Doing Business is a flagship product by the World Bank and IFC that garners worldwide attention on regulatory barriers to entrepreneurship. Annually, economies are ranked on their ease of doing business – 189 are included in the 2013 index. This index averages the country’s percentile rankings on 11 topics that relate to regulations affecting areas of everyday business activity: Starting a business, Dealing with construction permits, Getting electricity, Registering property, Getting credit, Protecting investors, Paying taxes, Trading across borders, Enforcing contracts, Closing a business, Employing workers. Accordingly, a high ranking on the Ease of Doing Business index means the regulatory environment is more conducive for business. Usually, this implies simpler regulations for businesses and stronger protection of property rights, among other factors.
Doing Business statistics have gained popularity among academia as well as with entrepreneurs and policy makers. According to a report by the World Bank, more than 60 economies use the Doing Business indicators to shape reform agendas and monitor improvements on the ground and have generated over 870 articles in peer-reviewed academic journals since its inception. The utility of the index lies in the coded message it passes to the investors and entrepreneurs. Although there is no direct cause and effect relationship between rankings and foreign direct investment, the 2013 World Bank’s Ease of Doing Business index says that research does show that improvements in the index do affect the overall business and investment climate in an economy, which results in more domestic investment as well as foreign investment. Indeed, the Doing Business project aims to deliver a body of knowledge that will catalyze reforms and help improve the quality of the rules underpinning the activities of the private sector.
Nevertheless, an economy’s regulatory environment may be more business-friendly in some areas than in others, and thus, a single ranking may be misleading to investors in specific sectors. For instance, investors into housing will be more interested in Starting a business, Dealing with construction permits, Getting electricity, Registering property, Getting credit, and Protecting investors. However, convergence is always expected since improvement in one aspect of the business environment is likely to cause or demand an improvement in the other. This then makes the overall index to be more indicative of the overall improvements in the regulations governing the business environment.
From the graphs below, only South Africa and Mauritius had a ranking in 2013 among top 50 but Lesotho, Angola, Congo DRC, Zimbabwe and Malawi were ranked alongside the last 39 countries along the overall ease of doing business index. Evidently, the two countries are known destinations for foreign investments. Figure 2, specifically looks at dealing with construction permits. On one axis, we show the cost of construction permit (one in green) whereas the left-axis shows how the number of procedures followed for a construction permit has changed over the years, in separate countries. Clearly, Zimbabwe, Zambia and Congo DRC are the worst in terms of the costliness of getting a construction permit, but the number of procedures involved seems to have been significantly reduced in recent years in Congo DRC, Zambia, Kenya and South Africa. This reveals a deliberate move by countries to encourage investment into real estate.
Therefore, by using the Doing Business index, a country’s regulators and policy makers can easily assess the performance of their rules against other countries and more so, identify specific areas in the business regulatory environment that needs improvement.