The most business-friendly countries off the beaten path


By Sabine Vollmer

Small and mid-size companies looking for promising overseas markets should check out a report the World Bank publishes every year on the most business-friendly locations around the globe. The report tracks business indicators in 185 countries and efforts to pass laws and regulations that make it easier to do business.

Singapore tops the ranking for the seventh consecutive time this year, followed by Hong Kong, New Zealand, the US, Denmark, Norway, the UK, South Korea, Georgia and Australia.

The top ten consist mostly of developed economies known for their regulatory transparency. Four of them – Singapore, the US, South Korea and Australia – are also among the ten countries most likely to see the fastest economic growth in the next few years, according to the report. But one country on the World Bank’s list – ninth-ranked Georgia – stands out, because it isn’t usually listed among up-and-coming markets.

The former Soviet republic, which borders Russia, Turkey and the Black Sea, cracked the World Bank’s top 10 after introducing the most regulatory improvements for local entrepreneurs since 2005.

Following Georgia on the most-improved-over-time list are Rwanda, Belarus, Burkina Faso, Macedonia, Egypt, Mali, Colombia, Tajikistan and Kyrgyzstan.

“Improving business regulation is a challenging task, and doing it consistently over time even more so,” the World Bank report Doing Business 2013 says. In the past decade, “Eastern Europe and Central Asia improved the most, overtaking East Asia and the Pacific as the world’s second most business-friendly region,” according to indicators in the report.

Countries that stood out for making the biggest strides in reforming their regulatory environment in the past year included Poland and former Soviet republics Uzbekistan, Kazakhstan and Ukraine.

Reform efforts tend to focus on making it easier to start a new business, making tax administration more efficient and boosting global exports. The highest ranked countries had the most transparent, meaningful and adaptable business regulations, not necessarily the fewest.

“Good business regulations enable the private sector to thrive and businesses to expand their transactions network,” according to the report.

Eastern Europe and Central Asia

The countries of Eastern Europe and Central Asia have effectively been undergoing a regulatory makeover in the past decade, according to the report.

Georgia has simplified the regulatory process and made it less costly, and significantly strengthened its legal institutions since 2005. The improvements include establishing customs clearance zones to provide one-stop shops for trade-clearance processes in major cities. The customs clearance zones are open 24 hours, seven days a week to facilitate exporting and importing.

The Eastern Europe and Central Asia region also passed more reforms per market than any other region in the past year. Kazakhstan, Mongolia and Ukraine, for example, all reduced or eliminated minimum capital requirements for company incorporation. Poland streamlined the entry of property in land and mortgage registries by adding registration sites, introducing new caseload management systems and digitising records. Uzbekistan guaranteed borrowers the right to inspect their personal credit data.

Latin America
 
Costa Rica ranked among the top ten countries overall that improved the most in the past year, because it implemented far-reaching reforms. For example, the Central American country made paying taxes easier for local companies by allowing electronic payment of municipal taxes.

Colombia, the country with the best long-term regulatory reform in Latin America, has moved from improving business administration and tax administration to also overhauling legal institutions by, for example, revising insolvency laws and strengthening the protection of minority shareholders. The most recent reforms enabled employers and employees to register for health services in just one week and exempted new companies from paying regulatory fees upfront during the first year of operation.

Starting a business in Colombia in 2011 took about 25% of the time and cost about one-third as much as in 2003, according to the World Bank report. Entrepreneurs took advantage of less red tape and lower costs and registered nearly 58,000 new businesses in 2011, up from about 34,000 in 2006.

Colombia’s successful regulatory reforms are now piquing the interest of other Latin American countries, according to the World Bank report. Bolivia, Paraguay and El Salvador are hoping to learn from Colombia’s innovations.

Africa

Of the 50 countries making the biggest advances since 2005, 17 are in Sub-Saharan Africa. Rwanda, which emerged from civil war and genocide, ranked second among the biggest long-term improvers.

In the past decade, Rwanda focused on health, education and infrastructure and made private- and financial-sector development a priority. As a result, access to credit has improved, procedures to start a business have become fewer, cross-border trade has become easier, and the courts have become more accessible for resolving commercial disputes.

As a result, Rwanda is perceived to be less corruption-prone than, for example, Italy, Brazil or China, according to the global watchdog group Transparency International. In 2011, gross national income per capita had increased to $570 – up from $350 in 2007, according to the World Bank. And by 2020, per-capita income is projected to climb to $3,500.

In February, The Economist dubbed Rwanda “Africa’s Singapore.”

Egypt improved its regulatory environment the most among Middle Eastern and North African countries since 2005. Egyptian regulatory reforms included more protection for investors and more transparency of small business loans.

Egypt passed all of its regulatory reforms in 2009 before the beginning of the Arab Spring, but the World Bank considered the political changes of the past four years as an opportunity to further address challenges such as corruption and anticompetitive practices.

Related CGMA Magazine content:

Reforms in West and Central Africa Improving Business Environment”: A coalition of nations in west and central Africa has accelerated the pace of business reform, making it easier for entrepreneurs to operate there.

CFOs Worldwide Become More Cautious About Where to Invest Internationally”: CFOs worldwide have become less optimistic about the future success of their companies’ international expansion plans, a survey found. Discover which seven countries best meet their reduced risk appetite.

Rapid-Growth Investment Opportunities to Research During the Lull in M&A Activity”: While companies are waiting for the global economic climate to stabilise, they have time to look around for rapid-growth markets that might offer similar or better opportunities than China once their appetite for mergers and acquisitions returns. Ernst & Young’s M&A Maturity Index highlights some unexpected candidates.

Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.

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