DOING BUSINESS 2016. Advantageous correction
In the end of October, the World Bank Group published another annual report Doing Business 2016. As opposed to the previous version of the ranking, when due to a change in the methodology Kazakhstan has left the list of 50 most attractive countries for business, the current report gave us a pleasant surprise. Another portion of short stories has led to the revision of our last year results changing it from 77th to 53 place, and based on results of this year we have climbed to 41st place.
Review of the 2015 version was called “An assessment of the quality and effectiveness of the regulation” and has became already 13th in order. The study, which still covers 189 countries in the world, is intended to find out how the existing legal regulations of those countries favors conducting business. Position in the Doing Business ranking today is one of the basic indicators for the evaluation of investment attractiveness and economic potential of its participants. In each country one city is selected for the study. In Kazakhstan it is Almaty. In addition, in the 11 largest countries of the world, with a population of over 100 million people, two cities are a subject for the study.
Within the framework of the project evaluated and monitored are the changes in laws and regulations, that regulate the activities of local small and medium-sized companies in the first place, throughout their life cycle – from the creation to the liquidation.
Just as in the previous year, the analysis is based on 11 sectors of business regulations, 10 of which are included during the calculation of the combined rating. Among them are: amount of time and money spent on the creation of a new business, obtaining the construction permits, access to the electricity infrastructure, property registration, obtaining of credits, protection of the rights of minority investors (in the previous rankings this criterion was called “protection of the rights of investors”), taxation, implementation of international trade, enforcement of contracts, as well as the procedure of bankruptcy. “Doing business” study also measures labor-market regulation – factor that was not included into the ranking this year.
The final position is determined through adjustment of the collective estimate, obtained by one or another country based on the factor of remoteness from the leading edge, which calculates how much it falls short from the best international practice in each of abovementioned 10 sectors.
During the drafting of the current review the work on improvement of the research methodology continued, it was launched last year, it is aimed at adding qualitative criterion to the the quantitative criterion, on which all previous assessments were made.
In particular, in Doing Business 2016 the number of indicators is increased, they measure the quality of regulation based on 4 factors: “obtaining the construction permits”, “connection to the power-supply system”, “property registration”, “enforcement of contracts”, as well as “international trade”. For example, in the “obtaining the construction permits” factor, along with such indicators as “number of procedures, duration and cost of their implementation”, index of “quality of construction control” was added. In addition, in order to increase their relevance the factors of “international trade” indicator have been fully revised. Now the nominal script focuses on the priority export commodities for each country and the most common industrial goods for import (auto parts), as well as major trading partners on import and export.
As noted by the authors of the report, these changes have had a positive effect on global rankings of countries located in Europe and central Asia, many of which have achieved a good results in the above mentioned areas, while the countries of Middle East and North Africa have proved to be less successful.
It is noteworthy that the continuing transformation of the methodology resulted in need for the experts of the World bank to revise the results of the last year with hindsight in order to get an adequate assessment of the progress. Thus, according to the adjusted data, in the Doing Business 2015 rankings Kazakhstan moved to 53rd position from originally assigned 77th.
Leaders are the same
As for the outcome of the Doing Business 2016, it is Singapore who is atop of the rankings for the tenth year in a row. The top ten line-up remains the same this year, only Sweden and Norway switched places. Traditionally African countries are the outsiders. At the last place is Eritrea (27.61 points) and Libya is right before it (31.77 points).
Among the post-Soviet countries the most comfortable conditions for business are established in Estonia (16), Lithuania (20) and Latvia (22). This is followed by Georgia (24), Armenia (35), Kazakhstan (41), Belarus (44), Russia (51), Azerbaijan (63), Kyrgyzstan (67), Ukraine (83), Uzbekistan (87) and Tajikistan (132).
Thus, a leader among members of the EEMA proved to be Armenia, followed by Kazakhstan with their score of 72.68 points and Russia, and worst figures belong to Kyrgyzstan.
Regionally the largest number of reforms is to take place in Europe and Central Asia, 25% of the worldwide total. In total 58 reforms in 23 out of 25 countries were held here. Meaning that almost every country has implemented at least one reform aimed at creation of a more comfortable environment for doing business.
Most of the progress among the countries of Europe and Central Asia was achieved in “property registration” factor. For example, in our region the appropriate procedures have the lowest rate – on average 2.6% for the value of the property. In addition, registration of the real estate in countries of Europe and Central Asia takes only 22 days, which is comparable with OECD practice and is the lowest interim measure in the world.
One of the main challenges in the region is the time needed for connection to the electrical networks. On average it takes 119 days, whereas in OECD countries, the same process takes an average of 78 days. But we show good results on the quality of electricity supply, because blackouts and failures are rare and short-lived.
Situation is much worse in terms of “obtaining the construction permits” factor, because this indicator is characterized by excessive and time costly procedures.
In general the report notes that the highest pace in legislation reforms in the sphere of business doing is observed in 85 developing countries, which performed a total of 169 reforms in the past 12 months. And globally the authors have documented 231 reform in 122 countries.
The majority of innovations aimed at improving the efficiency of regulation by simplifying and reducing the cost. The largest number of reforms carried out in terms of the "business registration" factor, which measures the time required to obtain permission to open a business, as well as all related financial costs.
Ahead of the rest
As is well known, earlier the President of the Republic of Kazakhstan Nursultan Nazarbaev has set a task of entering the top 30 countries of Doing Business ranking. And it appears that last year's "methodological" landing served as a good incentive for officials responsible for the implementation of this task. To improve our country's position a number of legislative initiatives has been developed, which significantly reduces the number of procedures, deadlines and financial costs associated with doing business.
No wonder that this year the experts of the World Bank have recognized Kazakhstan as the country that executed the largest number of reforms – 19 in seven of the ten factors of the rankings.
As a result, we have climbed 12 positions right away, taking a stand between Croatia (41st place) and Hungary (42nd place).
The most outstanding leap can be seen in the sphere of “protection of the rights of minority investors” – 39 positions growth – to the 25th place, followed by “business registration” (21st place, +32 positions), as well as “settlement of non-solvency” (47th, +16).
And our strongest factor is the "enforcement of contracts". Based on this indicator, that evaluates the work of judicial system, Kazakhstan has gained 5 positions and took the 9th place in the world ranking, ahead of countries such as Germany (12), France (14), U.A.E. (18), United States (21), Sweden (24), Belgium (53) and Netherlands (91). This happened because of the accelerated small claims procedure and optimization of rules and procedures in the administration of law.
However, in three criteria we observe a slight decrease. The most “weak spot” in the rankings for Kazakhstan is “international trade”: this year we have lost one more position – down to 122 position. Three positions down to 71st place have been lost in the sphere of “connection to the power-supply system” – however, this problem is typical for the whole region. Again, over the past 10 years not a single reform was carried out in Kazakhstan in order to improve this factor. Completes the list of failures, according to the year 2015, one of the most prominent of our factors – "taxation", where we lost 1 position, falling to 18th place in the world.
Nevertheless, the overall result is very impressive. Moreover, Kazakhstan is not going to stop at already achieved results and sets even more ambitious goals. Our further progress in the ranking will be associated with the intensification of the field activities. Starting from 2016 in eight regions of the country, including the cities of Almaty and Astana, subnational rating Doing Busines will be implemented. As expected in the Government, the approaches that have been proven effective in pilot regions of the Republic, can then be extended to the whole country.
Commenting on the outcome of the current report, Managing Director of RPC “Atameken” Nurlan Sakuov noted that progress in the rankings mainly implies the exclusion of excessive requirements from national legislation and does not require substantial financial investment in the implementation of the reforms. On the feasibility of the set tasks, even in times of crisis, in his opinion, indicates the fact that the rating does not affect variables such as macroeconomic policy, the financial sector, the quality of infrastructure, stability of the national currency.
Another thing is that this approach can become a double-edged sword. Since, implemented reforms should reflect not only on formal indicators in the ranking, but also on the wellbeing of entrepreneurs. And here it is not the case when you can avoid political aspects and just carry out the regulations.