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Eye on the IFIs

Amidst Controversy, World Bank to Review Influential Rankings

WASHINGTON, Oct 22 2012 (IPS) - The World Bank released its 10th annual Doing Business report on Monday, using the occasion to track business- and investment-friendly reforms put in place around the world over the past decade.

The bank recorded more than 200 such reforms in countries across the world just over the past year. Further, over the course of a decade of Doing Business reports, 180 countries have put in place nearly 2,000 such reforms, with a third of those changes in regulations since 2005 having taken place in Sub-Saharan Africa.

In part, these reforms have been put in place in response to the ubiquity of the report itself, with both developing country governments and major donors having increasingly relied on the Doing Business rankings and indicators as development benchmarks.

“In the first report one of the main findings was that low-income economies had very cumbersome regulatory systems,” the new report states. “Ten years later it is apparent that business regulatory practices in these economies have been gradually but noticeably converging toward the more efficient practices common in higher-income economies.”

Indeed, the World Bank finds that the rate at which developing countries have implemented these reforms has been higher than in developed countries. During that period, globally, the average time to start a business has gone from 50 to 30 days and the average cost from 89 to 31 percent of income per capita.

“The bank is a development institution, and so we have been encouraged as the reforms in the last several years seem to have taken strong root in sub-Saharan Africa,” Augusto Lopez-Claros, the director of global indicators and analysis with the World Bank Group, told journalists ahead of the report’s release.

“During the last couple of years, an average of 70 percent of the countries in Sub-Saharan Africa have engaged in at least one, and sometimes many, reforms – compared to just 33 percent in 2005.”

At the same time, however, two-thirds of those 2,000 reforms recorded over the past decade have focused strictly on reducing the complexity and cost of regulations, rather than on the more difficult process of strengthening legal institutions.

Diverting vital resources

The Doing Business report, put out jointly by the World Bank and its private sector arm, the International Finance Corporation (IFC), is one of the bank’s most high-profile publications, reportedly used by some 85 percent of global policymakers. The report has built up a particularly significant influence in the developing world, where the need for jobs creation is typically the greatest.

The report’s rankings system has come under increased criticism, however, with some suggesting that the report’s indicators lead to an outsized focus on the needs of large over smaller businesses.

“It is not just that some reforms promoted by the Doing Business rankings might be irrelevant for the majority of businesses in developing countries – in some instances they are actively harmful to poor men and women,” Christina Chang, an economist with the U.K.-based Catholic Agency for Overseas Development (CAFOD), told IPS by e-mail.

“The World Bank’s mandate is to reduce poverty. Yet the rankings skew vital resources away from small and micro-enterprises that account for the majority of jobs in poor countries – jobs that are critical in reducing poverty.”

According to CAFOD’s analysis, nearly 90 percent of jobs in a sample of developing countries are associated with small businesses – and around half of those countries’ gross domestic products.

In a new briefing, CAFOD reports that, when asked, women entrepreneurs in Ghana say their businesses are constrained by a lack of education and by discrimination, which cuts them off from capital and credit while also leading to unfair land-inheritance practices.

But the Doing Business rankings “would not help with any of these problems”, the CAFOD briefing notes. “They promote one preferred reform – usually deregulation, even though other actions might be more appropriate or pressing.”

While admitting that the Doing Business project has been “instrumental” in highlighting the importance of strong investment climates, CAFOD’s researchers are suggesting that the World Bank include five additional reforms indicators. These include data on business skills and education, corruption, lack of market information or access to technology, and poor rural infrastructure.

While multiple other World Bank Group initiatives deal with some or several of these issues, the bank’s Lopez-Claros does acknowledge some of the limitations of the Doing Business indicators.

“Countries do need to invest in human capital, in infrastructure, in building up the types of skills necessary to interact with the global economy, and this report has nothing to say on those issues,” he told journalists. “This report captures one dimension of the overall policy framework that you need to get right in order to achieve good economic development.”

Indicators review

Over the years, the World Bank Group has tweaked the Doing Business indicators, including in response to a negative report by its own Independent Evaluation Group in 2008. Perhaps most significantly, in 2009 it dropped its controversial “employing workers” indicator in favour of a “worker protection” index.

In early October, International Trade Union Confederation (ITUC) General Secretary Sharan Burrow urged the bank to “definitively take labour issues out of the Doing Business report, which for years encouraged countries to eliminate all workers’ protection rules.”

A concerted effort by civil society, urging the World Bank to revisit the Doing Business indicators, has recently seen some initial success. On Friday, the bank published the composition of a new panel of experts that will review these indicators.

“The 10-year point is a good time to conduct a thorough review, taking stock of the experience to date, analyzing results, distilling lessons learned, and mapping the way forward,” the bank stated. “Given the issues that have been raised … as well as the public attention that the Doing Business indicators attract … a close and independent review will be of great value.”

The new committee will be headed by Trevor Manuel, the head of the South African National Planning Commission, and will be tasked with providing final recommendations by May 2013. (The committee’s terms of reference can be found here.)

Yet while an open letter to World Bank President Jim Yong Kim from more than a dozen civil-society organisations (including ITUC and CAFOD) has called on the bank to include members of trade union confederations on the committee, the composition as announced includes no formal representation of organised labour.

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