Penelope J. BROOK is the acting Vice President for the World Bank Group’s Financial and Private Sector Development , responsible for the Doing Business project.
Brook was in the country for the official launch of the Doing Business Report 2010 where Rwanda has emerged as the top global reformer setting an all time record for improved overall rankings. In an interview with Business Times’ BERNA NAMATA she talks about Rwanda’s achievement. Below are the excerpts:
Briefly take us through what the World Bank Doing Business Report is about?
BROOK: Doing Business measures the regulations applying to domestic small and medium-size companies through their life cycle. It is based on 10 indicators in 183 countries.
The indicators are: Starting a business, dealing with construction permits, registering property, getting credit, protecting investors, paying taxes, trading across borders and enforcing contracts.
In nutshell, looks at procedures, time taken costs of the procedures and the legal/regulatory framework. The main objective is to have well-designed, streamlined regulations that are accessible to all.
Being ranked a top global reformer, as indicated in your report, Rwanda has set an all time record for improved overall rankings. What do you think is the key driver for the Rwanda’s success to be ranked as the top global reformer?
BROOK : Rwanda has been a consistent and committed reformer over time and in the last 5 years in all ten indicators achieving 19 major reforms. The government set for itself a target to attain a double digit ranking in the Doing Business Survey.
It has improved the process of dealing with companies with a new law aimed at streamlining reorganization. Employing workers was made easier by abolishing the maximum duration for fixed term contracts and allowing unlimited renewals of such contracts, as well as allowing redundancy procedures to be more flexible, with consultation and notification of third parties no longer required.
This matters because smarter, simpler regulation opens the way to higher productivity, less informality, more job creation; it also eases adjustment and rebound in times of crisis.
Rwanda’s progress is really impressive! The government is working so hard for the local people and their businesses.
What does it mean for a low income country like Rwanda to earn such a ranking?
BROOK : One thing that is important to remember is that the Doing Business Indicators are measured in some specific – business regulation that is relevant for small and medium businesses /firms as they go through their lives.
It focuses on very pragmatic things in terms of whether a person who wants to start a business can do it within the shortest possible time.
What we have seen is that where countries reform and do well as measured by these indicators, to a degree this means higher growth and less formality, more income generation.
So the kind of things we are really looking for is not just about getting a good ranking, but whether there is a better environment in which businesses can do their things that make the economy grow and create jobs.
What we also see is that in countries that are reforming as actively as Rwanda is, those tend to be the kind of countries where investors can do very well because things are changing and there are new opportunities.
So you tend to see higher returns to investment in countries like this, which is very important. These are the kind of benefits that we are looking for.
The Report has been launched at a fragile time – as the global economy is trying to recover from the severe recession since World War 11, with a slow recovery expected to take hold till next year.
Rwanda as a developing country is still struggling with external shocks of this crisis, what is the likely impact of the Doing Business Report?
BROOK : Clearly right now we are in such a difficult environment. We have gone through food crisis, fuel crisis and now we have the knock on effect of the global financial crisis having a very large economic impact on many countries in this region and around the world.
The things that the Doing Business report focuses on can do some little help.
There are big things that governments need to do to address the down –turn but what Doing Business can do is make it easy for domestic entrepreneurs to rebuild themselves.
Perhaps as they think about doing something different because markets have changed, as they start new businesses again, employing more people again, getting loans, the reforms will make it easier for them.
The kind of things that Doing Business focuses will make it easier for them to start business again and grow again.
Good business regulation can speed up crisis response: efficient and transparent regulation makes it easier for firms to adjust and new businesses to start up.
Over 90 percent of our economy is made of Small and Medium Enterprises who are largely in the informal sector. What is the implication of these reforms to this section of the business community?
BROOK: We are hoping that people who right now might be working in the informal sector will be able to move their business into the formal sector without difficulty.
It is important for them to join the formal sector, because formal sector firms tend to find it easier getting access to finance.
They are more likely to get a contract with even a large foreign company, there are more likely to grow and employ more people.
Formality will give them the capacity to do so many things and reap more from their businesses. When Rwanda reduced the number of days it takes to start a business (3days), that can remove a burden to someone who has been thinking – should I run my business in the informal sector or go through the trouble to get formal?
A number of our indicators can help this way, if you can reduce the complexity within the formal system and simplify it – paying taxes, registering property, construction permits, you can help draw more firms into the formal sector.
Some critics of your report argue that the Doing Business Report ignores some critical factors that are also necessary for creating a conducive environment for doing business such as the State of infrastructure , macroeconomic policy , corruption et.c. What is your view?
BROOK: If you look at the work the World Bank and IFC have been doing with the government over the years, it is much wider than Doing Business.
We have a broad engagement on Investment climate issues including an engagement in areas such as infrastructure.
With this particular indicator set, yes it focuses on a small number of things –its measuring one piece of the puzzle, it does not mean the other things are not important or not part of our agenda.
We also have other survey instruments that look beyond. Such as the Enterprise Survey that is coming out in a few months time. This looks at much wider issues that are on the minds of entrepreneurs.
The Enterprise Survey looks at a sample of things operating in a country and asks questions where they see the barriers in running their businesses for them and ask them how they do their work. That will look at aspects like reliable infrastructure and corruption.
The Vision of this country is to have Private Sector as the driver of economic growth. How are these reforms going to help in private sector development?
BROOK: We are hoping that these kinds of reforms will create an environment in which we get a lot of entrepreneurship.
There is a possibility that somebody has a good idea and these reforms will help them to make it a reality.
We hope there will be more competition and these firms will grow into bigger firms that will eventually become an engine of growth that creates growth and creates opportunities for people to become wealthy.
The really focus now should be on how you get more firms into business, how do you get a more competitive and thriving private sector.
To support private sector development, the government has to focus on the rules and regulations that will give people confidence to start a business.
What do you think is the way forward for the country?
BROOK : The ranking is really nice and we are very excited to see the rise not for the ranking itself but what it reflects which is a concerted effort that focuses on important things such as how to cut the red tape and save time in other areas like the legislator basis for a stronger investment environment.
The real point of Doing Business is not the ranking but doing it so that the business community can find it easy to do business and grow faster.
What we are hearing from the government of Rwanda is that they are very focused on implementation of the new laws and we will be seeing more of these laws beginning to work for people.
This is a major priority. Passing the laws is important but implementation is equally important and this needs hard work.
We would also like to see government focusing on areas where businesses face delays in working with government processes and see if they can make improvements in those areas.
We are also very cautious that as the government is looking 2011/2012 Doing Business rankings, it will be doing that as part of a wider programme with broader areas of reform that continue to build a conducive environment for the business community.
There are still many opportunities for improvement and there are many good practices in the region to learn from.