Private Sector


A bad business: Bank divisions on Doing Business revealed

2 October 2013 | Update

Newly emerged internal documents have revealed the World Bank legal unit’s disquiet about the process and findings of the Doing Business report (DBR) over the past three years.  Questioning the rankings’ “manipulation” the unit’s September 2012 internal review of the 2013 DBR  exposed theembedded policy preferences” under some indicators e.g. the ‘starting a business’ indicator, which is based on the limited liability corporate form as a “proxy” for business creation. This approach is “deceptive” according to the legal unit, because there is no evidence that “easing a company formation rules leads to increases in business creation.”

The unit argued that the methodology is flawed, highlighting “black box” data gaps, “cherry picking” of background papers, and double counting of data in indicators. Equally serious was the unit’s accusation of bias:  the 2013 report “tends to ignore the positive effects of regulation”.  These inconsistencies led the legal team to ask: “are high income the Organisation for Economic Co-operation and Development (OECD) countries placed higher in the Doing Business rankings because they have implemented the (types of) reforms advocated by the report?” These concerns are also reflected in the legal unit’s comments on the 2012 and 2011 Doing Business reports, although the 2011 report is credited for suspending the employing workers indicator.

doing business screensBank’s growing business portfolio

"the wrong impression [Doing Business] conveys of being an accurate and comprehensive assessment of the business climate when it is a rather arbitrary selection of proxy indicators on it.”Aldo Caliari, Center of Concern

In its late June report , the independent review panel appointed by Bank president Jim Yong Kim to review the DBR also exposed major methodological flaws in DBR as well as the report’s potential for misinterpretation as a “one-size-fits-all template for development”, leading it to recommend discontinuing the aggregate rankings (see Update 86). However, the Bank continues to back the ratings “as an important catalyst in driving reforms”, with the 2014 DBR due end October.

Kim indicated in a June statement that the Bank’s work on business climate development, including DBR, “is expected to grow”. The Bank’s response to the panel, promised “within a few weeks” of the report, has not yet materialised. DBR has now moved from the International Finance Corporation (IFC, the Bank’s private sector arm) to the Bank’s research department, though questions remain over whether this will be enough to assuage critics. Aldo Caliari of US NGO, Center of Concern said “I will be watching to see whether president Kim takes up the panel’s recommendation to remove the aggregate rankings, which he committed to. This would correct the wrong impression it conveys of being an accurate and comprehensive assessment of the business climate when it is a rather arbitrary selection of proxy indicators on it.”

India : business as usual?

India, rated 132 overall by the 2013 DBR rankings prompting an official protest (see Update 85), has recently endured intense global speculation about its economy (see Observer Autumn 2013). While Bank staff have repeatedly emphasised that the DBR should not be used as a template for reform, Bank official Augusto López-Claros told Indian newspaper SME Times in August that “to attract foreign direct investment (FDI) and in turn, strengthen the dwindling rupee and the economy India needs to enhance its ‘Ease of doing business’ ranking on [an] urgent basis”. In contrast the DBR review panel singled out the Indian government’s support for small and medium enterprises (SMEs) to challenge the rankings’ relevance for individual countries. Despite evidence that SMEs struggle to get credit, Doing Business ranks India 23 in the world for ‘getting credit’. According to the panel, the DBR is therefore “not an accurate instrument for broader policy considerations.”Arun Maira of the Indian Planning Commission and a member of the review panel, challenged the relevance of the rankings, stating in late June that the panel’s conclusions vindicate [the] position taken by India”.