Starting a Business

1. Starting a Business Vietnam Stakeholder Roundtable: • Olin McGill and Dang Quang Vinh, Ph.D. • APEC Technical Assistance & Training Facility (TATF) • October 28, 2013 • Ha Noi

2. Workshop Overview: • Introductions • WB Start a Business scoring • Lessons Learned globally in regulatory efficiency reforms • Going Beyond Doing Business • Conclusion: Setting Priorities

3. 1. Introductions: • Purpose – APEC Initiative: • APEC initiative: By 2015, 25% Easier, Faster & Cheaper in Starting a Business, Getting Credit, Enforcing Contracts, Trading Across Borders, Dealing with Construction Permits • Gather information about problems and priorities in SAB • Participants: • Who we are, What we do, Our biggest SAB issue • Doing Business and SAB indicator: • Where Vietnam stands and why it matters

4. Vietnam on DB 2013: 99th of 185

5. Free Efficient People Are More Prosperous X

6. GNI Per Capita Over Time

7. Vietnam’s DB 2013 SAB Performance

8. Vietnam Lags in New Biz Starts

9. 2. DB Start a Business scoring • The hypothetical new company • Review DB scoring of Vietnam • Is it accurate? • What can we streamline? • Identify SAB priorities

10. The Hypothetical New Business: • Limited liability company (or its legal equivalent). Operates in the economy’s largest business city. • 100% domestically owned and has 5 owners, all people • Start-up capital 10 times income per capita, paid in cash. • Performs general industrial or commercial activities • Leases the commercial plant and offices and is not a proprietor of real estate. • Not qualified for investment incentives or any benefits. • Has 10 to 50 employees 1 month operations start • Has a turnover of at least 100 times income per capita. • Has a company deed 10 pages long.

11. DB Scoring – Part 1

12. DB Scoring – Part 2

13. 3. Global Reform Lessons Learned • The Staggering Costs of Inefficiency • Lessons from DB and Georgia: • Ruthless transactional efficiency • Aggressive incrementalism • Efficiency, Investment & Growth • Quantifying Costs of Inefficiency • Efficiency & Transaction Volumes & Values

14. Mongolia Meat Exporters Crippled

15. What can DB and Georgia Teach Us? Small, incremental changes boost Georgia from 112th to 11th in four years

16. Impacts on GDP of Top 10 Trade Times

17. New Jobs from Top 10 Trade Times

18. Calculating Traders’ Opportunity Costs • Reductions in time to trade across borders • Import: from 52 days to 13 days = 39 days saved • Export: from 54 days to 10 days = 44 days saved • 15% = average annual opportunity cost • 0.04% = average daily opportunity cost • Savings to traders: • Import: 39 days X 0.04% X $4.4 billion = $68.6 million • Export: 44 days X 0.04% X $1.1 billion = $19.4 million • With same capital, trader can do • 6.75 deals a year at 54 days (365/54) • 36.5 deals a year at 10 days (365/10)

19. Ruthless Transactional Efficiency: • Lejava’s First Law: Government should never ask a citizen or business for info it already has. • Corruption is a technical issue: Every interaction between business and government is an opportunity for corruption. Eliminate every interaction we can. • Simplicity is Power: Streamline and automate everything. (Control and compliance will both increase.) Vakhtang Lejava Former Chief Adviser to the Prime Minister Government of Georgia

20. Aggressive Incrementalism: • “A poor transitional country with no capacity to do anything needs poor transitional laws.” • Eliminating agencies with no capacity to do their jobs can’t make things worse • Fix what we can today, every day. Kakha Bendukidze Former State Minister of Reforms Coordination

21. Georgia’s Results - 2006 - 2009 • GDP increased 65% • Tax collections increased 121% • FDI increased annually 7 – 20% • 50% increase in total trade turnover • 67% increase in registered businesses • 464% increased in registered individual entrepreneurs • 50% increase in construction sector employment, 65% increase in salaries • Total deposits grew 34% annually, from $535 million to $2.5 billion (467%) • Private credit grew 39 % annually, from $533 million to $3.1 billion (582%) • Construction lending grew 43% annually, from $28 million to $195 million (696%) • Mortgage lending grew 66% annually, from $72 million to $546 million (758%)

22. Georgia: Efficiency Savings Fuel Growth • $744 million • AnnualSavings • to Business and Government • Annual Return • on USAID’s • Four Year Investment • -- $57 to $1

23. Quantifying Costs of Inefficiency • Based on methodology by The Netherlands to quantify administrative burdens on business. • Monetizing Benefits v. Quantifying Costs • Benefits /Costs to business = Costs X Quantity Costs = financial (fees, bribes(?), etc.) + compliance Quantity = number of businesses X frequency per year • Benefits/Costs to government = Administrative Savings Savings = hourly rate of gov’t worker X hours saved Other = rental space, storage space, retrieval time, etc.

24. Georgia Business Registry Archives

25. Unified Business/Tax Registration • 92 GEL = average daily net profit of businesses in Georgia * 43,000 business registered annually * 5 days saved by new procedures = 19.78 million GEL • 1 day of accountant/lawyer work saved * 45 GEL average daily salary = 1.935 million GEL • 22 Tax Department personnel reassigned * 4,500 GEL average annual salary = 99,000 GEL Total annual savings = 21,814,000 GEL or $ 12.4 million.

26. Registrations Nearly Double

27. Simplified Registration of Individual Taxpayers • 11 GEL = average daily salary * 78,000 annual individual registration * 1 day saved by new procedures = 858,000 GEL • 5 GEL notary fee eliminated * 78,000 annual individual registrations = 390,000 GEL • 0.50 needed to serve each applicant * 78,000 annual applications * 18 GEL average Tax Department employee salary = 88,000 GEL Total annual savings = 1.336 million GEL or $763,500 USD.

28. Registrations Increase 4X

29. Mongolia’s SAB Reforms • 220,456,633 – Registration at Tax Office Eliminated* • 473,862,935 – Notary Requirements Reduced* • 54,311,442– GASR reviews reduced from 3 to 2 • 748,631,010 – Total Savings ($448,282) – 03-09/2013 • 694,319,567 – Total Savings for Business • 54,311,442 – Total Savings for Government Business Savings 12.8 Times Government Savings

30. 4. Going Beyond Doing Business • Why do so many businesses stop, fail, or “disappear”? • Why so many JSCs, and so few one-shareholder LLCs? • What are biggest non-compliance issues? • How to address Business Registry Office resource issues?

31. 5. Conclusion Setting Priorities: • Obey Lejava’s First Law? • Empower business start-up professionals? • What else?