Over the past five years, the World Bank's Doing Business reports have greatly elevated the importance of the business climate and acted as a catalyst for reform. During this period, the Doing Business maxim, "What gets measured gets done," has capture the spirit of the reports and reflected the many reforms that have followed their publications. Between April 2006 and June 2007 alone, 200 reforms were enacted that improved the business climate.
The ten Doing Business areas provide a quick and concise measure of the health of a nation's business environment. These "top-line" indicators (e.g., days to start a business) help identify broad priorities for reform. However, more analysis is necessary to determine the root causes and take action.
The BizCLIR indicators are designed to provide detailed diagnoses and identify targeted treatments to remedy ailing Doing Business areas. Similar to Commercial Legal Framework, the BizCLIR indicators utilize a four-part method of inquiry. Each set entails a detailed look at a single subject matter area covers its legal framework, implementing institutions, supporting institutions, and social dynamics. This four-part approach provides a comprehensive basis on which diagnostic teams could identify weaknesses in a given environment and make recommendations for closing those gaps.
All BizCLIR Reports can be found here.
Starting a Business
Starting a business can be an intimidating challenge in many countries. Not only is amassing the minimum capital required a daunting task, but entrepreneurs often have to sift through a jungle of bureaucratic hurdles and unnecessary measures before being legally allowed to start a company. Ultimately, fewer hurdles and costs in starting a business is good for economic development and the overall business climate. However, in many developing countries the size of informal economy is large, and a lengthy registration process is the first hurdle that entrepreneurs face when considering formalizing their business. These same hurdles affect large investors as well, but affect small start-up companies disproportionately.
The World Bank Doing Business indicators focus on four important benchmarks associated with the cost of entry: number of procedures; number of days; cost (percentage of income per capita); and minimum capital ( percentage of income per capita).
The BizCLIR methodology digs deeper to try to understand what is driving these costs. A team of experts interview stakeholders in government, the private sector, and civil society to understand what it is like to start a business in each BizCLIR country. They consider areas such as company law, corporate governance, foreign direct investment, and competition.
Dealing with Licenses
There is a complex and extensive web of licenses and government regulations that businesses face in the course of their operations. After business formation, the environment for government regulation in, for example, zoning, construction, taxation, or safety, environment, and health standard, becomes part of the business environment that supports or discourages entrepreneurship, business entry, and enterprise formalization.
The Doing Business indicators track the procedures, time, and costs to build a warehouse, including obtaining necessary licenses and permits, completing required notifications and inspections, and obtaining utility connections.
The BizCLIR methodology digs deeper to try to understand what is driving these high overhead costs. A team of experts interview stakeholders in government, the private sector, and civil society to understand how they deal with licenses. It considers the permits, licenses, and other requirements found in the areas of business formation and operation, labor and employment, banking, real property, intellectual property, investment, and trade.
Employees constitute an overwhelming proportion of the inputs to national production, and the predictability of the regulatory regimes by which they are employed indicates the degree of predictability in the national labor market as a whole. If workers are poorly compensated and living in bad conditions, then the nation cannot be healthy. Thus, the key to a successful, emerging economy is a satisfied workforce.
The Doing Business indicators measure the flexibility of labor regulations. It examines the difficulty of hiring a new worker, rigidity of rules on expanding or contracting working hours, the non-salary costs of hiring a worker, and the difficulties and costs involved in dismissing a redundant worker.
The BizCLIR methodology probes further into the system of employing workers to understand the role of labor in a developing economy. A team of experts interview stakeholders in government, the private sector, and civil society to understand how they employ workers. It considers both equally essential endpoints of the employment equation—labor supply (a ready and qualified source) and labor demand (growing in size and sophistication).
The ability to freely own all types of property, and to easily transfer and register that ownership—especially with respect to real (non-movable) and intellectual property—is a fundamental requirement of business and economic growth in a free market economy. Moreover, registration and protection of rights in intellectual property are extremely important in the encouragement of foreign direct investment (FDI) and marketing of needed consumer goods, and in the support of innovative research and development for new domestic products. Thus, a strong legal and institutional framework is imperative in order for businesses to own, use, and sell all types of property; manufacture and sell products and services; raise capital; and obtain credit. Secure ownership of property and an objective, transparent, and uniform system of property registration are necessary in all economies.
The Doing Business indicators examine the steps, time, and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building in the largest business city—already registered and free of title dispute.
BizCLIR methodology takes this examination one step further by searching for the reasoning behind the successes or failures of a country's business economy via the process of registering property. Instead of just examining the number of procedures, time, and costs to register property in the largest business city, BizCLIR's tool takes additional steps to examine the system as a whole. A team of experts interview stakeholders in government, the private sector, and civil society to understand the process of registering property.
Reasonable access to affordable finance arises from a complex mixture of laws, institutions, and practices. The heart of the matter, however, is simple: lenders extend credit at affordable rates in a competitive market only when the costs and risks of extending credit permit them to do so. A high risk of default and a low likelihood of recovery on default will increase the cost of credit. If there are too many complexities involved in giving credit, then management becomes more expensive, and that, too, is reflected in the price. A critical component to a successful global market includes painless access to affordable credit.
The Doing Business indicators explore two sets of issues—credit information registries and the effectiveness of collateral and bankruptcy laws in facilitating lending.
BizCLIR methodology takes this examination one step further by probing for the reasoning behind the successes or failures of a country's business economy via the process of getting credit. Instead of just measuring access to credit and effectiveness of laws facilitating lending via the legal framework of a country, BizCLIR's tool engages further to question the entire system of sectors affecting credit. A team of experts interview stakeholders in government, the private sector, and civil society to understand the process of getting credit.
Strengthening international and domestic investor confidence in a country's companies and capital markets is a critical component to business competitiveness and to the overall growth of a national economy. A strong legal and institutional framework that is enforceable is at the core of protecting investors. Without it, growing economies will stagnate.
The Doing Business indicators for Protecting Investors include: transparency of transactions, liability for self-dealing, and shareholders' ability to sue officers and directors for misconduct.
BizCLIR methodology qualitatively examines the processes of the country's system for Protecting Investors. BizCLIR's tool takes extra steps to review the whole business, legal, and social environment as it relates to investor protection. A team of experts interview stakeholders in government, the private sector, and civil society to understand the process of protecting investors.
The Doing Business indicators review the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as measures of administrative burden in paying taxes. This indicator examines the legal, institutional, and social dynamics underlying tax collection and compliance in a country and considers how taxes affect a country's overall environment for doing business.
BizCLIR methodology qualitatively examines the processes of the country's system for paying taxes. BizCLIR's tool takes extra steps to review the whole business, legal, and social environment as it relates to taxes. A team of experts interview stakeholders in government, the private sector, and civil society to understand the process of paying taxes.
Trading Across Borders
A critical component of a country's ability to compete internationally is its capacity to move goods, people, and conveyances across its borders in an efficient, facilitative, and secure manner. In the modern global market, economies can only flourish if their commercial enterprises can import and export without excessive regulations, procedures, costs, and delays. Goods and people in international trade must be able to move safely, and opportunities for exploitation by terrorists and other criminals must be minimized or eliminated.
The Doing Business Trading Across Borders indicators look at the procedural requirements for exporting and importing a standardized cargo of goods. The indicators consider the number of procedures, time necessary for completion, and cost associated with all of the procedures.
BizCLIR methodology takes the Doing Business' quick glance ten steps further by thoroughly examining why a country is successful (or unsuccessful) at trading across their borders. Not only examining the number of procedures, time, and costs to trade across borders, BizCLIR's tool takes additional steps to be conscious of the whole system as it relates to trade. A team of experts interview stakeholders in government, the private sector, and civil society to understand the process of trading across borders.
The ability to enforce contracts in a way that is easy to understand and efficient is key to attracting investments to and growth in developing economies. The capacity to enforce contracts is generally considered a qualification for economic growth. A vital relationship exists between the quality of contract enforcement and the quality of the business and investment environment. Lethargic, fickle enforcement of judgments triggers higher interest rates, lower availability of credit, lower investment, higher prices for goods and services, higher rates of business default and bankruptcy, and lower rates of successful bankruptcy reorganizations.
The Doing Business indicators look at the efficiency of contract enforcement by following the evolution of a sale of goods dispute and tracking the time, cost, and number of procedures involved from the moment the plaintiff files the lawsuit until actual payment.
The BizCLIR methodology probes further into the system of enforcing contracts to understand the role of contracts in a developing economy. BizCLIR's tool takes extra steps to review the whole business, legal and social environment as it relates to investor protection. A team of experts interview stakeholders in government, the private sector, and civil society to understand the process of enforcing contracts.
Closing a Business
Closing a business is a complicated decision in itself; when a business must consider the country's laws and regulations that allow it to take place, the experience can be overwhelming. A sound insolvency system is a basic necessity for economies in transition, where it can play a crucial role in addressing the problems of insolvent state-owned enterprises, and also for failing enterprises in need of an exit plan. A clear and enforceable insolvency system permits businesses to efficiently reallocate the debtor's resources, which itself leads to greater confidence in the security of investments.
The Doing Business indicators identify weaknesses in existing bankruptcy law and the main procedural and administrative bottlenecks in the bankruptcy process by reviewing: average time to complete a procedure, cost of the bankruptcy proceedings, and the recovery rate, which calculates how many cents on the dollar claimants (creditors, tax authorities, and employees) recover from an insolvent firm.
The BizCLIR methodology probes further into the system of insolvency to understand its role in a developing economy. BizCLIR's tool takes extra steps to review the whole business, legal and social environment as it relates to bankruptcy. It considers the content and implementation of the bankruptcy law, as it must be compatible and coordinated with other aspects of a country's legal system and be in line with implementing and supporting institutions. A team of experts interview stakeholders in government, the private sector, and civil society to understand the process of closing a business.
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