Vientiane, September 6, 2006 – Lao PDR introduced a number of important legislative reforms but remains a challenging place to do business, according to a new report by the International Finance Corporation and the World Bank. The report, Doing Business 2007: How to Reform ranks Lao PDR 159 out of 175 economies in terms of the ease of doing business.
There have been some key reforms, however, including a new collateral law that eases access to credit by allowing businesses to use their movable assets (equipment, inventory, accounts receivable etc.) as collateral, and simplifies the licensing of construction projects by transferring the authority for issuing permits for small building projects to district construction management offices.
Adam Sack, General Manager of IFC’s donor-funded technical assistance initiative, the Mekong Private Sector Development Facility, congratulated the Lao Government for taking some steps to improve the business environment which have included drafting and approving the new Enterprise Law which came into effect in March 2006, and launching the Lao Business Forum.
“The Enterprise Law and the government’s support for the Business Forum are both positive signs of commitment to improving the business environment. It is now recognized worldwide that business environment reform encourages both investment and economic growth and these in turn create jobs and reduce poverty.”
The World Bank Group has been working on business environment reform in Lao PDR for several years. Over the last two years, IFC-MPDF provided a variety of technical assistance to the committee that drafted the Enterprise Law and also helped the government to establish the Lao Business Forum. The Facility is currently assisting the Ministry of Industry and Commerce to develop effective implementing regulations for the Enterprise Law, including regulations to streamline business registration and licensing. IFC-MPDF also facilitates government/private dialogue sector through its support as the Secretariat for the Lao Business Forum and its Working Groups.
The World Bank, in cooperation with the Asian Development Bank, has just completed an assessment and recommendations on key investment climate constraints. In collaboration with the Ministry of Industry and Commerce, the World Bank is leading the Integrated Framework (IF), a program that helps least-developed countries to mainstream trade priorities in their national development plans and poverty reduction strategies, and coordinate trade-related technical assistance from donors.
Regionally, while 14 reforms in seven economies in the region reduced the time, cost, and difficulty for businesses to comply with legal and administrative requirements, East Asia’s overall progress in regulatory reforms lags behind all other regions except South Asia, a fall from fourth to sixth place.
Doing Business 2007: How to Reform finds that while East Asian economies impose the fewest regulatory obstacles on business after OECD countries, they are now reforming more slowly than all other regions except South Asia. Less than half of the East Asian economies introduced one or more reforms that improved the Doing Business indicators. By comparison, every Eastern European country reformed except Slovenia.
“More progress is needed. East Asian countries would greatly benefit from new enterprises and jobs, which can come with more business-friendly regulations,” said Michael Klein, World Bank-IFC vice president for financial and private sector development, and IFC chief economist.
Doing Business 2007 also ranks 175 economies on the ease of doing business—covering 20 more economies than last year’s report. Singapore became the most business-friendly economy in the world in 2005–2006, as measured by the Doing Business indicators, after last year’s winner, New Zealand, made business licensing more difficult. The runner-up economy in the region is Hong Kong (China) (5), followed by Thailand (18), Malaysia (25), Mongolia (45), Taiwan (China) (47), China (93), Vietnam (104), Philippines (126), Indonesia (135), and Cambodia (143). Lao PDR (159) and Timor-Leste (174) are ranked lowest in the region.
The top 30 economies in the world are, in order, Singapore, New Zealand, the United States, Canada, Hong Kong (China), the United Kingdom, Denmark, Australia, Norway, Ireland, Japan, Iceland, Sweden, Finland, Switzerland, Lithuania, Estonia, Thailand, Puerto Rico, Belgium, Germany, the Netherlands, Korea, Latvia, Malaysia, Israel, St. Lucia, Chile, South Africa, and Austria.
The rankings track indicators of the time and cost to meet government requirements in business start-up, operation, trade, taxation, and closure. They do not track variables such as market size, macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates.
Notable reforms in East Asian economies included:
- China reduced the time to register a business from 48 to 35 days and cut the minimum capital required from 947 percent to 213 percent of income per capita, making it easier for entrepreneurs to start new businesses. It also established a credit information registry for consumer loans. Now 340 million citizens have credit histories, improving their access to credit. Amendments to the company law strengthened investor protections against insider dealings. And new online customs procedures reduced the time to import and export by two days, helping international competitiveness.
- Vietnam cut the documents and time required to obtain building permits and allowed employers
- to use fixed-term contracts for any type of task, making hiring easier.
- Cambodia set time limits on obtaining business licenses—reducing delays by 66 days—and modernized customs, cutting time to export by seven days and time to import by 10 days.
- Hong Kong (China) improved investor protections by increasing the availability of internal company documents for inspection, boosting transparency. The time to import and export dropped from 16 and 13 days to only five days, after three new boundary bridges opened and customs documents were simplified and put online.
- Indonesia reduced business start-up time from 151 to 97 days by speeding approval of the incorporation documents at the Ministry of Justice.
- Thailand amended its law on credit information, making it easier for lenders to evaluate the creditworthiness of borrowers, thereby improving access to credit.
- Timor-Leste, counter to the regional trend, made it more difficult to do business, refusing to grant any new licenses for construction firms.
The greatest remaining obstacles in the region documented in the report are cumbersome start-up procedures and costly licensing requirements. For example, in Cambodia, it takes 10 procedures and 86 days to start a business. In the Philippines, it takes 23 procedures and 193 days and costs 113 percent of income per capita to meet the regulatory requirements to build a warehouse.
Doing Business allows policymakers to compare regulatory performance with other countries, learn from best practices globally, and prioritize reforms. “The annual Doing Business updates have already had an impact. The analysis has inspired and informed at least 48 reforms around the world. The lesson—what gets measured gets done,” said Caralee McLiesh, an author of the report.
Globally the most popular reform in 2005–2006 was easing the regulations of business start-up. Forty-three countries simplified procedures, reducing costs and delays. The second most popular reform— implemented in 31 countries—was reducing tax rates and the administrative hassle of paying taxes.
“Whatever reformers do, they should always ask the question, who will benefit the most? If reforms are seen to benefit only foreign investors, or large investors, or bureaucrats-turned-investors, they reduce the legitimacy of the government. “Reforms should ease the burden on all businesses: small and large, domestic and foreign, rural and urban. This way there is no need to guess where the next boom in jobs will come from. Any business will have the opportunity to thrive,” said Simeon Djankov, an author of the report.
International Finance Corporation
The International Finance Corporation, the private sector arm of the World Bank Group, is the largest multilateral provider of financing for private enterprise in developing countries. IFC finances private sector investments, mobilizes capital in international financial markets, facilitates trade, helps clients improve social and environmental sustainability, and provides technical assistance and advice to businesses and governments. From its founding in 1956 through FY06, IFC has committed more than $56 billion of its own funds for private sector investments in the developing world and mobilized an additional $25 billion in syndications for 3,531 companies in 140 developing countries. With the support of funding from donors, it has also provided more than $1 billion in technical assistance and advisory services. For more information, visit
www.ifc.org.
Online Media Briefing Center:
Journalists can access the material before the expiration of the embargo through the World Bank Online Media Briefing Center at
http://media.worldbank.org/secure/. Accredited journalists who do not already have a password may request one by completing the registration form at
http://media.worldbank.org/.
The Doing Business project is based on the efforts of more than 5,000 local experts – business consultants, lawyers, accountants, government officials, and leading academics around the world, who provided methodological support and review. The data, methodology, and names of contributors are publicly available online at
http://www.doingbusiness.org.
