France angered by World Bank rankings

by Simon Pirani

France, ranked just behind Jamaica at 44th on the index, is furious. Finance Minister Thierry Breton is to discuss the issue with Wolfowitz this weekend.

Prime Minister Ivo Sanader of Croatia, which is stuck at 118th behind Vietnam (99th), Belarus (106th) and Iraq (114th), has publicly criticised the index.

Pierre Duquesne, World Bank Executive Director for France, told Emerging Markets: “It was wrong to compile the rankings in this way, and wrong to publish them.”

Some Bank officials and staff are angry that the rankings were published, despite a consensus on the Board of Directors that they should not be.

The controversial index is based on Doing Business 2006, the third annual report compiled by World Bank and IFC staff to monitor regulatory regimes.

The report considers the regulatory environment from legal, tax and accounting angles, but excludes such factors as macroeconomics, crime and corruption, and the relative size of markets.

The 2004 report rated countries on the ease of starting and closing businesses, hiring and firing workers, getting credit and enforcing contracts. This year’s added discussions of licensing, investor protection and property registration rules. The 2006 report, published this month, also covered tax and cross-border trade issues.

Duquesne argues that, although a formal bias towards common law systems has been removed, the report’s philosophy continues to treat civil law as a cause of underdevelopment. “That’s why, in terms of creditors’ rights, Nigeria is above France,” he said.

Bank sources said that France’s disappointing ranking was affected by the assessment in Doing Business of labour market rigidities, and the complexity of property registration procedures, as well as the creditors’ rights issue.

Caralee McLiesh, World Bank senior economist and co-manager for the Doing Business report, told Emerging Markets that the Bank had found that it was “better able to encourage reform” by using quantitative indicators and benchmarks. The publicity generated by the Doing Business index had been “positive and effective”.

Other Bank sources believe the report was more useful without the rankings. One said: “The problem is that the composite rankings, which are produced by simply adding up the scores achieved on the ten areas monitored, really don’t mean very much. In previous years we have presented information on which quintiles countries fall into, and discussed that information with government. What was the point of releasing the rankings except to grab some headlines?”

Some staff wonder whether the provocative publication of the report is an indication of how management style at the Bank is changing under Wolfowitz.

Other Bank officials have had to debate publicly with political leaders who have complained about the index. Croatian Finance Minister Ivan Suker formally expressed “surprise and disappointment” – to which Shigeo Katsu, Bank Vice-President for Europe and Central Asia, admitted that the rankings, while providing “a useful snapshot of performance”, had “serious limitations”.

Some actions taken after the cut-off point for the survey were not captured in the methodology, Katsu said.

French and Croatian politicians are not the only ones who have complained. It is understood that Russian economy minister German Gref queried his country’s ranking – 79th, well behind Mongolia (61st), Colombia (66th) and Uganda (72nd). Questions were also asked by economics ministry officials in Greece, placed 80th behind Russia.

Additional reporting by Nick Saywell

Rancorous rankings

The “ease of doing business” rankings list 155 countries. The index is based on each country being given a simple average of country percentile rankings on each of the ten topics covered in the Doing Business report.

New Zealand is 1st, Singapore 2nd, the US 3rd, Canada 4th, and Norway 5th. Australia is 6th, Hong Kong 7th, Denmark 8th, the UK 9th and Japan 10th. Ireland is 11th, Germany 19th, and all those in between are EU states. But Spain is 30th, France 44th and Italy 70th.

Russia is 79th, Greece 80th, China (PRC) is 91st, India 116th and Brazil 119th.

The last 20 places are all filled by African countries, except for Uzbekistan (138th), Egypt (141st), Timor-Leste (142nd) and Laos (147th). The Democratic Republic of Congo is in last place, 155th.

The Doing Business report also focused on perceived best reformers: Serbia & Montenegro is 1st, Georgia 2nd and Eastern Europe and Central Asia the best region. Boldest reforms were picked out as Serbia & Montenegro’s simplification of business start-up, Egypt’s streamlining of customs and Brazil’s improvements in bankruptcy law.

The report is available from www.doingbusiness.org