World Bank identifies mixed results across the globe, with developing economies increasing obstructive regulation.

The latest edition of the World Bank’s annual Doing Business report details how 12 different areas of business regulation enhance or constrain domestic business activity across 190 economies. 

The report documents 294 regulatory reforms enacted between May 2018 and May 2019. Doing Business 2020 found 115 economies improved the business regulatory environment. Togo, Tajikistan, China, India and Saudi Arabia were all held up as significant examples of regulatory reform in the past year.

Conversely, 26 economies became more obstructive to business activity, although many of these regulatory changes were trade-offs. Belarus, for example, extended the deadline for companies to announce related-party transactions. This made regulatory compliance easier, but increased information asymmetry, potentially harming investors. 

The top 10 best places in the world to do business, according to the study, are New Zealand (with a score of 86.8 out of 100), Singapore (86.2), Hong Kong SAR, China (85.3), Denmark (85.3), South Korea (84), the US (84), Georgia (83.7), the UK (83.5), Norway (82.6) and Sweden (82).

Globally, the report shows that developing and developed economies are becoming more similar in terms of business regulation. Some 178 economies implemented 722 reforms which reduced or removed barriers to incorporating new businesses since 2003-04.

However, developing economies were found to have significantly more obstructive regulation. Only two sub-Saharan economies, Mauritius and Rwanda, were ranked in the top 50 most business-friendly economies, and no South American countries made the top 50.

President of the World Bank Group David R. Malpass observed: “Ease of doing business is an important springboard to structural reforms that encourage broad-based growth. The World Bank Group stands ready to help countries move forward.” 

However, regulation of domestic firms correlates significantly with FDI regulation, and the report noted that reforms to business incorporation legislation improved complementary interactions between foreign and domestic businesses, which suggests that regulatory reform creates a favourable market environment for FDI.

The report found high-ranking economies shared several key features, such as electronic regulatory systems. The 20 highest-ranking economies all have electronic tax-filing systems, and allow some property transfer regulatory forms to be filed electronically. Economies which use electronic systems for regulation compliance experience less bribery, the report said.

The report found there was a “spill-over effect”, where countries enact reform after nearby countries improve their regulations, such as in the case of Togo. Togolese delegations visited Rwanda to study successful reforms, as Rwanda climbed the Doing Business rankings significantly in the past decade. This led to the Togolese government improving credit regulations, property regulations, and company incorporation regulations.

Governments have been motivated by the report to improve their business regulation. Indian prime minister Narendra Modi used data from the report in his Make in India campaign as evidence of India’s regulatory reform. This campaign aimed to attract foreign investment to India and boost the Indian manufacturing sector.

This article is sourced from fDi Magazine
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