DOING BUSINESS 2017 SERBIA S RESULTS TO DATE And looking ahead to Doing Business 2018 Why does Doing Business matter? Doing Business reports assess business environments in 190 economies throughout the world and provide guidelines for improvement. Doing Business indicators do not measure the entire set of conditions for engaging in business in an economy (such as market size, education quality, and purchasing power), but rather focus on those that depend mainly on government policies (regulation quality) and how those policies are implemented (administraton efficiency). Aspects of the business environment measured by Doing Business have a decisive impact on a country s economic development. DB 2016 Rank Average Per Capita GDP in 2014 1 30 $39,814 31 60 $19,036 61 90 $15,621 91 120 $7,407 Serbia $6,190 121 150 $3,484 151-189 $2,705 Progress of an economy in the Doing Business rankings is an indication that its regulations are becoming more business-friendly and are applied more efficiently. This favours economic growth. Progress in the Doing Business rankings encourages foreign investors and, in doing so, promotes foreign investment. In terms of ease of doing business, Serbia is today ranked together with countrie whose per capita GDP was three times as high as Serbia s in 2014. Sustainable competitiveness in ease of doing business will contribute to growth of Serbia s per capita GDP, bringing the country closer to the ranks of developed economies.
Serbia s rankings in the Doing Business report From 2008, when Serbia first appeared on the list, to 2014, the country made progress one year only to see it reversed the next, with its rankings ranging from 86th to 93rd out of a total of about 190 economies covered by the report. The middle of the list, however, is in this case not the best place to be. Serbia has now for the first time seen continued growth, for no fewer than three years in a row (2015, 2016, and 2017), with cumulative progress amounting to 46 places in the rankings: from 93rd place in the 2014 report to 47th in the latest edition. In the 2017 report Serbia rose by 12 places, from 59th to 47th place. The country made the most progress in dealing with construction permits, leaping from 139th in the rankings to 36th place. Thanks to this advance, and progress in the areas of starting a business and registering property, Serbia is one of the top 10 best performing economies globally.
In a regional context, Serbia, ranked 93rd, was the second most poorly placed country in the region as late as 2014, with only Bosnia-Herzegovina lagging behind in the rankings (at 131). Today, Serbia (in 47th place) has emerged ahead of Montenegro (51) and Albania (58), still leads Bosnia- Herzegovina (81), but trails Croatia (43), Slovenia (32), and Macedonia (10). Serbia is ranked best for trading across borders (23), dealing with construction permits (36) and getting credit (44), and fares worst in terms of getting electricity (92), paying taxes (78), and protecting minority investors (70). Ranking DTF Indicator No. Rank DTF No. 1 23 Trading across borders 96.64 1 2 36 Dealing with construction permits 76.30 3 3 44 Getting credit 65.00 7 4 47 Resolving insolvency 59.66 9 5 47 Starting a business 91.67 2 6 56 Registering property 71.31 5 7 61 Enforcing contracts 61.41 8 8 70 Protecting minority investors 56.67 10 9 78 Paying taxes 74.36 4 10 92 Getting electricity 69.93 6
Rankings by an area (indicator) do not matter for the overall ranking! The lag behind the top performer in an area does. That lag behind a top performer in an area is called Distance to Frontier (DTF). Overall ranking of a country is calculated as an average of the DTFs for individual areas. For example, on the Starting a business indicator, Serbia is ranked 47 th, but our lag behind the top performer is mere 8.5 points. On the other hand, in terms of the Resolving insolvency, Serbia is also ranked 47, but the DTF is much larger more than 40 points. DTF tells us in which areas our businesses in Serbia have worse environment than those operating in the best practice countries. We have closed the gap most in the area of Trading across borders (DTF of 3.5 points), Starting a business (8.5) and Dealing with construction permits (DTF 24). We lag most in the areas of Protecting minority investors (43.5 points behind the best performer), Resolving insolvency (DTF 40.5) and Enforcing contracts (38.5 points). These are the areas where our possibilities to improve performance and overall ranking are biggest. All categories in which DTF is under our average (72.29) are deterirating our overall ranking. How did we get here? The Government of Serbia began a systematic effort to address the ranking of Serbia in the World Bank s Doing Business report in 2014, when the Joint Working Group was established to define concrete measures to improve the country s position in these global ease of doing business rankings. This group is headed by the Deputy Prime Minister and Minister of Construction, Transportation, and Infrastructure, professor dr Zorana Mihajlović. The group now consists of an additional 15 members, including cabinet ministers, businesspeople, and experts. The core of the group is made up of the National Public Policy Secretariat, NALED, the Office of the Deputy Prime Minister, and the USAID Business Enabling Project. The group defined a formal Programme to Improve Rankings of the Republic of Serbia in the World Bank s Doing Business List, covering a period from 2015 to 2017, together with an Action Plan for its implementation that is subject to regular monitoring.
How reforms translate into investment, and investment into growth: The case of construction permitting Serbia used to trail the world in construction permitting, as evidenced by the 2013 and 2014 Doing Business reports: the country was ranked 182nd and 186th, respectively, in editions for these two years. Amendments to the Law on Planning and Construction were drafted over the couse of this period and enacted in December 2014, entering into partial effect in January 2015. March 2015 saw the launch of consolidated procedure (one-stop-shops), and in January 2016 an e-permitting system came on-line. As a result of these reforms, the number of construction permits issued rose substantially as early as 2015: from the introduction of one-stop-shops (on 1 March 2015) to the end of the year, the number of building permits increased by 33 percent relative to the preceding year. This had a knock-on effect on growth, with the construction industry expanding by as much as 20.5 percent in 2015, with overall GDP growth standing at 0.8 percent. The upward trend continued into 2016. Official statistics have been released covering the year to August, and show that the number of permits issued has risen by 15 percent relative to the same period in 2015. With 1.301 permits issued, July 2016 holds the record for any single month for at least the past ten years. The forecast value of construction works has seen an even steeper increase, rising by 16.5 percent in relation to the same period in 2015, indicating that the construction industry s strong upward trend is set to continue.
Construction permitting reforms and effects: Doing Business rank and number of issued permits Therefore, the first step was the legislation reform, followed by amendments to by-laws, an increase in the number of construction permits and investments, and finally we saw progress in the Doing Business list: a respectable rise by 37 positions in October last year, and even 103-position advancement in the latest report.
The practical effects of construction permitting reform According to the World Bank s Doing Business analysis, the number of days needed to obtain a construction permit, including the entire period from the initial idea to registering property ownership, has been reduced from 272 to 156 days. This means 116-day time saving. In practice, bearing in mind that in 2015 only there was a total of 10,438 issued construction permits, this means that we saved 1,210,808 days to investors, large or small, domestic or foreign. This is the number of additional days to live in their houses or do business, employ people and pay taxes, instead of roaming around the counters and waiting for permits. Has this been achieved at the expense of good control? No. In line with the best practices identified by the World Bank, we introduced additional control in the construction permitting process, primarily by licensed engineers. As a result, out of a maximum 15 points allocated for the quality of control in construction, Serbia received even 13. This is an extraordinary result, equal to that of Austria and better than Belgium, the countries we now compare ourselves with. Therefore, if it takes much shorter time to obtain a permit, and the level of process control is equal to best international practices, it must be much more expensive than before? No. Doing Business report indicated the fact that administrative costs of construction for an average projects have been reduced from 3.6% of object value in the last year s report to 3.2% in the latest ranking. This, seemingly modest difference of 0.4% of object value in practice means a saving of more than 130,000 RSD for the investors, per single project. This saving results from the reduction of administrative expenses only. We abolished the land development fee for infrastructure, production and similar facilities back in December 2014. The generated savings for investors on this ground are much higher. If the expenses paid by businesses are lower, this also means a reduction in local government revenues, which are largely financed from construction-related fees? No. Let us remind that there were 36% more permits issued in 2015 than in 2014, while the number of permits in the first eight months of 2016 was 15% higher than in the same period in 2015. Owing to increased volume of investments and reduced scope of illegal construction resulting from simpler, faster and cheaper procedures, the local government revenues have increased, even though the burden for individual investors is lower. The local government revenues generated by land development contribution/fee were approximately 3% higher in 2015 than in 2014, while being even 18% higher the first six months of 2016 than in the first half of 2015. The revenues arising from land development contribution are of key importance for the development of our cities and municipalities, as they represent the main sources of funding the construction of local and regional roads, kindergartens, water supply system, sewerage networks etc. The fact that the estimated value of construction works in the first eight months of 2016 was 16.5% higher than in the same period in 2015, indicates that the construction industry will keep acting as the driver of Serbia s economic recovery and a significant source of revenues for infrastructure equipment of our cities and municipalities in the upcoming period.
After the celebration how to move forward (and avoid declines) The closer we get to the top, it gets more crowded and air geta thinner, thus making it more difficult to further grow. The experience has taught us that numerous implemented reforms often draw measures which result in more complicated procedures and additional expenses for businesses. The largest room for improvement is seen in the areas where we are most lagging behind. In terms of ranking, these are the following indicators: Protecting minority shareholders, Paying taxes and Getting electricity; while in terms of Distance to Frontier (DTF), the list of categories should also include Resolving insolvency and Getting credit. Opportunities for advancement Starting a business: Introduce electronic registration in Business Register Agency, simplify the procedure of opening a bank account, abolish the obligation of creating a seal, introduce electronic payments. Dealing with construction permits: Link the e-permitting system with public notaries, Tax Administration and the Cadaster; harmonize regulations on environment protection and other sectorial laws with the Law on Planning and Construction; enable more efficient work of public enterprises in issuing the conditions for the design and connections, and align their fees with the actual cost. Amendments to the Law on Republic Administrative Fees reducing the expenses for obtaining use permit. Getting electricity: Reduce the costs and deadlines for getting electricity connection and eliminate the overlapping procedures. Registering property: establishing the e-cadaster which is updated in real time, possibly with greater reliance on the role of public notaries. Getting credit: Priority for improvement is the expansion of scope of credit bureau information (including the data towards utility service providers and mobile operators), and establishing a comprehensive legal framework related to pledge. Risks of decline Introducing mandatory membership fee in Serbian Chamber of Commerce (12 new payments, thus a 36% increase from the current 33, and costs increased by 240,000 RSD). The new Law on Enforcement and Security introduces the system of legal remedies which can lead to delays and extension of procedures. Protecting minority shareholders: Improve transparency of information in the trade of securities, as well as transparency and availability of information about joint stock comanies management bodies, managing the owners rights. Paying taxes: Enable electronic filing of property tax reports and define the conditions for onetime payment of this tax, in order to reduce the number of payments and the time needed for payment; eliminate the fee for environment protection and promotion, through adoption of the Law on Fees for Public Goods; integrate local utility fees into other LG revenues. Trading across borders: Efficient implementation of NCTS (new customs transit system) by Customs Administration. Introduce electronic customs clearance system.
Enforcing contracts: Improve the judicial network infrastructure, monitor compliance with prescribed deadlines and eliminate the room for process abuses. Resolving insolvency: Provide stronger powers to creditors in selecting a bankruptcy trustee (at the beginning of insolvency procedure), and introduce higher transparency of information on insolvency procedures among all stakeholders.