Tag: Doing Business

Can the World Bank’s Doing Business Be Rescued?

In an interesting post about the World Bank, Nancy Birdsall of the Center for Global Development expresses two concerns about the future of the organization. First, she fears the effects of the seemingly endless process of internal restructuring – covered here, for example. Second, she fears that the World Bank may lose its ability to be an effective supplier of ‘global public goods’ in the 21st century.

One does not have to agree with her framing of the issue to see that one of the least controversial, most cost-efficient, and public goods-like functions of the World Bank is to produce internationally comparable data that can serve both as input into research and into policy discussions. The Doing Business project is a case in point, as my colleague Marian L. Tupy and I wrote last year:

In publication since 2003, Doing Business was inspired by academic research into the importance of sound legal environments for economic growth. The survey currently synthesizes expert assessments by roughly ten thousand contributors from 185 countries into a picture of the ease of doing business around the world. It serves as a guide to important requisites such as the costs of starting a business, obtaining permits, hiring and firing, and so on. The project thus brings together a large amount of data that either didn’t really exist before or weren’t comparable across different countries and presents them in a way that is easy to understand and use.

Following a controversial review last year, the report is undergoing methodological changes phased over several years. That makes comparisons over time more difficult.

Two Lessons from the Tunisian Election

The victory of the secular party Call of Tunisia (Nidaa Tounes) in the parliamentary election on Sunday carries two lessons for observers of transitions in the Middle East and North Africa (MENA). The first one is broadly optimistic, but the second one should be a cause for concern, heralding economic, social, and political troubles ahead.

1. The Arab Spring was not a one-way street to religious fundamentalism.

In spite of the unexpected and often violent turns that political events have taken in countries such as Syria or Libya, the revolutions across the MENA countries were not just thinly disguised attempts to impose theocratic rule on Arab societies. While Islam is an important cultural and social force, most people in the region have little appetite for a government by Islamist extremists. In fact, much of the headway that Islamist politicians made shortly after the fall of authoritarian regimes in the region can be explained by their track records as community organizers or providers of public services.

Tunisia is a case in point. Already in 2011, the country’s leading Islamic party, Ennahda, featured numerous women candidates in the election, and following a political crisis last year it negotiated a peaceful handover to a caretaker government that led the country to yesterday’s election.

Tunisia’s new leading political force, Nidaa Tounes, may have gained as many as 80 seats in the 217-seat parliament. It describes itself as a ‘modernist’ party. It unites secular politicians of various stripes, including labor union members, or former officials of the regime of president Zine el-Abidine Ben Ali. The leader of the party, the 87-year old Beji Caid el-Sebsi (who served as interim prime minister in 2011) had a long political career prior to the revolution, including an ambassadorship in Berlin after Ben Ali’s ascent to power.

2. Don’t expect radical economic reforms.

For those who feared that democratization in the MENA region could bring about theocracy and extremism, the status-quo nature of Nidaa Tounes is probably good news. At the same time, however, it seems unlikely that the party, whose sympathizers largely overlap with those of the country’s influential labor unions, will bring about the deep institutional and economic changes that Tunisia needs in order to extend access to economic opportunity to ordinary Tunisians by dismantling Byzantine red tape and corruption and freeing up its economy.

For example, while it is certainly praiseworthy that the party has promised to improve the economic situation of women, one should worry that it plans to do so by what are likely to be popular yet ineffective measures: creating a new government bureau fighting discrimination, investing in social housing for young female workers, and extending statutory maternity leave.

More importantly, in many areas the exact economic platform of Nidaa Tounes remains blurry. The party promises to foster consensus among the government, civil society, labor unions, and employers. It also promised to cut public spending – in part by reforming the system of fuel subsidies – increase industrial exports and promote industries with high value added, most notably hi-tech and renewable energy, and to subsidize economic development in poorer regions by an amount of 50 billion dinars ($28 billion) over the next five years, 30 billion of which would be coming from the public budget.

Heavy on clichés and light on specifics, these promises are reminiscent of electoral manifestos of social democratic parties of Europe. Regardless of whether that would be a good thing under normal circumstances, what Tunisia needs now is a bold agenda of economic liberalization, as well as a Leszek Balcerowicz-like figure to implement it. With a mushy economic program and Mahmoud Ben Romdhane – former deputy head of Tunisia’s ex-communist party, Ettajdid –as the key economic policy figure on the party, Nidaa Tounes offers neither.

Fragility of Tunisia’s Transition

The upcoming parliamentary election in Tunisia comes at a critical time. For a while, Tunisia was seen as a poster child for a successful transition away from authoritarianism. In Egypt, a widespread disappointment with an Islamic government resulted in a military coup last year. In contrast, when Tunisia could not get through a political impasse, the Islamic Ennahda party negotiated a handover to a caretaker government earlier this year, which has led the country to an early election.

Regardless of whether Ennahda can repeat its electoral success from three years ago or whether secular forces take over, the new Tunisian government will be in an unenviable position: it will have to address a growing security crisis in the country. In the past two years, the country has seen the emergence of political violence and terrorism perpetrated mostly by radical Salafist groups. Those violent efforts include the killings of two opposition politicians, Chokri Belaid and Mohammed Brahmi, as well as a car bomb plot foiled just last week.

Tunisia has also become a fertile ground for the recruitment of fighters of the Islamic State (ISIS). Some estimate that over 2,400 ISIS fighters are from Tunisia, which would make Tunisians the most numerous nationality fighting for ISIS. Restoring basic security, order, and rule of law—and preventing the country from descending into a full-fledged internal conflict—will have to be a priority for the new government.

The political violence may have multiple roots, but Tunisia’s poor economic performance is clearly one of them. In recent years, many strikes and protests over economic conditions have taken a violent turn and led to attacks on local police stations, for example.

While the West is confronted with problems posed by aging populations, Tunisia, like other countries in the region, faces the challenge (and opportunity) of harnessing the economic potential of an extremely young workforce. Practically half of Tunisians are under the age of 30, and many of them are struggling. Although unemployment is slowly falling, the unemployment rate among university-educated young Tunisians is over 30 percent, making their situation precarious.

Egypt: It’s the Economy, Stupid

As Egypt descends into violence, it is worth remembering that the origins of its current predicament are largely economic. The events of Arab Spring were as much about access to economic opportunity as they were about democratic governance. After all, Mohamed Bouazizi, the Tunisian fruit vendor whose death triggered the mass protests in the region, self-immolated after being constantly harassed, fined, and mistreated by police and local authorities, unable to find other source of employment than selling produce.

In Egypt, the popular support for last week’s military coup is related to the disenchantment with the previous government dominated by the Muslim Brotherhood’s Freedom and Justice Party, which failed to even begin to address the country’s economic problems: unsustainable public finances, rural poverty, and youth unemployment.

In June, the country’s foreign exchange reserves fell by $1.12 billion to $14.92 billion. The outflow is driven by the imports of subsidized commodities, most notably fuels. To avert insolvency, the government will have to put in place a credible reform program that will phase out subsidies – or perhaps replace them with a less wasteful and more targeted social assistance program. Subsidy reforms are tricky, both technically and politically, and the present political environment will make them more, not less, difficult.

The current political uncertainty also adds to a long list of institutional deficiencies that make Egypt a tough place to do business. Many of these can be addressed aggressive reforms expanding economic freedom. Many low- and mid-income countries, including Rwanda, Botswana, Mauritius, or Thailand, have made rapid progress in cutting red tape and scrapping unnecessary regulation, with remarkable economic results. Can Egyptians generals follow their example?

The future of Egypt hinges on whether its new leadership – regardless of whether it is chosen democratically or not – will be able to make rapid and sustainable progress in reducing public debt, restoring the rule of law, and improving the business environment. While one hopes for the best, there are reasons to be wary – not only are the country’s economic problems growing more severe every day, but also the divisive authoritarian politics and the rise of violence are hardly conducive to clear-headed economic reforms.

Doing Business Under Attack

The Doing Business project is among the World Bank’s most useful activities – both for scholars and, more importantly, for policymakers who are interested in pursuing pro-market reforms. It is disheartening to see that the review of the project, initiated last year by the Bank’s President Jim Yong Kim, has been hijacked by groups like Oxfam, Christian Aid or CAFOD, which are trying to erode the project’s analytical sharpness and destroy its role as a focal point for economic reformers in low- and mid-income countries. Perhaps they would like to see it scrapped altogether.

Marian Tupy and I are discussing the controversy, and offering arguments in favor of the Doing Business project in our article at Foreign Policy. Bottom line:

It is true that Doing Business is not an ideal metric of business environment: Nothing is. Yet over the past decade the survey has proven an extremely useful tool both for scholars and businesspeople who want to compare the ease of actually conducting business in different countries, and for policymakers trying to foster the development of the private sector. Unless someone comes up with a better alternative, discarding or watering down this metric is likely to lead to less well-informed choices about policy.

We may disagree about the relative importance of a good business environment for poor countries. Yet few would suggest that it should be simply ignored. It’s difficult to avoid the impression that Doing Business is currently coming under attack by groups with ulterior motives, groups who are inimical to a pro-market and pro-growth policy agenda. Given the extraordinary economic and human progress achieved in the last few decades through deliberate improvements to business environment, one hopes that the Doing Business project remains central to the World Bank’s portfolio of activities.