Reform drive needed for doing business

The World Bank’s Doing Business index was published last week and showed that Greece had slipped six spots compared to a year earlier, placing 67th out of 190 countries. The report essentially confirms what firms and entrepreneurs operating in Greece know very well, which is that doing business in the country remains full of obstacles and pitfalls.

Ten indicators were tested in order to arrive at the overall score. Greece scored best in trading across borders at 29 out of 190, and worst in registering property with a score of 145. Overall, Greece lost ground in six out of the 10 indicators compared to last year.

Kathimerini English Edition caught up with the man responsible for creating the Doing Business series, Simeon Djankov, to get some more perspective on what Greece’s ranking means for the country.

The first point that the Bulgarian economist made is that the index is constantly evolving and that countries which stand still are almost certain to be overtaken by those which constantly try to improve the business environment.

“There has been a certain complacency in Greece after 2012-2015 when all Southern European countries made significant improvements in Doing Business,” he said “Of the PIGS (Portugal, Italy, Greece and Spain) Italy and Spain have continued to improve business regulation, while Greece has not. The slippage in the rank is likely to continue, as other countries, particularly in Asia, are gaining ground.

“To even maintain ranking, a country needs to keep improving,” stresses Djankov, who is a senior fellow at the Peterson Institute for International Economics in Washington DC.

According to the report, along with Luxembourg (63) and Chile (55), Greece had the lowest rating among developed countries that are members of the Organization for Economic Cooperation and Development (OECD).

Djankov argues that the crisis triggered a reform effort in Greece that produced a dramatic improvement in the country’s ranking, but that as the white heat of the economic difficulties over recent years dissipates, the impetus for making changes that will have a positive impact on entrepreneurship is also fading.

“The financial crisis focused the attention on the difficult environment to do business in Greece and resulted in a slew of improvements that brought Greece’s rank from 122 to 61 in 4 years (2012-2016),” said the former Bulgarian finance minister. “In fact, the main message of this year’s Doing Business report is that most governments only reform during crises. Now that economic conditions are returning to normal after nearly a decade of turmoil, the sense of urgency has disappeared. This is unfortunate as other countries are gaining ground.”

Interestingly, one of the few areas that prompted an improvement in Greece since last year was the creation of the Single Social Security Entity (EFKA), which trimmed the bureaucracy and raised Greece last year to 37th place from 56th in terms of ease of starting a new business.

However, this is contrasted by declines in other areas. For instance, Greece dropped from 52nd place to 76th in terms of securing electricity. It takes Greek companies seven procedures to secure an electricity supply, compared to an average of 4.7 among developed countries.

Securing credit also continues to be a significant challenge for companies operating in Greece, as the country’s ranking fell from 82 last year to 90 this year.

In terms of resolving insolvency, Greece trailed behind other countries in the region with a score of 57. On average, it takes businesses in the country 3.5 years to resolve an insolvency compared to an OECD high-income average of 1.7 years.

“Registering property for commercial use is particularly painful in Greece, relative to any other European country,” said Djankov, who is also a director of the Financial Markets Group at the London School of Economics. “Paying taxes continues to be painful, hence the outflow of newly-registered firms to neighboring Bulgaria.”

Greece’s worst ranking in the index is for registering a property, where it comes 145th. It is in 65th place for the paying taxes category. Companies in Greece currently have to hand over 51.7 percent of their earnings in taxes and social security contributions. The average among developed countries was 40.1 percent, according to the report.

This gives an idea of the array and depth of challenges that Greece has to overcome if it is going to start moving up the index again. Djankov stresses that although the exit from the third adjustment program due next summer will help, Athens cannot expect this alone to transform the business environment.

“A successful exit will give a positive signal to investors,” he said. “But on its own it does not make doing business in Greece more attractive. The government needs to revive the regulatory reform program.”

This year’s score put the country lower than neighboring Albania at 65, Turkey at 60 and Bulgaria at 50. It is often argued in Greece that the country needs to be on a more level footing with its neighbors to have a chance of competing in business. The difference in the corporate tax rate between Greece and Bulgaria, for example, is regularly cited as a factor that deters companies from setting up in Greece or draws Greek firms across the country’s northern border. Bulgaria employs a flat tax of 10 percent, whereas the corporate tax rate in Greece is 29 percent.

However, Djankov believes that Athens has to look further to draw ideas and inspiration for reforms that would improve the framework for business, suggesting that no quick fixes are on offer for Greek politicians.

“Italy and Spain are doing some creative reforms, relying on the use of new technologies in the public administration but also questioning some traditional practices like the use of notaries in various commercial transactions,” he told Kathimerini English Edition. “The [Greek] government may want to consider similar reforms.”

It seems that a renewed reform effort and some original thinking from Greek decision makers will be needed for the country to start climbing up the Doing Business ranking, but also for firms operating or thinking of investing here to feel that they can be rewarded adequately for their efforts.