Doing Business 2008

Speech by the Minister Koenders (Development Cooperation) on the occasion of the presentation of the report ‘Doing Business 2008’ at the Ministry of Foreign Affairs, The Hague.

Ladies and gentlemen,

I am pleased to see that so many people take an interest in improving the business climate across the world, in order to enable the private sector to work as an engine of growth, as a creator of employment, as an innovator for change.

I would like to extend a special welcome to Ms Ramalho of the Doing Business team in Washington, who will shortly tell us more about the report, as well as to the discussants, who have been invited to share their views on what makes reform in the business climate go forward.

Globalisation has necessitated political repositioning and a rethinking of development cooperation. Global changes and trends are manifold; I mention a few: time is running out for reaching the 2015 Millennium Goals; there is a need for further strengthening of political and economic governance; and, last for now, but not least, we see rapid growth, but often also increasing inequity, and there is more and more a call for inclusive globalisation.

[ the report ‘Doing business’]

The 2008 report ‘Doing business’ fundamentally is about change and reform. I will not go into detail on the report and its merits. Ms Ramalho will discuss it with you. But please allow me to make some general remarks. The report gives the reader a view on the pace and range of reforms to ease doing business. It also shows that business friendliness and strong social protection can go hand-in-hand, like in Denmark. An important point of hot political debate in our own cabinet in a country where flex security is an increasingly important phenomenon.

I highly welcome the increased sophistication of the Doing Business Report. It is unique to have quantitative indicators on business regulation and the protection of poperty rights that can be compared across 178 economies – from Afghanistan to Zimbabwe – and over time.

Since the books De Soto and the analysis regarding the crucial role of local and international investment for growth and development, we see the enormous relevance of reform.

Africa also has Top Reformers now, including Ghana and Kenia.

The three M – Madagascar, Mauritius and Mozambique – take the lead, but lots of programs could cause West and Central Africa to boost reforms, to work on property rights especially for women to reduce red tape, and to invest in product organisations.

It is true: pay offs from reform can be large. Higher rankings on the ease of doing business are combined with more growth, more jobs and a smaller share of the economy in the informal sector. The benefits can be especially large for women, who are often the victims of complex regulations.

I do believe that publishing data on the ease of doing business can inspire governments to reform.

But: as the ‘Doing Business’ reports develop into a regular tool, the indicators become more important in the world. The third indicator in the present set of ten deals with Employing workers. ILO is critical of what this indicator measures and notes that countries which protect rights of employees get a low ranking. On the other hand, by over-regulation governments may constrain the labour market.

I understand that the Bank is aware of this criticism. This seems to be an issue of coherence, and I would encourage Bank and ILO to discuss this matter further.

I find it important to look beyond the ease of doing business. As the authors of the report admit, rankings on the ease of doing business do not tell the whole story. The indicator is limited in scope: it covers only business regulations. It does not account for a country’s proximity to large markets, the macro-economic conditions or the underlying strength of institutions. Fortunately other reports exist in these regards.

To me, the essence lies not only in the quantity but also in the quality of the reforms. A flourishing private sector is the most important stimulator of growth, but we should ask ourselves: do we see equal chances? Is the distribution of the growth invoked fair?

[Opportunities for women]

Ladies and gentlemen,

Payoffs from reform can be large and they can also enhance the better distribution of growth. As I stated: higher rankings on the ease of doing business are associated with more growth, more jobs and a smaller share of the economy in the informal sector. Like in Mexico, where business can now be started in 27 days – when before it took at least 58 days to establish a business due to regulatory requirements. The pay-offs in terms of the number of registered business and employment are remarkable, according to the Doing Business report.

The benefits should be enhanced for women. Countries with higher scores on the ease of doing business have larger shares of women in the ranks of both entrepreneurs and workers. Like in Uganda. However, in some countries explicit discrimination in laws compounds the effects of regulations. The report mentions a few clear examples: women in the United Arab Emirates and Yemen are forbidden to work at night. And now so are women in Kuwait, due to a law passed in June 2007. In Zimbabwe married women need permission from their husband to register land. In the Democratic Republic of Congo the need their husband’s consent to start a business. Only 18% of small businesses in Congo are run by women. In neighbouring Rwanda, which has no such regulations, women run more than 41% of small businesses.

In developing countries, women are 3 times as likely as men to end up in the informal economy, excluded from social benefits and often abused by their employers.

Some countries are taking action. Like in Lesotho, where a law was passed in November 2006 allowing married women to own and transfer property and engage in legal acts without their husband’s signature. Before the reform, women were cla ssified as legal minors.

[Growth and distribution]

Ladies and gentlemen,

Improving the position of women is one of my priorities in the next few years. This includes a critical dialogue with our partners on discriminative laws like the ones I just mentioned. My second priority is to intensify our efforts on growth and the distribution of growth; this should be said in one and the same breath: economic growth in itself is indispensable for creating wealth, and in many of our partner countries growth is too slow to be of any material significance. But wherever growth does occur, not all people benefit in equal measure. Quite the opposite: in many countries we see differences between the rich and the poor grow bigger. Distribution has to go hand-in-hand with growth in order to achieve Millennium Development Goal 1. We may get to this goal on a global level, to halve the number of people living on less than a dollar a day and to halve the percentage of people suffering hunger, on a global scale, but without extra efforts it will not be achieved in many of our partner countries, particularly in Africa. I an pleased to note that, according to the World Bank’ s African Development Indicators, economic growth on the continent has averaged 5.4% during the ten years to 2005; that means that sustained growth is possible.

Nevertheless, the challenge to meet MDG 1 is still there. This means that we have to put new emphasis on economic growth and on the role of the private sector in creating jobs. In our private sector development policy we focus on five sets of bottle-necks, one of which deals with the legal and regulatory framework for business. Internationally, the legal and regulatory framework is becoming an increasingly important tool for private sector development. According to the World Bank’s Doing Business Report, most developing countries still score poorly on indicators such as starting a business, acquiring licenses and importing goods. Yet, such reports have made a huge impact on government policies and many governments have initiated regulatory reforms.

Stimulating an enabling and fair business environment and mechanisms of distribution is key to our efforts in this field. This link is also reflected in the support we provide to the doing Business project through our bilateral partnership programmes with both Bank and IFC.

[fragile states]

Ladies and gentlemen,

Fragility is one of the most important threats to growth and equal distribution of growth. In many ways conflicts result in pressure on human rights as well as a state of instability, which may bring investing in development to a virtual stand-still. The scientist Paul Collier sees a vicious circle between conflict and poverty, claiming that the cost to BNP of conflict amounts to over 2%. I see it as one of our main jobs to, in a comprehensive way, strengthen fragile states and to support countries to move away from conflict into stability, reconstruction and development.

It is no accident that ninety five per cent of the worst economic results over the past forty years came from countries with non-democratic governments. On the ease of doing business ladder, the lowest steps are occupied by Congo, Burundi, Chad, Liberia , Eritrea, Venezuela and the Central African Republic.

We need to counter the consequences of fragility by curbing the causes. In tackling the many causes of fragility, we the Netherlands follow what we call the 3-D approach. My colleagues and I aim to integrate three key elements: development, diplomacy and defence. This multi-track strategy involves a joint analysis of the issue; intensive international cooperation and investment of sufficient resources and people. It requires long-term political commitment, support from parliaments (SGACA or Strategic Governance and Corruption Assessment) and other countervailing powers, not to mention detailed, on-going assessment of state performance. But we should put more emphasis on the role of business and business regulations in enhancing growth, especially in post conflict situations. I am just looking at the role business can play in the modernisation of Afghanistan. We also need to consider Western business interests and governments in mind, as they have been known to play a role in the abuse of power by elites in fragile states, in illegal handling of capital, labour and raw materials.

Development aid is also an important instrument in combating fragility. Being too dogmatic about good governance has led to a great reluctance to help fragile states. Let’s be clear about this: countries struggling with development problems never have good governance. The issue is not good governance but good enough governance. We must ask ourselves whether countries are headed towards democracy and the rule of law. When it comes to good governance we should be looking for positive signals and signs of change. We need to stimulate and support those countries, like Burundi, that are making progress. Burundi stands 174 in the rankings on the ease of doing business. That is horrifyingly low. The Democratic Republic of the Congo ends the list on place 178.

[ Food for thought]

Ladies and gentlemen,

Despite the critique of ILO and others, the Doing Business reports provide us with a ranking of countries, and changes in these rankings over an increasing number of years, providing countries with benchmarks for their performance. So we have a base-line and a picture of reform-related trends. I hope you will today discuss a next step: are there lessons in the dynamics of these rankings which can enlighten our development effort?

And I would like to ask this question from the point of view of the combined strength of growth ànd distribution: I am interested in learning lessons for furthering not just economic growth as such, but also ensuring that the population shares in that growth.

First, are improvements of a country’s indicators the exclusive result of reform by government of the regulatory framework? Or are there other influences which have an impact on the value of an individual indicator? In other words, is reform a necessary condition?

To the extent that it is regulatory reform that does the job and doing business hàs been made easier, does that in practice result in more business? In other words, is reform a sufficient condition?

Next, once these questions have been dealt with, to the extent that reform does bring about extra economic growth, what are the factors that are critical for success? And what are the implications for a sharper development policy?

[conclusion]

Ladies and gentlemen,

Doing business, entrepreneurship, is essential in order to establish economic growth, and the Doing Business report is a useful tool in encouraging governments to put more effort in easing the business climate. I wish you a fruitful discussion.

Thank you.