Perceived Obstacles to Doing Business: Worldwide Survey Results

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Perceived Obstacles to Doing Business: Worldwide Survey Results Guy P. Pfeffermann (IFC) and Gregory Kisunko (World Bank) Washington, D.C. July 1999

2 Contents Introduction... 1 Levels of Private Investment... 2 Number of "Serious" Obstacles... 3 The Nature of Obstacles... 9 Policy Domains for Mitigating Perceived Obstacles The Dog That Didn't Bark The Comprehensive Hierarchy of Obstacles Perceived Obstacles and Levels of Private Investment Econometric Results Tables Table 1. Private Investment in 1997 (Percent of GDP)... 3 Table 2. Reported Obstacles to Doing Business Number and Ranking Table 3. Average Number of Serious Obstacles to Doing Business per Country... 9 Table 4. Obstacles to doing business considered serious by 50% or more of respondents (percent of countries) Table 5. Policy Domains...14 Table 6. Reported Obstacles to Doing Business Number and Ranking Table 7. Reported Problem-Free Areas (Percent of Countries) Table 8. Summary Regression Output (Dependent Variable Private Investment/ GDP, 1996, Number of Observations 23) Figures Figure 1. The Nature of Obstacles Regional Breakdown Figure 2. Perceived Obstacles Regional Breakdown Figure 3. Comprehensive Results: Africa Figure 4. Comprehensive Results: Asia Figure 5. Comprehensive Results: Central & Eastern Europe, including Turkey Figure 6. Comprehensive Results: Commonwealth of Independent States Figure 7. Comprehensive Results: Latin America & the Caribbean Figure 8. Comprehensive Results: Middle East & North Africa Figure 9. Comprehensive Results: High Income OECD Figure 10. Relations of Obstacles and Private Investment (X-axis: percent of dissatisfied respondents; Y-axis: private investment as a percentage of GDP) Figure 11. Relations of Problem-Free Areas and Private Investment (X- axis: percent of dissatisfied respondents; Y-axis: private investment as a percentage of GDP) Annex I

3 Perceived Obstacles to Doing Business: Worldwide Survey Results Introduction Why is private investment low in some developing countries and high in others? Determinants of investment levels and how efficiently it is being used fall mostly into three categories: (a) macroeconomic policies, (b) microeconomic incentives, and (c) institutional factors. This paper uses survey data, which were collected under the aegis of the World Bank s 1997 World Development Report (WDR) as well as additional data gathered by researchers at the University of Basel who designed the WDR survey (for Brazil, Hong Kong, Korea, Singapore, and Thailand). 1 The survey covers 3,998 firms in 74 countries, mostly in manufacturing and services (about half each) plus some agricultural firms. 2 The survey covers large and small firms with and without foreign participation. Interviews were conducted in the countries where firms operate. The survey's coverage is laid out in Annex I. This paper addresses the question: which obstacles to doing business are considered to be the most serious by private sector managers in particular countries? The answers might help to identify policy domains (macroeconomic, institutional) most relevant in each country and levels of national authority (central, local) most appropriate to reduce obstacles to doing business. Managers were asked to judge on a six points scale how problematic various obstacles are for doing business. The six points range from "no obstacle" and "moderate obstacles," to "strong" and "very strong" obstacles. 3 The areas listed are: Regulations for starting business/new operations Foreign trade regulations (exports, imports) 1 Professors Aymo Brunetti and Beatrice Weder on whose work this paper rests. See also Institutions in Transition: Reliability of Rules and Economic Performance in Former Socialist Countries. Aymo Brunetti, Gregory Kisunko, Beatrice Weder, Policy Research Working Paper No. 1809, 1997; Credibility of Rules and Economic Growth: Evidence from a Worldwide Survey of the Private Sector. Aymo Brunetti, Gregory Kisunko, Beatrice Weder, Policy Research Working Paper No. 1760, 1997; Institutional Obstacles to Doing Business: Region-by-Region Results from a Worldwide Survey of the Private Sector. Aymo Brunetti, Gregory Kisunko and Beatrice Weder, Policy Research Working Paper, No. 1759, The average number of respondents per country is 54 (ranking from 13 in Chad to 124 in Togo), the median 49 and the standard deviation 29 (see Annex I). 3 Each respondent was limited to checking no more than five "very strong" obstacles. 1

4 Infrastructure General uncertainty regarding costs of regulations As well as an open-ended category: "Other." The discussion also draws on responses to a separate question: "Unpredictability of the judiciary presents a major problem for my business operations" for which the six points scale ranges from "fully agree" to "strongly disagree. "In order to integrate judiciary unpredictability issues with the other obstacles listed above, we equate "fully agree" to "very strong obstacles" and "agree in most cases" to "strong obstacles. "Throughout this paper, "obstacles" are drawn from the list above (including unpredictability of the judiciary). The paper deals in succession with: Levels of private investment: the wide range of private investment ratios in developing countries Number of "serious" obstacles: the number of serious obstacles to doing business The nature of obstacles: the nature of perceived obstacles to doing business Policy domains for mitigating perceived obstacles: policy domains for mitigating perceived obstacles The dog that didn't bark: reported obstacle-free areas The comprehensive hierarchy of obstacles: the comprehensive hierarchy of perceived obstacles Perceived obstacles and levels of private investment econometric results: perceived obstacles and levels of private investment econometric results Levels of Private Investment It is not easy to determine levels of private investment in developing countries. The United Nation's Standard National Accounts methodology does not mandate that national statistical offices separate out public from private investment. Rather, national accounts distinguish between Central Government and other entities grouped by sectors, the latter including State-owned Enterprises. Hence public investment straddles the two groups (Central Government and "Others") and private investment is not shown separately. A number of statistical tables purporting to present the breakdown between public and private investment in fact are showing Central Government and all other investments, the latter including investments by State-owned Enterprises. The International Finance Corporation's Economics Department began an effort ten years ago 2

5 to collect at the national level (mostly with the help of World Bank and IMF economists) "clean" private investment data for those countries where estimates existed for Stateowned Enterprise investment. "Private Investment" was calculated as a residual between total Gross Domestic Fixed Capital Formation by deducting both Central Government and State-owned Enterprise investment. The results are published annually in "Trends in Private Investment in Developing Countries" in the IFC Discussion Papers series. Table 1 shows the wide range of private investment ratios for 1997, the most recent year for which such estimates exist. Table 1. Private Investment in 1997 (Percent of GDP) Papua New Guinea 31.5 Belize 12.8 Malaysia 30.9 South Africa 12.7 Korea 27.1 Tunisia 12.4 Thailand 24.1 El Salvador 12.1 Indonesia 22.1 Egypt 12.1 Panama 22.0 Kenya 11.3 Peru 21.0 Côte d Ivoire 11.2 Philippines 20.9 Guatemala 11.1 Dominican Republic 20.5 Benin 11.0 Turkey 20.5 Morocco 11.0 Chile 20.4 Bangladesh 10.8 Mauritius 20.0 Poland 10.3 Nicaragua 19.8 Bolivia 10.3 Argentina 18.4 Colombia 10.0 India 16.0 Guinea-Bissau 9.2 Mexico 16.0 Pakistan 8.9 China 15.8 Mauritania 8.6 Brazil 15.8 Uruguay 8.6 Paraguay 15.4 Venezuela 7.4 Costa Rica 15.0 Romania 6.2 Iran 13.8 Madagascar 5.5 Ecuador 13.3 Malawi 5.1 Namibia 12.9 Bulgaria 4.8 Number of "Serious" Obstacles The bottom line on Table 2 shows the number of areas, which 50 percent or more of respondents considered to be serious ("strong" and "very strong" responses). It is important to bear in mind that the table reflects judgements on the part of business people; the apparent absence of serious problems may mean that the items listed in the questionnaire do not hinder businesses, and/or that business people have learned how to get around them. Furthermore, comparisons between countries are not straightforward because it is quite possible that the "propensity to complain" varies from country to country. 3

6 Table 2. Reported Obstacles to Doing Business Number and Ranking ALBANIA ARMENIA AUSTRIA AZERBAIJAN BELARUS BENIN BOLIVIA BRAZIL BULGARIA CAMEROON CANADA CHAD COLOMBIA CONGO COSTA RICA COTE D'IVOIRE Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of serious obstacles (continued) 4

7 CZECH REP. ECUADOR ESTONIA FIJI FRANCE GEORGIA GERMANY GHANA GUINEA GUINEA- BISSAU HONG KONG HUNGARY INDIA IRELAND ITALY JAMAICA Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of serious obstacles (continued) 5

8 JORDAN KAZAKHSTAN KENYA KOREA, REP KYRGYZ LATVIA LITHUANIA MACEDONIA MADAGASCAR MALAWI MALAYSIA MALI MAURITIUS MEXICO MOLDOVA MOROCCO Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of serious obstacles (continued) 6

9 MOZAMBIQUE NIGERIA PARAGUAY PERU POLAND PORTUGAL RUSSIA SENEGAL SINGAPORE SLOVAKIA SOUTH AFRICA SPAIN SWITZERLAND TANZANIA THAILAND TOGO Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of serious obstacles (continued) 7

10 TURKEY UGANDA UNITED KINGDOM UKRAINE UNITED STATES UZBEKISTAN VENEZUELA WEST BANK & GAZA STRIP ZAMBIA ZIMBABWE Number of countries where 50% cut-off was exceeded Frequency of occurrence % Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of serious obstacles The number of problematic areas ranges from zero (in 9 countries, 7 developing plus Switzerland and the United Kingdom) 4 to 7 and more (in seven countries). The surveys were carried out in 1996/97; conditions may have changed since then. An updated survey of business conditions is being carried out in 1999, which will make it possible to identify such changes. The average number of serious obstacles to doing business is 3.7 in the developing and transition countries and 1.5 in advanced industrial countries. Table 3 shows the sensitivity of results to using a more restrictive definition of what constitutes a serious problem area, lowering the bar from 50 percent or more of 4 Korean, Malaysian, and Thai managers did not perceive "strong" obstacles to doing business in 1997; this may reflect the fact that the survey was undertaken prior to the worst of the East Asian crisis, but may also reflect long-term fundamental strengths. 8

11 respondents to, respectively, 60, 70 and 75 percent. The average number of serious obstacles changes as follows. Table 3. Average Number of Serious Obstacles to Doing Business per Country Average for developing and transition countries (63 countries) Average for advanced industrial countries (11 countries) Ratio of averages for developing/ transition and advanced industrial countries Number of serious obstacles per country Percentage share of respondents who view problems as serious 50% or more 60% or more 70% or more 75% or more The Nature of Obstacles The last columns of Table 2 show obstacles to doing business in order of frequency in the countries where firms were surveyed. Using the 50 percent cut-off point, the table suggests that taxes are by far the most prevalent perceived obstacle to doing business (72 percent of the countries). The finding is ambivalent, however, because the question combines tax regulations and high taxes. More meaningful is the frequency of corruption and the unpredictability of the judiciary, which are perceived in 47 and 42 percent respectively of the 74 countries to be a serious obstacle to doing business (see Figures 1a and 1b for regional breakdown). Next come, neck-and-neck, crime and theft (31 percent of countries see Figure 1c for regional breakdown), lack of financing (30 percent see Figure 1d for regional breakdown), inadequate infrastructure (27 percent) and inflation (27 percent). In none of the countries were "other" obstacles to doing business considered to be serious, suggesting that the list of possible problem areas was quite comprehensive. 9

12 Figure 1. The Nature of Obstacles Regional Breakdown 5 Figure 1a: All countries Developed countries All developing countries Transition economies Other developing countries Figure 1b: U npredictability of the Judiciary All countries Developed countries All developing countries Transition economies Other developing countries 5 Percent of respondents judging the obstacle to be serious. 10

13 Figure 1c: Crime and Theft All countries 0 Developed countries All developing countries Transition economies Other developing countries Figure 1d: All countries 0 Developed countries All developing countries Transition economies Other developing countries Table 4 compares the perceived seriousness of obstacles in developed and developing countries. and safety and environment regulations obstacles are considered to be serious obstacles to doing business in a number of developed countries, but do not loom large in developing economies. Taxes, as noted, are the most prevalent perceived obstacle for all countries (in 90 percent of transition economies and in 64 and 65 percent, respectively, of developed and other developing countries Figure 2a). is considered to be a serious obstacle in 35 percent of non-transition developing countries and 25 percent of transition economies (Figure 2b). Infrastructure is considered a problem in 9 percent of developed, 10 percent of transition and 40 percent of other surveyed developing economies (Figure 2c). Obstacles related to political instability and general uncertainty in the cost of regulations are much more prevalent in transition then in other developing economies (40 versus 12, and 30 versus 5 11

14 percent respectively Figure 2d). Lastly, regulations related to foreign economic activities are more of an obstacle in transition countries. Figure 4 shows major obstacles by types of economies. Table 4. Obstacles to doing business considered serious by 50% or more of respondents (percent of countries) All countries Developed countries All developing countries Transition economies Other developing countries Unpredictability of the judiciary Regulations for starting business/new operations Regulations on foreign trade (exports, imports) Tax regulations and/or high taxes Inadequate supply of infrastructure Safety or environmental regulations General uncertainty on costs of regulations Other

15 Figure 2. Perceived Obstacles Regional Breakdown 6 Figure 2a: Tax Regulations and/or High Taxes Figure 2b: All countries Developed countries All developing countries Transition economies Other developing countries 0 All countries 0 Developed countries All developing countries Transition economies Other developing countries Figure 2c: Inadequate Supply of Infrastructure Figure 2d: Policy Instability General uncertainty on costs of regulations All countries Developed countries All developing countries Transition economies Other developing countries 0 All countries 0 0 Developed countries All developing countries Transition economies Other developing countries Policy Domains for Mitigating Perceived Obstacles Table 2 ranks the most serious obstacles identified by business people in each country surveyed. It shows, the relative importance attached to different obstacles (cases where 50 percent or more of respondents judged a particular obstacle to be "strong" or "very strong"). So for example a number 1 means that a particular area was mentioned by the largest proportion of respondents as being a serious obstacle to doing business, a 2 the second most frequent mention and so forth. The ranking of country-specific obstacles to doing business might help governments and aid agencies to prioritize private sector development strategies, especially in combination with Table 5 below, which delineates primary policy domains on which the lessening of different obstacles depends. 6 Percent of respondents judging the obstacle to be serious. 13

16 Table 5. Policy Domains ❶ Macroeconomic Tax regulations and/or high taxes Central Government (economic policies) ❶ ❶ General uncertainty on costs of regulations ❶ ❶ Inadequate supply of infrastructure ❶ ❶ Regulations of foreign trade (exports, imports) ❶ Foreign currency regulations Fiscal (local authorities) Institutional (central authorities) Institutional (local authorities) ❶ ❶ Tax regulations ❶ ❶ and/or high taxes ❶ ❶ ❶ ❶ Unpredictability of the judiciary Inadequate supply of infrastructure ❶ ❶ Inadequate supply of infrastructure General uncertainty on costs of regulations ❶ ❶ ❶ ❶ General uncertainty on costs of regulations ❶ Regulations for starting business/new operations ❶ ❶ Safety or environmental regulations ❶ ❶ Regulations for starting business/new operations Safety or environmental regulations Some of the obstacles pertain to several policy domains; the balance of responsibilities for lessening obstacles between central government and local authorities depends largely on the degree of decentralization existing in specific countries. The main point of Table 5 is that the removal of obstacles to doing business is a shared responsibility, which requires government commitment at many different levels. Civil society can of course play an important role in helping to bring about policy changes. The Dog That Didn't Bark It is also of interest to map out institutional and policy areas, which are not considered to be obstacles to doing business. Table 6 (which is similar in layout to 14

17 Table 1) flags areas which 50 percent or more of respondents in each country judged to be "no obstacle" to doing business (checking 1 or 2 on a scale of 6). Table 6. Reported Obstacles to Doing Business Number and Ranking ALBANIA ARMENIA AUSTRIA AZERBAIJAN BELARUS BENIN BOLIVIA BRAZIL BULGARIA CAMEROON CANADA CHAD COLOMBIA CONGO COSTA RICA COTE D'IVOIRE Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of unproblematic areas (continued) 15

18 CZECH REP. ECUADOR ESTONIA FIJI FRANCE GEORGIA GERMANY GHANA GUINEA GUINEA BISSAU HONG KONG HUNGARY INDIA IRELAND ITALY JAMAICA Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of unproblematic areas (continued) 16

19 JORDAN KAZAKHSTAN KENYA KOREA, REP KYRGYZ LATVIA LITHUANIA MACEDONIA MADAGASCAR MALAWI MALAYSIA MALI MAURITIUS MEXICO MOLDOVA MOROCCO Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of unproblematic areas (continued) 17

20 MOZAMBIQUE NIGERIA PARAGUAY PERU POLAND PORTUGAL RUSSIA SENEGAL SINGAPORE SLOVAKIA SOUTH AFRICA SPAIN SWITZERLAND TANZANIA THAILAND TOGO Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of unproblematic areas (continued) 18

21 TURKEY UGANDA UNITED KINGDOM UKRAINE UNITED STATES UZBEKISTAN VENEZUELA WEST BANK & GAZA ZAMBIA ZIMBABWE Number of countries where 50% cut-off was exceeded Frequency of occurrence, % Regulations for starting business/new operations Regulations on foreign trade (exports, imports) General uncertainty on costs of regulations Other Number of unproblematic areas Table 7 aggregates countries by groups, as in Table 4. It suggests that in 58 percent of the surveyed countries (73 percent of developed, 65 percent of developing and 35 percent of transition countries) terrorism is not perceived to be a serious problem by business people, nor are price controls, which are not considered to be a serious problem in 45 percent of the countries (73 percent of developed, 44 percent of developing and 30 percent of transition countries, respectively). 19

22 Table 7. Reported Problem-Free Areas (Percent of Countries) All countries Developed countries All developing countries Transition economies Other developing countries Unpredictability of the judiciary Regulations for starting business/new operations Regulations on foreign trade (exports, imports) Tax regulations and/or high taxes Inadequate supply of infrastructure Safety or environmental regulations General uncertainty on costs of regulations Other Looked at together with problem areas in Table 2 it seems that neither price controls, foreign trade controls or foreign exchange regulations were considered in to be serious obstacles to doing business except in a handful countries (Belarus, Bulgaria, Congo, Fiji, Kazakhstan, Ukraine, Uzbekistan, West Bank and Gaza, and South Africa). were found to be an obstacle in only one of the surveyed countries, surprisingly a developed one (Austria). These results are indicative of the depth and breadth of liberalization, which has taken place over the last decades. The Comprehensive Hierarchy of Obstacles The following Figures show the hierarchy of perceived obstacles to doing business in all surveyed countries. All responses are shown, not only perceptions of serious obstacles. This presentation is designed to capture the hierarchy of perceived problems even where the propensity to complain may be low, and serve as a guide to policy priorities. Furthermore, each country s results are set against respective regional averages. 20

23 Figure 3. Comprehensive Results: Africa BENIN AFRICA CAMEROON AFRICA 21

24 Figure 3. Comprehensive Results: Africa CHAD AFRICA CONGO AFRICA 22

25 Figure 3. Comprehensive Results: Africa COTE D'IVORE AFRICA GHANA AFRICA 23

26 Figure 3. Comprehensive Results: Africa GUINEA AFRICA GUINEA-BISSAU AFRICA 24

27 Figure 3. Comprehensive Results: Africa KENYA AFRICA MADAGASCAR AFRICA 25

28 Figure 3. Comprehensive Results: Africa MALAWI AFRICA MALI AFRICA 26

29 Figure 3. Comprehensive Results: Africa MAURITIUS AFRICA MOZAMBIQUE AFRICA 27

30 Figure 3. Comprehensive Results: Africa NIGERIA AFRICA SENEGAL AFRICA 28

31 Figure 3. Comprehensive Results: Africa SOUTH AFRICA AFRICA TANZANIA AFRICA 29

32 Figure 3. Comprehensive Results: Africa TOGO AFRICA UGANDA AFRICA 30

33 Figure 3. Comprehensive Results: Africa ZAMBIA AFRICA ZIMBABWE AFRICA 31

34 Figure 4. Comprehensive Results: Asia FIJI ASIA HONG KONG ASIA 32

35 Figure 4. Comprehensive Results: Asia INDIA ASIA KOREA, REPUBLIC ASIA 33

36 Figure 4. Comprehensive Results: Asia MALAYSIA ASIA SINGAPORE ASIA 34

37 Figure 4. Comprehensive Results: Asia THAILAND ASIA 35

38 Figure 5. Comprehensive Results: Central and Eastern Europe, including Turkey ALBANIA CEE incl. Turkey BULGARIA CEE incl. Turkey 36

39 Figure 5. Comprehensive Results: Central and Eastern Europe, including Turkey CZECH REPUPLIC CEE incl. Turkey ESTONIA CEE incl. Turkey 37

40 Figure 5. Comprehensive Results: Central and Eastern Europe, including Turkey HUNGARY CEE incl. Turkey LATVIA CEE incl. Turkey 38

41 Figure 5. Comprehensive Results: Central and Eastern Europe, including Turkey LITHUANIA CEE incl. Turkey MACEDONIA CEE incl. Turkey 39

42 Figure 5. Comprehensive Results: Central and Eastern Europe, including Turkey POLAND CEE incl. Turkey SLOVAKIA CEE incl. Turkey 40

43 Figure 5. Comprehensive Results: Central and Eastern Europe, including Turkey TURKEY CEE incl. Turkey 41

44 Figure 6. Comprehensive Results: Commonwealth of Independent States ARMENIA CIS AZERBAIJAN CIS 42

45 Figure 6. Comprehensive Results: Commonwealth of Independent States BELARUS CIS GEORGIA CIS 43

46 Figure 6. Comprehensive Results: Commonwealth of Independent States KAZAKHSTAN CIS KYRGYZ REPUBLIC CIS 44

47 Figure 6. Comprehensive Results: Commonwealth of Independent States MOLDOVA CIS RUSSIA CIS 45

48 Figure 6. Comprehensive Results: Commonwealth of Independent States UKRAINE CIS UZBEKISTAN CIS 46

49 Figure 7. Comprehensive Results: Latin America and the Caribbean BOLIVIA LAC BRAZIL LAC 47

50 Figure 7. Comprehensive Results: Latin America and the Caribbean COLOMBIA LAC COSTA RICA LAC 48

51 Figure 7. Comprehensive Results: Latin America and the Caribbean ECUADOR LAC JAMAICA LAC 49

52 Figure 7. Comprehensive Results: Latin America and the Caribbean MEXICO LAC PARAGUAY LAC 50

53 Figure 7. Comprehensive Results: Latin America and the Caribbean PERU LAC VENEZUELA LAC 51

54 Figure 8. Comprehensive Results: Middle East and North Africa JORDAN MNA MOROCCO MNA 52

55 Figure 8. Comprehensive Results: Middle East and North Africa WEST BANK AND GAZA STRIP MNA 53

56 Figure 9. Comprehensive Results: High Income OECD AUSTRIA High Income OECD CANADA High Income OECD 54

57 Figure 9. Comprehensive Results: High Income OECD FRANCE High Income OECD GERMANY High Income OECD 55

58 Figure 9. Comprehensive Results: High Income OECD IRELAND High Income OECD ITALY High Income OECD 56

59 Figure 9. Comprehensive Results: High Income OECD PORTUGAL High Income OECD SPAIN High Income OECD 57

60 Figure 9. Comprehensive Results: High Income OECD SWITZERLAND High Income OECD UNITED KINGDOM High Income OECD 58

61 Figure 9. Comprehensive Results: High Income OECD UNITED STATES High Income OECD 59

62 Perceived Obstacles and Levels of Private Investment Econometric Results Econometric calculations presented in Table 8 7 show that, unsurprisingly, in many cases a definite link exists between 1996 private investment and problems (or lack of them) in policy areas relevant to doing business. In some cases the share of business executives reporting that a particular policy area is problematic is significant, in some cases the share of problem-free responses and in other areas both responses are related significantly to investment. These results are to be treated as preliminary, if only because of the small number of countries (23) common to both data sets. Nevertheless, out of 16 policy areas 7 are significant for private investment levels when there is a perceived serious problem in these areas. At the same time, 9 out of the 16 policy areas are significant to levels of private investment when they are problem-free. And 4 areas out of 16 (financing, labor regulations, foreign currency regulations, and crime and theft) are significant in both cases. Table 8. Summary Regression Output (Dependent Variable Private Investment/GDP, 1996, Number of Observations 23) Problem Problem-Free Variables Coefficients Standard Error t Stat P-value Confidence level Coefficients Standard Error t Stat P-value Confidence level Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) Unpredictability of the judiciary *** Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) Regulations for starting business/new operations Adjusted R Square (continued) 7 The specifications we tested have the following form: Private Inv./GDP96 = a0 + a1 LN(GDP/Const. 87 PPP,90) + a2 LN(Sec school enrol., 1990)+ a3 OBST + u. Private Inv./GDP96 is a ratio of private investment to GDP in LN(GDP/Const. 87 PPP,90) is the logarithm of 1990 GDP per capita calculated at PPP in 1987 prices from a World Bank data base. LN(Sec school enrol., 1990) is the logarithm of growth secondary school enrollment in 1990 also taken from a World Bank data base. OBST is an additional variable drawn from the set of 16 obstacles (we ran separate tests for problem and problem-free values of the variable). 60

63 Problem Problem-Free Coefficients Standard Error t Stat P-value Confidence level Coefficients Standard Error t Stat P-value Confidence level Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) ** Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) Regulations on foreign trade (exports, imports) *** Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) *** *** Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) ** * Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) Foreign currency regulations * * Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) Tax regulations and/or high taxes ** (continued) 61

64 Problem Problem-Free Coefficients Standard Error t Stat P-value Confidence level Coefficients Standard Error t Stat P-value Confidence level Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) Inadequate supply of infrastructure Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) Safety or environmental regulations Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) *** Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) General uncertainty on costs of regulations ** Adjusted R Square (continued) 62

65 Problem Problem-Free Coefficients Standard Error t Stat P-value Confidence level Coefficients Standard Error t Stat P-value Confidence level Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) ** * Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) ** Adjusted R Square Intercept LN(GDP/Const. 87 PPP,90) LN(Sec school enrol., 1990) * Adjusted R Square * Significant on the 10 percent confidence level. ** Significant on the 5 percent confidence level. *** Significant on the 1 percent confidence level. Source for private investment data: Jack Glen and Mariusz A. Sumlinski, "Trends in Private Investment in Developing Countries Statistics for ," IFC, Washington, D.C., Figures 10 and 11 illustrate some of the relations between obstacles or their absence and the level of private investment in a sample of the surveyed countries. 63

66 Figure 10. Relations of Obstacles and Private Investment (X-axis: percent of dissatisfied respondents; Y-axis: private investment as a percentage of GDP) Figure 10a: Scatterplot of Predictability of Judiciary and Private Investment 35 Malaysia Thailand 30 Korea India Mauritius Brazil Cost Rica Turkey South Africa Kenya Poland Togo Malawi Peru Paraguay Mexico Morocco Ecuador Benin Cote d'ivoire Colombia Bolivia 5 Guinea-Bissau Venezuela Figure 10b: Scatterplot of Availability of and Private Investment 35 Malaysia Thailand 30 Korea Peru Turkey Paraguay India 15 Mauritius Brazil Mexico Cost Rica 10 South Africa Morocco Benin Poland Kenya Ecuador Cote d'ivoire Malawi Togo Colombia Bolivia 5 Venezuela Guinea-Bissau

67 Figure 10c: Scatterplot of Taxes/Tax Policies and Private Investment 35 Malaysia Thailand 30 Korea Paraguay Turkey Peru 15 Mauritius Brazil India Mexico Cost Rica South Africa 10 Ecuador Morocco Kenya Bolivia Benin Malawi Togo Colombia Cote d'ivoire Poland 5 Guinea-Bissau Venezuela Figure 10d: Scatterplot of Crime and Theft and Private Investment Malaysia Thailand 25 Korea 20 Turkey Peru Paraguay India Mauritius Morocco Bolivia Brazil Cost Rica Ecuador Poland Togo Mexico Cote d'ivoire Benin South Africa Colombia Kenya 5 Venezuela Malawi Guinea-Bissau

68 Figure 10e: Scatterplot of and Private Investment Malaysia Thailand 25 Korea Turkey Cost Rica Poland India Brazil Peru Mauritius Kenya Mexico Ecuador Paraguay South Africa Benin Togo Bolivia Colombia Morocco Cote d'ivoire 5 Guinea-Bissau Malawi Venezuela Figure 11. Relations of Problem-Free Areas and Private Investment (X- axis: percent of dissatisfied respondents; Y-axis: private investment as a percentage of GDP) Figure 11a: Scatterplot of Price Control and Private Investment 35 Thailand Malaysia 30 Korea Ecuador Cote d'ivoire Turkey Paraguay India Brazil Cost Rica Mexico South Africa Poland Colombia Togo Bolivia Venezuela Guinea-Bissau Kenya Peru Benin Morocco Mauritius Malawi

69 Figure 11b: Scatterplot of Trade Restrictions and Private Investment Korea Thailand Malaysia Turkey Peru Paraguay India Brazil Cost Rica Mexico Kenya South Africa Ecuador Poland Morocco Cote d'ivoire Bolivia Colombia Togo Mauritius Benin 5 Venezuela Guinea-Bissau Malawi Figure 11c: Scatterplot of Availability of and Private Investment Thailand Malaysia Korea Paraguay Mauritius India Turkey Peru 15 South Africa Mexico Brazil Kenya Cost Rica 10 Ecuador Poland Cote d'ivoire Colombia Morocco Bolivia Benin Togo 5 Venezuela Malawi Guinea-Bissau

70 Figure 11d: Scatterplot of and Private Investment Thailand Malaysia Korea Turkey Paraguay Brazil Mexico Ecuador Kenya South Africa Poland Benin Colombia Togo Peru India Mauritius Cost Rica Cote d'ivoire Bolivia Morocco 5 Venezuela Guinea-Bissau Malawi Figure 11e: Scatterplot of General Uncertainty of Cost of Regulations and Private Investment Thailand Malaysia Korea Colombia Malawi Paraguay Mexico South Africa Kenya Venezuela Ecuador Cote d'ivoire Guinea-Bissau Peru Cost Rica Poland Togo Brazil Benin Turkey Bolivia India Mauritius Morocco The highest statistical significance for depressing private investment (on the 1 percent confidence level) is for unpredictability of the judiciary and lack of financing. Where financing is not a serious problem this is very positively associated to levels of 68

71 private investment (significance on the 1 percent confidence level). In contrast, lack of serious problems with the judiciary is not related significantly to high levels of private investment. The same asymmetrical relationship seems to characterize tax regulations and corruption where these are serious problems they depress private investment, but low taxes and lack of corruption do not by themselves stimulate private investment. 69

72 Perceived Obstacles to Doing Business: Worldwide Survey Results Annex I List of Countries Africa 1. Benin 2. Cameroon 3. Chad 4. Congo 5. Côte d'ivore 6. Ghana 7. Guinea 8. Guinea-Bissau 9. Kenya 10. Madagascar 11. Malawi 12. Mali 13. Mauritius 14. Mozambique 15. Nigeria 16. Senegal 17. South Africa 18. Tanzania 19. Togo 20. Uganda 21. Zambia 22. Zimbabwe Asia 1. Fiji 2. Hong Kong 3. India 4. Korea, Republic 5. Malaysia 6. Singapore 7. Thailand Central & Eastern Europe, including Turkey 1. Albania 2. Bulgaria 3. Czech Republic 4. Estonia 5. Hungary 6. Latvia 7. Lithuania 8. Macedonia 9. Poland 10. Slovakia 11. Turkey Commonwealth of Independent States 1. Armenia 2. Azerbaijan 3. Belarus 4. Georgia 5. Kazakhstan 6. Kyrgyz Republic 7. Moldova 8. Russia 9. Ukraine 10. Uzbekistan Latin America & the Caribbean 1. Bolivia 2. Brazil 3. Colombia 4. Costa Rica 5. Ecuador 6. Jamaica 7. Mexico 8. Paraguay 9. Peru 10. Venezuela Middle East & North Africa 1. Jordan 2. Morocco 3. West Bank and Gaza Strip High Income OECD 1. Austria 2. Canada 3. France 4. Germany 5. Ireland 6. Italy 7. Portugal 8. Spain 9. Switzerland 10. United Kingdom 11. United States 1

73 Perceived Obstacles to Doing Business: Worldwide Survey Results Annex I The Survey The original survey was commissioned as a part of preparation for the World Bank s World Development Report 1997 (WDR). The original survey questionnaire was written in English and discussed with a number of experts at the World Bank and IFC. To make the questionnaire friendlier for local businessmen it was translated into some common languages, French, German, Portuguese, Russian, and Spanish. In some cases it was considered vital to provide a translation to a single country language. This was done in cases of Albania, Bulgaria, Czech Republic, FYR Macedonia, Hungary, Italy, Poland, Slovak Republic, and Turkey. The process of implementation of the WDR survey began in August 1996 and ended in early February A total of 69 countries participated in the survey. In the most developing countries the questionnaires were distributed through World Bank resident missions and/or local consulting companies. In all 9 surveyed developed European countries the survey was undertaken as a separate exercise under the direction of the University of Basel. Firms in the United States and Canada were surveyed directly from World Bank HQ in Washington, D.C. During late 1997 five more countries (Brazil, Hong Kong, Korea, Singapore, and Thailand) were surveyed as a separate exercise organized by the University of Basel. The questionnaire used was identical for all surveyed countries. Due to budget and time constrains, in many cases samples of the surveyed companies were not statistically sound (both in terms of size and selection of the companies for questionnaire distribution). In other cases political and/or economic conditions allowed only limited territorial coverage. On average, however the survey achieved its goal of 50 responses per country. Average number of responses per country was 54, with median number of responses equal 50 (Annex Table 1). Annex Table 1. Descriptive Statistics of Returned Questionnaires, by Region (numbers) Surveyed Returned Questionnaires in Each Region Countries Firms Average Median Minimum Maximum All countries 74 3, High-income industrial countries South and Southeast Asia Middle East and North Africa Central and Eastern Europe Latin America and the Caribbean Sub-Saharan Africa 22 1, Commonwealth of Independent States

74 Perceived Obstacles to Doing Business: Worldwide Survey Results Annex I Annex Figure 1 shows the regional distribution of responses. Of 3,998 returned questionnaires 3,744 came from developing countries. Sub-Saharan Africa constitutes the largest percentage both in terms of number of surveyed countries and of surveys returned (32% and 30%, respectively) followed by Central and Eastern Europe (15% and 19%), High-Income Industrial Countries (15% and 6%) CIS (15% and 16%), Latin America (14% and 15%), South and Southeast Asia (9% and 8%), and Middle East and Northern Africa (4% and 3%). Annex Figure 1. Distribution of Survey Results by Region Number of Responses Annex Figure 1a: Distribution of Survey Results by Region Surveyed Countries Commonwealth of Independent States 16.3% High-Income Industrial Countries 6.4% South and Southeast Asia 8.4% Middle East and North Africa 2.7% 1 Central and Eastern Europe 19.3% Sub-Saharan Africa 32.2% Latin America and Caribbean 14.7% Annex Figure 1b: Distribution of Survey Results by Region Surveyed Countries Commonwealth of Independent States 13.5% High-Income Industrial Countries 14.9% South and Southeast Asia 9.5% Sub-Saharan Africa 29.7% 1 Middle East and North Africa 4.1% Central and Eastern Europe 14.9% Latin America and Caribbean 13.5% 3

75 Perceived Obstacles to Doing Business: Worldwide Survey Results Annex I Characteristics of responding firms Annex Figure 2. Distribution of The Returned Questionnaires more than 200 employees 29% more than 50 and less than 200 employees) 32% Annex Figure 2a: Company Size less than 50 employees 39% Annex Figures 2a to 2d present distribution of the returned questionnaires by company size, location of company management, line of business, and the presence or absence of foreign capital in company s capitalization. Annex Figure 2a shows the distribution of responses by company size. Almost 40% of responding firms are small (less than 50 employees); medium sized (from 50 to 200 employees) firms constitute 32% of respondents, and the share of large firms was 29%. small city or country side 21% Annex Figure 2b: Location of Management capital city 47% Another important characteristic of the sample was the location of the company management. Annex Figure 2b shows that almost half of surveyed firms are located in the capital city, 28% in large cities, and 21% in small cities in the country side. large city 28% no answer 4% Annex Figure 2c shows that while services and manufacturing are represented almost equally, there appears to be a strong bias against agriculture. The bias can be explained by the geographical distribution of the respondents as three quarters of the respondents are located in large cities, chances to survey an agricultural firm are limited. 4