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Newsletter December 2012

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Greece—Improving its Business Environment

Jean Michel Lobet, Senior Private Sector Development Specialist, World Bank Group, discusses Greece's improvement in the latest "Doing Business 2013" report.

Tell us briefly about the World Bank and IFC’s "Doing Business 2013" report.

The report, Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises, marks the 10th edition of the Doing Business series. Over the past decade, these reports have recorded nearly 2,000 regulatory reforms implemented by 180 economies. The reforms have yielded major benefits for local entrepreneurs across the globe. For example:
• Since 2005, the average time to start a business has fallen from 50 days to 30.
• In the past eight years, the average time to transfer property fell by 35 days, from 90 to 55, and the average cost by 1.2 percentage points—from 7.1 percent of the property value to 5.9 percent.
• In the past eight years, improvements to simplify tax compliance have reduced the time required annually to comply with the three major taxes measured (profit, labor, and consumption taxes) by 54 hours on average.

With reforms in three areas of regulation (Dealing with construction permits, Protecting investors and Resolving insolvency) Greece is one of the 10 most improved globally this year.

The report also finds that Poland was the global top improver in the past year. It enhanced the ease of doing business through four institutional or regulatory reforms, making it easier to register property, pay taxes, enforce contracts, and resolve insolvency.

The Doing Business report series analyze regulations that apply to an economy’s businesses during their life cycle, including start-up and operations, trading across borders, paying taxes, and protecting investors. The aggregate ease of doing business rankings are based on 10 indicators and cover 185 economies. Doing Business does not measure all aspects of the business environment that matter to firms and investors. For example, it does not measure the quality of fiscal management, other aspects of macroeconomic stability, the level of skills in the labor force, or the resilience of financial systems. Its findings have stimulated policy debates worldwide and enabled a growing body of research on how firm-level regulation relates to economic outcomes across economies. This year’s report marks the 10th edition of the global Doing Business report series.

Greece improved its ranking by 22 positions, to the 78th position among 185 countries evaluated in the report. What does this mean in concrete terms regarding changes in Greece?

Greece, driven in part by its economic crisis, implemented regulatory reforms in 3 areas measured by Doing Business—improving its regulatory environment at a greater pace in the past year than in any of the previous 6.

Greece made construction permitting faster by introducing strict time limits for processing permit applications at the municipality and by transferring the planning approval process from the municipality to certified private professionals.

The Hellenic Capital Market Commission issued a circular clarifying the concept of material transactions for purposes of disclosure by listed companies—helping to instill more transparency in an economy looking to restore confidence in its market.

Introducing a new pre-bankruptcy rehabilitation procedure, Greece aimed at enhancing the rescue of distressed companies. One of the main characteristics of the new provisions is the binding effect of the rehabilitation procedure upon dissenting creditors.

Doing Business reforms are not new to Greece. Since 2004, Greece has implemented 17 institutional or regulatory reforms. The impact of these reforms has helped Greece narrow the business regulatory gap with the best performers in the European Union (see figure). 



 
How might these improvements impact the perception of Greece as an investment location?

Indirectly, these improvements may have a positive effect on the perception of Greece as an investment location.

Doing Business measures business regulations and their effect on domestic small and medium-size firms. It does not measure regulations geared to foreign investors and large companies, nor does it measure the size of markets and other factors relevant to investment climate assessment.

Even though Doing Business indicators focus on small to medium-size domestic firms, many policy makers have associated improvements in the indicators with greater inflows of foreign direct investment (FDI). Cross-country correlations show that FDI inflows are indeed higher for economies performing better on Doing Business indicators, even when taking into account differences across economies in other factors considered important for FDI.

Although this correlation does not imply causation, the evidence suggests that Doing Business reflects more about the overall investment climate than what matters only to small and medium-size domestic firms.

How can Greece continue to improve its business environment, based on the findings of the report?

In Doing Business 2013 report, Greece was the 8th top improver, rising to 78th place out of 185 economies from 100th in 2012 (Greece is ranked 26th out of 27 economies in the European Union (EU), and last among the 31 economies of the OECD region). Greece improved its investment climate thanks to reforms in dealing with construction permits, paying taxes, protecting investors, and resolving insolvency.  While Greece performs above the EU regional average in Dealing with construction permits (31), Getting electricity (59) and Paying taxes (56), it lags in Starting a business (146), Registering property (150), Getting credit (83), Protecting investors (117), Trading across borders (62), Enforcing contracts (87) and Resolving insolvency (50).

Therefore, reform initiatives to address the above-mentioned areas of opportunity can have positive implications in Greece’s investment climate.

With more change and improvement, is it likely that economic growth and more business creation will follow?

Emerging evidence from analysis based on 8 years of Doing Business data and building on the earlier studies shows that improvements in business entry and other aspects of business regulation matter for aggregate growth as well.

Research on the effect of regulatory reforms is advancing especially rapidly around the question of business start-up. A growing body of research has shown that simpler entry regulations encourage the creation of more new firms and new jobs in the formal sector. Economies at varying income levels and in different regions saw noticeable increases in the number of new firm registrations after implementing such reforms. Within-country studies have confirmed the positive association between improvements in business registration and registration of new firms in such countries as Colombia, India, Mexico and Portugal. These studies have found increases of 5–17% in the number of newly registered businesses after reforms of the business registration process.

Better business regulation as measured by Doing Business is also associated with greater new business registration. Ongoing research by Doing Business using 8 years of data shows that reducing the distance to frontier by 10 percentage points is associated with an increase of 1 newly registered business for every 1,000 working-age people, a meaningful result given the world average of 3.2 newly registered businesses for every 1,000 working-age people per year.

The Doing Business report series can be accessed at www.doingbusiness.org