regulatory best practice, showing the absolute distance to the best performance on
each Doing Business indicator. When compared across years, the distance to frontier
score shows how much the regulatory environment for local entrepreneurs in an
economy has changed over time in absolute terms, while the ease of doing business
ranking can show only how much the regulatory environment has changed relative to
that in other economies.

DISTANCE TO FRONTIER formulation the frontier represents the


best performance on the indicator across
The distance to frontier score captures all economies since 2005 or the third
the gap between an economys perfor- year in which data for the indicator were
mance and a measure of best practice collected. Both the best performance and
across the entire sample of 41 indicators the worst performance are established
for 10 Doing Business topics (the labor every five years based on the Doing
market regulation indicators are exclud- Business data for the year in which they
ed). For starting a business, for example, are established, and remain at that
New Zealand has the smallest number of level for the five years regardless of any
procedures required (1) and the shortest changes in data in interim years. Thus
time to fulfill them (0.5 days). Slovenia an economy may set the frontier for an
has the lowest cost (0.0), and Australia, indicator even though it is no longer at
Colombia and 112 other economies have the frontier in a subsequent year.
no paid-in minimum capital requirement
(table 9.1). For scores such as those on the strength
of legal rights index or the quality of land
Calculation of the distance to administration index, the frontier is set at
frontier score the highest possible value. For the total
Calculating the distance to frontier tax and contribution rate, consistent with
score for each economy involves two the use of a threshold in calculating the
main steps. In the first step individual rankings on this indicator, the frontier is
component indicators are normalized defined as the total tax and contribution
to a common unit where each of the rate at the 15th percentile of the overall
41 component indicators y (except for distribution for all years included in the
the total tax and contribution rate) is analysis up to and including Doing Business
rescaled using the linear transformation 2015. For the time to pay taxes, the frontier
(worst y)/(worst frontier). In this is defined as the lowest time recorded
120 DOING BUSINESS 2018

TABLE 9.1 What is the frontier in regulatory practice?


Topic and indicator Who set the frontier Frontier Worst performance
Starting a business
Procedures (number) New Zealand 1 18a
Time (days) New Zealand 0.5 100b
Cost (% of income per capita) Slovenia 0.0 200.0b
Minimum capital (% of income per capita) Australia; Colombiac 0.0 400.0b
Dealing with construction permits
Procedures (number) No economy was at the frontier as of June 1, 2017. 5 30a
Time (days) No economy was at the frontier as of June 1, 2017. 26 373b
Cost (% of warehouse value) No economy was at the frontier as of June 1, 2017. 0.0 20.0b
Building quality control index (015) Luxembourg; New Zealand; United Arab Emirates 15 0d
Getting electricity
Procedures (number) Germany; Republic of Koreae 3 9a
Time (days) Republic of Korea; St. Kitts and Nevis; United Arab Emirates 18 248b
Cost (% of income per capita) Japan 0.0 8,100.0b
Reliability of supply and transparency of tariffs index (08) Belgium; Ireland; Malaysia f
8 0d
Registering property
Procedures (number) Georgia; Norway; Portugal; Sweden 1 13a
Time (days) Georgia; New Zealand; Portugal 1 210b
Cost (% of property value) Saudi Arabia 0.0 15.0b
Quality of land administration index (030) No economy has attained the frontier yet. 30 0d
Getting credit
Strength of legal rights index (012) Brunei Darussalam; Colombia; Montenegro; New Zealand 12 0d
Depth of credit information index (08) Ecuador; United Kingdomg 8 0d
Protecting minority investors
Extent of disclosure index (010) China; Malaysiah 10 0d
Extent of director liability index (010) Cambodia 10 0d
Ease of shareholder suits index (010) No economy has attained the frontier yet. 10 0d
Extent of shareholder rights index (010) India; Kazakhstan 10 0d
Extent of ownership and control index (010) No economy has attained the frontier yet. 10 0d
Extent of corporate transparency index (010) France; Norway; Taiwan, China 10 0d
Paying taxes
Payments (number per year) Hong Kong SAR, China; Saudi Arabia 3 63b
Time (hours per year) Singapore 49 i
696b
Total tax and contribution rate (% of profit) Canada; Singaporej 26.1k 84.0b
Postfiling index (0100) No economy with both CIT and VAT has attained the 100 0
frontier yet.
Time to comply with VAT refund (hours) Croatia; Netherlandsl 0 50b
Time to obtain VAT refund (weeks) Austria; The Bahamas; Estonia 3.2 55b
Time to comply with corporate income tax audit (hours) Lithuania; Portugalm 1.5 56b
Time to complete a corporate income tax audit (weeks) Sweden; United States n
0 32b

(continued)
DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING 121

TABLE 9.1 What is the frontier in regulatory practice? (continued)


Topic and indicator Who set the frontier Frontier Worst performance
Trading across borders
Time to export
Documentary compliance (hours) Canada; Poland; Spaino 1p 170b
Border compliance (hours) Austria; Belgium; Denmark q
1 p
160b
Cost to export
Documentary compliance (US$) Hungary; Luxembourg; Norwayr 0 400b
Border compliance (US$) France; Netherlands; Portugals 0 1,060b
Time to import
Documentary compliance (hours) Republic of Korea; Latvia; New Zealandt 1p 240b
Border compliance (hours) Estonia; France; Germany u
1p
280b
Cost to import
Documentary compliance (US$) Iceland; Latvia; United Kingdomv 0 700b
Border compliance (US$) Belgium; Denmark; Estoniaw 0 1,200b
Enforcing contracts
Time (days) Singapore 120 1,340b
Cost (% of claim) Bhutan 0.1 89.0b
Quality of judicial processes index (018) No economy has attained the frontier yet. 18 0d
Resolving insolvency
Recovery rate (cents on the dollar) Norway 92.9 0d
Strength of insolvency framework index (016) No economy has attained the frontier yet. 16 0d
Source: Doing Business database.
a. Worst performance is defined as the 99th percentile among all economies in the Doing Business sample.
b. Worst performance is defined as the 95th percentile among all economies in the Doing Business sample.
c. Another 112 economies also have a paid-in minimum capital requirement of 0.
d. Worst performance is the worst value recorded.
e. In 17 other economies it also takes no more than 3 procedures to get an electricity connection.
f. Another 25 economies also have a score of 8 on the reliability of supply and transparency of tariffs index.
g. Another 32 economies also have a score of 8 on the depth of credit information index.
h. Another 10 economies also have a score of 10 on the extent of disclosure index.
i. Defined as the lowest time recorded among all economies in the Doing Business sample that levy the three major taxes: profit tax, labor taxes and mandatory contributions,
and VAT or sales tax.
j. Another 30 economies also have a total tax contribution rate equal to or lower than 26.1% of profit.
k. Defined as the highest total tax and contribution rate among the 15% of economies with the lowest total tax and contribution rate in the Doing Business sample for all
years included in the analysis up to and including Doing Business 2015.
l. Another 8 economies also have a compliance time for VAT refund of 0 hours.
m. Another 10 economies also have a compliance time for corporate income tax audit of no more than 1.5 hours.
n. Another 92 economies also have a completion time for corporate income tax audit of 0 weeks.
o. Another 22 economies also have a documentary compliance time to export of no more than 1 hour.
p. Defined as 1 hour even though in many economies the time is less than that.
q. Another 15 economies also have a border compliance time to export of no more than 1 hour.
r. Another 16 economies also have a documentary compliance cost to export of 0.0.
s. Another 16 economies also have a border compliance cost to export of 0.0.
t. Another 26 economies also have a documentary compliance time to import of no more than 1 hour.
u. Another 22 economies also have a border compliance time to import of no more than 1 hour.
v. Another 27 economies also have a documentary compliance cost to import of 0.0.
w. Another 24 economies also have a border compliance cost to import of 0.0.

among all economies that levy the three is defined as 1 hour even though in many distributions of the rescaled data for
major taxes: profit tax, labor taxes and economies the time is less than that. most component indicators (very few
mandatory contributions, and value added economies need 700 days to complete
tax (VAT) or sales tax. For the different In the same formulation, to mitigate the procedures to start a business, but
times to trade across borders, the frontier the effects of extreme outliers in the many need 9 days), the worst performance
122 DOING BUSINESS 2018

is calculated after the removal of outliers. is used for number of procedures. No In the second step for calculating the
The definition of outliers is based on the outlier is removed for component indica- distance to frontier score, the scores
distribution for each component indicator. tors bound by definition or construction, obtained for individual indicators for
To simplify the process two rules were including legal index scores (such as the each economy are aggregated through
defined: the 95th percentile is used for the depth of credit information index, extent of simple averaging into one distance to
indicators with the most dispersed distribu- disclosure index and strength of insolvency frontier score, first for each topic and
tions (including minimum capital, number framework index) and the recovery rate then across all 10 topics: starting a busi-
of payments to pay taxes, and the time and (figure 9.1). ness, dealing with construction permits,
cost indicators), and the 99th percentile getting electricity, registering property,
getting credit, protecting minority inves-
tors, paying taxes, trading across bor-
FIGURE 9.1 How are distance to frontier scores calculated for indicators? ders, enforcing contracts and resolving
Two examples
insolvency. More complex aggregation
A time-and-motion topic: getting electricity methodssuch as principal compo-
Distance to frontier nents and unobserved components
score for procedures
100 Regulatory frontier yield a ranking nearly identical to the
simple average used by Doing Business.1
Best performance
(frontier): Thus Doing Business uses the simplest
3 procedures method: weighting all topics equally and,
80
within each topic, giving equal weight to
each of the topic components.2
60
An economys distance to frontier score is
indicated on a scale from 0 to 100, where
40 0 represents the worst performance and
100 the frontier. All distance to frontier
Worst
performance calculations are based on a maximum
20 (99th percentile): of five decimals. However, t