Ease of Doing Business

Ease of doing business is a factor that serves as an indicator of a regulatory conducive environment for doing business. This evaluates the ease of starting and operating a firm in a particular economy. The ease of doing business index measures it.

The score helps in understanding an economy's level of regulatory performance in a period. The business's starting and functioning needs to be smooth, and the economies should ensure that the ecosystem they provide encourages business activities. This is crucial for businesses, policymakers, and investors as it encourages foreign direct investments, encourages entrepreneurship, and induces economic growth and development.

The ease of doing business is an indicator that shows how conducive an economic setup is to establishing, operating, and expanding a business. It helps in understanding the challenges a firm or a business venture faces in the establishment and continuity of business. The main issue that impacts the establishment and sustainability of business is creating a balance between nurturing a business-friendly environment and effective governance.  

There are vital factors that help in gaining balance, such as streamlining the regulatory process, making legal frameworks transparent, having effective compliance systems, investor protection, and responsibilities on social and environmental fronts. 

The ease of doing business scores helps in the evaluation of regulatory performance levels over time. This captures the gaps in each economy through the capture of best regulatory performances observed on all indicators across all economies. The score is marked from a scale of 0-100, where 0 is considered the lowest, and 100 represents the highest or the best performance. 

In comparisons that require long-term observation, the scores are seen to be more accurate in showing the environment of the local entrepreneurs and the change they have experienced in absolute terms. The ease of doing business rankings shows only the change in regulatory environment in relation to other economies. In essence, the evaluation happens through the measurement of distance from the frontier score. The scores are then aggregated to become the ease of doing business index.

Given below are parameters that help assess the World Bank's ease of doing business:

• Registering the property: The parameter measures the time, cost, and procedures involved in the registration of business property. A streamlined property registration process ensures ease of operating a business.
• Construction permits: Evaluate the cost, time, and effort required to obtain necessary permits and approvals. This may be obtained from state, local, or federal governments. This helps in the establishment and operation of the business.
• Electricity access: It deals with obtaining an electricity connection and having access to it at required times.
• Credit access: This parameter examines the rights of borrowers and lenders regarding credit information. This looks into the ease of gaining finance for operation and establishment purposes.
• Payment of taxes: These parameters deal with the amount of tax liability that a business may incur in the due course of its being functional. Avoiding complications in the tax system helps to streamline the process of opening and continuing a business.
• Cross-border trading: These parameters deal with the logistical processes of importing and exporting goods. The processes have to be seamless, and this attracts FDI and domestic investments.
• Protection of minority investors: The issues of undermining the rights of minority investors need to be looked into. It focuses on protecting corporate assets from misuse by directors.
• Enforcing contracts: The focus is on building a contract enforcement regime that is effective, efficient, but also transparent. This looks into solving commercial dispute mechanisms, the quality of the judicial process, and the practices of the courts.
• Insolvency resolution: This parameter checks the dispute resolution mechanisms of resolving insolvencies in process.

As per the latest records as of 2024, the following are the rankings of the top 10 countries.

let us look into a few examples to understand the EoDP concept better

Example #1

Suppose ABC Ltd is a clothing brand that wants to expand outside of the U.S. Since it is looking for a market in central Asia, the company decides to look into the EoDP to identify a suitable location. This would help them analyze the regulatory mechanisms and the environment, infrastructure, and administrative efficiency the countries possess and decide on it.  The rankings are based on comparing different economies and, hence, are a reliable method of assessment.

Example #2

The EODB report, which assesses regulatory environments, business startup ease, infrastructure, and other business climate measures, was scrutinized by law firm WilmerHale, which examined 80,000 documents and conducted extensive interviews. Their investigation revealed that during a critical capital-raising year in 2017, China pressured World Bank leadership, including President Jim Yong Kim and then-Chief Executive Kristalina Georgieva, to adjust China's ranking from a potential drop to 85, maintaining it at 78. Additionally, Saudi Arabia influenced rankings by funding contracts with the World Bank, leading to its position as a top improver in 2020, while last-minute changes to methodology negatively impacted Azerbaijan's score due to the personal biases of World Bank staffers. This episode highlights manipulation in the data underpinning China's investment climate and contrasts it with the integrity of Indian statistics.