We are in discussions with WB over ranking, says Gatare

The World Bank last week released the 2015 Doing Business Report computed using a new ‘expanded’ method that slightly altered Rwanda’s previous status and is now ranked 46th easiest place to do business in the world. The method has baffled development economists and policy-makers in the country. The New Times’ Kenneth Agutamba discussed these new changes and their significance on Rwanda’s doing business outlook with Francis Gatare, the chief executive of Rwanda Development Board. Excerpts. Did the 2015 Doing Business report findings surprise you? I was rather surprised that the World Bank would change methodology during the publication of the report. The 2014 Doing Business report ranked Rwanda 32nd globally, but the 2015 report places the country in 46th place. This obviously means Rwanda business environment declined, doesn’t it? The changing of 32nd ranking to 48th and thereafter to 46th in 2015 is basically due to new methodology used for assessing economies by the World Bank. The change has brought in new elements. Beginning with this year’s report, the ranking is based on the distance to frontier score rather than on the percentile rank. The distance to frontier score benchmarks economies with respect to a measure of regulatory best practice showing the gap between each economy’s performance and the best performance on each indicator. For indices, such as the strength of legal rights index (which ranges from zero to 12), the frontier is set at the best theoretical score (in this case 12) even if no economy attains it. For most of the other indicators the frontier is set at the lowest number that occurs in practice—for example, one for the number of procedures to start a business. The exceptions are the recovery rate in insolvency, for which the frontier is set at the highest value, and the total tax rate, for which a threshold has been established. The ranking based on the distance to frontier score is highly correlated with that based on the percentile rank. But the distance to frontier score captures more information than the percentile rank because it shows not only how economies rank but also how far apart they are. Economies with greater variance across topics are more likely to have a less favourable position in the distance to frontier ranking than in the percentile ranking This new method that the researchers used, were you (participating countries) briefed on it or how it would affect new findings or you were taken by surprise? No, we were not briefed. It would have been better for every country participating to know ahead of the submission of the reforms. Regarding starting a business, arguably the country’s best reformed indicator, the country is now ranked 112 globally from 72nd last year, a 40-point drop, what happened? We do not agree to the steps included in assessing this indicator and we have submitted a rebuttal. We expect that all this will be considered in the next reforms assessment. Are we still registering a business in six hours? If yes, then why has our ranking on the indicator fallen so drastically? Actually, the six-hour limit for company registration is there to create timeline for our staff, but, practically, companies take even shorter period to be incorporated. You can visit our offices and access the system for your own confirmation. The country took a decision on this and even if the WB reports otherwise, we will maintain our position of registering a business in six hours maximum, beyond which, our staff has to explain why. Therefore, as I have already explained, the decline on this indicator is because of the change in methodology, which accounts for about eight procedures that we do not consider. Francis Gatare, the chief executive of Rwanda Development Board. Is it true that entrepreneurs are asked to purchase an electronic billing machine, pay for the trading license, register employees at the Social Security office (RSSB), register for VAT and open a bank account before registration? No. It is important to note that the electronic billing machine (EBM) is usually required when paying taxes and so this is not something we would usually consider for starting a business. The EBM is used to streamlining tax collection mostly. The law requires only VAT payers to install EBMs – these are 7,000 businesses which account for only 5 per cent of all tax payers (140,000). In my opinion, this should not be considered as a requirement applicable to the typical firm. You said you expressed your displeasure regarding the new methodology, what exactly displeased you? Yes, our displeasure is on two grounds; the surprising changes in methodology and the additional steps that were brought up in the starting a business indicator. How has the World Bank responded? Discussions have commenced between us at the World Bank. We also are exploring ways of improving our ranking in future reports. Now that we have a new methodology, what’s the way forward at RDB? We will continue to reform and improve our ranking even beyond the doing business reforms. How important is this report in your efforts to attract foreign direct investment? This is one of the global benchmarking reports for Doing Business. It positions countries all over the world on the global map on various indicators. It is not the only one and investors will always do their homework before investing. Do you think the new alterations will hurt Rwanda’s outlook? I do not think so, especially if nothing has changed on the ground. A ranking can only say much about what is really happening on the ground. Moreover Rwanda continues to be the top global reformer in the history of the World Bank Doing Business reports. Any other clarifications? Rwanda is still competitive and we will continue to make our business environment conducive for businesses to start and thrive.

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We are in discussions with WB over ranking, says Gatare