The red tape that ties down businesses is being modestly pruned around the world. But there is still an awful lot left to cut

THE streets outside are searingly hot, noisy and pot-holed. But Tunde Oyekunle’s air-conditioned office is an oasis of calm. Mr Oyekunle runs a property consultancy in Lagos, Nigeria’s business capital. He is also setting up a company to make window-frames and other fittings. “You’re expected to keep jumping through the obstacle course—and to enjoy it,” he says of the constant frustrations of being an entrepreneur in such a chaotic country.

Nigeria’s population and oil reserves—both, at 150m people and 37 billion barrels, the largest in sub-Saharan Africa—should make it an attractive place to do business. But these advantages are offset by misgovernment, rampant corruption and dismal infrastructure. Each year since 2003 the World Bank has published a “Doing Business” survey of how countries compare on some of the most important factors in opening, running and closing a firm. From a very low base, Nigeria has been among the fastest improvers, and Mr Oyekunle confirms that things have indeed got a bit less terrible. But in the bank’s latest report, out this week, Nigeria slips three places to 137th out of 183 countries surveyed. It stood still over the past year as many other countries, rich and poor, kept reforming.

The report does not try to assess broader questions of governance, such as macroeconomic policy or overall levels of corruption, even though these have a big effect on how easy it is to do business. What it does measure are the petty bureaucracy and onerous rules that can make life a nightmare for firms. But the findings correlate well with those of wider studies of national competitiveness, such as those by the OECD and the World Economic Forum. Familiar names lead the “Doing Business” league: Singapore, Hong Kong, New Zealand. At the bottom are the usual sub-Saharan suspects, plus Venezuela, whose socialist leader, Hugo Chávez, has continued to harry private industry.

Since the World Bank’s studies began, businesspeople globally have experienced a slight loosening of the red tape. The top reformer over the past year was Kazakhstan, which leapt 15 places to 59th after making it quicker and cheaper to start a firm, and simplifying construction permits. But for most businesspeople in most developing countries (and a few rich ones), trying to keep a firm going and provide jobs and economic growth is still a soul-destroying task. The bank notes that whereas the most dynamic and fastest-growing countries continually improve and update their regulatory systems, the poorest ones plod along under business rules dating from the late 19th century. While they do, they will stay poor.

The remaining differences between the most and least efficient countries on each measure are so extreme that there can be no justification for them. In New Zealand it takes one day to create a new company; in Suriname it takes almost two years. The charge for registering a change of property ownership in Syria amounts to more than a quarter of the building’s entire value. Despite Kazakhstan’s other improvements, it still takes ten documents and 81 days to export goods from there, compared with three documents and five days in Estonia.

Mr Oyekunle says he has no problem in principle with having to register his companies, apply for permits and so on. It is just that the rules are executed painfully slowly. Everyone knows that having “an ally in the ministry” can speed things along, he says; it may be that the fees he pays to lawyers to push through his paperwork include backhanders to such “allies”—though he doesn’t ask.

This is a common phenomenon in business-unfriendly countries. In Mexico, the proliferation of trámites, as pettifogging rules and paperwork are collectively known, has spawned a breed of middlemen called tramitadores, who deal with greasy-palmed bureaucrats on behalf of harassed businesspeople. Brazil’s equivalents, despachantes, also get official documents pushed through suspiciously quickly, for a fee. It is an extra cost, but at least it gets things done.

Bonfire of the inanities

In recent years Mexico has staged a bonfire of the trámites. In the bank’s latest report, it has overtaken Colombia to become the most straightforward country in Latin America in which to do business, and the 35th easiest in the world, up from 41st last year. That puts it far ahead of its much-hyped rival, Brazil, which slipped three places to 127th. It has taken a global financial crisis to get some countries to revamp their bankruptcy laws, but Mexico did so ten years ago. As a result, creditors of bust firms there typically get back 67 cents on the dollar, close to the rich-country average. Brazil’s cumbersome insolvency system consumes much of a failed business’s assets in costs, typically leaving just 17 cents on the dollar.

According to Dahlia Khalifa, one of the World Bank report’s authors, an important way in which Mexico and other reformers have cut the burden on business is to shift bureaucratic tasks online. Mexican firms can file their taxes on the web, which is still impossible in most Latin American countries. This, along with a drastic reduction in the number of annual payments needed, has cut the time spent grappling with the taxman by 148 hours per year compared with 2004. In Brazil this still takes an astonishing 2,600 hours (see chart). Beatriz González, who runs Rojo Bistro, a busy French restaurant in Mexico City, confirms that online filing has made her life far easier. Businesses such as hers now make just six payments a year, one of the fewest in the world (in Ukraine, for example, firms must make 135).

India is another country where businesses can increasingly circumvent bothersome bureaucrats by filing their taxes and conducting other official procedures online. The birthplace of the supposedly abolished “Licence Raj” still has a lowly 134th position in the “Doing Business” league, well behind China (79th). But its national average disguises a huge variation between states. Ms Khalifa says that if all the best practices seen in various parts of India were adopted across the whole country, it would leap 55 places in the league. Even India’s poorest state, Bihar, is now making a great play of its efforts to become business-friendly, though its talk is still ahead of reality (see article).

Big regional variations are common in other developing countries. Surveys by Marco Escotto and colleagues at the IPADE Business School in Mexico City have found that the time taken to open a new business varies from six days in Culiacán to more than 60 in Guadalajara. Likewise, Nigeria’s streamlined building code, passed in 2006, has been adopted by some states but others are still dithering.

Wherever the red tape is thickest, the result is widespread informality. Many small firms operate under the radar of officialdom, dodging taxes and ignoring rules to survive. But they have to stay small, and thus contribute much less than they might otherwise do to a country’s prosperity. The bank believes that by making politicians concerned about improving their country’s position in the league, it is slowly helping to make it possible for informal businesses to go legit, thereby giving governments more scope to raise revenues.

The state of Lagos (in which Lagos city is situated) has been improving its tax collection. Mr Oyekunle says this has encouraged formerly chaotic companies to keep proper accounts, which in turn makes it easier for them to do business with each other. The extra tax revenue is being used to improve services such as public transport, which among other benefits makes it a better place to do business.

A good game

The World Bank’s report has spawned a whole industry of academic studies on how its indicators correlate with countries’ social and economic progress. More than 650 have already been published, with a further 2,000 or so still being worked on. So far, this research has found that making it easier and cheaper to start businesses does indeed reduce the informal sector, create jobs, improve productivity and reduce corruption. A study conducted as Mexico rolled out a new online company-registration service found that each city that adopted it typically enjoyed a 5% increase in the total number of registered firms and a 2.8% rise in employment in the types of business affected.

The remarkable leaps that a few countries have made in the league table have led to suspicions that some governments are gaming the system by passing paper reforms designed to bump up their score without making much difference to the ease of doing business in that country. An obvious outlier, for example, would seem to be Saudi Arabia, which is now 11th in the league, ahead even of Japan and Germany. Really? Ms Khalifa insists that the bank is careful to choose areas of regulation that, if reformed, cannot fail to have a positive effect on businesses—so she believes there is little scope for working the system. However, she points out that the study is claiming only that, say, Saudi Arabia is better than Germany and Japan on a range of measures to do with opening, running and closing a firm, and not that it has a better overall economic climate.

Despite such worries, the bank’s report has succeeded in putting the issue of business red tape on the international political agenda. A recent summit of Asia-Pacific countries, which have become the most enthusiastic reformers, agreed on five priority areas, from simplifying business start-up procedures to better enforcement of contracts. Passing such reforms often means overcoming resistance, especially from bureaucrats. But in an era of tight budgets and high unemployment, they make even more sense as a way to create jobs and boost growth while costing governments little or nothing.