Thursday, September 07, 2006

Where is it easiest to do business?

The World Bank publishes a report every year called Doing Business that compares different countries and how easy it is to have a business in each country. They look at regulations on the following factors within a country:
starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.
They then rank countries in on how easy it is to have a business in the country based on the regulations of the government. For 2007, the top five are as follows:

1. Singapore
2. New Zealand
3. United States
4. Canada
5. Hong Kong

And the bottom five are as follows:

171. Republic of Congo
172. Chad
173. Guinea-Bissau
174. Timor-Leste
175. Democratic Republic of Congo

Here are some interesting facts from the 2006 report (courtesy of economist Greg Mankiw):
If you were opening a new business in Lao PDR, the start-up procedures would take 198 days. If you were opening one in Syria, you would have to put up $61,000 in minimum capital—51 times average annual income. If you were building a warehouse in Bosnia and Herzegovina, the fees for utility hook-up and compliance with building regulations would amount to 87 times average income. And if you ran a business in Guatemala, it would take you 1,459 days to resolve a simple dispute in the courts. If you were paying all business taxes in Sierra Leone, they would take 164% of your company’s gross profit...
Overall, a clear reason why many countries have difficulty sustaining economic growth is that it is so hard to merely conduct business in the country. Reactions to this? Why do you think so many countries burden their industry with regulations like this?

7 comments:

Anonymous said...

Countries that have a hard time sustaining new businesses seem to be third world countries where there is a lack of education and funding. Court systems are backed up due to lack of manpower, funding and organizational skills among the workers. Due to lack of competition among utility companies, the cost for hook up is extremely high. Governments in these countries take so much of the gross profits of a business because they are probably afraid of a business gaining more power and taking in more revenue than the government itself.
-Hope Johnson

Anonymous said...

What I noticed was the fact that places such as the Republic of Congo and the Democratic Republic of Congo are constantly in civil war. Obviously when two countries are busy feuding against each other over things such as land rights there is not going to be a major business starting up there. In places where the average income is low and life is a constant fight for survival it didn't suprise me at all that there isn't a strong will (or ability) to start up a business. In order to have a sucessfull economy these countries need to sort out political and religious issues first.

-james c

Anonymous said...

Businesses of any type whether it be a service industry or a producer are reliant on customers. If a country's people are more concerned with producing sustaining food what is the point to conduct any business at all. Further with government sanctions against starting businesses there is even less incentive to start a business.
The high taxes on business could be a ploy by the governments of smaller economically weak governments to bring in foreign investors that have the money to spend on their taxes. The governments may provide incentives for foreign investors over domestic entrepeneurs. Generally it seems that it is easier to start a business somewhere where many businesses are already established and more difficult where there are almost none.

- Chip Burge

Anonymous said...

As James said, if these smaller countries are constantly in civil war it is without a doubt going to limit business growth in these areas. Alot of this could be due to the debt they are suffering. Countries coming out of war and certainly those who remain in war are dealing with large sums of debt and this problem only worsens when the war is within your very own country. Its difficult to regulate funding. The smaller countries need as many profits from any business they can for their economy moreso than the larger countries do. So anyone who would be willing to meet the standards set on creating a business could be of great help to their government if they produced high profits. Also in these smaller countries, the possibility of failure for the companies could be a much greater risk to more people than say if a small business was to fail in America. Finally, by placing such strict requirements on new businesses, it helps to ensure that if the business is sucessful it doesn't gain too much power. In an already unstable country, the last thing they need is someone trying to takeover what government has already been established there.
-Lauren

Anonymous said...

Four out of the lowest ranked countries are located in Africa. Africa has many third world countries in it, which are at war, like James said. Because of the poverty in these countries, the governments have high taxes and fees for new companies in order to raise money for the government to run. The governments of these countries are often trying to gain power and control things in that country. These governments are probably also corrupt which leads to inefficiency and a waste of money. Because most of the individuals in these countries are poor themselves, many businesses do not see the reward in taking the risk of starting a new business.
-Brian Meier

Anonymous said...

Out of the five bottom countries, four of them are located in Africa and one is in Asia. All 5 countries have been constantly in wars. Also, all the countries have fairly recently gained their independence from other countries (mostly European). Because these countries are more focused on fighting or trying to set up a stable government, the economy suffers. It is believed that in the Democratic Republic of Congo about 1000 people a day are still dying, and the country is still being flooded with refugees from other countries. It's hard to have a strong economy, when a countries entire workforce is off fighting and being killed. So, in the lowest countries, it is not necessarily government regulation that makes it difficult to have a business; it is simply that conditions in the country make it nearly impossible and highly impractical to try and start a business. Political stability is needed before any economic stability can be established.
-Emily Spurlock

Hagar the Horrible said...

This New York Times article gives some additional background information on the matter. (http://www.nytimes.com/2006/09/06/world/africa/06africa.html?_r=1&oref=slogin)
(I suspect that this is where Mr. Arjona got the inspriation in the first place.)