WB Raises Iran Ranking 2 Notches in Ease of Doing Business
Iran ranked 130 among the 189 countries surveyed in the latest World Bank’s ‘Ease of Doing Business’ report, indicating a two-notch uptick in Iran’s regulatory improvement from last year.
In a series of annual reports termed as ‘Doing Business’ the World Bank presents quantitative indicators on business regulations and the protection of property rights.
World Bank’s latest report ‘Doing Business 2015’, which covers regulations measured from June 2013 through June 2014, has ranked Iran as the 130th economy in the ranking of 189 countries on the overall ease of doing business. Iran’s ranking in 2014 stood at 132.
Singapore is the first economy in the global ranking followed by New Zealand, Hong Kong SAR, Denmark, South Korea, Norway, the United States, the United Kingdom, Finland and Australia.
A lot has been said in the past few days about the need for deregulating Iran’s business environment and simplifying the burdensome regulations that retard productivity and innovation, stifle economic growth, and inhibit foreign investments.
The deputy minister of industry, mine, and trade, Mehdi Karbasian, speaking at the 5th Iranian Steel Market Conference (ISMC 2015) on Tuesday called for “implementing genuine deregulatory plans to boost foreign investment in Iran’s industries.”
Last week, the deputy minister of economic affairs and finance, Mohammad Khaza’ee mentioned drafting a special plan aimed at “reducing excessive regulations on foreign investment and adding more transparency to the administrative procedures.”
For policymakers trying to improve the economy’s regulatory environment for business, a good place to start is to find out how it compares with the regulatory environment in other economies.
The ‘Ease of Doing Business’ index is an index created by the World Bank Group in 2001, using data from more than 800 academic papers. A high ease of doing business ranking (a low numerical value) means the regulatory environment is more conducive to the starting and operation of a local firm.
The Doing Business report measures and tracks changes in regulations affecting 11 areas in the life cycle of a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labor market regulation. The final ranking of each country’s economy is calculated as the simple average of the percentile rankings on each of the 11 topics included in the index. Following is an overview of Iran’s ranking in all 11 indexes in the latest World Bank group’s report.
Starting a Business
This indicator records the procedures, time, cost and minimum capital required to open a new business. Globally, Iran stands at 62 in the ranking of 189 economies on the ease of starting a business in 2015 report, 8 points higher than its ranking of 70 in the previous year’s report. The World Bank Group notes that Iran made starting a business easier during this period by streamlining the name reservation and company registration procedures.
According to data collected by Doing Business, starting a business in Iran requires 6 procedures, takes 12 days, costs 3.1% of income per capita and requires no paid-in minimum capital.
Dealing With Construction Permits
This area pertains to the procedures, time and cost required for a business in the construction industry to obtain all the necessary approvals to build a warehouse in the economy’s largest business city, connect it to basic utilities and register the warehouse so that it can be used as collateral or transferred to another entity.
Iran’s ranking on ease of dealing with construction permits stands at 172 in 2015 report, which is 11 points lower than its ranking in 2014. According to data collected by Doing Business, dealing with construction permits in Iran requires 15 procedures, takes 318.5 days and costs 5.3% of the warehouse value.
The Doing Business report records all procedures required for a local business to obtain a permanent electricity connection and supply for a standardized warehouse, as well as the time and cost to complete them.
According to data, getting electricity in Iran requires 6 procedures, takes 77 days and costs 865.6% of income per capita, placing Iran at 107 in the global ranking, 12 points up from the previous year’s report. Based on the report, Iran has made getting electricity easier by eliminating the need for customers to obtain an excavation permit for electricity connection works.
This indicator records the full sequence of procedures necessary for a business to purchase property from another business and transfer the property title to the buyer’s name. Globally, Iran stands at 161 on the ease of registering property. The report suggests that registering a property in Iran requires 9 procedures, takes 35 days and costs 10.6% of the property value.
This area assesses the sharing of credit information and the legal rights of borrowers and lenders with respect to secured transactions. Credit information systems enable lenders’ rights to view a potential borrower’s financial history as well as permit borrowers to establish a good credit history that will allow easier access to credit. Iran stands at 89 on the ease of getting credit.
Protecting minority investors matters for the ability of companies to raise the capital they need to grow, innovate, diversify and compete. The report measures the protection of minority investors from conflicts of interest through one set of indicators and shareholders’ rights in corporate governance through another. Globally, Iran stands at 154 on the strength of minority investor protection index
Using a case scenario, the Doing Business report measures the taxes and mandatory contributions that a medium-size company must pay in a given year as well as the administrative burden of paying taxes and contributions. On average, firms in Iran make 20 tax payments a year, spend 344 hours a year filing, preparing and paying taxes and pay total taxes amounting to 44.1% of their profit, placing Iran at the 124th global ranking among 189 nations.
Trading Across Borders
This indicator measures the time and cost (excluding tariffs and the time and cost for sea transport) associated with exporting and importing a standard shipment of goods by sea transport, and the number of documents necessary to complete the transaction.
According to data collected by Doing Business, exporting a standard container of goods in Iran requires 7 documents, takes 25 days and costs $1350. Importing the same container of goods requires 11 documents, takes 37 days and costs $1555. Globally, Iran stands at 148 in the ranking of economies on the ease of trading across borders.
The World Bank report measures the efficiency of the judicial system in resolving a commercial dispute before local courts. Globally, Iran stands at 66 in the ranking, with contract enforcements taking 505 days, costing 17% of the value of the claim and requiring 40 procedures.
A robust bankruptcy system functions as a filter, ensuring the survival of economically efficient companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses to normal operation and increase returns to creditors. This area studies the time, cost and outcome of insolvency proceedings involving domestic legal entities.
Globally, Iran stands at 138 in the ease of resolving insolvency ranking, with resolving insolvencies taking 4.5 years on average and costing 15% of the debtor’s estate.
Labor Market Regulations
Introduced in the Doing Business report for the first time in 2015, the index collects data on regulations applying to employees hired through temporary-work agencies as well as on those applying to permanent employees or employees hired on fixed-term contracts. The indicators also cover additional areas of labor market regulation, including social protection schemes and benefits as well as labor disputes. This year’s report does not present rankings of economies on these indicators.
Doing Business methodology has its limitations. While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business.
Iran’s policymakers and foreign investors could use the index as an indicator of the country’s overall business environment and then compare it with other competitive economies in the region.
The table gives a summary of Doing Business indicators for Iran as per Doing Business 2014 and 2015 reports and the relative changes during this period.