'Doing Business 2020' Indicates a Steady Convergence Between Developing and Developed Economies, Particularly in Business Incorporation

A post published on this blog presents a variety of risks when choosing to do international business. Such risks include government effectiveness (does political culture foster strong business environment?), stability (how stable are political institutions?), legal and regulatory (will the legal system safeguard investment?), and tax policy (are taxes low, predictable and transparent?). To help make informed decisions about effectively executing an international growth strategy, my colleagues and I find the World Bank's annual Doing Business report quite useful.

Published on Oct. 24, 2019 using data current as of May 1st, Doing Business 2020, "is the 17th in a series of annual studies measuring the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 190 economies—from Afghanistan to Zimbabwe—and over time.

"Doing Business covers 12 areas of business regulation. Ten of these 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—are included in the ease of doing business score and ease of doing business ranking. Doing Business also measures regulation on employing workers and contracting with the government, which are not included in the ease of doing business score and ranking.

"By documenting changes in regulation in 12 areas of business activity in 190 economies, Doing Business analyzes regulation that encourages efficiency and supports freedom to do business. The data collected by Doing Business address three questions about government. First, when do governments change regulation with a view to developing their private sector? Second, what are the characteristics of reformist governments? Third, what are the effects of regulatory change on different aspects of economic or investment activity? Answering these questions adds to our knowledge of development."

The report's opening paragraph correctly notes:

At its core, regulation is about freedom to do business. Regulation aims to prevent worker mistreatment by greedy employers (regulation of labor), to ensure that roads and bridges do not collapse (regulation of public procurement), and to protect one’s investments (minority shareholder protections). All too often, however, regulation misses its goal, and one inefficiency replaces another, especially in the form of government overreach in business activity. Governments in many economies adopt or maintain regulation that burdens entrepreneurs. Whether by intent or ignorance, such regulation limits entrepreneurs' ability to freely operate a private business. As a result, entrepreneurs resort to informal activity, away from the oversight of regulators and tax collectors, or seek opportunities abroad—or join the ranks of the unemployed. Foreign investors avoid economies that use regulation to manipulate the private sector.

The report's main findings include:

• Doing Business captures 294 regulatory reforms implemented between May 2018 and May 2019. Worldwide, 115 economies made it easier to do business.
• The economies with the most notable improvement in Doing Business 2020 are Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China, India and Nigeria (see image below). In 2018/19, these countries implemented one-fifth of all the reforms recorded worldwide.
• Economies in Sub-Saharan Africa and Latin America and the Caribbean continue to lag in terms of reforms. Only two Sub-Saharan African economies rank in the top 50 on the ease of doing business; no Latin American economies rank in this group.
• Doing Business 2020 continues to show a steady convergence between developing and developed economies, especially in the area of business incorporation. Since 2003/04, 178 economies have implemented 722 reforms captured by the starting a business indicator set, either reducing or eliminating barriers to entry.
• Those economies that score well on Doing Business tend to benefit from higher levels of entrepreneurial activity and lower levels of corruption.
• While economic reasons are the main drivers of reform, the advancement of neighboring economies provides an additional impetus for regulatory change.
• Twenty-six economies became less business-friendly, introducing 31 regulatory changes that stifle efficiency and quality of regulation.

How does this report help you implement your business' international growth strategy?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.