The World Bank Group forms a detailed report concerning the registration procedures of each country, thereby effectively mapping the processes involved in “Starting a Business” indicator.
Therefore, an extensive study is conducted on each country’s registration process, in order to get an idea of the steps that are required to get an enterprise officially registered with the concerned Government authority.
The idea behind this project is to encourage businesses in developing economies to officially register themselves with their respective Governments.The enterprises are able to identify the benefit of officially registering themselves based on the subsidies being provided by respective Governments, the aim of this attempt is also to reduce the operation of black economies.
Consequently, this will improve each countries’ GDP through the recording of previously unrecorded economic activities, with an additional benefit for the Governments’ in the form of increased taxable economic activities.
Therefore, information concerning this indicator is collected on a sequential basis, giving priority to procedures that need to completed first in line, along with paying careful attention to detail of whether certain procedures can be carried out simultaneously.
Ultimately, the focus is on mapping down the registration processes and identifying whether improvements can be made in these processes to help entrepreneurs register with the governments without significant delays and problems. This will ideally attract entrepreneurs to register themselves to avoid legal action and tax evasions on the basis of the unrecorded economic activity.
The World Bank Group’s Doing Business is operational in 189 economies,therefore, to make the data comparable across economies, the Group makes use of several assumptions about the business and the operating procedures which are as follows:
➢The business is a limited liability company.
➢The business needs to be operating in the country’s largest business city. In the case of 11 economies having a population higher than 100 million in their second largest business city, the data for the second largest business city is also collected.
➢The business needs to be owned domestically, having five owners with a start-up capital of 10 times income per capita.
➢The business performs its economic activity in a general industry or a commercial sector, such as the production or sale of products or services to the general public.
➢The business leases the commercial plant or offices, but is not an actual proprietor of real estate.
➢The business should not qualify for investment incentives or other special benefits.
➢The business should have a minimum of 10 and a maximum of 50 employees one month after its commencement, with a condition that all the employees need to be the nationals of the same country.
➢The business needs to have a turnover of at least 100 times income per capita, in addition to having a 10 pages long company deed.
Based on these basic assumptions, the World Bank Group measures the performance of each economy in three distinct categories which are listed below:
This category revolves around the interaction an enterprise has with external authorities. According to the World Bank’s methodology, one interaction is counted as one day, as a result, if an enterprise has to interact with a specific authority thrice while being in the registration phase, each interaction will be considered as a separate procedure.
This category focuses on identifying the duration for incorporating an enterprise, including all the time involved in each registration process. As a rule of thumb, it is assumed that it requires one day to complete each procedure, with an exception for procedures that can be fully completed online, for which the required time is half a day. Once the final incorporation document is received by the enterprise, only then the registration process is considered complete.
This category tends to include all the official fees involved in the registration process, giving the owners an idea of the exact amount required to commence the business.
Currently, Pakistan is ranked 122nd out of 189 economies in ‘Starting a Business’ indicator, with a distance to frontier score of 80.94 out of 100.
Distance to frontier score measures the distance of an economy to the frontier, which is represented by the best performing economy on a specific indicator, giving an opportunity to compare all the economies involved in this project.
Based on the World Bank Group’s study, the number of days required for an enterprise to register in Pakistan is approximately 19 working days, with 10 separate registration procedures. In contrast, the best performing economy in this indicator is New Zeal and, which has a DTF score of 99.96. Moreover, New Zeal and only has 1 registration procedure and it takes approximately 0.5 days to register an enterprise with the government.
Upon comparing Pakistan’s current performance with neighbouring countries’, it can be seen that Pakistan is performing better than India (155) and China (136) for this indicator, whereas economies’ like Bangladesh (117) and Iran (87) are ranked higher based on their respective scores.
In lieu of the current performance, a recent effort has been made by the Government of Punjab in collaboration with the World Bank Group to improve its ranking in this indicator to attract foreign direct investment, domestic investment and develop women entrepreneurship under the “Punjab Investment Climate Project”. This endeavor will prove to be extremely beneficial in the long run as more enterprises will be attracted to register with the Government for China Pakistan Economic Corridor.
About the Contributor:
Khurram Razi Khan is a Business Report Analyst at Perspective and an MSc Student at University College London,UK.Hes also engaged with Research Projects at Ernest&Young.