Effort to Improve Business Regulatory Framework Earns Jamaica Top Marks

Government’s investment in modernising the public sector through a US$28 million loan from the World Bank has reaped success.
Between 1996 and June 2003, five business-related entities were targeted under the Public Sector Modernisation Project (PSMP) to improve business facilitation, which resulted in significant improvements in service delivery.
The entities were Jamaica Customs, Jamaica Promotions Corporation (JAMPRO), National Land Agency, National Environment and Planning Agency (NEPA) and Office of the Registrar of Companies. The improvements led to Jamaica receiving a high rating in the recent World Bank Survey titled, ‘Doing Business in 2004’, which looks at the regulatory framework for businesses in a number of countries worldwide.
Liaison Officer and Economist at the World Bank office in Jamaica, Errol Graham says Jamaica’s positive rating is due largely to the implementation of best practices.
“Jamaica has been benchmarking itself and has adopted best practices in terms of its regulatory framework,” he tells JIS News, noting further, that the report identified the island as among those countries that “have recently modernised many aspects of their business regulation.”
According to the document, Jamaica is among the top 10 out of a total of 130 countries surveyed with a regulatory framework that supports business. Jamaica is the only developing country in the top 10, which includes developed nations such as the United States of America, the United Kingdom, New Zealand, the Netherlands, Canada, Sweden, Denmark, Australia and Singapore.
Mr. Graham points out that though there is a perception of the kind of environment within which one has to do business, the study looked at actual procedures and interviewed persons who were investing in Jamaica, business consultants, businesspersons and specific government agencies that persons have to go through in order to start a business.
“Therefore, the survey abstracted from the perception to the reality about what is involved in the procedure, the length of the procedure and the cost.
The report has put hard data together to make a case on a comparative basis to see whether Jamaica is in fact a difficult place to do business,” he explains.
According to the survey, developing countries tended to regulate business the most and found that “heavier regulation is generally associated with more inefficiency in public institutions, longer delays and higher costs. It further states that, “excessive regulation has a perverse effect on the very people it is meant to protect. The rich and connected may be able to avoid cumbersome rules, or even be protected by them (while) others are the hardest hit.”
“You need a certain level of regulation to protect investors and on the other hand to protect the government and the people from unscrupulous investors,”
Mr Graham points out, adding that the optimum level of regulation was ideal though it was not easily defined. Nonetheless, he notes, “you do not need a high level of regulation that would humbug investors wanting to come to Jamaica”.
The report, he argues, will auger well for Jamaica, as it would assist investors when making a choice on where to go to establish their businesses. “Investors will now have ready information on Jamaica’s regulatory framework and on the relative ease with which they can establish business here,” he says.
Five criteria covering the life cycle of a business were examined in putting together the report. These entail: starting a business, hiring and firing of workers, contract enforcement, access to credit and closing a business.
STARTING A BUSINESS
With regard to starting a business the indicators examined were: the number of procedures that an entrepreneur or investor would have to go through; the duration or number of days it would take to start the business; the cost associated with registering a business and the minimum capital required to start the business.
According to the findings, the number of procedures required to establish a business in Jamaica was about seven compared to an average of 12 for the Latin America and Caribbean region and six for the Organisation for Economic Corporation and Development (OECD), which comprised the developed states.
The duration of time or average number of days it takes to start a business was found to be 31 for Jamaica while the regional average was 74. The OECD registered an average of 30 days.
As it relates to the cost of starting a business, that is, the cost associated with the process of registering a business, Jamaica showed an average of 16.2 per cent of Gross National Income (GNI) per capita, which is estimated to be US$2,800. The regional average was 70.1 per cent and for the OECD it was 61.2 per cent.
Minimum capital required for starting business in Jamaica was zero, that is, there is no statutory minimum capital required for starting a business. For the rest of the region, the minimum capital required was 85.6 per cent of GNI per capita and 61.2 per cent in the OECD.
HIRING AND FIRING
The second area dealt with hiring and firing based on three indices: the flexibility of hiring index, the conditions of employment index and the flexibility of firing index. Each index was assigned a value from 0 to 100, with higher values representing more rigid regulations. Conditions covered by the indices included: availability of part-time and fixed-term contracts, working time requirements, minimum wage laws and minimum condition of employment.
The flexibility of hiring index was 33 for Jamaica, 56 for the region and 49 for OECD countries, while the condition of employment index was 52 for Jamaica, 79 for the region and 58 for developed countries. Jamaica registered a value of 18 for the flexibility of firing index, while the region averaged 48. For the OECD this was 28.
ENFORCING CONTRACTS
Three indicators were used in analysing how countries enforce contracts. These were the number of procedures from the moment the plaintiff files a lawsuit until actual payment and the associated time and legal cost. Indicators with higher values represent greater complexity in enforcing contracts.
In terms of the number of procedures, Jamaica had a value of 14 as compared to 33 for the regional average and 17 for the OECD average. The duration of days to pursue the enforcement of contracts in Jamaica was 202 compared to almost a year or an average of 363 days for the region. The average for developed states was 233 days.
With respect to the cost of enforcing contracts, Jamaica scored above the regional average and considerably higher than the developed states. The enforcement costs relate mainly to the cost of paying lawyers. For Jamaica, enforcement cost was 42.1 per cent of GNI compared to 38 per cent for the region and 7.1 per cent for the OECD.
GETTING CREDIT
Jamaica was shown to have no public credit registry that provided information on the credit history of borrowers. Higher values for indicators in this area showed that the rules were better designed to support credit transactions. In this regard, Jamaica had a value of zero compared to 50 for the regional average and 58 for the OECD. Additionally, the public credit registry coverage, which showed the number of borrowers at 1000 per capita that investors could get credit information on, was 43.2 for the OECD, 53.2 for the region and zero for Jamaica.
Despite this however, Jamaica’s creditor rights index was two compared to one for the region and the OECD. A minimum score of zero represent weak creditor rights and a maximum score of four represent strong creditor rights. This means that in Jamaica, creditors can enforce their rights in the courts.
CLOSING A BUSINESS
According to the study, Jamaica stands out in terms of the time it takes to wind up a business. This was shown to be 1.1 years compared to 2.7 years for the regional average and an average of 1.8 years in developed states.
However, with regard to the cost of closing business, Jamaica was slightly above the regional average and way above the average for the OECD. In Jamaica, closing cost was estimated at 18 per cent of the value of the estate, while for the region this was 15 per cent and 7 per cent for the OECD.
According to Mr. Graham ‘Doing Business in 2004’ is the first of such reports that the World Bank will be publishing on an annual basis.
The study is aimed at advancing the World Bank private sector development agenda by motivating reform through country benchmarking; informing the designs for reforms and enriching the international initiative on development effectiveness, such that countries which have the institutional framework to make effective use of aid, will most likely receive more aid.
‘Doing Business in 2005’ is expected to look at how Governments protect property rights, while ‘Doing Business in 2006’ will look at the impact of crime and violence on investment.