The Proteins and Minerals of an Economy

The ‘Doing Business’-report, published annually since 2003 by the World Bank, is examining the state of health of economies.

What makes this study noteworthy is the fact, that the diagnostics of countries is for once not based on visible features such as growth or macroeconomic parameters as the public debt but of underlying and embedded characteristics like the regulatory system, the bureaucracy and the nature of business governance.

They may not seem important to the lay observer, but they have huge long-run implications for an economy’s health, performance and growth. These indicators are “somewhat akin to a measure of concentrations of various proteins and minerals in the human blood” writes the World Bank in the foreword to the 2016 report.

To develop an overall ‘ease of doing business’ ranking, this year’s report presents data for 189 economies and aggregates information from the 10 following areas of business regulation:

Starting a business

(Procedures, time, cost and minimum capital to open a new business)

Construction permits

(Procedures, time and cost to build a warehouse)

Getting electricity

(Procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse)

Registering property

(Procedures, time and cost to register commercial real estate)

Getting credit

(Strength of legal rights index, depth of credit information index)

Protecting minority investors

(Indices on the extent of disclosure, extent of director liability and ease of shareholder suits)

Paying taxes

(Number of taxes paid, hours per year spent preparing tax returns and total tax payable as share of gross profit)

Trading across borders

(Number of documents, cost and time necessary to export and import)

Enforcing contracts

(Procedures, time and cost to enforce a debt contract)

Resolving insolvency

(The time, cost and recovery rate under bankruptcy proceeding)

On a global scale, the area of ‘starting a business’ has seen the most improvements. In 2003 it took an average of 51 days worldwide to start a business; by 2015 this number had been more than halved, to 20 days.

The overall ranking ‘Ease of doing business’ shows that currently the 10 top countries worldwide are:

1. Singapore
2. New Zealand
3. Denmark
4. South Korea
5. Hong Kong
6. United Kingdom
7. Sweden
8. Norway
9. Finland
10. Taiwan

Romania is placed on 37th position out of 189 countries. That’s not too bad at first sight and it’s worth to take a closer look at Romania’s specific performance within the 10 examined subsectors and business areas.

Starting a business – Rank 45

Construction permits – Rank 105

Getting electricity – Rank 133

Registering property – Rank 64

Getting credit – Rank 7

Protecting minority investors – Rank 57

Paying Taxes – Rank 56

Trading across borders – Rank 1

(tied with all other EU-member states)

Enforcing contracts – Rank 34

Resolving Insolvency – Rank 46

Conclusion: the relatively good overall ranking of Romania (37) is mainly supported by the EU-membership and getting credit (thanks to a certain extend by the dominating presence of foreign banks in Romania).

But when it comes to ‘genuine’ Romanian issues and especially when local bureaucracy is involved (permits, electricity) the picture is much bleaker. This is a real business-killer and the main reason for Romania’s malaise in productivity, creativity and salary.

A regulatory milieu that enables private enterprises, especially small firms, to function and be creative has a large positive impact on job creation and is therefore good for the economy. In Romania, this should finally be reflected by immediate reforms. First and foremost by a radical cut of red tape. Otherwise, Romania will remain the poorest EU-member for generations.

—-

The entire World Bank report ‘Doing Business 2016’ is available for download via www.doingbusiness.org

 

Doing business in Romania