Julia Tran

Rating Ease of Business and Economic Freedom in 2006

September is an exciting month for country ranking enthusiasts. World Bank’s 2007 Doing Business Report, and Cato/Fraser Institute’s 2006 Economic Freedom Report were released back-to-back, Sep 6 and Sep 7, respectively, begging for some compare-and-contract action. First, what are the purposes of these rankings?

Doing Business 2007It seems the DB rankings are more like athlete rankings more than anything?they serve as benchmarks for comparison and goals for improvement. Every year, policymakers look at the Doing Business rankings and set about to advance their position compared with the other 175 countries in the running. Mauritius, for example, aims to make the top-10 list in Doing Business by 2009. Doing Business measures 10 aspects of the business environment, oftentimes in terms of how many steps and how much time are involved in completing each of the following processes: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.

Continue reading past the break for my comparative analysis of countries from both reports.

The purpose of the Economic Freedom report is as much to spur on national policymakers as to reform today’s predominating ideology underpinning aid policy. The report’s introductory text is a primer on the strengths of libertarianism as a foundation for economic development policy. The meatiest chapter is an essay by William Easterly focused on flaying into Jeffery Sachs? arguments in his book, The End of Poverty, the United Nation’s MDGs, and other rising arguments for ?collectivist? policies?that is, attempts by ?international experts [to] devise the collective solution to [the poor?s] miseries? rather than creating the most conducive formal sector business environments for individuals to engage in economic activities as they see best.

Data in this report go toward showing that more economic freedom correlates with markers of prosperity?economic growth, income per-capita, life expectancy, etc. The report examines 5 facets of ?economic freedom?: size of government; legal structure and security of property rights; access to sound money; freedom to trade internationally; regulation of credit, labor, and business.

Basically, both reports urge policymakers to streamline economic policy and business regulations so that people have to jump through fewer hoops to establish businesses and work within the formal sector. Ideological wrangling aside, such a policy recommendation would benefit businesses of all sizes and market focus, including many of the BOP businesses profiled on NextBillion. So how are national economic policies lining up this year?

Restricting our focus to the common set of 29 low-income countries covered by both reports, among this set’s top 10 are 4 double-cited countries: Kenya, Ghana, Zambia, and Uganda. These four countries earned surprisingly high rankings in both reports compared to higher income countries. Out of Doing Business? 175 countries, Kenya ranked 83; Ghana, 94; Zambia, 102; and Uganda, 107, all ahead of Venezuela, Greece, Brazil and Indonesia. Out of Economic Freedom’s 10-point scale, Zambia earned 6.7; Kenya and Uganda, 6.4; and Ghana 6.3, all ahead of Brazil, Venezuela, Indonesia, and Turkey.

These four countries may be particularly ripe for BOP businesses. Compared with higher income countries, they may lack critical business enabling factors that are not captured by either ranking method, e.g., better infrastructure, shorter distances to international market centers, but local businesses with innovative models to serve local communities would be able to take advantage of internal country policies that are relatively supportive of entrepreneurship.