Governments of all countries eagerly awaited the release of the World Bank's latest Doing Business Index to see how well they fared in comparison to last year.
The index rates countries using 10 indicators from starting a business to resolving insolvency. These indicators are then used to rank each country based on the ease of doing business there.
As the index indicates a country's competitiveness for business engagement, countries often seek to improve their rankings to highlight improvements in the environment for business conduct.
There are hundreds of indices out there that compare countries. Ranking systems allow easy reference for various stakeholders to assess policies, qualities or practices. Such systems can be persuasive. The Doing Business (DB) Index has been credited with bringing about 2000 distinct reforms in countries since its launch in 2003.
Most recently, when the latest ranking was released, India introduced new regulations to expedite the settlement of commercial disputes. This was done to improve on the country's 130th place in the DB Index.
While the ranking acts as an inspiration to some governments, it sends confusing messages to others. For example, South Korea has risen from fifth to take the fourth spot. While the government celebrates this achievement, businesses in the country are perplexed as to whether the ranking reflects the reality of doing business in South Korea.
A few African countries are ranked in the top 50 on the index, yet their economies are ranked over 100 in terms of GDP per capita.
There are other observations that the index does not equate to business conduct. It is not surprising at all that one of the main criticisms of the index has been its failure to survey businesses.
In terms of aspirations, India's Prime Minister Narendra Modi seeks to improve India's position to the top 30 by the year 2018. Russia's President Vladimir Putin aims to move Russia to the top 20. If the aspirations of the emerging markets come true, then over time we should see that conducting business in these markets is easier than doing so in the developed countries that tend to populate the top-30 list.
One can infer from this that over time, the difference in some indicators for many countries will be marginal. This will naturally call for more depth in the measurements of these indicators, creating a new matrix of comparisons to which countries can strive.
In the latest DB Index, New Zealand is ranked first for starting a business, getting credit, registering property, and protecting minority investors; and is ranked third for dealing with construction permits. In spite of these rankings, we should not sit on our laurels. A system in place does not necessarily mean that its implementation is good. Sometimes the ease of doing business in a country depends on how fast issues and problems can be resolved.
While being ranked second overall is something of an achievement, trading across borders continues to rank low at 55. Trading across borders is assessed based on the time and cost of export and import.
As statistics across countries show, the large majority of small enterprises fail. So starting an enterprise is one thing, sustaining it is another. Growing it is a totally different issue.
Further, the ease of doing business is more likely to attract foreign companies that are by nature larger. For these companies, the ease of starting a business means less to them than how long it takes to get a construction permit, trade across borders, and enforce contracts, for example. So perhaps in using the index for international engagements, more emphasis should be put on whether small or larger players are the focus.
New Zealand is ranked 13th in Grant Thornton's Global Dynamism Index and 16th in the World Economic Forum's Global Competitiveness Report.
Those rankings are based on more business-oriented assessment indicators in each country, such as innovation, business sophistication, business environment, macroeconomic environment and infrastructure to name a few.
We should seek to reconcile these other rankings with the DB Index to ensure that the ease of doing business comes closer to matching business realities.
-Professor Siah Hwee Ang is the BNZ chairman in Business in Asia at Victoria University's School of Marketing and International Business.
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