What is the ‘Ease of Doing Business Index’?

The Ease of Doing Business Index was created by economist Simeon Djankov for the World Bank’s Doing Business report[1] and is one of the report’s two aggregate measures. In laymen’s terms; the Ease of Doing Business Index is the measure of how easy it is to conduct business in a country. The Economic Times define the index as ‘an aggregate figure that includes different parameters which define the ease of doing business in a country’.[2]The index is published by the World Bank Group in its Doing Business Report and is used to rank 190 countries. A country moves up or down the rankings depending on how its regulatory body makes it easy or is rather is more conducive to the starting operation of a local firm.[3]

Concept of ranking

1.    How are countries’ economies ranked?

Ease of doing business ranks economies from 1 to 190. A country with a high rank, which is one with a low numerical rank, has a regulatory environment that is conducive to business operation. Similarly, a country with a low rank, one with high numerical rank is home to the least friendly regulatory environment.[4] The index is used to compare economies with one another by benchmarking them ‘with respect to regulatory best practices, showing the absolute distance to the best regulatory performance on each Doing Business indicator’.[5] By comparing the ranking of an economy throughout the years, the index can show how much the regulatory environment of a country has improved or otherwise over time.

 2.    Indicators used to determine the ranking of a country

Doing Business uses various factors to determine how easy it is to start and conduct a business in a country. Three of those indicators are listed and explained below:

·         Starting a Business and Registering Property

Starting a business is not as easy as deciding to put up a lemonade stand and selling stone cold lemonade during the summer break. Entrepreneurs need to register their business and sometimes they have to go to great lengths only to have their companies registered. They have to comply with endless or fairly easy regulations in order to do so. A country having a high ranking in this indicator means that it is easy for entrepreneurs to start and register their businesses, which gives the country an edge against other countries in terms of ranking in the Doing Business report. Easy registration processes could be an indication of a more conducive regulatory environment.

Registering property is also important as for the running of the company and if the registration process is easier it makes it easy to start a business. This can be made easy by training registry officers properly.

            ‘By keeping records of a company’s formal existence and of land ownership rights, business and land registries play a critical role in any economy’s business environment. Registering a new company or a property right is best done when registry officers are well trained and knowledgeable. A combination of targeted training and effective communication to both civil servants and the public can improve the overall quality of the public goods and services provided by business and land registries.’[6]

Countries that have improved in this indicator are ones that have made it easy to start a company by making it easy to register a company and its property.

 ·         Getting Electricity

In the modern era where machines are essential for the running a business efficiently electricity and access to it play a paramount role on how easy it is to run the business. When a country facilitates more reliable power supply and transparency on tariff information it becomes easier to run a business in it.[7] This can be achieved by improving the regulatory framework of electricity supply to businesses. Improvement in this indicator can also be achieved by making the process for getting an electricity connection faster by increasing the stock of material the utility carries and by allowing the internal wiring certificate of conformity to be obtained at the same time as the external connection works, as Niger did.[8]

·         Trading Across Borders

In the world where we see a rise in multinational corporations, it is important that the regulatory environment of a country allows for easy trade across borders. Countries that rank high in this indicator are those that have strong border infrastructure for imports and exports. In the recent report, it was stated that Lesotho made importing faster by implementing the Automated System for Customs Data (ASYCUDA), reducing documentary compliance time for imports by two hours. Rwanda on the other hand reduced border compliance time by having staff from the Rwanda Revenue Authority and the Tanzania Revenue Authority at the Rusomo one-stop border post, the result of the implementation of the Single Customs Territory.[9]

Latest Ranking

New Zealand has the lowest numerical rank and is therefore the highest ranking country.[10] This means that the regulatory environment in the country makes it easier to start and maintain a business there. Other countries worth mentioning are third placed China and eight placed United States.The country that has the burden of being the worst and the lowest ranked is Somalia.[11] This means that Somalia has the meanest regulatory environment and it is not easy to start and maintain a local firm in the country.

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Conclusion

It is interesting to see that two of the world’s richest economies do not necessarily have the best regulatory environment. Although it is in the top 10, one would expect the United States of America to rank higher. This brings about the question whether a friendlier regulatory environment translates to better economic standings.