Doing Business in Russia 2012

1. Doing Business in Russia 2012 Augusto Lopez-Claros Director, Global Indicators & Analysis World Bank-IFC Saint Petersburg International Economic Forum June 21, 2012

2. Doing Business indicators reflect on some of the most important obstacles firms face Percent of firms identifying the problem as the main obstacle to their business activity • Based on Enterprise Surveys in 118 countries around the world • Direct responses from representative samples of the private sector • Access to finance, electricity, informality and tax rates are the top obstacles across the developing world

3. The Doing Business indicators have a strong theoretical foundation • The Regulation of Entry by Djankov and others, Quarterly Journal of Economics, Feb 2002. • Countries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality of public or private goods • Private Credit in 129 Countries by Djankov, McLiesh and Shleifer, Journal of Financial Economics, May 2007. • Creditor protection through the legal system and information sharing institutions such as credit bureaus are associated with higher ratios of private credit to GDP. Credit rises after improvements in creditor rights and in information sharing • Trading on Time by Djankov and others, Review of Economics and Statistics, Nov 2008. • Each additional day that a product is delayed prior to being shipped reduces trade by more than one percent • Courts by Djankov and others, Quarterly Journal of Economics, May 2003. • Procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in judicial decisions, and inferior access to justice • The Regulation of Labor by Botero and others, Quarterly Journal of Economics, June 2004. • Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment, especially of the young • The Effect of Corporate Taxes on Investment and Entrepreneurship, by Djankov and others, American Economic Journal: Macroeconomics, July 2010. • The corporate tax rate has a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. It is also correlated with investment in manufacturing as well as with the size of the informal economy.

4. Doing Business indicators – 11 areas of business regulation (10 included in the ranking) Entry Property rights Investor protection Access to credit Administrative burden Flexibility in hiring Recovery rate Reallocation of assets 4

5. How does Doing Business measure the ease of doing business? 1 Singapore • The overall ease of doing business: 2 Honk Kong SAR, China (1) Starting a business (2) Dealing with construction permits (3) Getting electricity (4) Registering property (5) Paying taxes (6) Trading across borders (7) Enforcing contracts (8) Protecting investors (9) Getting credit (10) Resolving insolvency 3 New Zealand 4 United States 5 Denmark Top ranked countries in DB2012 6 Norway 7 United Kingdom 8 Korea, Rep. 9 Iceland 10 Ireland

6. New metric on ‘distance to the frontier’: tracking economies’ progress over time Narrowing the Distance to the Frontier from 2005 to 2011 (percentage points) China India …captures the absolute improvement that countries have made over time, and …also provides information on how far countries have been away from the “frontier” – a measure based on the most efficient business regulatory practices observed by the Doing Business Project across countries and over time.

7. New metric on ‘distance to the frontier’: tracking Russia’s progress over time Narrowing the Distance to the Frontier from 2006 to 2011

8. 1 Diagnostic Tool 2 Reform Instrument 3 Monitoring Device Subnational Doing Business (SNDB) – How does Russia benefit from it? • Allows locations to compete locally and globally • Promotes peer to peer learning • Initiates a reform process by engaging local governments and reforms stakeholders • Creates baseline and captures local difference in regulations • Pinpoints bottlenecks and provides information on good practices within the same country that can easily be replicated • Captures reforms • Measures progress over time through repeated benchmarking • Creates an incentive to maintain reform effort even when governments change

9. What is new in Doing Business in Russia in 2012? • Doing Business in Russia 2012 • Covers 30 cities • Updates data and tracks reforms for the 10 cities measured in the Doing Business in Russia 2009 in 3 topics • Data is current as of November 2011 • Surveys administered through over 600 contributors • The report covers 4 indicators • Starting a business • Dealing with construction permits • Getting electricity • Registering property

10. Doing Business in Russia 2012 benchmarks 30 locations Round 1 locations Round 2 locations St.Peterburg Petrozavodsk Murmansk Vyborg Kaliningrad MOSCOW Yakutsk Tver Yaroslavl Kaluga Saransk Surgut Voronezh Rostov-on-Don Khabarovsk Tomsk Samara Irkutsk Stavropol Ulyanovsk Vladivostok Ekaterinburg Kazan Perm Omsk Kirov Vladikavkaz Volgograd Kemerovo Novosibirsk

11. What are the key findings? • No city outperforms the others in all areas • Average start up costs are among the least expensive in the world • Registering property is inexpensive and easy across Russian cities • All 10 cities measured for the second time have improved in at least two of the 3 areas measured twice • Numerous procedures take a long time and carry a high cost in the areas of dealing with construction permits and getting electricity • Overall, it is easier to start a business, deal with construction permits, get electricity and register property in Ulyanovsk and Saransk

12. No city outperforms the others in more than one area

13. It is easier now to do business in all 10 cities measured twice Doing Business reforms making it easier do to business

14. Compared globally, starting a business is inexpensive in all cities

15. More efficient one-stop shops and better coordination speeds up start up in some cities One-stop shop in Saint Petersburg (ranks 1st in Starting a business) One-stop shop in Saransk (ranks 20th in Starting a business)

16. Construction permit requirements vary significantly across cities—especially before construction

17. Cities are improving the construction permitting process, but challenges remain

18. Getting electricity: Fewer procedures do not necessarily shorten delays

19. Property registration is easy and inexpensive in Russia Procedures, time and cost to register property 7.3 60 13 Yakutsk India Brazil 5.7 45 Japan Kemerovo 5.2 44 St. Petersburg Germany 40 Germany, Kazakhstan Eastern Europe & Central Asia, Japan, Turkey 4.4 OECD high income 6 39 4.0 Brazil Finland 3.6 China 35 India, Germany, OECD high income, Kemerovo, St. Petersburg Russia average 3.3 Turkey 5 33 Eastern Europe & Central Asia 2.8 Eastern Europe & Central Asia 31 OECD high income 2.3 Brazil 4 Russia Average, Yakutsk China, Kazakhstan 29 China 26 Vladivostok, Vladikavkaz Finland, Vladivostok, Vladikavkaz, Kaluga 3 0.59 19 Yakutsk Kaluga 0.23 14 Russia average Finland, Japan 1 Saudi Arabia 6 0.1 Turkey Kazakhstan 1 0 Saudi Arabia Saudi Arabia Procedures (number) Time (days) Cost (% of income per capita)

20. Property registration is faster in the 10 cities studied in 2008

21. Russian cities can learn from each other Source: Doing Business database

22. Why does it matter? • Countries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality of public and private goods. Starting a business • A recent study in the United States shows that accelerating permit approvals by 3 months in a 22-month project cycle could increase construction spending by 5.7% and property tax revenue by 16%. Dealing with construction permits • Following a land titling project in Thailand, property increased in value by 75–197% after being registered. Registering property Managers in 109 economies consider electricity to be among the biggest constraints to their business; they estimated losses due to power outages at an average 5.1% of annual sales. Getting electricity

23. Good business regulations and governance In countries where business regulation is efficient and information on documentation requirements and fee schedules is easily accessible, the costs to start a business are much lower.

24. Economies that score higher on the ease of doing business, tend to receive higher FDI inflows Average Ease of Doing Business rank FDI inflows per capita, 2010 (US$) 6 45 96 Denmark, Finland, Iceland, Ireland, Korea, Rep., New Zealand, Norway, Singapore, United Kingdom, United States Chile, Colombia, Kazakhstan, Oman, Peru, Rwanda, Slovak Republic, Spain, Tunisia Belize, China, Greece, Guatemala, Jordan, Morocco, Serbia, Vietnam, Yemen

25. www.doingbusiness.org/russia