Each year, the World Bank scores the world’s governments on 10 key factors that contribute to (or inhibit) the smooth and simple conduct of business operations in their countries. Which of these major emerging market economies ranks worst on “Ease of Doing Business”?
A. Indonesia is not correct.
Indonesia ranks 114th out of 189 countries scored by the World Bank in terms of ease of doing business in 2015. Led since October 2014 by President Joko Widodo, a self-proclaimed reformer, Indonesia is currently working on key steps to improve the business environment. These measures include making it easier to start a business, connect a new business to electricity and pay taxes.
At present, Indonesia ranks especially poorly in the areas of contract enforcement, ease of paying business-related taxes, construction permitting, property registration, in addition to starting a business.
More broadly, Indonesia has long struggled with rampant corruption, especially in law enforcement and the courts. Additional challenges include a poor infrastructure, market fragmentation across the country’s many islands, a weak banking sector and the poor quality of education its future workforce receives.
While obstacles such as inefficient, complicated and/or corrupt regulatory or legal processes for businesses may seem abstract, they often have very significant effects in a nation’s economy. At a minimum, they undercut a nation’s growth potential. That hurts the living standards of these countries’ often booming populations.
B. Brazil is not correct.
Brazil is currently considered the 120th easiest country to do business, according to the World Bank. Although this marks a slight improvement over 2014, Brazil still made it harder than before to start a business, register property, get credit or pay taxes.
In Brazil, it is particularly difficult to start construction projects legally. The permit process in São Paulo takes a stunning 535 days (or nearly 18 months) on average to be completed. This compares, for example, with 112 days in New York City.
With the 2016 Summer Olympics coming up, Brazil’s construction industry is in the global spotlight once again, as it was before the 2014 World Cup.
Brazil’s business elite and political class have also been rocked recently by a far-reaching corruption scandal involving state-run oil company Petrobras. At the time in question, Dilma Rousseff – now Brazil’s president – was chairing the company’s board.
Brazil’s fellow “BRIC” countries Russia and China, despite their own issues with official corruption and shady business practices, are performing significantly better than Brazil on ease of doing business. Russia ranks 62nd in 2015 and China is in 90th place globally.
C. India is not correct.
India ranks 142nd out of 189 countries for ease of doing business in 2015. However, Narendra Modi, the country’s new prime minister (in office since May 2014), is keen on making it easier to do business in India.
Modi has committed his government to raise India’s rank in the World Bank’s Ease of Doing Business index from 142nd position to 50th place within five years.
India performs somewhat worse on ease of doing business than its Western neighbor Pakistan (128th) — but better than its Eastern neighbor Bangladesh (173rd).
The purpose of the “Ease of Doing Business” indicators is to help countries identify problems and make it easier for governments to tackle them. Shining a public spotlight certainly adds to the pressure and promotes the cause of economic reformers. It also helps global companies decide where to locate operations or make investments.
D. Nigeria is correct.
Among the major emerging market economies, Nigeria ranks as the hardest place to do business as of 2015, according to the World Bank. It stood at 170th out of all 189 states ranked.
From 2014 to 2015, Nigeria managed to improve its rank by five spots, despite several serious government corruption scandals and the ongoing counterinsurgency against Boko Haram. The country’s new president, former General Muhammadu Buhari, has pledged to crack down on corruption and inefficiencies as a top priority.
Nigeria’s business environment reflects the challenges facing many Sub-Saharan economies. Getting electricity to a business is extraordinarily difficult. Construction approval is slow. Cross-border trade is hard. Contract law is poorly enforced. Registering property is tedious — and the tax system is overly confusing.
Africa’s next-largest economy, South Africa, ranks a far more impressive 43rd place in the world for ease of doing business. However, its performance has been declining lately.
Any cross-country comparisons, particularly in the developing world, tend to attract criticism. This includes the World Bank’s Ease of Doing Business rankings. Some critics argue, for example, that its methods allow countries to “game” the rankings – rather than making true improvements.
However, the system does at least provide a means of consistently comparing business procedures across very different countries.