Doing Business isn’t about less regulation but better regulation

A week ago, following the release of the latest Doing Business Report (DBR) by the World Bank, government officials met with the World Bank group in charge of Doing Business and discussed the report. Among the topics discussed was the change of methodology applied in the latest ranking, and more particularly how the new methodology works and, possibly, how the government can undertake relevant reforms to enhance private investment. According to the DBR, although Rwanda retained its status quo as the second easiest place to do business in Africa and the best in East Africa, ahead of the region’s major economies of Kenya, Tanzania and Uganda, it lost its previous 55th ranking to 62nd. As far as this matter is concerned, relevant institutions must leave no stone unturned to ensure the ease of private investment climate. Indeed, there is no room for complacency! Truly speaking, one would not be remiss to laud Rwanda for attaining an impressive global ranking given the tragic event that occurred in 1994 where the business environment was utterly shambolic, or almost unheard of. The Doing Business report was launched, in 2003 by the World Bank and its private sector arm, known as the International Finance Corporation (IFC), and has become one of the bank’s most high-profile publications. The World Bank’s annual Doing Business (DB) ranking system rates 189 countries on the ‘ease of doing business’ within the country and pressures them to achieve higher rankings in subsequent reports by enacting neoliberal regulatory reforms. Despite its positive objective, the report encourages governments to eliminate economic, social, and environmental safeguards and promotes competition among countries for higher rankings and, consequently, higher foreign direct investment. Doing Business focuses on regulations that affect domestic small and medium-size enterprises, operating in the largest business city of an economy, across 10 areas: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Indeed, it is indisputable that Doing Business has been an important catalyst in driving reforms around the world. It is one of the leading yardsticks to judge the business environments of both developed and developing countries. It is noteworthy, however, that Doing Business does not measure all aspects of business environment such as security, macro-economic stability, prevalence of bribery and corruption, level of training and skills of the labour force, proximity to the markets, regulations specific to foreign investment or the state of the financial system. The core aim of DB is to embrace legal and regulatory frameworks for doing business protect consumers, shareholders and the public without overburdening companies, hence creating a fertile environment where the private sector can thrive. Does doing business mean to do away with regulation? Certainly not! Doing business is not about less regulation but about better regulation. In essence, sound business regulation requires both efficient procedures and strong institutions that establish transparent and enforceable rules. At a superficial level, Doing Business encourages the ease of business but this does not mean to eclipse the existing regulations, nor does it promote private investment in unregulated environment. Many times when World Bank releases the annual Doing Business Report, many countries react to it scathingly, especially when they have scored a disappointing grade. They criticize the World Bank’s ranking process, deeming it inconsistent. Admittedly, every country would wish to have worldwide recognition for its favourable environment for doing business, but this does not mean that it should compromise with national priorities and rush to do unnecessary reforms. At some point, for example, Senegalese President Macky Sall questioned the country’s 2014 ranking, saying the World Bank didn’t take into account their 2013 reforms. Likewise, China attacked the Bank and called for the elimination of the report entirely, citing misleading facts and dubious methodologies. India, too, once sent a formal letter of complaint to 2012-2013 to the World Bank criticizing the Doing Business methodology as being “not robust”. The Doing Business report seems like it is pushing countries to lower taxes and wages and weaken overall regulation, thus potentially endangering the poor. This may be unrealistic to a country like Rwanda that is land-locked and largely depends on taxes. One can, however, say that the global rankings should be done separately, that is to say, the North (developed countries) from the South (the third world) precisely because the comparisons and analyses are done virtually to the haves and have-nots. It seems inexplicable to compare two worlds with strikingly different economic capabilities and infrastructure, which are supporting factors for business environment. It seems not only invidious but also farcical to compare Rwanda and Germany in terms of infrastructure for business. To my view, developing nations should have a separate ranking from that of developed nations. Fred K. NKUSI is a lecturer and international law expert

Opinions

Doing Business isn’t about less regulation but better regulation