Annual Report On Business Regulations
Business Regulations that enhance business activity and those that constrain it are examined in World Bank Annual Report On Business Regulations, entitled Doing Business 2017. It is the 14th annual World Bank Report on global business regulations. The research presents quantitative indicators on business regulations and the protection of property rights that can be compared across 190 economies around the world over a long period of time. The indicators are used to analyze economic outcomes and identify what reform of business regulations have worked, where and why.
The Global Report on Business Regulations measures 11 aspects of business regulations affecting the life of a business. For example, in 2005 it was possible to get the permits to start a business in less than 20 days in 41 economies. By 2016 it was possible in 130 economies. This history should give us the optimism and impatience to keep launching new ideas and to keep striving for better results. The progress to date should give us optimism. The large amount that remains to be done should make us impatient.
Doing Business 2017 highlights the large disparities between high- and low-income economies and the higher barriers that women face to starting a business or getting a job compared to men. Doing Business 2017 gives prominence to these issues, expanding three indicators—starting a business, registering property and enforcing contracts—to account for gender discriminatory practices.
But why the gender focus? Research shows that gender gaps exist in women’s access to economic opportunities. While women represent 49.6% of the world’s population, they account for only 40.8% of the formal workforce. In emerging markets between 31 and 38% of formal small and medium-sized enterprises have at least one woman owner, but their average growth rate is significantly lower than that of male-owned firms.
Gender gaps in women’s entrepreneurship and labor force participation account for an estimated total income loss of 27% in the Middle East and North Africa, a 19% loss in South Asia, a 14% loss in Latin America and the Caribbean and a 10% loss in Europe. Globally, if all women were to be excluded from the labor force income per capita would be reduced by almost 40%.
To capture ways in which governments set additional hurdles for women entrepreneurs, the report on business regulations considers, for the first time, a number of gender-specific scenarios. The area of company incorporation, for example, now explores whether companies owned by women have the same registration requirements as companies owned by men.
It finds that in some economies women must submit additional paperwork or authorizations from their husbands. In the case of property transfers, there is a new focus on property ownership and how different sets of rights between men and women affect female entrepreneurs’ access to credit.
Finally, when it comes to gender equality in court, the enforcing contracts indicator now highlights places where a woman’s testimony is given less weight in court than a man’s, thereby putting her at a fundamental disadvantage in commercial dealings. The annual report on business regulations now incorporates these considerations to better reflect the ease of doing business for the widest range of entrepreneurs in a given economy, female entrepreneurs included. The adjustments build on several years of methodology development and cross-country data collection by the Women, Business and the Law project, housed in the Global Indicators Group.
Doing Business 2017 also contains a discussion of the role business regulatory reform may play in the global goal to reduce income inequality. Of course, there are many determinants of income inequality, including economic growth patterns, the levels and the quality of investments in human capital and the prevalence of bribery and corruption, among many others. Yet some are linked to the regulatory environment for entrepreneurship.Potential entrepreneurs are often discouraged from setting up businesses if the requirements to do so are overly burdensome.
When this is the case entrepreneurs often resort to operating within the informal sector which has less protection for labor conditions and is more vulnerable to economic shocks. Having simple, transparent rules for registering a business, paying taxes, getting credit and registering property helps create a level playing field for doing business. Evidence from 175 economies reveals that economies with more stringent entry regulations often experience higher levels of income inequality as measured by the Gini index.
At its core, Doing Business seeks to provide quantitative measures of business regulation in 11 regulatory areas that are central to how the private sector functions. A growing body of literature shows that government action to create a sound, predictable regulatory environment is central to whether or not economies perform well and whether that performance is sustainable in the long run.6 Regulation can aid to correct and prevent traditional types of market failures, such as negative externalities, incomplete markets, and information asymmetries.
However, regulation can also be used as an intervention when market transactions have led to socially unacceptable outcomes such as improper wealth distribution and inequality. Governments have the ability to design and enforce regulation to help ensure the existence of a level playing field for citizens and economic actors within a society.
Business regulations are a specific type of regulation that can encourage growth and protect individuals in the private sector. The role of the private sector is now almost universally recognized as a key driver of economic growth and development. Nearly 90% of employment (including formal and informal jobs) occurs within the private sector—this sector has abundant potential that should be harnessed.
Governments can work together with the private sector to create a thriving business environment. More specifically, effective business regulation can encourage firm start-up and growth as well as minimize the chance of market distortions or failures. Of course, a discussion of the benefits of business regulation must be accompanied by a parallel discussion of its costs.
Many businesses complain about the negative impacts of excessive regulation—or as it is more commonly known, “red tape.” The answer is not always more regulation; rather, the more effective answer advocated by Doing Business 2017 is smarter regulation, that aims to strike a balance between the need to facilitate the activities of the private sector while providing adequate safeguards for the interests of consumers and other social groups.
More economies are taking up the challenge for reform. New Zealand is the economy with the highest ranking this year, taking over from Singapore. Sub-Saharan African economies are also improving their Doing Business scores at a rate that is three times that of OECD high-income economies. This rate of improvement reflects a low base but is nonetheless encouraging. Indeed, over the past decade, there has been more than a doubling in the number of countries in Sub-Saharan Africa that are engaged in one or more business regulatory reforms—a total of 37 economies in this year’s report.
The Annual Report On Business Regulations also serves as a quick reference guide in Project Finance. It provides a quick glimpse into regulations, transparency, bureaucracy and subtle risks that may have an impact on project financing in developing countries.
