The report evaluates 175 countries in 10 specific areas of business regulation, including the ease of registering a business, paying taxes, and trading across borders.
According to "Doing Business 2007," Armenia and Georgia -- ranked 34th and 37th, respectively -- scored better than EU countries such as Spain and Portugal.
Showing Greater Initiative
This doesn't mean that international investors are going to start pulling their money out of large markets like the EU and shift to Yerevan and Tbilisi. But World Bank senior economist Caralee McLiesh, the lead author of the report, says it does show that emerging market economies can sometimes show greater initiative than established ones in simplifying the commercial regulations and procedures.
And, McLiesh says, the results of such reforms can be a dramatic improvement in their own international and domestic business opportunities. She cites Georgia as an example.
"Business registrations jumped up by 55 percent on previous years, and also unemployment is on the decline," McLiesh says. "It's fallen by about 2 percentage points in the last year to 18 months. And so these are signs that the economy is moving in the right direction."
Georgia made it a lot easier for entrepreneurs to start businesses and reduced the minimum capital required to start a new enterprises. In addition, the number of days exporters would need to get their goods out of customs has dropped from 54 to 13.
McLiesh says Armenia was not such a vigorous reformer this year as Georgia, but it too has consistently been improving over the years:
"[Armenia] is one of the simplest countries in which to register property in the world," she says.
It takes only four days on average to register a property in Armenia, compared to 231 days in Belarus.
Taxes High And Hard To Pay
She notes Belarus is the worst country in the world in terms of paying taxes. Businesses in Belarus must pay 186.1 percent of their profits and make 125 tax payments a year in order to comply with tax regulations.
Neighboring Ukraine ranks just behind Belarus in terms of the difficulty of paying taxes. McLeish says it's not just the high rate of taxation there, but the "complexity of the tax system" that creates problems for businesses. For example, Ukraine's annual tax return for businesses is 92 pages long.
"In Ukraine it takes [medium-sized businesses] 2,185 hours per year if they were to comply fully with all tax payments," McLeish says.
Ukraine and Belarus also score poorly in terms of ease of trading across borders, but not as poorly as all five Central Asian countries. Even Kazakhstan, which has the highest overall ranking -- 63 -- of any of the Central Asia countries retains considerable barriers to trade. For example, it takes 93 days on average to export a product and 87 days on average to import one.
McLiesh says high trade costs raises domestic prices, limit the growth of domestic businesses by restricting their exports abroad, and increase opportunities for corruption.
"In many of the countries in the [Central Asia] region, customs is one of the most corrupt areas of business regulation," McLiesh explains. "And one of the reasons is the fact that there are a number of different documents and a number of different procedures behind trading. There are enormous delays if you choose to go through all of the official procedures. And so entrepreneurs are basically almost forced to pay bribes in order to be able to do business, to be able to import and export."
Why are some countries, such as Georgia, able to successfully reform business regulations, while such reforms have stalled in other countries, such as Russia? McLiesh suggests that both political will and timing can be critical factors.
"When we look at the countries that have reformed the most -- the top reformers in the past three years since the 'Doing Business' project has been running -- 85 percent of the reforms in those countries were implemented in the first 15 months of a government," she explains. "So the lesson is that when you have a lot of political capital right at the start of a government's term, that's the time to spend it.”
And what about governments that have long ago missed that critical 15-month window of opportunity? McLiesh says they should not stop trying. She notes there are still significant reforms that can be made through "simple administrative changes" that are not necessarily "politically contentious," such as reducing the number of days it takes for a business to be registered.