Despite the gentle curves of its font, the 2015 edition of the World Bank’s annual Doing Business report, entitled Going Beyond Efficiency, contains a sharp message for developing nations: external demand may have made economic growth easy during the first decade of the twenty-first century, but without fundamental reform of domestic business environments the path toward development will be lost.
For entrepreneurship to flourish, the regulatory “nuts and bolts,” from timely processing of licenses for corner diners to easy access to electricity for the budding exporter, must be present. In the spirit of Hernando de Soto—the Peruvian economist who revolutionized the field of development economics a generation ago with this novel approach to vesting the poor with wealth by helping them to secure deeds on their property—Going Beyond Efficiency notes:
“The laws that determine how easily a business can be started and closed, the efficiency with which contracts are enforced, the rules of administration pertaining to a variety of activities—such as getting permits for electricity and doing the paperwork for exports and imports—are all examples of the nuts and bolts that are rarely visible and in the limelight but play a critical role. Their malfunctioning can thwart an economy’s progress and render the more visible policy instruments, such as good fiscal and monetary policies, less effective.”
The World Bank derives “the ease of doing business” from 10 factors—how easy it is to start a business, acquire construction permits, get electricity, register the property with the local government, gain access to credit, pay taxes, trade across borders, enforce contracts in the courts and, should it come to it, file for bankruptcy.
Finally, the methodology considers protections for minority investors. Although such a methodology is always subject to questioning—not all business factors are considered; the relative weighting of one factor versus another is subjective; the data reported from many of the 189 countries surveyed is dubious—it still does a good job of capturing a country’s business environment over a one-year period of time. In terms of the nuts and bolts of building a solid business environment, Going Beyond Efficiency reports that many parts of Latin America fell behind from 2013 to 2014.
Caribbean Makes Progress
However, one bright spot was the Caribbean, where at least six economies—the Bahamas, the Dominican Republic, Jamaica, St. Kitts and Nevis, St. Lucia, and Trinidad and Tobago—implemented at least one significant reform that made it easier to do business over the past year. In all, Caribbean governments enacted a total of 12 major reforms that improved the business environment over the past year, a record pace of reform for the region.
St. Kitts and Nevis reduced its corporate income tax rate. St. Lucia made international trade easier by adopting the ASYCUDA World electronic system for the streamlining of import/export documents. It also merged two forms in order to ease the filing of documents on exports. The Bahamas introduced a new set of rules on civil procedure meant to expedite court proceedings and reduce dispute resolution costs. The Dominican Republic bolstered shareholder rights and set rules for greater corporate transparency, while also reducing the number of documents required for goods flowing across its borders.
Trinidad and Tobago notched the highest regional ranking in the Bank’s “global best practices in business regulation” category. This ranking is meant to capture the efficiency of a country’s business environment, including the strength of its legal institutions. Trinidad and Tobago’s major improvement came by way of a new online platform for business registration, which reduced the length of time needed to register a business from 38 to 14.5 days.
Jamaica posted the strongest overall improvement in the region, after almost a decade of declines saw the country drop to number 94 on the Bank’s list. In 2013, with limited economic growth prospects and government debt amounting to 140% the size of the economy, Jamaica turned to the IMF for help in crafting a reform agenda. The turnaround has been rapid. On a macro level, Jamaica’s ability refinance some of its debt at historically low levels, and a fiscal deficit that has shrunk to almost zero, has put the island on the path toward bringing down its public debt level to less than 100% by 2020, even assuming a mild rate of 1-2% annual economic growth.
On the nuts and bolts level, the gains were arguably more impressive. Jamaica’s government enacted reforms that reduced the cost of getting electricity, consolidated forms needed for business filings, and expanded the range of assets that can be considered as collateral for those looking to take out a loan. Other reforms, such as the 2012 creation of two new credit rating bureaus on the island, also began to pay off by reporting data to banks and other lenders, which in turn is expected to facilitate the distribution of loans. Reviewing the improvements last month, IMF Deputy Managing Director Min Zhu called Jamaica’s economic and business reforms “miraculous.”
Significant Setbacks Remain
All is not well for entrepreneurs in the Caribbean, especially those who are trying to tough it out in Haiti, which, despite the government’s recent “Open for business” slogan campaign, ended up near the very bottom (#180) of the World Bank’s list. Other economies saw improvements diminished by business-unfriendly policies or regulations on other fronts. In the Bahamas the benefits of streamlining civil procedures has been negated, for builders at least, by a hike in building permit fees. Permit fees also increased in St. Kitts and Nevis.
Even in Jamaica, where the strongest gains have been made since 2013, there remains ample room for improving the business environment. For example, the World Bank noted that the lack of electronic interfaces threatens to slow the benefits of consolidated business form filings by delaying the process of sharing information between government agencies.
But last year’s gains can readily serve as the foundation for further improvements. Already new provisions to clarify and resolve insolvency claims in Trinidad and Tobago looks set to further enhance the business environment there. Future improvements may also come by way of other islands adopting what’s recently proven to work for Jamaica and the Dominican Republic. Putting it all together, the Caribbean is becoming a sunnier place to do business.