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Governance

World Business Council for

Sustainable Development

Geneva, September 2007

Doing Business with the World - The new role of corporate leadership in global development

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The global view: Economic freedom

Assessing governance

Measuring rule of law

Overview

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The global view:Economic freedom

Economic Freedom vs. Per Capita GDP

“There is a clear relationship between economic freedom and numerous other cross-country variables, the most prominent being the strong relationship between the level of freedom and the level of prosperity in a given country.”

-2007 Index of Economic Freedom The Heritage Foundation/Wall Street Journal

In the 2007 Index of Economic Freedom, 157 countries are measured across 10 specific factors of economic freedom.

Source: 2007 Index of Economic Freedom, at:http://www.heritage.org/research/features/index/chapters/htm/index2007_execsum.cfm , (accessed 2 August 2007)

There is a strong relationship between

economic freedom and per capita GDP.

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Assessing governance

The World Bank identified six

criteria for assessing

governance

World Bank. “Governance Matters 2007” http://govindicators.org (27July 2007)

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Measuring rule of law today

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Lack of respect for the rule of law deters local entrepreneurship and

foreign investment.

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Running a business – from beginning to

end

Tax compliance

Correlation between corruption and doing

business

Where are the challenges?

Needs &Challenges

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Running a business – from beginning to end

Every country needs effective procedures for closing a failed business

or saving a viable one that is experiencing temporary problems.

-World Bank Doing Business in 2006.

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Number of days to start a business

Source: World Bank. Doing Business in 2006: Creating Jobshttp://www.doingbusiness.org/documents/DoingBusines2006_fullreport.pdf

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Tax compliance

Tax evasion is a

national sport in Bolivia.. -José, businessman in La Paz

(Quote from Doing Business 2007)

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Taxes in Bolivia= 80% of company profits

= 189 days

= 41 payments/yearSource: World Bank. Doing Business in 2007: How to Reform.http://doingbusiness.org/documents/DoingBusiness2007_FullReport.pdf

Source: World Bank. Doing Business in 2007: How to Reform.http://doingbusiness.org/documents/DoingBusiness2007_FullReport.pdf

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Correlation between corruption and doing business

As the number of business procedures increases, so does the hassle and corruption. Each additional procedure represents another possible bribe. The cost is the forgone jobs that new firms would have created.1

Source: World Bank. Data were taken from the World Bank’s 2006 “Doing Business” database and Transparency International’s Corruption Perception Index for 2006 . http://psdblog.worldbank.org/psdblog/2006/11/corruption_rank.html (24 August 2007)

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What are the challenges?

Lack of political will Governance goes hand-in-hand with

providing basic services Both legislative and procedural

challenges Socio-cultural issues

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How can business contribute?

Reforming business start-up: what are

the implications?

Key messages

Opportunities

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How can business contribute?

Engage with developing country governments, local companies and communities to actively participate in shaping framework conditions

Provide information technology to automate many administrative procedures performed by government

Train and assist small and medium enterprises in developing countries

Establish and participate in business-led forums to provide a voice in local affairs

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Reforming business start-up: focus on El Salvador

Source: World Bank. Doing Business in 2007: How to Reform.http://www.doingbusiness.org/documents/DoingBusiness2007_FullReport.pdf

With no changes to the law, El Salvador cut the number of days required to register a business from 115 days to 26 days in two years.

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Key messages

For business, investing time and resources in good governance can:

Lead to improved framework conditions

Create greater transparency

Facilitate opportunities to engage with developing country governments

Enable business to root out corrupt practices, thereby making conduct of business easier

Give rise to more stable operating environments

For governments, an effective policy framework to improve governance can:

Create optimum enabling conditions for improved economic and human development and growth

Facilitate improved conditions for the development of a market-based economy

Lead to increased respect for rule of law and help root out corruption

Reduce the prevalence of informal economic activity

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