Josette Sheeran - Doing Business in the World 2007

Doing Business in the World 2007: A New Emphasis for the U.S. Government

Josette Sheeran, Under Secretary for Economic, Business and Agricultural Affairs

Remarks at the U.S. Department of State

Washington, DC

September 8, 2006

Good afternoon. Members of the Diplomatic Corps, business leaders, development professionals, NGO leaders, and U.S. Government colleagues, welcome to the Department of State.

We are here today to discuss my absolute favorite – hands down – official report. One that is not only strategic and well written, with in-depth research and analysis, but is revolutionary in its ability to help change the world for the better.

We're here today to bring attention to the release of the World Bank's Doing Business Indicators Report for 2007 and to highlight how the U.S. government sees this report as an important economic diplomacy tool as we encourage development around the world. We also want to thank the World Bank, the International Finance Corporation and the excellent team led by Simeon Djankov and Caralee McLiesh.

This report with its detailed, objective indicators gives us a unique comparative view of microeconomics – looking at 10 areas of everyday business, from registering property to getting credit and enforcing contracts.

First, a confession, I'm microeconomic junkie. I actually keep the Doing Business report by my bedside. This report tells me more about a nation's economy and its potential, than anything else I've ever seen written. And it is very well written with each chapter beginning with a story that tells me about the dreams and frustrations of real people.

As I travel around the world talking to entrepreneurs and village shopkeepers I see how critical microeconomics is in bringing sustainable prosperity. If it takes decades of an average person's salary to start a business or more than 2,800 man hours, as it does in some countries mentioned in the report, you will never have a fully functioning economy.

Over the last few years a new body of knowledge on how to build prosperity in developing countries has emerged. This takes a more balanced approach – looking at micro, as well as macro factors.

Proponents of this view, such as Peru's Hernando de Soto, have focused on property rights and formalizing the informal business community as a way to unleash the private sector.

There is proof to this theory. The World Bank reported last year that moving from the bottom quartile in the Doing Business rankings to the top quartile would mean an increase in growth of 2.3 percent. That difference translates into thousands of jobs.

The Doing Business Report takes these ideas and puts them in a broader framework. It creates universal measurements and allows policy makers to have a clear roadmap for reform and a way to measure progress. For those explorers of a better world this is the map.

This is the fourth in an annual series investigating the factors that help or hinder business in 175 economies across the globe. Each year the report sets sail to a new destination focusing on one critical topic. Last year it was about creating jobs. This year it's about reform. It tells which nations are transforming to cut debilitating regulations and improve the business climate.

Some very good treasure is uncovered is this report.

  * 213 reforms – in 112 economies – were introduced between January 2005 and April 2006.   * Georgia – the top reformer – improved in 6 or the 10 areas studied by the report.   * Romania is the runner up with reforms in 6 of the 10 areas.   * Mexico is third, cutting the time to start a business in Mexico City from 58 days to 27.

The Secretary brought me into this position to focus on the economic side of transformational diplomacy.

This is a critical component in building a safer, more stable world. Unstable, economically insecure countries can harbor terrorists and rarely nurture democracy.

When a country becomes an economic reformer it:

  * Empowers its people by making it easier to start a business. For instance:

  + It takes 2 days to start a business in Australia   + Five days in the United States   + But an astounding 694 days in Suriname. That is nearly 2 years!

  * Attracts Investment

  + Last year and the year before, Africa lagged behind the world in reform.   + This year it ranks third – behind only Eastern Europe and Central Asia.   + Two thirds of African countries made at least one reform. Tanzania and Ghana rank among the 10 top reformers. Investment follows reform.

Enables nations to be more competitive and successful in the global economy.

  * The three boldest reforms cited in this years report were:

  + Mexico's increase in investor protections, in its new securities law.   + Georgia's flexible labor rules, in its new labor code.   + Serbia's easing of export and import procedures with its new customs code.   + Doing Business 2007 is an incredibly useful as a tool because it provides object and consistent metrics that cut across country boundaries and measure progress or stagnation over time.

I'd like to point out four important attributes of the report:

1. Clear, universal markers. The indicators provide clear real-world markers of progress in the investment climate, business climate, and competitiveness – revealing what are often deeper, less tangible macro reforms. With the Doing Business Indicators, Dr. Djankov and his team have given us a simple vocabulary for describing this movement of an economy.

2. Indicators are measurable. There's a saying in management – you can't fix what you can't measure.Some of what we know as reform fatigue in developing countries is frustration at not being able to measure their progress.These indicators are measured year over year to show progress, congratulating those nations who are improving their business climates.It also puts a global spotlight on countries that are stagnating or retreating from positive change. 18 countries in the report were cited for negative reforms making business more difficult.

3. Measurements are comparative. That helps drive home the point that in the competition for investment, every country competes with the entire world. It also holds up nations as positive regional role models. Mr. Ambassador, as you know, Cape Verde, one of our first MCC Compact countries, doesn't just compete with Ghana and Tanzania – though that would be plenty of challenge the way they are moving up the rankings. Cape Verde now competes with Singapore and New Zealand. Jordan (ranked 78th for ease of doing business) doesn't just compete with Egypt. It competes with Ireland and Hong Kong.

4. Tracks Progress. The report shows a country's improvement and change as indicators change.It offers positive reinforcement with an international spotlight on those who reform. Afghanistan has repeatedly made the list as a reformer – proving that creating a good business environment can be done in less than optimum circumstances.

The Bank's research and other research clearly show that jobs and growth are the rewards for those countries that open up and compete vigorously. Countries that are more open grow faster than those that remain closed.

The potential rewards are great, but it's quite understandable that many developing countries are daunted by the prospect of global competition. Some are overwhelmed by the number and complexity of reforms they need to undertake. The Doing Business Indicators help bring the needed reforms into focus. They give us clear measurements and understandable names for the kind of reforms needed.

However, these indicators are just that – indicators. In many cases, the indicators show us where there are deeper problems in an economy and in a government's policy framework for development.

For instance, when it takes too long or costs too much to start a business there often are entrenched interests that prevent competition – or even corruption. Or when contracts are not enforced it often points to an improperly designed court system or a lack of judicial independence.

The U.S. government has made microeconomic reform a top development priority. We have multiple agencies that can assist countries that want to improve their business climates. First, in our development assistance framework of aid and foreign assistance money, Secretary Rice and Ambassador Tobias have made "economic growth" one of 5 key pillars that include peace and security, governing justly, investing in people, and humanitarian assistance. Another is the Millennium Challenge Corporation or MCC.

The MCC supports those countries that show a commitment to ruling justly, investing in people, and supporting economic freedom. In 2004, the Millennium Challenge Corporation was established by law to fulfill this mandate. The MCC offers significant new assistance for those countries that qualify based on objective indicators of the MCC criteria. Under Economic Freedom, two of the seven criteria come from the Doing Business Report: Days to start a business and Cost of starting a business.

Over the last 2 years, the MCC has signed compacts with nine countries: Armenia, Benin, Cape Verde, Georgia, Ghana, Honduras, Madagascar, Nicaragua, and Vanuatu. Not coincidentally, several of these countries have shown great improvements in their Doing Business scores. Georgia was one of the top reformers last year and topped the list this year. Ghana is one of the top reformers this year. In fact, Dr. Djankov's team has observed an "MCC Effect." Nations pursuing MCC eligibility become top reformers in the "Doing Business" ranking.

Agency for International Development Of course, USAID has been helping countries improve their business climates for many years. They have done great work in some of the countries heralded in the report helping with reforms such as:

In Georgia:

  * Developing a new licensing law that eliminated 750 of 908 different licenses for business activities.   * Reducing the time needed to register property by 75%.   * Cutting the cost of registering property by 70%.

In Afghanistan:

  * Developing one of the fastest and easiest business registration systems in the world.   * Helping unleash the entrepreneurial spirit of the Afghan people who registered 55,000 new businesses in three years.

Deputy Assistant Administrator Jay Smith is here from USAID and I know Jay could offer a lot more examples. We have also created an overview of how the U.S. Government supports business environment reform as well as a listing of success stories that you can take home with you.

The bottom line is we are committed to helping countries that want to improve their Doing Business Indicators, especially if they are willing to take on the hard work of comprehensive reform. The U.S. is proud of its strong support for countries that seek to build a world-class business climate and we are very appreciative of the role played by the Doing Business team at the World Bank and IFC.

With that, I am pleased to turn the floor over to Dr. Simeon Djankov, of the World Bank's Doing Business team, for an overview of this year's report Doing Business 2007 – Implementing Reforms. After Simeon's talk we will hear from our panelists.

Released on September 19, 2006

ENDS