Many factors influence the quality of a country’s investment climate and overall competitiveness. While the appropriate set of policies are country specific, a number of global surveys and studies have been undertaken that can be helpful in understanding trends in the business and invest¬ment climates in countries, particularly with regard to competitiveness, business constraints, risk and policy uncertainty, and cost of business operations. While the initiatives (such as the Doing Business project of the World Bank) generally compile individual indicators into an index, for follow-up on FfDO outcomes it is more useful to examine the elements individually. In addition, the elements need to be viewed within the broader context of sustainable development and the integrated nature of the SDGs, including social and environmental sustainability. For example, environmental rules, which may be aligned with the SDGs can also be viewed as impeding business.
- read more
The Doing Business project of the World Bank Group uses questionnaires, administered primarily to legal professionals, to measure business regulations and their enforcement across 190 economies. Improvements in strengthening the enabling environment for private sector business and investment are reflected in the cost of starting a business, which has declined in all developing country groupings since 2004, with the greatest declines in LDCs. The cost of doing business includes official fees, as well as additional private fees, such as for legal or professional services if such services are required by law or commonly used in practice. Fees for purchasing and legalizing company books are included if these transactions are required by law.
Strengthening the enabling environment entails a range of actions, such as reforms to the legal framework, promoting transparency, reducing red tape, and, importantly, promoting access to finance. This underscores that an enabling environment must incorporate inclusive finance as a core component of financial and private sector development. Regionally, access to finance remains the biggest obstacle in Sub-Saharan Africa. In East Asia and Pacific, practices of the informal sector was cited as the largest obstacle while in the Middle East, political instability proved to be the most important constraint for enterprises. For most countries, an Enterprise Survey is conducted every 3-4 years.
Among the top five obstacles identified by enterprises, access to finance is over the period 2006-2016 consistently ranked in the top 3 biggest obstacles. Electricity improved over time from a peak of 25 per cent in 2007, while political instability appears to have increased as an impediment to investment.
While the initiatives, such as the Doing Business project of the World Bank, generally compile individual indicators into an index, for follow-up on FfDO outcomes it is more useful to examine the elements individually. In addition, the elements need to be viewed within the broader context of sustainable development and the integrated nature of the SDGs, including social and environmental sustainability. For example, in some countries, despite respect for property rights and free and fair competition, permits for construction can be subject to environmental rules and regulations (which may then be seen as an impediment to business). Over 2,700 reforms in the listed areas have been implemented in measured countries since 2006 Most reforms have been undertaken in the areas of easing restrictions on starting a business, paying taxes, and getting credit.
- read more
LLDCs and developed economies, on average per country, undertake more reforms than the other country groupings. In SIDS the number of reforms is lowest. It should be noted that data on the number of reforms need to be treated with caution since the quality of reforms and implementation are also critical. More detailed data can be found at the Doing Business project, at Reforms Count.
There are negative longer-term trends for all country groupings, with regards to financial market development, most likely due to troubles faced by the financial sector in the wake of the world economic and financial crisis. The gap between developed economies and the other country groupings has been decreasing over time but remains large. The World Economic Forum measures financial market development through their Global Competitiveness survey, a dataset that combines executive opinion survey results and quantitative data. Financial market development is measured by 8 indicators, namely: availability of financial services, affordability of financial services, financing through local equity market, ease of access to loans, venture capital availability, soundness of banks, regulation of securities exchanges, legal rights index. The WEF’s database covers 138 countries.