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Georgia has Advanced to the Top 10 List of Ease of Doing Business, Not Everyone Shares the Happy Feeling

Published: October 29, 2012 | 9:42 am
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The COMMERCIAL TIMES

A new IFC and World Bank report finds that since 2005, the Eastern Europe and Central Asia region leads the world in enhancing the business climate for local firms. The region overtook East Asia and the Pacific to become the world’s second most business-friendly, after OECD high-income economies.

Released on October 23, Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises finds Poland was the top global improver in the past year. It enhanced the ease of doing business through four institutional and regulatory reforms, making it easier to register property, pay taxes, enforce contracts, and resolve insolvency. Economies in Europe and Central Asia have implemented nearly 400 institutional and regulatory reforms since 2005, more than any other region in the world.

“We are very encouraged by the rapid pace of reform in Eastern Europe and Central Asia,” said Augusto Lopez-Claros, Director, Global Indicators and Analysis, World Bank Group. “Many of these reforms have been implemented in the context of EU accession negotiations. Economic integration and the desire to catch up with more prosperous partners have been a powerful incentives to promote ambitious reform agendas.”

The report shows Georgia joining the top 10 economies in the global ease of doing business ranking. Georgia is also the world’s top improver since 2005. With 35 institutional and regulatory reforms since then, Georgia has improved in all areas measured by Doing Business. In the past year alone it improved in six areas, more than any other economy in the world.

Georgia, ranked ninth overall in the 2013 report, made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes. It strengthened its secured transactions system through an amendment to the civil code allowing a security interest to extend to the products, proceeds, and replacements of collateral. It made getting electricity easier by simplifying the process of connecting new customers to the distribution network and reducing connection fees. It made paying taxes easier for companies by enhancing the use of electronic systems and providing more services to taxpayers. In addition, Georgia expedited the process of resolving insolvency by establishing or tightening time limits for all insolvency-related procedures, including auctions. Finally, it reduced the time to export and import by creating customs clearance zones.

Globally, Singapore retains its number one slot in the global ranking on the ease of doing business for the seventh consecutive year. Joining it on the list of the 10 economies with the most business-friendly regulations are Hong Kong SAR, China; New Zealand; the United States; Denmark; Norway; the United Kingdom; the Republic of Korea; Georgia; and Australia.

A case study in this year’s report features Latvia, highlighting the country’s regulatory reform agenda and achievements in the areas measured by Doing Business.

Doing Business analyzes regulations that apply to an economy’s businesses during their life cycle, including start-up and operations, trading across borders, paying taxes, and protecting investors. The aggregate ease of doing business rankings are based on 10 indicators and cover 185 economies. Doing Business does not measure all aspects of the business environment that matter to firms and investors. For example, it does not measure the quality of fiscal management, other aspects of macroeconomic stability, the level of skills in the labor force, or the resilience of financial systems. Its findings have stimulated policy debates worldwide and enabled a growing body of research on how firm-level regulation relates to economic outcomes across economies. This year’s report marks the 10th edition of the global Doing Business report series.

This year’s report data cover regulations measured from June 2011 through May 2012. The report marks the 10th edition of the Doing Business series.

The Doing Business Project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. The first Doing Business report, published in 2003, covered 5 indicator sets and 133 economies.

Georgia has continued its upward march, improving from No. 12 last year. It rated No. 1 on Registering Property and No. 3 on Dealing with Construction Permits.  The country has advanced and maintained its positions in several areas, however, we see Georgia’s ranking drop in Protecting Investors and Resolving Insolvency.

Starting a Business

Rank- 7 (same as last year)

According to data collected by Doing Business, starting a business there requires 2 procedures, takes 2 days, costs 3.8% of income per capita and requires paid-in minimum capital of 0.0% of income per capita.

No reform in 2012

Dealing with Construction Permits

Rank- 3 (same as last year)

According to data collected by Doing Business, dealing with construction permits there requires 9 procedures, takes 74 days and costs 17.7% of income per capita.

No reform in 2012

Getting Electricity

Rank- 50 (88 as last year)

According to data collected by Doing Business, getting electricity there requires 4 procedures, takes 71 days and costs 561.8% of income per capita.

Reform in 2012- Georgia made getting electricity easier by simplifying the process of connecting new customers to the distribution network and reducing connection fees.

Registering Property

Rank- 1 (same as last year)

According to data collected by Doing Business, registering property there requires 1 procedures, takes 2 days and costs 0.1% of the property value.

No reform in 2012

Getting Credit

Rank- 4 (9 last year)

How well do the credit information system and collateral and bankruptcy laws in Georgia facilitate access to credit? The economy has a score of 6 on the depth of credit information index and a score of 9 on the strength of legal rights index. Higher scores indicate more credit information and stronger legal rights for borrowers and lenders.

Reform in 2012- Georgia strengthened its secured transactions system through an amendment to the civil code allowing a security interest to extend to the products, proceeds and replacement of collateral.

Protecting Investors

Rank- 19 (17 last year)

How strong are investor protections in Georgia? The economy has a score of 7.0 on the strength of investor protection index, with a higher score indicating stronger protections.

No reform in 2012

Paying Taxes

Rank- 33 (45 last year)

The most recent Doing Business data reflect how easy (or difficult) it is to comply with tax rules in Georgia today.

Reform in 2012- Georgia made paying taxes easier for companies by enhancing the use of electronic systems and providing more services to taxpayers.

Trading Across Borders

Rank- 38 (47 last year)

According to data collected by Doing Business, exporting a standard container of goods requires 4 documents, takes 9 days and costs $1355. Importing the same container of goods requires 4 documents, takes 10 days and costs $1595.

Reform in 2012- Georgia reduced the time to export and import by creating customs clearance zones.

Enforcing Contracts

Rank- 30 (39 last year)

According to data collected by Doing Business, enforcing a contract takes 285 days, costs 29.9% of the value of the claim and requires 33 procedures.

Reform in 2012- Georgia made enforcing contracts easier by simplifying and speeding up the proceedings for commercial disputes.

Resolving Insolvency

Rank- 81 (75 last year)

According to data collected by Doing Business, resolving insolvency takes 2.0 years on average and costs 4% of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The average recovery rate is 35.7 cents on the dollar.

Reform in 2012- Georgia expedited the process of resolving insolvency by establishing or tightening time limits for all insolvency-related procedures, including auctions.

Employing Workers

Doing Business 2013 does not present rankings of economies on the employing workers indicators or include the topic in the aggregate ranking on the ease of doing business. The report does present the data on the employing workers indicators in an annex.

Particular data for Georgia are presented here without scoring.

No reform in 2012

Georgia (9) is ahead of all the post soviet union countries on DB listing, followed by Estonia (21), Latvia (25), Armenia (32), Kazakhstan (49) and Russia (112).

Georgian President Mikheil Saakashvili commented on DB 2013 during his visit in Dubai, where he was attending the International Energy Forum.

“This success is due to the reforms Georgian government had been conducting during the last years. When Lado Gurgenidze started the implementation of the reforms, Georgia’s ranking was 140. The reforms were continued by Gilauri’s government and were finalized by Vano Merabishvili,” declared the President. “Globally, there are two ways to prosperity: one- oil and gas production and the other- simplifying doing business procedures for SMEs. The latter is Georgia’s choice and if it’s continued we’ll soon start catching up with developed countries. Those who criticize the reforms should understand that the alternative is getting back to 140 ranking.”

Kakha Bendukidze, one of the ideologists of economic reforms in Georgia, former Minister of Economic Development, who is now running Free University, says Georgia’s listing on DB 2013 top 10 ranking next to the developed countries is an unprecedented fact: “DB is a very famous report, it increases Georgia’s awareness among the international financial circles. Such simplified and favorable business climate is very important for economic development.”

PM Candidate Bidzina Ivanishvili (recently officially approved as PM), Leader of the election winner Georgian Dream Coalition, said that World Bank’s ease of doing business index, which measures business regulations and in which Georgia is ranked on the 9th place, were compiled through “deceiving” international institutions.

According to Nodar Chichinadze, the Director of the Association of Young Businessmen and Financiers, Doing Business is not a systemic and thorough research of the business environment and leading rankings here doesn’t necessarily mean Georgia has one of the best doing business climates: “In general, World Bank is an influential and reliable international financial institution. Thus, there’s no doubt that this research is trustworthy. However, DB does have flaws as it is relatively surficial study, it does not provide interesting information for investors and describes less significant factors. The country’s economic and financial system structure, which would include foreign debt, economic parameters, etc., is not considered in this research. DB rankings are based not on the situation in the entire country, but on the big city only.”

As he later noted, the results of DB report change throughout the year: “For instance, if in March Georgia was ranked 16 (hypothetically), there may happen such changes in the end of the year that will influence on the ranking.”

Anzor Kokoladze, former owner of Elit Electronics, noted that DB is the reflection of procedural side, which is not implemented in practice. Moreover, in his words, reality is absolutely contrary: “Establishing business in Georgia is easy, but it’s difficult to maintain it. I’m not saying that DB report is wrong, what I mean is that reality is different. In Georgia you can register a company and start a business in one day, but problems of constant terror and harassment rise afterwards. The report is correct, however the reforms, that DB relies on, are not implemented in practice and we often see quite contrary developments. Georgian legislation is not equally fairly used to everyone and the government makes contrary systemic steps.”

According to Kokoladze, DB is not the report with the ambition to attract investors.

Giorgi Kvirikashvili, Candidate for the Minister of Economy and Sustainable Development of Georgia, welcomes DB results. However, in his words, the report does not include many other areas where Georgia would show low performance: “I pride with every successful step our county makes, regardless it’s achieved by the old or the new government. However, it should be noted that there are lots of other areas where Georgia’s performance is rather bad and the country ranks almost the last, for instance in property protection.”

As for number 4 ranking in terms of Getting Credit, Kvirikashvili says credit access is truly simple in Georgia: “The issue here is high interest rates, which can be solved by lowering risks in the country. The main task for us is to take Georgia to the higher investment circle ranking. We’ll have same high interest rates unless investment scope is increased.”

Despite Georgia’s advance in DB report, part of the local population have never heard of its existence. Some people say they don’t feel themselves the citizens of the country included on the top 10 list of the IFC-WB report and even those who have such feeling claim that their expectation is much more.

 

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