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Podcast January 30, 2020

The Best – and Worst – Places to Start a Business Around the World

It's one of the most anticipated – and closely watched – reports in the world of entrepreneurship. Each year, the World Bank's Doing Business team analyzes and ranks – literally, like football standings – the world's economies for how easy (or hard) they make it to start a business. In this inaugural episode of The Development Podcast we go inside the report, revealing just where you'll have the easiest time launching your next venture – and which countries could be the next global startup hub. We also get the view from Togo – the tiny West African country that is making big reforms to boost its business sector. Finally, Rita Ramalho, the woman in charge of ranking the world's most business-friendly economies, walks us through the report – how it's compiled, what's going on in China, and why not a single Latin American country is in the list of top 50 best places for business. Editor's note: Elements of this program that discuss the Chinese economy were recorded before a recent outbreak of a coronavirus in the country.


Transcript:

Raka Banerjee: Hello and welcome to the Development Podcast.

Paul Blake: This is a new series from the World Bank Group, where we look at the biggest stories in the world of international development and global economics.

Raka Banerjee: He is Paul Blake.

Paul Blake: And she is Raka Banerjee.

Raka Banerjee: We're coming to you from the World Bank headquarters in Washington, D.C., but in this episode, and throughout the series, we'll be hearing from people who are really at the heart of the World Bank. Folks who are working on the latest development issues from every corner of the globe.

Paul Blake: So Raka, as we were talking about what we were going to do in our first episode, we realized there was probably no better way to start things off then by talking about starting a business. Did you ever think of starting something?

Raka Banerjee: I am extremely un-entrepreneurial. Is that a word? I don't think that's a word.

Paul Blake: Something like that.

Raka Banerjee: I think if I ever tried, I would be like, "Oh, I made this thing, do you want to buy it? You probably don't, that's fine." But wait, you were telling me about something that you want to do. Some sort of like, "If I didn't have this job, which I love..."

Paul Blake: I'll just say, first of all, my boss is going to be listening to this later, so for the record, I love my job here at the World Bank, but I guess I've forever had this idea to start a little cafe, where during the day I could serve food, snack food. People could work on their laptops. In the evenings, musicians could come and play or authors could come and do readings or journalists could talk about their work. Stuff like that.

Raka Banerjee: Oh, I love that. Actually, I play music. So, maybe if you ever do this -

[crosstalk 00:01:43]

Paul Blake: I was going to say, you'll have to come.

Raka Banerjee: Yeah, yeah. I hope you would invite me.

Paul Blake: Of course.

Raka Banerjee: So, what's held you back? Why aren't we doing this right now?

Paul Blake: It's one of those things, I wouldn't know where to start. First of all, you have to get the startup capital. I would need a location. I wouldn't know where to even start the place. There's tons of business licenses I would have to get. I'd probably have to hire some employees.

Raka Banerjee: See, this is why it sounds like a terrible idea.

Paul Blake: I mean, Entrepreneurship's important.

Raka Banerjee: Well, today we're going to find out what are the countries where it's actually easiest to do business, so you

[crosstalk 00:02:19]

Paul Blake: Refocusing. That's right. So today is all about the Doing Business project. It's one of the World Bank's most well-known reports, and it's where we analyze just how business-friendly countries are around the world. And then we rank them, literally rank them, like football standings.

Raka Banerjee: Exactly. So in a few minutes, we are going to travel to Togo, which has made big progress on business-friendly reforms.

Paul Blake: Then we'll be back here in Washington, where we'll get the big picture, including which countries are the most business friendly, which have made the biggest improvements, and a whole lot more. That's a really good interview coming up.

Raka Banerjee: It's all coming up here on the Development Podcast from the World Bank Group.

Paul Blake: But first to kick things off, let's dive into the data.

[musical interlude]

Paul Blake: So Raka, I just met you a couple of weeks ago, but word on the street is you're a bit of a data nerd.

Raka Banerjee: Actually, I prefer data geek, but yes, I am actually in the World Bank's Development Data Group.

Paul Blake: Very cool. Well, you are definitely better placed to explain all the data and analysis and I guess the word would be methodology that goes into something like the Doing Business report.

Raka Banerjee: Yeah. Methodology. So one thing I'm always curious about is how are things measured, that's methodology. So in the case of the ease of doing business, it's obviously not something you can easily measure very directly.

Paul Blake: Couldn't you just call up different, I don't know, restaurants and businesses and firms in countries around the world and just say, "Hey, what was your experience in starting a business in, I don't know, Colombia?"

Raka Banerjee: So the bank actually does do that. It's called enterprise surveys, but Doing Business is a different ball game. So the reason is, if you call up that restaurant, say they started up 10 years ago. One, their memories are going to be 10 years old. It's not really going to show you what it's like to start a business today. And that restaurant made it. Who knows how many other restaurants didn't make it, that you're not talking to?

Paul Blake: Exactly. So you're not sort of capturing the experience of restaurants that maybe faced too many hurdles to succeed or had some other reason why they didn't succeed. So you're really only hearing the success stories.

Raka Banerjee: Yeah, exactly. So that's why Doing Business basically wants to capture how easy it is to do business year after year.

Paul Blake: So what do they do differently then?

Raka Banerjee: So what they're measuring is regulations. So rather than talking to people about their experiences, they're actually looking at what's on the books.

Paul Blake: What laws there are.

Raka Banerjee: Yeah, exactly. What does the law say you have to do to start, say, a cafe with poetry readings in the evenings?

Paul Blake: Very helpful. So what kind of regulations does the report look at? Does it vary at all?

Raka Banerjee: No. It's actually completely standardized. It's 12 areas. It's starting a business, dealing with construction permits, getting electricity, registering property, getting credit.

Paul Blake: It's kind of the back to basics of what you would need to do to start a business, kind of maybe something that's slightly generalized for anywhere in the world. So, okay, so they're not talking to businesses. Where are they getting this information from?

Raka Banerjee: Well, it's all about regulations, so they go to the experts on regulations.

Paul Blake: Lawyers?

Raka Banerjee: You got it. They're talking to, mostly it's lawyers, judges, and notaries, but then they also talk to other experts, depending on the field. So if they're looking at how easy is it to pay your taxes, they'll talk to accountants. How easy is it to get a construction permit, they'll talk to engineers. And they talk to government officials and World Bank staff in the region to get their take also.

Paul Blake: A lot of people will be wondering right now which country is the most business-friendly in the world and which one is the least business-friendly in the world.

Raka Banerjee: So for the last four years, New Zealand has been at the top, and Somalia has been at the bottom.

Paul Blake: All right, thanks so much. Well, I want to turn now to Togo. It's one of just to sub-Saharan African countries, alongside Nigeria, on this year's Doing Business top improvers list. That's the list, as I said earlier, of countries that have made the most business-friendly reforms in the past year. I started wondering why Togo? Well, to get an answer, I had my colleague Marie Duffour from the World Bank's Africa team phone up Candide Leguede, who runs a women's entrepreneurship incubator in the capital city of Lome. Just a quick note, the interview was conducted in French. So we've dubbed over Candide's answers in English. Now, Marie Duffour, take it away.

Marie Duffour: So Candide Leguede, my first question that I need to ask you because we know that you work closely with the entrepreneurs in Togo. We want to know if this entrepreneurs has a sense and also the feeling that the business climate has been improved in your country.

Candide Leguede (dubbed from French): I'm an entrepreneur in Togo, and I worked also with many entrepreneurs. And for some time now, Togo has successfully implemented structural reforms to improve its economy. And this is really important for boosting the private sector investment. The situation for entrepreneurs has improved in many areas. For example, we've had significant reforms when it comes to the ease of starting a business, obtaining construction permits, access to electricity, registering property, or access to credits, et cetera. Previously, it took five days to start a business in Togo. Today, it only takes 24 hours. These reforms are supported by the launch of the National Development Plan, which started in 2018 and runs until 2022, which aims to foster sustainable growth that is inclusive, and above all, that creates jobs.

As a result of these efforts, the paperwork and formalities for business creators have been considerably simplified. And the goal is to enable national and foreign economic actors to invest in a growth enhancing field in Togo.

Marie Duffour: So my next question, as we mentioned earlier, Togo is one of the two countries in Africa who are on the list of the top improvers in this year Doing Business reports. So in other words, as the countries that have improved their business climates the most. So can you explain us why Togo is on this list, and why Togo has made progress and reforms when other African country didn't?

Candide Leguede: It is the result of political will. Not every state has such will. Our president has set the ground for effective implementation of these reforms by enabling the regulatory environment for the business climate to improve.

Marie Duffour: Of course, no economies and no countries are perfect. So can you tell us a little bit more about the main challenges facing Togo's entrepreneurs today and how can these challenges be improved?

Candide Leguede: Access to finance is the main obstacle to small business development. Financing is the most fundamental need for young entrepreneurs. Most women entrepreneurs work in the informal sector. They often run small scale companies, and they are not as represented as men in high capitalization sectors. That is a significant difference between men and women owned businesses. I work for an entrepreneurial center that aims to help Togolese women entrepreneurs overcome these obstacles. We help these women to acquire the skills and means to take up the challenges that often put them at a disadvantage, such as marketing and communications. We help them create and increase their visibility on the internet. We also assist them with production or packaging issues and with management and developing strategies to support their entry into international markets.

Marie Duffour: Thank you so much, Candide, for your time, and thank you for answering to our questions today.

Candide Leguede: [French salutation 00:00:09:56].

Raka Banerjee: That's the on the ground view from one country, but Doing Business actually looks at more than 190 economies every year.

Paul Blake: And all of that data is compiled and analyzed by dozens of economists and researchers back here in Washington.

Raka Banerjee: The Woman who is in charge of it all is Rita Ramalho, and she is joining us in the studio today. Rita, thank you so much for being here.

Rita Ramalho: Yeah. Thank you, Raka, for inviting me, and Paul.

Raka Banerjee: Can you just start by giving us the headlines from this year's report? What did we learn from Doing Business 2020?

Rita Ramalho: I think what we learned this year is, to some extent, similar from last year in the sense that countries are improving. So we do see a lot of reforms and changes and improvements in business regulation. But the interesting news is where this improvements are happening. What is different this year is that we see actually an increase in improvement in the MENA region, so North Africa, Middle East, specifically in the Middle East. And I think a lot of it is countries that have their economy that is very oil based or natural resources based, and they're trying to diversify it. So they realize that this resource only lasts so long, and they also need the private sector to help them grow and expand. And so they're trying to make life easier for the private sector. So we see some awakening to this issues in that region.

But we also see a continuation of some of the other countries that were reforming intensely before, like India, which for the third time in a row, is one of the top improvers in doing business. China is also a second year in a row top improver. But we also see a few African countries actually doing very significant improvements. Togo is definitely a rising star in Africa. They're trying to follow the footsteps of Rwanda. So we do see, actually, significant improvements across the globe. But where they happen, it varies year on year in who's actually making the biggest difference.

Paul Blake: There's sort of two big lists, I feel like, that come out of the report. There's the countries that are the most business friendly, and then there's the top improvers. So maybe they're not the most business friendly yet, but they're on their way, and they've made the most reforms. In terms of that first list, the places where it's most business friendly, what do those countries have in common?

Rita Ramalho: The top 20 countries, they actually all have a very practical view of addressing business regulation. So they try to see what can we make it simple, still keeping in mind that regulations are useful, and that they need to regulate certain sectors of the economy. Because of course, there are always market failures, but they do communicate a lot with the private sector to make sure that the regulations actually make sense, are implementable. They use technology a lot. So you can start a business online, you can pay your taxes online. So they try to make the life of businesses as easier as possible, but still trying to keep the regulations that they need still there.

Paul Blake: And then in terms of the top improvers, what do they all have in common? So these are the countries that have made the most reforms. What are the popular reforms? What do these countries have in common?

Rita Ramalho: There's a huge diversity of countries, both in region, size, political side of the spectrum also. What they do have in common is they actually have very big push from the top. So there's a lot of interest from their top government to actually improve in this areas. And that we see across all the countries that made it to the top improvers list.

Raka Banerjee: It sounds like political will is a big thing. What about in terms of the types of reforms? Is there one type of reform that can really catapult a country up the rankings?

Rita Ramalho: I think there's definitely some that may have a bigger impact than others. But what we do see as a pattern is that they all reformed in many areas. So we have countries that are reformed the nine areas, eight areas, out of the maximum of 10. So most of the top improvers, I think only one of them, which I think was Jordan, that improved in only three areas. The vast majority of them have five, six, seven, eight, or even nine areas that they improve. So they have consistent improvement across all the different areas that you measure, and that's when you can actually have significant impact.

That being said, of course it's all relative because we're looking at the improvement, not at the actual level. So if you start from a very low base, you always have a very big room for improvement. So for instance, we will never see New Zealand, who's number one in doing business, in the top improvers list, because there's not much room that they can --

[crosstalk 00:14:30]

Raka Banerjee: Yeah, yeah.

Rita Ramalho: As opposed to, for instance, Togo, who will improve this year 40 places. They're 297. They used to be at 137. So they had a lot of room for improvement.

Paul Blake: The report isn't without controversy. It looks at regulation and deregulation and reforms that you say are business-friendly, but it's not looking at things like price stability, infrastructure, workforce skills, what perhaps might be a more holistic look at a business-friendly environment. Couldn't a critic say, well, this is just a report on deregulation?

Rita Ramalho: That's, I think, a misconception about Doing Business. Several of the things we measure, if you have no regulation, you're the worst, first. And second, others we actually measuring, do you regulate this area? So I'll give a couple of examples.

So for instance, in registering property, yes, we're looking at, is it easy, fast, cheap to transfer property? But if you don't actually have a land administration system that allows you to transfer property, you are what you call no practice, which means that it's the worst. You cannot actually legally transfer property. There's very few countries that fit in that category. And normally, they are fragile or conflict affected countries, but it does happen. So in that the worst, having no regulation, no implementation of that regulation is the worst. And some other indicators, like for instance, insolvency, resolving insolvency, we're actually making sure that you regulate this area well. Because that's an area where there's a lot of market failures, and you need to have strong regulation to reduce the risk and actually make investors willing to take the leap and invest in firms.

On the issue of macro variables, so Doing Business does not measure directly any macro issue. We're not measuring that just because that already existed. Where there was a lack of data in missing information was more at the micro level of this issues of how do you implement regulations, how do businesses interact with the government, and not at the broad aspect of national statistics. There was already good data [crosstalk 00:16:35] so we felt like there's no need. Of course, you can always complement Doing Business data with that.

Raka Banerjee: Another one of the criticisms that we hear sometimes is that countries that are doing very well on the rankings might not be doing so well on other issues like human rights, and should Doing Business be taking into account issues of individual liberties and that sort of thing.

Rita Ramalho: Well, of course, individual liberties are very important and should always be looked that, but Doing Business is very narrow in scope. And I think any benchmarking exercise would always be narrow in scope because we want to be comparable, and to collect data, it's a big effort. So there's only so much one can add into an existing indicator set. That being said, I think it's also important to combine it with other data sets that would measure that areas, human rights issues or other, and have that in mind. But still, what we're looking at is how hard or how easy it is for a person of that country to actually operate their business and start and expand in export/import goods. So, so it's very, very focused on one particular type of aspect and not going beyond the... not including human rights type of issues, although they are still quite important, and they should be highlighted in the discussion.

Paul Blake: Let's focus on the country detail. One of the big headlines has been China's performance. This year, it did better than many advanced economies. That would surprise a lot of people.

Rita Ramalho: I think China has, since it opened up 40 years ago, close to that, has evolved a lot in many different areas. Business regulation or simplifying business regulation is a relatively recent area for China. They started working on that in the past three, four years. And once they started focusing on that, actually, they were very, very interested in this area and trying to improve across many... Not just doing business, but in business environment at large, because I think they have very high rates of growth in the past 10 years, 20 years. And then they realized that their growth rates were going down. They're still quite impressive anyway, but they're not at the same pace as they were before. And they realized that, actually, what they need is to deregulate or to the [inaudible 00:19:02] maybe I'm not saying the right way

[crosstalk 00:19:06]

Raka Banerjee: Bureaucratize?

Rita Ramalho: Reduce bureaucracy, reduce red tape in their country and to actually reap better the benefits of the growth that they had before, and actually be able to sustain higher growth rates. So they've realized that their initial growth model was getting to an end, and that they need another injection of dynamism in their economy. And they saw simplifying business regulation to reducing red tape, making it easier for people to do business is a way to actually be able to sustain a little bit better, longer, their growth rate. So that's why they took on this. And in once they take this on, they're very effective and very intense.

Raka Banerjee: So one thing that we noticed, when we were looking at the rankings, in terms of regional trends, in the top 50 ranked, there's not a single country from Latin America. So what explains this? This is pretty worrying--

[crosstalk 00:00:20:08]

Paul Blake: There not a single Latin American country in the top 50?

Rita Ramalho: So the closest one is Mexico at [crosstalk 00:20:16] 60.

Raka Banerjee: 60.

Rita Ramalho: So then Chile is 59. So pretty much close to Mexico in their business regulations.

Raka Banerjee: What explains that there's not a single one in the top 50?

Rita Ramalho: So there are two things. So the ranking is always relative. So it doesn't necessarily mean that this country's haven't reformed or haven't improved, but they just improved at a slower pace than the rest of the world. And so their ranking kept on going down. Because they actually used to be countries that were... Mexico, at some point, was in the top 50. Chile also, at some point, was in the top 50

[crosstalk 00:20:54]

Raka Banerjee: So some of them were there and then [crosstalk 00:20:55].

Rita Ramalho: They went down, just because other countries took over.

Paul Blake: Just as we're wrapping up here, what is your ultimate ambition for Doing Business? What do you hope that it accomplishes?

Rita Ramalho: I think what I hope that it accomplishes is first, one, I think that it has accomplished already is to bring awareness to the issues of red tape business regulations, that I think before it existed, they were not so prominent on the agenda. So to actually start that discussion and get countries to be interested about this and improve. Because I think these are very important for job creation, poverty reduction.

But I think the other one, which I think maybe we're halfway there, but I think we'll also be able to accomplish, hopefully in the near future, is actually to improve how governments operate. So one of the things that we've seen Doing Business is actually, there's a lot of lessons learned for the government, when they actually reform in doing business. Because even though the indicators are narrow, straightforward, they actually involve a lot of different areas of the government.

Paul Blake: Yeah. Thank you so much for coming in. This has been really great.

Rita Ramalho: Thank you.

Raka Banerjee: Thanks so much for being here.

Rita Ramalho: Thank you.

Raka Banerjee: It's been great having you.

Paul Blake: Thank you for listening to the Development Podcast from the World Bank Group. If you have any feedback, please email us at thedevelopmentpodcast@worldbank.work. Meanwhile, if you enjoyed this show, be sure to check out our sister program, Expert Answers, which you can find on the World Bank's YouTube page. Our guests today were Candide Leguede in Togo and Rita Ramalho here in Washington, DC. Jasmin Buttar edits our program with Peter von Elling and James Sullivan in the control room. Our music and graphics were created by Simone McCourtie. A huge thanks to the World Bank's Francophone community, who really helped us out with this episode. Until next time, goodbye.