Doing Business in Russia 2012

Augusto Lopez-ClarosDirector, Global Indicators & Analysis

World Bank-IFC

Saint Petersburg International Economic Forum June 21, 2012

Doing Business indicators reflect on some of the most important obstacles firms face

• Based on Enterprise Surveys in 118 countries around the world

• Direct responses from representative samples of the private sector

• Access to finance, electricity, informality and tax rates are the top obstacles across the developing world

Percent of firms identifying the problem as the main obstacle to their business activity

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The Doing Business indicators have a strong theoretical foundation

•The Regulation of Entry by Djankov and others, Quarterly Journal of Economics, Feb 2002.Countries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality of public or private goods

•Private Credit in 129 Countries by Djankov, McLiesh and Shleifer, Journal of Financial Economics, May 2007.Creditor protection through the legal system and information sharing institutions such as credit bureaus are associated with higher ratios of private credit to GDP. Credit rises after improvements in creditor rights and in information sharing

•Trading on Time by Djankov and others, Review of Economics and Statistics, Nov 2008.Each additional day that a product is delayed prior to being shipped reduces trade by more than one percent

•Courts by Djankov and others, Quarterly Journal of Economics, May 2003. Procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in judicial decisions, and inferior access to justice

•The Regulation of Labor by Botero and others, Quarterly Journal of Economics, June 2004.Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment, especially of the young

•The Effect of Corporate Taxes on Investment and Entrepreneurship, by Djankov and others, American Economic Journal: Macroeconomics, July 2010.

The corporate tax rate has a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. It is also correlated with investment in manufacturing as well as with the size of the informal economy.

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Doing Business indicators – 11 areas of business regulation (10 included in the ranking)

Property rightsInvestor protectionAccess to credit

Entry Administrative burden Flexibility in hiring

Recovery rateReallocation of assets

The overall ease of doing business: (1) Starting a business

(2) Dealing with construction permits

(3) Getting electricity

(4) Registering property

(5) Paying taxes

(6) Trading across borders

(7) Enforcing contracts

(8) Protecting investors

(9) Getting credit

(10) Resolving insolvency

Singapore

Top

rank

ed c

ount

ries

in D

B20

12

Honk Kong SAR, China

New Zealand

1

2

3

Denmark5

United States4

Norway6

United Kingdom

Korea, Rep.

Iceland9

Ireland10

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How does Doing Business measure the ease of doing business?

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…captures the absolute improvement that countries have made over time, and…also provides information on how far countries have been away from the “frontier” – a measure based on the most efficient business regulatory practices observed by the Doing Business Project across countries and over time.

ChinaIndia

New metric on ‘distance to the frontier’: tracking economies’ progress over time

New metric on ‘distance to the frontier’: tracking Russia’s progress over time

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• Creates baseline and captures local difference in regulations• Pinpoints bottlenecks and provides information on good

practices within the same country that can easily be replicated• Captures reforms

• Allows locations to compete locally and globally

• Promotes peer to peer learning• Initiates a reform process by

engaging local governments and reforms stakeholders • Measures progress over time through

repeated benchmarking• Creates an incentive to maintain

reform effort even when governments change

Diagnostic Tool

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Monitoring Device

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Reform Instrument

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Subnational Doing Business (SNDB) – How does Russia benefit from it?

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What is new in Doing Business in Russia in 2012?

Doing Business in Russia 2012 •Covers 30 cities •Updates data and tracks reforms for the 10 cities measured in the Doing Business in Russia 2009 in 3 topics•Data is current as of November 2011•Surveys administered through over 600 contributors

The report covers 4 indicators•Starting a business•Dealing with construction permits•Getting electricity•Registering property

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Doing Business in Russia 2012 benchmarks 30 locations

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Round 1 locations

Round 2 locations

Yakutsk

Irkutsk

Surgut

TomskKhabarovsk

VladivostokEkaterinburg

NovosibirskKemerovo

Omsk

Kaliningrad

MurmanskPetrozavodskVyborg

St.Peterburg

TverYaroslavl

PermKirovVladikavkaz

Kazan

Kaluga

VoronezhRostov-on-Don

Stavropol

Volgograd

Saransk

SamaraUlyanovsk

MOSCOW

What are the key findings?

• No city outperforms the others in all areas

• Average start up costs are among the least expensive in the world

• Registering property is inexpensive and easy across Russian cities

• All 10 cities measured for the second time have improved in at least two of the 3 areas measured twice

• Numerous procedures take a long time and carry a high cost in the areas of dealing with construction permits and getting electricity

Overall, it is easier to start a business, deal with construction permits, get electricity and register property in Ulyanovsk and Saransk

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No city outperforms the others in more than one area

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It is easier now to do business in all 10 cities measured twice

City Starting a business

Dealing with construction permits

Registering property

Irkutsk √ √ √Kazan √ √

Moscow √ √Perm √ √ √Petrozavodsk √ √ √

Rostov-on-Don √ √ √

St. Petersburg √ √ √

Tomsk √ √ √

Tver √ √

Voronzeh √ √ √

Doing Business reforms making it easier do to business

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Compared globally, starting a business is inexpensive in all cities

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More efficient one-stop shops and better coordination speeds up start up in some cities

One-stop shop in Saint Petersburg (ranks 1st in

Starting a business)

One-stop shop in Saransk (ranks 20th in Starting a business)

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Construction permit requirements vary significantly across cities—especially before construction

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Cities are improving the construction permitting process, but challenges remain

CityReduced time for processing permit

applications

Streamlined procedures

Adopted new building

regulations

Introduced risk-based

approvals

Irkutsk

Moscow

Kazan

Perm

Petrozavodsk

Rostov-on-Don

St. Petersburg

Tomsk

Tver

Voronezh

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Getting electricity: Fewer procedures do not necessarily shorten delays

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Procedures, time and cost to register property

Saudi Arabia

Eastern Europe& Central Asia, Japan, Turkey

Finland, Vladivostok, Vladikavkaz, Kaluga

Russia Average, Yakutsk China, Kazakhstan

India, Germany, OECD high income, Kemerovo, St. Petersburg

Brazil

Saudi ArabiaTurkey

Finland, Japan

Yakutsk

Kemerovo

Kaluga

China

OECD high income

Vladivostok, Vladikavkaz

Eastern Europe & Central Asia

Brazil

Russia average

Germany, Kazakhstan

St. Petersburg

Saudi ArabiaKazakhstan

Japan

Germany

Russia average

Brazil

Turkey

Eastern Europe & Central Asia

China FinlandOECD high income

India

Procedures(number)

Time(days)

Cost(% of income per capita)

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4

3

1

6

13

1914

61

35333129

26

4544

4039

60

00.1

0.23

2.32.8

3.33.64.04.4

5.25.7

7.3

0.59 Yakutsk

Property registration is easy and inexpensive in Russia

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Property registration is faster in the 10 cities studied in 2008

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Russian cities can learn from each other

Doing Business indicator

Sub-Indicator

Global Rank DB 2012*  Best practice in Russia

Value Rank(1-183) Value Rank

(1-183) City

Starting a business

Cost (% income per capita) 2 28 1.7 21 Kazan

Procedures (number) 9 124 7 86Kirov, Murmansk, Perm, Petrozavodsk, St. Petersburg, Stavropol, Yakutsk and Yaroslavl

Time (days) 30 126 16 87 Kaliningrad

Dealing with construction permits

Cost (% income per capita) 183.8 113 40.0 46 Kazan

Procedures (number) 51 181 16 103 Murmansk

Time (days) 423 173 150 78 Surgut

Getting electricity

Cost (% income per capita) 1852.4 140 112.2 47 Omsk

Procedures (number) 10 182 6 121 Kemerovo, Perm, Rostov-on-Don, Samara and Yakutsk

Time (days) 281 178 120 120 Vladikavkaz

Registering property

Cost (% of property value) 0.2 9 0.2 9 16 cities including Kaluga, Kazan and Surgut

Procedures (number) 5 49 3 12 18 cities including Irkutsk, Rostov-on-Don and Tver

Time (days) 43 104 13 28 Khabarovsk

Source: Doing Business database

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Why does it matter?

Starting a businessCountries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality of public and private goods.

Following a land titling project in Thailand, property increased in value by 75–197% after being registered.Registering property

Managers in 109 economies consider electricity to be among the biggest constraints to their business; they estimated losses due to power outages at an average 5.1% of annual sales.

Getting electricity

A recent study in the United States shows that accelerating permit approvals by 3 months in a 22-month project cycle could increase construction spending by 5.7% and property tax revenue by 16%.

Dealing with construction permits

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Good business regulations and governance

In countries where business regulation is efficient and information on documentation requirements and fee schedules is easily accessible, the costs to start a business are much lower.

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Economies that score higher on the ease of doing business, tend to receive higher FDI inflows

Chile, Colombia, Kazakhstan, Oman, Peru, Rwanda, Slovak Republic, Spain, Tunisia

Belize, China, Greece, Guatemala, Jordan, Morocco, Serbia, Vietnam, Yemen

Denmark, Finland, Iceland, Ireland, Korea, Rep., New Zealand, Norway, Singapore, United Kingdom, United States

FDI inflows per capita, 2010 (US$) Average Ease of Doing

Business rank

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96

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