Researchers, policymakers for governments and corporations, individual foreign businessmen and others rely on the yearly ‘Ease of doing business’ report by World Bank. We look at why it is important for Somalia to get a better ranking.
For the past few years, Somalia has consistently ranked position 189 out of 189 in the ‘Ease of Doing Business’ world rankings as produced by the World Bank and published in its annual flagship report. In 2019, it ranked position 190 out of 190 after a new country was introduced in the rankings. There is no way this is a good thing. The country cannot ignore it any longer. The government and industry leaders in the business community have to do everything they can to improve these rankings.
According to The World Bank, the ease of doing business score indicates an economy’s position to the best regulatory practices compared to other economies in the world while being benchmarked using identical parameters. The score measures selected units like the ease of registering property, getting electricity for your business, paying taxes, trading across the border and how the country handles contract enforcements. The units used are ten in total and they touch on some of the key items that matter most to both local and international entrepreneurs and industries.
Why is this ranking important?
Multinationals, foreign businessmen and foreign corporations that want to set up in any country have since 2003 relied on World Bank’s ‘Ease of Doing Business’ report to gauge the business environment in that country. With this report, they have access to all the salient aspects of setting and running a business in each of the 190 nations ranked. It means that they can make a comfortably reasonable assessment of the country and make a decision on whether they proceed with their plans of investing in the country or if they take the business to another country.
This is not something that affects foreign businesses only. A difficult and unfavorable environment to conduct business in makes the lives of both local and foreign businessmen impossibly hard. In fact, an environment that does not encourage trade will first discourage SMEs and any ventures run by locals before scaring off foreigners.
Across the world, researchers of repute in their thousands rely on ‘Ease of Doing Business’ data to analyze, understand and present to the world the impact of various aspects of the measuring units and how they affect business and commerce in different countries and the types of outcomes that entrepreneurs can expect within certain set-ups.
The 2019 “Doing Business’ World Bank document puts it as such: ‘Doing Business data are widely used by researchers in academia, think tanks, international organizations and other institutions. Since 2003, thousands of researchers have utilized Doing Business data or its conceptual framework to analyse the impact of business regulation on various economic outcomes. This section provides a brief overview of studies published in the top 100 journals during the last 10 years or recently distributed as a working paper of a well-established institution.”
It is not only researchers who rely on the information from the ‘Ease of Doing Business’ report. Policymakers both in government and in the private sectors of different countries use this data too and it offers them ‘a benchmarking tool useful in stimulating policy debate, both by exposing potential challenges and by identifying good practices and lessons learned.’
The World Bank ‘Doing Business 2019’ document further says that despite the narrow focus of the indicators, the initial debate in an economy on the results they highlight typically turns into a deeper discussion on areas where business regulatory reform is needed, including areas well beyond those measured by Doing Business. By the way, these are the same policymakers who advise their governments and their corporations meaning their word might stand between Somalia and multi-billion dollar investment.
Starting a business
Lets’ take the example of one unit used in measuring the ease of doing business. Let’s look at ‘Starting a business’ as the immediate and urgent unit that Somalia needs to work. What does the World Bank look at when measuring how various nations and economies compare in the ease of starting a business?
This unit is as direct as it sounds: The ease of starting a business. The World Bank looks at how complicated or how easy the process of setting up a business is in each economy. It looks at the time taken from the start to the finish of the entire set up process and finally, it looks at the cost and paid-in minimum capital to start a limited liability company.
For example, according to the Doing Business database, across all economies and over time, the least time needed to start a business is 0.5 days (half a day), while in the worst 5% of cases it takes more than 100 days. Half a day is, therefore, considered the best performance, while 100 days is the worst. Higher scores show absolute better ease of doing business (the best score is set at 100), while lower scores show absolute poorer ease of doing business (the worst performance is set at 0).
How did the poorly performing countries sort out this specific unit?
In 2017/18, one-quarter of economies measured by Doing Business made starting a business easier by reducing the procedures, time or cost associated with company incorporation.
The World Bank reports that twenty-three of the 50 economies that reformed in this area did so by simplifying preregistration or registration formalities. Such changes can vary from integrating multiple application forms into a single registration template to abolishing requirements for site inspections or bank certificates prior to company incorporation.
It was also noticed that by allowing voluntary value-added tax registration at the time of business incorporation, Georgia reduced its relative gap to the best regulatory performance on starting a business the most in 2017/18. Previously, entrepreneurs had to make a separate visit to the Revenue Service for value-added tax registration after company registration. Georgia also enhanced its existing one-stop-shop for business incorporation, allowing entrepreneurs to start a company through a single procedure.
The significance of sorting out the different units of measuring the ‘Ease of Doing Business’ has to be stressed. When these issues are solved, the efficiency of doing business in the country will improve, this will, in turn, lead to more investment and job creation and ultimately, a rising economy.
How others improved their ‘Starting Business’ status
- Argentina made starting a business easier by introducing an expedited process for limited liability companies that includes company incorporation, book legalization and tax and social security registration. India made starting a business easier by fully integrating multiple application forms into a general incorporation form.
- Kuwait made starting a business easier by eliminating the paid-in minimum capital requirement.
- Indonesia made starting a business easier by combining different social security registrations. Mauritius made starting a business easier by linking the database of the business registry with the database of the social security office. Singapore made starting a business easier by abolishing corporate seals. (They cut or simplified post-registration procedures like tax registration, social security registration, licensing etc)
- Nigeria made starting a business easier by introducing an online platform to pay stamp duties. Tanzania made starting a business easier by launching an online company registrations. Vietnam made starting a business easier by publishing the notice of incorporation online. (These countries introduced or improved online procedures)
- Moldova made starting a business easier by removing the requirement to separately file for registration with the National Bureau of Statistics. Tunisia made starting a business easier by combining different registrations at the one-stop-shop. (These countries set up or improved their one-stop-shop)
Source: Doing Business 2019 – a World Bank document.
Indices for measuring the ease of doing business
- Starting a business
- Dealing with construction permits
- Getting electricity
- Registering property
- Getting credit
- Protecting minority investors
- Paying taxes
- Trading across borders
- Enforcing contracts
- Resolving insolvency