Dealing with Construction Permits

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1 2016/SOM1/EC/WKSP2/010 Session 3.4 Dealing with Construction Permits Submitted by: US-ATAARI Ease of Doing Business Workshop: One-Stop Shops to Improve the Business Environment Lima, Peru February 2016

2 APEC 2016 Ease of Doing Business Workshop One-Stop Shops: Dealing with Construction Permits February 26, 2016 Olin McGill US-ATAARI A joint project of the U.S. Agency for International Development, the U.S. Department of State, and Asia-Pacific Economic Cooperation. Overview I. Economic Impacts of an OSS for Dealing with Construction Permits (DCP) II. Avoiding the Game of Whack the Mole A. OSS must be deployed for all 3 DCP Phases -- approval, construction, final inspection/connections B. Eliminate location conditions C. Merge zoning and construction approvals for lowrisk projects D. Streamline final inspections 1

3 OSS Promotes Ruthless Transactional Efficiency: Lejava s First Law: Government should never ask a citizen or business for info it already has Corruption is a technical issue: Every interaction between business and government is an opportunity for corruption. Eliminate every interaction we can. Vakhtang Lejava Former Chief Adviser to the Prime Minister Government of Georgia Simplicity is Power: Streamline and automate everything. (Control and compliance will both increase.) More Efficiency Like Gas on A Fire: Whenever government makes a regulated transaction easier, faster, and cheaper, more businesses do it. Transaction volumes and values increase (along with State revenues). Increasing efficiency is like pouring gas on a fire. Businesses are bursting to succeed. Give them a chance. 2

4 Serbia OSS Impacts In Recent Quarters: New permits issued up 33 % over previous 5-year average Declared value of new projects up 84 % Construction jobs up 2.4 % Hours worked up 3.3 % Construction contribution to GDP up 18.3% (Next slide shows what really happened in December ) -- National Bank of Serbia 1,200 1, Serbia Permits Soar After OSS Opens Permits Issued Up 36 % OSS Opens 1 March 2015 Two Best Years After Big Reforms

5 No More Need to Prod, Poke, and Plead with Agencies Malaysia OSS Slashes Builder s Costs 90+ % Personnel Before After Value OSS OSS Saved % Saved Project Manager $1,709 $0 $1, % Engineer $3,056 $170 $2, % Technical Assistant $1,537 $430 $1, % Draftsmen $1,366 $0 $1, % Admin Clerk $98 $0 $ % Totals $7,765 $600 $7, % 7 Malaysian Builders Now Just Deal with OSS PEMUDAH KWPKB KKR 4

6 Thousands Georgia lending soared with DCP rank 152 to 7 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep ,161 Lari 101,882 Lari 95,814 Lari 113,102 Lari 122,317 Lari 128,354 Lari 138,337 Lari 146,628 Lari 156,758 Lari 163,028 Lari 175,162 Lari 179,584 Lari 18 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A 126,790 Lari 135,374 Lari 157,946 Lari 168,639 Lari 16 #N/A #N/A #N/A 152 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep ,161 Lari 101,882 Lari 95,814 Lari 113,102 Lari 122,317 Lari 128,354 Lari 138,337 Lari 146,628 Lari 156,758 Lari 163,028 Lari 175,162 Lari 179,584 Lari 18 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A 126,790 Lari 135,374 Lari 157,946 Lari 168,639 Lari 16 #N/A #N/A #N/A Construction Loans (in millions of GEL) Oct-05 Nov-05 Jan-05 Dec-05 Jul-05 Jan-06 Jan-06 Feb-06 Jul-06 Mar-06 Jan-07 Apr-06 Jul-07 May-06 Jan-08 Jun-06 Jul-08 Jul-06 Jan-09 Aug-06 Jul-09 Sep-06 Jan-10 Lari 101,882 95,814 Lari 113,102 Lari 122,317 Lari 128,354 Lari 138,337 Lari 146,628 Lari 156,758 Lari 163,028 Lari 175,162 Lari 179,584 99,161 Lari Lari 18 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A 126,790 Lari 135,374 Lari 157,946 Lari 168,639 Lari 16 #N/A #N/A #N/A #N/A #N/A 44.63% 45% 46% 47% 48% 49% 49% 50% 51% 52% 1, Construction Loans (Mln. GEL) Mortgage Lending (in millions of GEL) Mortgage Loans (Mln. GEL) % CAGR % CAGR OSS Brings: Less Time Less Risk Lower Costs More Profits Banks Want to Lend --If It s Safe Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Serbia s OSS Saves Time and Money Inputs for Calculations Values Days saved by reforms 175 Annual construction in 2014 $3,971,273,020 Annual cost of capital (Prime rate) 12% Daily cost (Annual Cost/365 days) % Annual Savings (Annual Value * Daily Cost * Days Saved) $228,484,201 Savings as % of Annual Construction 5.75% Savings as % of Break-even Return 47.9% 5

7 Location Approval Permit Approval During Construction Final Inspection Avoid Playing Whack the Mole with Agencies OSS Must Control All Three Phases: Eliminate Location Conditions Adopt and publish zoning regulations Publish utility maps and requirements Standardize fees Develop a fee calculator for variables 6

8 Merge Zoning and Construction Review Good zoning makes use conditions obvious and easy Low-risk projects don t require special zoning review Reserve option for builder to seek separate zoning review in special cases Handling Inspections: During construction: Don t stop the work! Use risk-based inspections Final inspection: Don t allow individual inspections Form commissions to inspect together Privatize final inspections to qualified engineers 7

9 Feed the Fire! Thank You 8

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