Doing Business Blog - The World Bank Group

The World's Most Expensive City

Kjartan Fjeldsted — Fri, 08 Aug 2008 09:06:52 -0400

It isn't London, New York or Tokyo but... Luanda! Yes, Angola's capital - recently named most expensive city for expatriates by ECA International - is indeed an expensive place to be as the Doing Business team discovered on a recent visit. Three-bedroom houses rent for up to $30,000 a month. Hotel rooms are almost impossible to come by, while the average restaurant charges $30-$40 for an entree. In case that makes you feel like just making do with something simple for your next meal, a pack of cereal at the local supermarket will set you back $8.

Part of the reason may have to do with the petrodollars flooding sub-Saharan Africa's second-biggest oil exporter. But part of it may also very well be due to inadequate infrastructure. Emerging from decades of civil war and experiencing growth estimated at over 20% in 2007, the country's infrastructure simply can't keep up. Take the roads. They are so congested that a truck that leaves at 5 am to pick up a container at the port will be lucky to get it to the warehouse by midnight. Congestion at the port is another problem. Storing containers at the port is so cheap that importers prefer to keep them there rather than move them to other storage facilities. It is often impossible to locate the container the first time around so the truck has to come back the day after.

As a result, even though the port is located downtown, trucking companies charge up to $1,000 to transport a container from the port to a local warehouse. And because ships have to wait up to a month to berth and discharge their cargo, it takes longer to get goods to market thereby increasing financing costs. Then there are some of the highest customs clearance fees in the world - a shipment worth $20,000 will incur around $800 just to clear customs. And this does not include tariffs. Supply is surely affected by the difficulties to import, which may put further upward pressure on the price level.

To its credit, the government is starting to address these problems. The cabinet is currently considering a proposal from the ports regulator to drastically increase storage fees at the port. And in November last year, the container terminal was concessioned to a private consortium led by APM Terminals of the Netherlands. But not until another major challenge in Angola - namely, the notorious inefficiency of the courts - could be surmounted: it took a five-year legal battle over the legitimacy of the contract award before the contract could finally be signed...

Rodrik on the Growth Commission

Simeon Djankov — Wed, 06 Aug 2008 16:32:54 -0400

Dani Rodrik (picture) has just written a nice Review of the work of the Spence Commission. For those familiar with the Commission's report, this is a good summary; for those who haven't seen it yet - a good beach reading.

The basic point is that the Spence report is "suspicious of universal fixes." This is in part driven by the experience of China, and more recently Vietnam. And also by an understanding that economies may face different constraints. The exception is poor economies, where there is enough slack that most types of reform are needed.

Rodrik overdoes his synthesis at times, for example by claiming the Spence report argues against "model" institutions. Any sensible economist would say that the "model" for most institutions would be different in, say, Sweden and Swaziland. Still, many institutions have a similar set of features that make them work: business registration, for example, can be done in one procedure, with a single identification number, and by the entrepreneur filling in a single form. Whether the responsible agency is the tax authority (as in Georgia), the business registrar (as in Bulgaria), the municipality (as in the US) or the courts (as in Germany) is another matter. But institutional nihilism has been a feature of Rodrik's work of late, so readers needn't worry.

How to Regulate Business Entry

Simeon Djankov — Mon, 04 Aug 2008 16:52:22 -0400

It's tough to come up with a good argument why one should make business entry regulation burdensome. Entrepreneurs have a near mystical aura in many countries, and every reformer would like to say they have produced a Gates or two. Hernando de Soto's The Other Path made it even more politically sensible, by showing that high entry barriers lead to informality, and deny economic opportunity to the poor. "The other path," in his lingo, is leads to rebellion.

It would then seem that governments would be jumping over each other on who can reform faster. And they have. So shows my recent survey (The_Regulation_of_Entry:_A_Survey.pdf ) of the literature on the regulation of entry. Since 2003, 193 reforms took place in 116 countries.

A large academic literature on the benefits of such reforms has emerged. Nearly 400 studies now exist on this topic.

If only other reforms were as obvious and politically-liked. We would all be entrepreneurs...

Regulating Labor in Developing Countries

Simeon Djankov — Tue, 29 Jul 2008 12:05:20 -0400

My latest paper (The_Regulation_of_Labor_in_Developing_Countries.pdf) summarizes the research on the effect of labor regulation in developing countries, using papers published since 2004. The survey also presents cross-country correlation analyses. Both exercises show that developing countries with rigid labor regulation tend to have larger informal sectors and higher unemployment, especially among young workers.

In terms of new research, developing countries present an exciting venue for studying the impact of labor regulatory reforms. A number of countries, especially in Eastern Europe, have recently undergone significant reforms to make labor regulation more flexible. At the other end, several countries in Latin America have made labor regulation more rigid. These reforms are larger in magnitude than any reforms in developed countries and their study can produce new insights on the benefits of labor regulation.

The most noteworthy study is by Mohammad Amin, who studies the effect of rigid labor regulation on 2,000 retail stores in large Indian cities. In his dataset, 27% of the stores find labor regulations is a problem for their business. Mohammad concludes: Stricter labor regulation has a strong negative effect on employment. Labor reforms are likely to increase employment by 22 percent of the current level for an average store.” This is a large effect when one takes into account the fact that the retail sector in India is the second largest employer, providing jobs to 9.4% of all workers. Rigid regulation is also shown to increase the size of the informal sector. In particular, labor reforms could reduce the level of informality by as much as 33% of the existing level.

Most puzzling in this survey is that I wasn't able to find studies on Eastern Europe, the region with the most reforms. I have continued to look for those, and will report soon on the findings. One study-in-process comes from Georgia, which in 2006 passed a flexible labor law. The paper seems to find that flexibility reduced ethnic discrimination. If this result survives robustness analyses, it may bring the literature onto new directions.

Want to Fly Safely? Improve Creditor Rights

Simeon Djankov — Mon, 21 Jul 2008 16:57:02 -0400

I am reading up on the academic papers that use the Doing Business data. So far the most entertaining paper is called Vintage Capital and Creditor Protection by Effi Benmelech and Nittai Bergman, both at Harvard. Their argument? In the absence of good creditor protections banks do not give out loans for large equipment - like new airplanes. Airlines in such countries are forced to use second-hand equipment or to lease equipment. Both make it less likely to further invest in safety and communication improvements: the planes are old or someone else's, after all. The result is less safety in flying.

Next time you are booking a flight, you may want to consult the latest Doing Business report on the country's creditor rights score.

Regulation and Trust: Substitutes?

Simeon Djankov — Wed, 16 Jul 2008 06:00:00 -0400

A new paper by Philippe Aghion (see picture) and co-authors makes the point that "in a cross-section of countries, government regulation is strongly negatively correlated with social capital (trust). We document, and try to explain, this highly significant empirical correlation. The correlation works for a range of measures of social capital, from trust in others to trust in corporations and political institutions, as well as for a range of measures of regulation, from product markets, to labor markets, to judicial procedures."

So what?

The main point is that culture (as measured by distrust) and institutions (as measured by regulation) co-evolve. Culture shapes institutions, and institutions shape culture. The causality runs in both directions. Unfortunately, it is very difficult to test this prediction of the model using instrumental variables, since many exogenous factors that influence trust might also directly influence regulation, and vice versa. For example, one can think of using legal origins as instruments for regulation (see, e.g., Djankov et al. 2002), but to the extent that colonizing Europeans who transplanted legal traditions also transplanted aspects of culture, the instrument would not be valid.

The evidence on the demand for regulation is supportive of causality running from distrust to regulation. To test the reverse causality, the authors look at the experiment of transition from socialism, which they interpret as a radical reduction in government regulation in low trust societies. Their model predicts that such a reduction should lead to 1) a reduction in output, 2) an increase in corruption, 3) an increase in demand for government control at a given level of trust, and 4) a reduction in trust in the short run. Some of these predictions are known to be true in the data, while the authors present some evidence supporting the others.

There are not that many radical reform experiences, so transition economies come in handy. New Zealand is another good example.

This paper is exciting because it crosses economics with sociology. Several Nobel prizes have gone to people who connect disciplines: for example, Tullock on law and economics, Kahneman and Tversky on psychology and economics. Is there another one in the making?

New Doing Business Report on South East Europe

Ryan Hahn — Mon, 14 Jul 2008 07:38:25 -0400

The Doing Business team has just come out with a new subnational report, this time on South East Europe. It is a timely contribution - South East Europe is becoming increasingly integrated into the European economy, and business reform will undoubtedly help improve regional competitiveness. The subnational report provides detailed data on business regulation in 22 cities in the economies of Albania, Bosnia and Herzegovina, Croatia, Kosovo, FYR Macedonia, Montenegro, and Serbia. You can download copies of the report and the press release in seven languages at the bottom of this post.

One of the big findings from the report is that the cities of South East Europe don't have to look far for models of reform - there are already a number in the region. Bitola (FYR Macedonia) came out on top as the easiest city to do business. Business start-up in Bitola is both fast and cheap. Starting a business requires only 8 procedures and 10 days at a cost of 3.9 percent of income per capita. Shkodra (Albania) is another good example with six procedures, seven days, and a cost of 25.7 percent of income per capita to start a business. A hypothetical city combining all the best regional practices would rank among the top ten locations in the world on the ease of doing business – there is a big potential for sharing practices across the region.

As for the motivations behind reform, I leave you with a short tale from the authors of the report:

Zlatko has a dream. He wants to start a Web design company in his hometown of Bitola (Macedonia, FYR) after completing his computer science degree in Belgium...In only 10 days, his company will be operational and his first project can be well under way. He is fortunate. If he tried to register his business in Mostar (Bosnia and Herzegovina), he would have to wait for 61 days before he could welcome his first clients. He knows that even if he could wait that long, his clients could not.

Here are copies of the press release in a number of languages:

Download doing_business_press_release_SEE_albania.doc

Download doing_business_press_release_SEE_bih.doc

Download doing_business_press_release_SEE_croatia_eng_version.doc

Download doing_business_press_release_SEE_croatia.doc

Download doing_business_press_release_SEE_english.doc

Download doing_business_press_release_SEE_fyr_macedonia.doc

Download doing_business_press_release_SEE_kosovo_albanian.doc

Download doing_business_press_release_SEE_kosovo_serbian.doc

Download doing_business_press_release_SEE_montenegro.doc

Download doing_business_press_release_SEE_serbia.doc

Here are copies of the Doing Business South East Europe report in various languages:

Download DB08_Subnational_Report_SEE_Albanian.pdf

Download DB08_Subnational_Report_SEE_Bosnian.pdf

Download DB08_Subnational_Report_SEE_Croatian.pdf

Download DB08_Subnational_Report_SEE_English.pdf

Download DB08_Subnational_Report_SEE_Macedonian.pdf

Download DB08_Subnational_Report_SEE_Montenegrin.pdf

Download DB08_Subnational_Report_SEE_Serbian.pdf

And here is a brief disclaimer for the most populous cities covered:

Download disclaimer_for_most_populous_cities.doc

Entry Barriers and Growth

Simeon Djankov — Sun, 13 Jul 2008 09:28:03 -0400

A new paper by Antonio Ciccone (picture) and Elias Papaioannou looks at the link between entry regulation and growth. Or, more precisely, between entry regulation and the intersectoral reallocation of resources in the presence of economic shocks. Here is how the authors describe it:

"We study how restrictions on firm entry affect intersectoral factor reallocation when open economies experience global economic shocks. In our theoretical framework, countries trade freely in a range of differentiated sectors that are subject to country-specific and global shocks. Entry restrictions are modeled as an upper bound on the introduction of new differentiated goods following shocks. Prices and quantities adjust to clear international goods markets, and wages adjust to clear national labor markets. We show that in general equilibrium, countries with tighter entry restrictions see less factor reallocation compared to the frictionless benchmark. In our empirical work, we compare sectoral employment reallocation across countries in the 1980s and 1990s with proxies for frictionless benchmark reallocation. Our results indicate that the gap between actual and frictionless reallocation is greater in countries where it takes longer to start a firm."

A worthy read. You may also want to read this related paper.

The Top-100 Businesses in Bulgaria

Simeon Djankov — Tue, 08 Jul 2008 12:41:55 -0400

The other day the business weekly Capital published the list of 100 largest businesses in Bulgaria.

One memorable note: not a single "new economy" firm. The list is dominated by energy (46.1 percent of revenues), metals (15.7 percent), trade (8.7 percent) and telecoms (7.4 percent). With all the software engineers produced in the country, no software firm makes the list.

Another interesting note: 55 of the top-100 operate in Sofia (the capital city).

A third point: over half of the businesses have foreign owners.

A final point: about 40 percent of the top-100 are businesses that started since 1995.

The study of business evolution and industrial structure in developing countries is so nascent, that top-100 lists can add a lot to our understanding of economic growth.

Real Sign of Success

Simeon Djankov — Thu, 03 Jul 2008 01:35:09 -0400

Georgia has been a top reformer in the last four doing business reports, ever since the Saakhashvili government took office.

Since then, annual growth hovers around ten percent each year, and investment has increased six-fold. Georgia now has more business per adult population than all countries but New Zealand and Singapore.

But the real signs of success are these: in 2007 the number of births increased 3.1 percent relative to 2006; and the number of deaths fell by 2.5 percent. This resulted in a population growth of 8,109 people: higher than any year since 1992. One of the reasons is this: average household income went up by 9.5 percent, while average household expenditure grew by 7.3 percent.

In other words, the standard of living is going up, and with this families decide to have more children. (Interestingly, Bulgaria - another top-10 reformer last year - also registered its first positive population growth since 1985).

The conclusion: if you want your population to grow, reform.

Why Foreign Investors Get a Bad Name

Simeon Djankov — Mon, 30 Jun 2008 06:00:00 -0400

I am vacationing in Bulgaria and had a first-hand experience in how foreign investors get a bad name. Half-way through my second day in Aprilzi, a mountainous town in central Bulgaria, the electricity went off. I called the electricity company, to report the problem. "Not a problem," the company representative said, "we disconnected you."

The rest of the conversation is not fit for posting. The gist is that the electricity distribution in this region was recently acquired by CEZ, a Czech company. The company instituted a free replacement of all electricity meters--with one catch. If you don't take up the offer, you get disconnected. You get connected after you paid a fine - but with a 3 day delay!

After some frantic calling and pulling decades-old strings, I was told that if I drove super fast and caught a particular official just about to leave, some small money would do the trick. So I did.

The office of the official, call him the electricity gatekeeper, was full with 8 other just-disconnected people. They all were cursing CEZ and all foreign owners. "This never happened before these expletive expletive came in." I started defending the Czech investors, to no avail. The fellow disconnected simply disregarded me.

And then it struck me: this truly never happened before. The state electricity company never disconnected anyone. It was inefficient, but friendly. The Czechs are very efficient, including at disconnecting.

Most people seem to prefer the former.

Ideas42 Is Born

Simeon Djankov — Tue, 24 Jun 2008 06:00:00 -0400

"Never again," cried the man, "never again will we wake up in the morning and think: Who am I? What is my purpose in life? Does it really, cosmically speaking, matter if I don't get up and go to work? For today we will finally learn once and for all the plain and simple answer to all these nagging little problems of Life, the Universe and Everything!"

"Tell us!"

"Alright," said Deep Thought. "The Answer to the Great Question..."

"Yes...!"

"Of Life, the Universe and Everything..." said Deep Thought.

"Yes...!"

"Is." said Deep Thought, and paused.

"Yes...!"

"Is."

"Yes...!!!...?"

"Forty-two," said Deep Thought, with infinite majesty and calm.

"Forty two?!" yelled Loonquawl. "Is that all you've got to show for seven and a half million years' work?"

"I checked it very thoroughly," said the computer, "and that quite definitely is the answer. I think the problem, to be quite honest with you, is that you've never actually known what the question is."

This is the origin of 42, from The Hitchhiker's Guide to the Galaxy, a novel by Douglas Adams. Deep Thought is the most brilliant computer, tasked with finding what the meaning of life is; Loonquawl is a mouse who presides over the Day of the Answer.

Inspired by the idea of asking the right questions, Harvard University and the IFC today established Ideas42, a new think-tank on development issues. It is housed at the institute for quantitative social studies at Harvard.

More to come on what Ideas42 will be doing...

Mighty Books

Simeon Djankov — Fri, 20 Jun 2008 06:00:00 -0400

In the June issue of Forbes, its founder - Steve Forbes - praises Doing Business:

"The World Bank's reputation has plummeted in recent years because of alleged cover-ups of extensive corruption and growing doubts about how effective its projects have been in helping countries develop economically. But one of its undertakings is having an enormously positive influence on the global economy--and its cost is a nanofraction of the routine infrastructure undertakings that can end up costing billions of dollars.

Each year the World Bank issues a book entitled Doing Business. It surveys 178 economies--from Afghanistan to Zimbabwe--in regard to their regulations that affect how businesses are started and conducted. Countries are judged in ten categories that span the life of an enterprise, from its launching, to coping with licenses, obtaining credit, paying taxes, enforcing contracts and dealing with bankruptcy or dissolution of the entity.

This book is no mere academic exercise. Governments read it. The other day I ran into an important U.S. official who pointed out that there's now something of a competition in a number of developing countries to see which one can improve most in the Doing Business annual survey."

This made me think: what other books have stirred excitement in development? Here is a first list - readers, please add suggestions.

1. Hernando de Soto's The Other Path ushered in an understanding of the cost of burdensome regulation, namely the exclusion of many people from the formal sector.

2. Amartya Sen's Development as Freedom. As countries go richer, they also become more democratic. Or the other way round?

3. William Easterly's The Elusive Quest for Growth brought to the fore the discussion on development effectiveness.

4. Paul Collier's The Bottom Billion highlights civil wars, corruption and bad regulations in Africa.

5. Andrei Shleifer and Dan Treisman's A Normal Country focus on Russia in transition. We should have studied this transition more closely.

Doing Business and the Commodity Boom

Kjartan Fjeldsted — Thu, 19 Jun 2008 06:00:00 -0400

Open a newspaper these days and chances are you'll read about the price of one commodity or other just having set a new record. Most analysts will point to growing demand from large emerging markets such as China and India. An aspect less commented on in this commodity crunch is the supply side of the equation.

Trade efficiency may matter, as large commodity exporter rankings on the Doing Business Trading Across Borders indicator suggest. Kazakhstan, a commodity superpower, comes in at 178 out of 178; the Democratic Republic of the Congo lingers at 154; and Brazil, a mining giant, is at 93. Even Australia, a top 10 country in the overall ease of doing business, only manages 34th place when it comes to trade.

Bureaucracy and inadequate transportation infrastructure mean supply may not always be as responsive to increases in demand as it could be. Poor roads, delays at borders and port congestion all constitute serious obstacles to export growth. Add to that the power shortages in countries such as South Africa (see a recent blog post) - through which a sizable part of commodity exports from southern Africa passes - and you could argue we are also going through something of a supply crunch.

Luckily, help just may be on the way. The commodity boom has itself engendered an infrastructure boom - the scale of infrastructure projects in Africa these days is maybe greater than ever before. China alone is building two dozen railways in Sub-Saharan Africa and plans have recently been unveiled to build a railway traversing southern Africa from Angola to the port of Dar-es-Salaam in Tanzania. This should facilitate the export of commodities from Angola, the DRC and Zambia, and facilitate intra-regional trade.

The African infrastructure boom is encouraging and might gradually allow supply to respond more quickly as projects are completed. I am not aware of any research exploring to what extent commodity prices are actually affected by inadequate transportation infrastructure in commodity-exporting countries. But it might be worth betting that as countries address these issues, and this is reflected in their Doing Business trade ranking, commodity prices might well start heading south again.

Helpful Governments

Simeon Djankov — Wed, 18 Jun 2008 06:00:00 -0400

Do businesses perceive their government to be "very helpful, mildly helpful, neutral, mildly unhelpful or very unhelpful?" This question is asked in the World Bank enterprise surveys.

A recent paper by Mohammad Amin uses these data to find that "most regulatory measures lower a firm’s perception of how helpful the government is. Hence, it is unlikely that heavier regulation is an efficient or desirable response from the firms’ point of view to disorder."

It is not all that surprising that businesses consider the government to be a drag on their activity, a skeptic may say. After all, the governments make businesses pay taxes and go through all kinds of administrative hoops.

True, but this is the case for businesses in every country. Yet Amin's study sees different levels of satisfaction with the government across countries. So the analysis captures a relationship between the level of regulation and the satisfaction of businesses; not just that businesses are prone to complaining.

Romania: E-Procurement Remedy

Susanne Szymanski — Tue, 17 Jun 2008 06:00:00 -0400

Public procurement plays a major role in most economies. In OECD countries, public procurement accounts for 15% of GDP and in the new EU member states like Romania the number is approximately 16%.

Contracts for public works can comprise large, long-term infrastructure contracts, such as building utilities and roads, but also smaller, shorter contracts like supplying public institutions with goods and materials. Given the extent and complexity of public procurement, this activity is particularly vulnerable to abuses.

Special tools such as e-procurement can increase transparency, efficiency and lower costs of government activities, assuming that the necessary legal framework and technology infrastructure are implemented. Taking into account the importance of public procurement, Doing Business is currently developing a new set of indicators to reflect procurement practices in the electricity sector around the world.

A country where e-procurement has been successfully implemented is Romania. Since January 2007, all public procurement announcements of the Romanian government have to be published on the national portal “e-Licitatie’’ (www.e-licitatie.ro) and are transferred to the EU Official Journal. It has hence become easier and faster for companies in Romania to participate in public procurement by simplifying access to information and to the bidding process, which is especially important for SMEs.

Today, every company wishing to learn about contracts with the Romanian government can visit the national e-procurement website and register as a supplier.

E-procurement in Romania has come a long way from when it started as a pilot project in March 2002. The lack of secure digital technology and long-term procurement strategy hampered implementation. To face those challenges, the Romanian government involved key stakeholders, launched advertising campaigns, created training programs and put an emphasis on SME-user friendliness. In addition, a gradual implementation and strong political commitment helped to make it successful.

Even though challenges remain, the introduction of e-procurement can be considered successful. In 2007, 9,000 contracting authorities used this modern public procurement facility and 160,000 notices and invitations to tender have been published through e-licitatie.

Croatia and Montenegro have followed Romania’s example and put the introduction and implementation of e-procurement on the top of their lists of priority reforms to fight abuses in public procurement.

G8 Urges Doing Business Reforms, Promotes FIAS

Simeon Djankov — Mon, 16 Jun 2008 11:47:32 -0400

The G8 met finance ministers over the weekend to outline an action plan for growth in Africa. The resulting document is remarkable for its focus on making it easier for African businesses to operate. The text of the G8 communique is here.

The G8 ministers made reforms of the business environment a priority: "8. National regulatory frameworks should be strengthened to attract and retain private capital. Complicated regulatory barriers reduce incentives for African entrepreneurs to enter the formal economy. While a few African countries are making progress in simplifying business regulations, much is still to be done in most others. To this end, we encourage countries to use surveys, such as the World Bank's "Doing Business Reports", as indicators of possible barriers to business and of reform efforts."

The action plan goes on to say: "We renew our commitment to the existing technical assistance facilities focusing on the promotion of anti-corruption enforcement, and the reform of regulations, taxation and customs, such as the IFC (International Finance Corporation)'s PEP (Private Enterprise Partnership) Africa, the World Bank's FIAS (Foreign Investment Advisory Services) and the multi-donor ICF (Investment Climate Facility)."

Most encouraging in the G8 statement is the recognition that widespread informality - in business and in property rights - is the main drag on growth in Africa. "Expanding access to the formal economy" appears three times in the communique. Such access is achieved when barriers to entry are reduced, when it is easier to get credit, trade across borders, pay taxes, and get licenses.

Why are such reforms important? “When legality is a privilege available only to those with political and economic power, those excluded—the poor—have no alternative but illegality,” writes Mario Vargas Llosa in the foreword to de Soto’s The Other Path. It is estimated that 80% of workers in Africa are in the informal sector.

We have our work cut out.

Cities of Global Commerce

Simeon Djankov — Sat, 14 Jun 2008 16:11:29 -0400

MasterCard has just published its second annual ranking of the top-75 cities of global commerce. Sofia (Bulgaria) - my home town - is not among them.

London beats out New York for the top spot, followed by Tokyo, Singapore and Chicago. Bangkok, at #42, is the top-tanked city from an emerging economy. Bogota (Colombia), Ryadh (Saudi Arabia), and Cairo (Egypt) entered the list for a first time. That Beirut makes it, at #74, may raise some eyebrows. The United States has the most entrants, 12, followed by China, with 5.

The ranking scores seven areas: legal and political framework, economic stability, ease of doing business, financial flows, business center, knowledge creation, and livability. These carry different weights, with financial flows judged most important (22% weight), followed by ease of doing business (20%); while livability and economic stability have a weight of 10% each. Excitingly, the Doing Business indicators are heavily relied upon. They constitute 60% of the legal and political framework index; and 70% of the ease of doing business index. In other words, a fifth of the overall rank is based on the Doing Business project.

This may explain why Sofia hasn't made it yet.

Maternity Leave: the Longer the Better?

Larisa Smirnova — Fri, 13 Jun 2008 18:28:33 -0400

I recently came across an interesting factoid : apparently, the former Soviet Union countries have the longest total maternity and child care leave in the world.

During my travel to Azerbaijan, Georgia and Russia, I discovered that in both Azerbaijan and Georgia, the duration of paid maternity leave is 126 days; in Russia, it totals 140 days, 70 days being before birth and 70 after. In all three countries, women can take an additional partially paid leave and keep their employment: 477 days in Georgia, and up to three years in Azerbaijan and Russia.

On the other extreme, the U.S. Family and Medical Leave Act provides for 12 weeks of unpaid job-protected leave, and it only covers those who work for larger companies. The Act does not provide for paid maternity leave, but this may be legislated for at the state level. California, for example, allows leave for both parents with partial pay.

What are the issues behind maternity leave regulations?

The logic of "the longer the better" does not always work. In Azerbaijan, Georgia and Russia the financial burden is fully on the state social security system. Facing budget constraints, Russia, which was supposed to calculate maternity benefits on the basis of the average salary actually received by the worker, introduced the national "maximum" amount of maternity benefits, a provision however annulled by the Constitutional Court in 2007.

An even more challenging dynamic for a country is demographic in nature. Certainly, population growth levels is a critical national socio-economic issue. Birth rates are low in former Soviet countries: 1.4 children per woman in Georgia and Russia, and slightly more, 2.46 children per woman, in Azerbaijan. However, according to experts, 2.1 children per woman is the minimum to ensure sustainability of population. Perhaps this explains extended maternity leave in these countries.

Is the Icelandic solution of parental leave an apt solution?

For Whom the Bell Tolls

Simeon Djankov — Mon, 09 Jun 2008 08:59:28 -0400

Last week I partied on the floor of the New York Stock Exchange. Yes, really.

The occasion was the second annual Reformers' Club: an event organized by the Doing Business team to celebrate the most successful reformers of the past year. This year's recipients were: H.E. Dr. Mahmoud Mohieldin, Minister of Investment, Egypt; H.E. Ivan Šuker, Minister of Finance, Croatia; H.E. Nikola Gruevski, Prime Minister, FYR Macedonia; H.E. Ekaterina A. Sharashidze, Minister of Economic Development, Georgia; H.E. Luis Guillermo Plata, Minister of Commerce, Industry and Tourism, Colombia; H.E. Dr. Awwad S. Al-Awwad, Deputy Governor, Saudi Arabian General Investment Authority; and H.E. Plamen Oresharski, Minister of Finance, Bulgaria.

There was an additional reason to celebrate. Mr Gruevski's party had just won parliamentary elections in FYR Macedonia, with a mandate of further reforms. Two weeks earlier, so had the party of Minister Sharashidze. Again, the main platform was further reforms to create more jobs and pull more Georgians out of poverty.

The top reformers shared their experience with reform, gave details on what reforms are coming next, and what the effect of reforms has so far been. They also rang the bell of the stock exchange.

This bell will hopefully be heard by other governments that would like to make it easier for businesses to operate in their country and for more jobs to be created. Undoubtedly, it will give further resolve to the award recipients. Minister Mohieldin is a repeat recipient; so is Georgia's government. Is a three-peat coming?